Opinion ID: 2196679
Heading Depth: 2
Heading Rank: 1

Heading: Buyer in Ordinary Course of Business.

Text: With regard to the 1991 crop proceeds FTI contends that it is a buyer in the ordinary course of business and that this status entitles it to the proceeds free of PCA's prior perfected security interest. See Iowa Code § 554.9307(4)(a). PCA argues that FTI is not a buyer in the ordinary course of business because it attempted to apply the crop proceeds check in partial satisfaction of McGraw's pre-existing debt. Pursuant to grain contracts executed in August 1991, McGraw delivered its corn crop to FTI in October. On December 16 FTI issued a check for $30,528.88, jointly payable to McGraw and FTI. That same day FTI canceled the first check and applied the entire amount to McGraw's accounts receivable balance. Because legal action was pending, FTI later reversed the credit to McGraw's account and issued a check on January 6, 1992, jointly payable to McGraw and PCA. The check was not delivered and the proceeds remain in FTI's possession. A buyer in ordinary course of business means a person who in good faith and without knowledge that the sale to that person is in violation of ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind.... Buying may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a pre-existing contract for sale but does not include ... security for or in total satisfaction of a money debt. Iowa Code § 554.1201(9). Iowa Code section 554.9307(1) elevates the rights of qualified buyers of goods over the rights of secured creditors even though the security interest is perfected and even though the buyer knows of its existence. Subsection 554.9307(4)(a) provides: A buyer in the ordinary course of business buying farm products from a debtor engaged in farming operations takes subject to a security interest created by the debtor, if within one year before the sale of the farm products the buyer receives prior written notice of the security interest which complies with this subsection and the buyer fails to perform the payment obligations specified in the notice. Applying these provisions we have held that buying does not include transfers to the extent they are in satisfaction of an antecedent debt. First State Bank v. Shirley Ag Serv., Inc., 417 N.W.2d 448, 455-56 (Iowa 1987); accord Linn Coop. Oil Co. v. Norwest Bank of Marion, 444 N.W.2d 497, 498-99 (Iowa 1989). The status of a buyer in ordinary course extends only to those giving new value in exchange for collateral. Shirley Ag Serv., 417 N.W.2d at 455. To hold otherwise would permit an unsecured creditor or a creditor with a junior lien to bootstrap himself into priority over a creditor with an otherwise superior secured interest. Id. Here, FTI did not pay either McGraw or PCA for the 1991 crop; it attempted to apply the proceeds to McGraw's pre-existing debt after receiving written notice of PCA's security interest. Apparently FTI is arguing that because it reissued the proceeds check there was no actual transfer in partial satisfaction of an antecedent debt and therefore it is a buyer in ordinary course of business. However, FTI offers no reason as to why it is entitled to the proceeds check other than to satisfy a portion of McGraw's outstanding debt. We therefore conclude FTI is not a buyer in ordinary course as to any portion of the proceeds.