Opinion ID: 373418
Heading Depth: 2
Heading Rank: 2

Heading: Buying in Ordinary Course

Text: 42 In part, § 1-201(9) defines a buyer in ordinary course as one who (1) buys in ordinary course . . . (2) from a person in the business of selling goods of that kind. The second clause clearly requires an inquiry into the seller's status. The question here is whether the first clause requires an inquiry into the nature of the transaction or the buyer's status. The defendant argues that the plaintiff's intent to keep Hollander viable and the characteristics of the transaction transform the plaintiff into a financier or creditor of Hollander and thus not a buyer in ordinary course. 43 As an initial matter, it is unfortunate that the Code defines buyer in ordinary course in part by using the exact words to be defined. By saying that a buyer in ordinary course is one who buys in ordinary course, the phrase seems redundant and thus meaningless. Instead of asking whether a buyer in ordinary course must buy in ordinary course, it seems to clarify the issue to ask whether a buyer under § 1-201(9) must buy in ordinary course. 44 No New Jersey case directly addresses the meaning of the phrase buys in ordinary course. Cunningham v. Camelot Motors, Inc., 138 N.J.Super. 489, 351 A.2d 402 (Ch.Div. 1975), listed a four part test for determining whether a buyer satisfies the test of § 1-201(9): good faith, no knowledge a security interest is violated, seller in the business of selling this type of goods, and payment in present value. Although the court did not say whether the buyer also must buy in ordinary course and held that all four elements were satisfied, it seems that the precise question of whether the phrase buys in ordinary course has independent meaning was not presented directly. This is so probably because the buyer was a consumer who bought a car, the prototypical buyer in ordinary course. Thus we have little case law guidance as to how New Jersey would treat the present issue. 45 We feel that the phrase buys in ordinary course requires some inquiry into the nature of the transaction. The words cannot refer to the seller's status, for they then would be redundant of the phrase in the business of selling goods of that kind. We invoke the doctrine of construction that every phrase in a statute should be given meaning if possible. We believe that New Jersey courts faced with this question would not read out these words in § 1-201(9). 46 It remains to be answered exactly what meaning should be given the phrase buys in ordinary course. Some of the normal situations where courts have found that a party did not buy in ordinary course do not seem to be present here. See, e. g., Morey Machinery Co. v. Great Western Industrial Machinery Co., 507 F.2d 987 (5th Cir. 1975) (close relation of the buyer and seller raising a danger that the sale was effected to protect the collateral from the seller's creditor); Ray v. City Bank & Trust Co., 358 F.Supp. 630 (S.D.Ohio 1973) (sale was partial satisfaction of prior debt owed by seller to buyer). See generally Independent News Co. v. Williams, 293 F.2d 510 (3d Cir. 1961). 47 The facts noted by the district court as detailed in the previous section do pose one problem, however. It found that the plaintiff purchased an unusual amount for the plaintiff at a time of slow market demand. Given Hollander's financial position, there thus was a danger that it would dissipate the large influx of cash, either by using it to pay unsecured creditors or by other means, leaving the defendant without collateral to secure its loan. 48 This presents a very close question. The activities falling inside or outside the ordinary course test lie along a spectrum. At one end, the grocery retailer who buys a single shipment of canned goods buys in ordinary course. At the other end, the person who buys the business with all its inventory does not buy the inventory in ordinary course. What we have here is a situation somewhere between the two. While it might be possible to come up with a judicially formed test that addresses the question, we think that article 6 of the UCC provides a possible framework for analysis. 49 Under article 6, a bulk sale of inventory of a debtor triggers certain rights in the creditor such as notice from the buyer and a chance to step in and protect its interest. See UCC §§ 6-104 to -105. One of the problems sought to be corrected was dissipation of the proceeds of the sale by the debtor to the detriment of the creditor. Id. § 6-101, comments 2, 4. Although the comment only mentions the debtor who runs away with the proceeds, we feel that the present situation is sufficiently analogous to warrant use of article 6. Where the Code addresses itself to the same type of problem as that here, we think it better to rely on those provisions rather than trying to formulate a rule ourselves. Moreover, this reasoning is consistent with the goal of the UCC, which is to read the Code as an integrated whole and a comprehensive attempt to deal with problems from a variety of perspectives. 50 The facts here require a remand for the district court to consider the question in the first instance. For example, the district court must first decide if this was a bulk sale under article 6. See UCC § 6-102(1) (sale of a major part of the inventory); New Jersey Study Committee Comment to N.J.Stat.Ann. § 12A:6-102, comment 2. This in part will involve the question of what time frame to use in deciding what proportion of Hollander's inventory was sold (E. g., monthly or yearly inventory). Next, the district court must determine if the plaintiff and Hollander complied with article 6. Finally, the court should consider whether the buyer can prevail on any other ground against the creditor under article 6 and whether that ground applies to article 9. 51 In short, we believe that a bulk sale within article 6 would not be a purchase in ordinary course under § 1-201(9) and § 9-307(1). Accordingly, we reverse and remand to the district court for further proceedings on this question and any other theory that may be applicable.