## Facts

- A bank provided floor-plan financing to an automobile dealership for inventory vehicles and obtained a security interest in the dealership’s motor-vehicle inventory and proceeds.
- The bank perfected its inventory security interest by filing a UCC-1 financing statement with the Colorado Secretary of State.
- The dealership sold three vehicles to retail consumers but failed to remit proceeds to the bank, selling “out of trust.”
- The bank retained the manufacturers’ certificates of origin for the three vehicles under its lending arrangement.
- A credit union financed the retail buyers’ purchases and later perfected its security interests in the vehicles.
- To allow titling and registration to the retail buyers, the bank delivered the certificates of origin to the credit union under a stipulation for release.
- After registration, the bank demanded return of the certificates, asserting it delivered them only to facilitate registration; the credit union refused, claiming it received them for value.
- The bank sued for conversion and declaratory relief concerning rights and priority in the vehicles and related title documents.
- The trial court granted summary judgment to the bank, concluding the buyers and credit union were not buyers in the ordinary course of business and relying on earlier state precedent.
- The credit union appealed.

## Issues

1. Whether the retail purchasers qualified as buyers in the ordinary course of business under UCC § 9-320(a) and therefore took the vehicles free of the bank’s perfected inventory security interest.
2. Whether the credit union’s perfected security interests, taken from the purchasers, were superior to the bank’s inventory security interest.
3. Whether the bank’s voluntary delivery of the certificates of origin under the stipulation altered the bank’s rights or supported liability for conversion when the credit union retained the documents.

## Decision

- The Colorado Court of Appeals reversed the summary judgment for the bank and remanded.
- The court held the retail purchasers were buyers in the ordinary course of business and took the vehicles free of the bank’s inventory security interest, despite the dealer’s out-of-trust sales and the bank’s retention of certificates of origin.
- Because the purchasers took free of the bank’s lien, the credit union’s security interests derived from the purchasers could not be subordinated to the bank’s inventory claim on the theory used by the trial court.
- The trial court’s reliance on older precedent was rejected as inconsistent with the revised UCC framework governing ordinary-course buyers.
- The bank’s conversion theory was undermined because, after the ordinary-course purchases, the bank could not use control of origin/title documents to reassert an extinguished inventory interest against the purchasers and their lender.

## Legal Principles

- Under UCC § 9-320(a), a buyer in the ordinary course of business takes goods free of a security interest created by the seller, even if the security interest is perfected, so long as the buyer purchases in good faith and without knowledge that the sale violates another’s rights.
- A dealer’s out-of-trust conduct and an inventory lender’s retention of certificates of origin do not, by themselves, prevent retail purchasers from qualifying as buyers in the ordinary course.
- When a buyer takes free of an inventory security interest under § 9-320(a), a lender that later takes and perfects a security interest from that buyer generally receives priority consistent with the buyer’s unencumbered ownership.
- Revised Article 9’s ordinary-course protections control priority disputes between inventory lenders and retail purchasers (and their purchase-money/consumer lenders) in typical dealer retail sales.

## Conclusion

The appellate court held that retail consumers who purchased vehicles from a dealership in ordinary-course transactions took the vehicles free of the floor-plan lender’s perfected inventory lien, and the purchasers’ lender held priority based on those superior buyer rights; the judgment for the bank on conversion and declaratory relief was reversed and the case remanded.


Valley Bank & Tr. Co. v. Holyoke Cmty. Fed. Credit Union, 121 P.3d 358 (Colo. App. 2005)