Question

Morris made two purchases. He purchased his neighbor Cordelia's typewriter and a computer from Crazy Computers. Regarding the typewriter, Cordelia had bought it on credit from Jack's Typewriters. Cordelia had financed the purchase with Jack's and signed a promissory note and a security agreement covering the purchase. The creditor, Jack's, did not file a financing statement, relying on the concept of automatic perfection for purchase money security interests in consumer goods. Morris was unaware of the history of the typewriter. The computer was subject to a security interest in favor of Country Bank, which had perfected its security interest by filing. Morris, by coincidence, knew of this security interest when Morris purchased the computer. Unfortunately, niether Cordelia nor Crazy Computers paid the secured creditors who now seek to repossess the collateral from Morris. What will be the likely outcome of this case?

Answer 1

There is no "automatic" perfection of a security interest in personal property, except for seller's reservation of rights under UCC 2-401 -- which doesn't apply to the typewriter, because the reservation only persists until the contract is completely performed. The facts here are that Cordelia purchased the typewriter and signed a note. This represents a conventional sale, with a separate loan. Thus the sales contract is performed and no security interest attaches to the typewriter without a UCC financing statement filed with the Secretary of State.

Re the computer, the lender has a perfected security interest which can be enforced against the buyer, but only if the computer is intended for "personal, family, or household purposes." UCC 9-320(b), rather than for business use.