New York Law Review

Tag: Buyer in Ordinary Course

  • Marine Midland Bank v. United States, 46 N.Y.2d 758 (1978): Establishing “Buyer in Ordinary Course” Status

    Marine Midland Bank v. United States, 46 N.Y.2d 758 (1978)

    A party claiming to be a “buyer in the ordinary course of business” under UCC § 9-307(1) must present evidentiary material demonstrating that the seller was in the business of selling goods of that kind.

    Summary

    Marine Midland Bank sought summary judgment against the United States, claiming priority as a buyer in the ordinary course of business. The New York Court of Appeals affirmed the Appellate Division’s decision denying the bank’s motion. The court held that the bank failed to provide sufficient evidence that the seller was actually in the business of selling the type of goods purchased, a requirement to qualify as a buyer in the ordinary course of business under UCC § 9-307(1). The court also noted that it could not grant summary judgment to the defendant (United States) because the defendant had not filed a cross-appeal.

    Facts

    Marine Midland Bank purchased goods from a seller. The bank then claimed priority over the United States’ security interest in the goods, arguing it was a buyer in the ordinary course of business. The bank moved for summary judgment based on this claim. The seller involved in the case was also the seller in the prior case, Tanbro Fabrics Corp. v. Deering Milliken.

    Procedural History

    The lower court denied Marine Midland Bank’s motion for summary judgment. The Appellate Division affirmed that decision. Marine Midland Bank appealed to the New York Court of Appeals.

    Issue(s)

    Whether Marine Midland Bank presented sufficient evidence to demonstrate that the seller was in the business of selling goods of the kind purchased, thereby entitling the bank to the status of a “buyer in the ordinary course of business” under Uniform Commercial Code § 9-307(1), and thus priority over a prior security interest.

    Holding

    No, because Marine Midland Bank failed to provide evidentiary material supporting its claim that the seller was in the business of selling goods of the kind purchased. The court also could not grant summary judgement for the defendant as it had not filed a cross-appeal.

    Court’s Reasoning

    The court emphasized that to succeed on a motion for summary judgment, the moving party must present evidentiary proof to support its allegations. In this case, Marine Midland Bank presented only a conclusory assertion that the seller was in the business of selling such goods, which was insufficient to establish its status as a buyer in the ordinary course of business under UCC § 9-307(1). The court referenced UCC § 1-201, subd [9] and § 9-307, subd [1] regarding the definition of “buyer in ordinary course of business.” The court distinguished this case from Tanbro Fabrics Corp. v. Deering Milliken, noting that the finding that the seller was a seller in the ordinary course in Tanbro was a factual finding supported by sufficient evidence in that specific case. The court stated, “In this motion for summary judgment there is no evidentiary material in the record to support plaintiff’s allegation, and conclusory assertion, that the seller from whom he purchased the goods was in the business of selling goods of that kind (Uniform Commercial Code, § 1-201, subd [9]; § 9-307, subd [1]), or that the defendant was unjustly enriched. This alone is sufficient to sustain the Appellate Division’s determination that the plaintiff is not entitled to summary judgment.” The court also noted it could not grant summary judgement to the defendant because it had not filed a cross-appeal, citing precedent: “Finally we note that we are unable to grant summary judgment to the defendant because the defendant has not taken a cross appeal to this court (City of Rye v Public Serv. Mut. Ins. Co., 34 NY2d 470, 474; People v Consolidated Edison Co. of N. Y., 34 NY2d 646, 648; Kelly’s Rental v City of New York, 44 NY2d 700, 702).”

  • Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 N.Y.2d 632 (1976): Defining ‘Buyer in Ordinary Course’ Under UCC § 9-307

    Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 N.Y.2d 632 (1976)

    A buyer in the ordinary course of business, as defined by UCC § 9-307(1), takes goods free of a security interest created by the seller, even if the buyer knows of the security interest, provided the buyer does not know that the sale violates the terms of the security agreement.

    Summary

    Tanbro Fabrics, a textile converter, sued Deering Milliken, a textile manufacturer, for conversion after Deering refused to release goods Tanbro had purchased from Mill Fabrics, another converter. Deering claimed a perfected security interest in the goods due to Mill Fabrics’ outstanding debt. The New York Court of Appeals held that Tanbro was a buyer in the ordinary course of business because Mill Fabrics occasionally sold excess goods to other converters, a practice known in the trade. Therefore, Tanbro took the goods free of Deering’s security interest. The court emphasized that the key is whether the sale is of the variety reasonably expected in the regular course of an ongoing business.

    Facts

    Deering Milliken manufactured textile fabrics and sold them to Mill Fabrics on a “bill and hold” basis, retaining a security interest in the goods to secure Mill Fabrics’ account balance.
    Mill Fabrics resold some of these goods to Tanbro Fabrics, also on a “bill and hold” basis, while the goods remained in Deering’s warehouse.
    Deering executives recommended that Tanbro purchase a specific blended fabric from Mill Fabrics, knowing Mill Fabrics had an excess supply.
    Tanbro purchased the fabric from Mill Fabrics and paid in full, but Deering refused to deliver the remaining fabric to Tanbro due to Mill Fabrics’ outstanding debt to Deering.

    Procedural History

    Tanbro sued Deering in the Supreme Court and received a favorable verdict, including compensatory and punitive damages.
    The Appellate Division modified the judgment, striking the punitive damages but otherwise affirming the lower court’s decision.
    Both parties appealed to the New York Court of Appeals.

    Issue(s)

    Whether Tanbro’s purchase of the goods from Mill Fabrics was a purchase “in the ordinary course of business” under UCC § 9-307(1), thereby freeing the goods from Deering’s security interest.

    Holding

    Yes, because the sale was of a variety reasonably expected in the regular course of an ongoing business, and Tanbro did not know the purchase violated Deering’s security agreement. Therefore, Tanbro took the goods free of Deering’s security interest.

    Court’s Reasoning

    The court reasoned that UCC § 9-307(1) protects buyers who purchase goods from a seller’s inventory in the ordinary course of business. The key inquiry is whether the sale was of the variety reasonably expected in the regular course of an ongoing business. The court noted that it was customary for converters like Mill Fabrics to sell off excess goods to other converters, making the sale to Tanbro within the ordinary course of Mill Fabrics’ business, even if such sales were infrequent. The court distinguished this case from situations involving bulk sales, distress sales, or sales of commodities outside the seller’s usual inventory.

    The court cited the official comment to § 9-307, stating that a sale by Mill Fabrics was impliedly authorized under the code if its indebtedness to Deering was to be liquidated. The court stated, “All subdivision (1) of section 9-307 requires is that the sale be of the variety reasonably to be expected in the regular course of an on-going business”.

    Regarding punitive damages, the court found no evidence that Deering acted with wanton or willful obstruction to Tanbro’s rights, or with fraud or high moral turpitude. Deering could have believed in good faith that its security interest survived the sale. Therefore, the court upheld the Appellate Division’s decision to strike the punitive damages award.