Cody is a regular client of Bear Paw Productions and purchases their world famous furniture to furnish the hotels he owns. Unknown to Cody, Bear Paw recently took out a loan with Grizzly Bank and used "all the inventory of furniture at Bear Paw Productions" as the collateral as a security interest. Bear Paw Productions defaults on its loan with Grizzly Bank. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

When Cody purchased the furniture from Bear Paw Productions, he obtained ownership of the items. The security interest Grizzly Bank has in the inventory as collateral does not extend to items that have been sold to third parties in ordinary business transactions before the default. Therefore, Cody will be able to keep all of the inventory furniture that he purchased, as his rights as a buyer in the ordinary course of business typically take precedence over the security interest held by the bank.

Cody Is a Regular Client of Bear Paw Productions and Purchases