[Claudia408]

NINJA Question –

The explanation doesn’t support the correct answer? Is there an error here?

On July 8, Ace, a refrigerator wholesaler, purchased 50 refrigerators. This comprised Ace’s entire inven­tory and was financed under an agreement with Rome Bank that gave Rome a security interest in all refrigerators on Ace’s premises, all future-acquired refrigerators, and the proceeds of sales. On July 12, Rome filed a financing statement that adequately identified the collateral. On August 15, Ace sold one refrigerator to Cray for personal use and four refrigerators to Zone Co. for its business. Which of the following statements is correct?

A.
The refrigerators sold to Zone will be subject to Rome’s security interest.

Correct B.
The refrigerator sold to Cray will not be subject to Rome’s security interest.

C.
The security interest does not include the proceeds from the sale of the refrigerators to Zone.

D.
The security interest may not cover after-acquired property even if the parties agree.

Explanation: A buyer in the ordinary course of business from a merchant seller takes the property free of any security interest. Consequently, the refrigerators sold to both Zone and Cray will not be subject to the security interest.

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Mike J]

This is a Holder in Due Course situation, I believe.

If you buy from a merchant or a HIDC, you are protected from most defenses to void the sale.

The contract itself isn't VOID (different from voidABLE) or bankruptcy isn't at play.

Someone please correct me if not true.

[Author]

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