In a situation where a cash seller delivers goods to a buyer and is paid with a dishonored check, this section allows the buyer to pass greater title to a good faith purchaser than the buyer could claim. Maryott v. Oconto Cattle Co., 259 Neb. 41, 607 N.W.2d 820 (2000).
The definition of good faith purchaser does not expressly or impliedly include lack of knowledge of third-party claims as an element. Maryott v. Oconto Cattle Co., 259 Neb. 41, 607 N.W.2d 820 (2000).
A dealer having the authority to expose vehicles for sale in the ordinary course of business, pursuant to this section, binds his financier to deliver title to any vehicle so sold, whether or not dealer remits the proceeds to his financier. Dugdale of Nebraska v. First State Bank of Gothenburg, 227 Neb. 729, 420 N.W.2d 273 (1988).
A party whose title in goods is voidable as being conditioned upon payment for the goods can transfer title to a good-faith purchaser. Mid-South Order Buyers, Inc. v. Platte Valley Livestock, Inc., 210 Neb. 382, 315 N.W.2d 229 (1982).
Financial institution lending money on cattle held to qualify as a good faith purchaser for value from a purported owner holding voidable title when financial institution relied on contract to sell and bill of sale of prior owner, inspected the cattle, and had no notice of any defect in title. Jordan v. Butler, 182 Neb. 626, 156 N.W.2d 778 (1968).
Prior Uniform Statutory Provision: Sections 20(4), 23, 24, and 25, Uniform Sales Act; section 9, especially 9(2), Uniform Trust Receipts Act; section 9, Uniform Conditional Sales Act.
Changes: Consolidated and rewritten.
Purposes of Changes:
To gather together a series of prior uniform statutory provisions and the case law thereunder and to state a unified and simplified policy on good faith purchase of goods.
1. The basic policy of our law allowing transfer of such title as the transferor has is generally continued and expanded under subsection (1). In this respect the provisions of the section are applicable to a person taking by any form of "purchase" as defined by the code. Moreover the policy of the code expressly providing for the application of supplementary general principles of law to sales transactions wherever appropriate joins with the present section to continue unimpaired all rights acquired under the law of agency or of apparent agency or ownership or other estoppel, whether based on statutory provisions or on case law principles. The section also leaves unimpaired the powers given to selling factors under the earlier Factors Acts. In addition subsection (1) provides specifically for the protection of the good faith purchaser for value in a number of specific situations which have been troublesome under prior law.
On the other hand, the contract of purchase is of course limited by its own terms as in a case of pledge for a limited amount or of sale of a fractional interest in goods.
2. The many particular situations in which a buyer in ordinary course of business from a dealer has been protected against reservation of property or other hidden interest are gathered by subsections (2) through (4) into a single principle protecting persons who buy in ordinary course out of inventory. Consignors have no reason to complain, nor have lenders who hold a security interest in the inventory, since the very purpose of goods in inventory is to be turned into cash by sale.
The principle is extended in subsection (3) to fit with the abolition of the old law of "cash sale" by subsection (1)(c). It is also freed from any technicalities depending on the extended law of larceny; such extension of the concept of theft to include trick, particular types of fraud, and the like is for the purpose of helping conviction of the offender; it has no proper application to the long-standing policy of civil protection of buyers from persons guilty of such trick or fraud. Finally, the policy is extended, in the interest of simplicity and sense, to any entrusting by a bailor; this is in consonance with the explicit provisions of section 7-205 on the powers of a warehouse who is also in the business of buying and selling fungible goods of the kind he or she stores. As to entrusting by a secured party, subsection (2) is limited by the more specific provisions of section 9-320, which deny protection to a person buying farm products from a person engaged in farming operations.
3. The definition of "buyer in ordinary course of business" (section 1-201) is effective here and preserves the essence of the healthy limitations engrafted by the case law on the older statutes. The older loose concept of good faith and wide definition of value combined to create apparent good faith purchasers in many situations in which the result outraged common sense; the court's solution was to protect the original title especially by use of "cash sale" or of overtechnical construction of the enabling clauses of the statutes. But such rulings then turned into limitations on the proper protection of buyers in the ordinary market. Section 1-201(9) cuts down the category of buyer in ordinary course in such fashion as to take care of the results of the cases, but with no price either in confusion or in injustice to proper dealings in the normal market.
4. Except as provided in subsection (1), the rights of purchasers other than buyers in ordinary course are left to the Articles on Secured Transactions and Documents of Title.
Point 1: Sections 1-103 and 1-201.
Point 2: Sections 1-201, 2-402, 7-205, and 9-307(1).
Points 3 and 4: Sections 1-102, 1-201, 2-104, and 2-707 and articles 7 and 9.
Definitional Cross References:
"Buyer in ordinary course of business". Section 1-201.
"Good faith". Sections 1-201 and 2-103.
"Goods". Section 2-105.
"Person". Section 1-201.
"Purchaser". Section 1-201.
"Signed". Section 1-201.
"Term". Section 1-201.
"Value". Section 1-201.