Schultz v. Bank of the West, C.B.C.

Decision Date27 March 1997
Citation325 Or. 81,934 P.2d 421
Parties, 32 UCC Rep.Serv.2d 379 Howard G. SCHULTZ and Ann C. Schultz, Petitioners on Review, v. BANK OF THE WEST, C.B.C., Respondent on Review, and Robert W. Muir and June E. Muir, Respondents on Review, and John H. Gateley and David E. Gateley, dba Gateleys' Fairway Motors, Defendants. CC 93CV0201; CA A85556; SC S42658.
CourtOregon Supreme Court

Stephen Mountainspring of Dole, Coalwell & Clark, P.C., Roseburg, argued the cause and filed the briefs for petitioners on review.

Frank C. Rote, III of Brown, Hughes, Bird, Lane & Rote, Grants Pass, argued the cause and filed the brief for respondent on review Bank of the West, C.B.C.

Thomas J. Peterson, Eugene, argued the cause for respondents on review Robert W. Muir and June E. Muir.

Before CARSON, C.J., and GILLETTE, VAN HOOMISSEN, FADELEY, GRABER and DURHAM, JJ. *

GILLETTE, Justice.

The issue in this case is whether a consumer, who purchases a used motor home from a dealer who was selling the motor home on consignment, acquires that vehicle free of a creditor's prior perfected security interest in it. For the reasons that follow, we hold that the consumer does take the motor home free of the security interest.

The facts are undisputed. In 1987, defendants (the Muirs) bought a motor home. In 1988, the Muirs created, and defendant Bank of the West (the Bank) acquired and perfected, a security interest in the motor home. In 1992, the Muirs entered into an agreement with Gateleys' Fairway Motors (Gateleys) by which Gateleys would sell the motor home on consignment. Gateleys was in the business of selling motor homes. Gateleys sold the motor home to plaintiffs, the Schultzes. Plaintiffs did not know that the motor home was being sold on consignment or that a security interest was attached to it. Gateleys failed to remit any of the sale money to the Muirs and, subsequently, filed for bankruptcy.

After learning of the Bank's security interest, plaintiffs brought the present action, seeking a declaration that they owned the motor home free of the security interest. The trial court granted summary judgment in plaintiffs' favor. The Bank appealed, and the Court of Appeals reversed the trial court, holding that the Bank's security interest remained in force. Schultz v. Bank of the West, 135 Or.App. 359, 897 P.2d 1204 (1995). We allowed plaintiffs' petition for review and now reverse the decision of the Court of Appeals.

Whether or not a buyer takes goods free of a prior perfected security interest is governed by Article 9 of the Uniform Commercial Code (the UCC), as codified in ORS chapter 79. The specific question for decision here is whether plaintiffs are entitled to the special protection afforded to consumers by UCC section 9-307 (codified as ORS 79.3070(1)). That section provides in part:

"A buyer in ordinary course of business as defined in ORS 71.2010(9) * * * takes free of a security interest created by the seller even though the security interest is perfected * * *."

The cross-referenced section, ORS 71.2010(9), defines "buyer in ordinary course." It provides:

" 'Buyer in ordinary course of business' means a person who in good faith and without knowledge that the sale to the person is in violation of the 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 but does not include a pawnbroker."

If plaintiffs can show that they come within the terms of ORS 79.3070(1), they own the motor home free of the Bank's security interest. To do so, the parties here agree that plaintiffs must show two things: (1) They were a "buyer in ordinary course" when they bought the motor home from Gateleys, and (2) the seller of the motor home was the one who created the security interest. Plaintiffs argue that they qualify as "buyers in ordinary course," because they bought the motor home from the Muirs' agent, Gateleys, and Gateleys was in the business of selling used motor homes. Plaintiffs also argue that, as "buyers in ordinary course," they take free of the Bank's security interest that was created by the Muirs, whom plaintiffs claim were the seller. The trial court adopted this position in granting summary judgment in plaintiffs' favor.

The Bank argues that both ORS 79.3070(1) and 71.2010(9) require a "seller" and that the seller must be the same party under both provisions. The Bank argues that, if Gateleys qualified as the "seller," then, although plaintiffs would be "buyers in the ordinary course," they could not take free of the Bank's security interest, because Gateleys (as the seller, for the purposes of ORS 71.2010(9)) did not create the security interest--the Muirs did--and ORS 79.3070(1) requires that, for it to apply, the "seller" must have created the security interest. Alternatively, the Bank argues that, if the Muirs qualify as the "seller" (for the purposes of ORS 79.3070(1)), then plaintiffs could not qualify as buyers in the ordinary course, because the Muirs were not in the business of selling used motor homes as is required under ORS 71.2010(9).

This case brings to mind the military adage that all battles are fought at the corner of two maps. It requires us to interpret both ORS 79.3070(1) and 71.2010(9) and to explain how those two statutes work together. Because plaintiffs cannot attempt to invoke the protection of ORS 79.3070(1) unless they first can show that they qualify as "buyers in ordinary course," we begin with the text of ORS 71.2010(9).

1. Were plaintiffs buyers in the ordinary course of business?

As always, in construing an Oregon statute, this court's task is to discern the intent of the legislature. PGE v. Bureau of Labor and Industries, 317 Or. 606, 610, 859 P.2d 1143 (1993). In doing so, this court looks first to the text and context of the statute. Ibid.

Here, the relevant text from ORS 71.2010(9) states that a buyer in ordinary course "buys * * * from a person in the business of selling goods of that kind." (Emphasis added.) Clearly, the plaintiffs bought from Gateleys, which was in the business of selling goods of that kind. But does the text require that the "person in the business of selling goods" have title to the specific goods that the buyer buys, i.e., be the "seller" of the goods. 1 This inquiry is important, because Gateleys disposed of the Muirs' motor home on consignment--it did not have title.

The text does not require that the "person" from whom the goods are purchased have title. This is clear, first, from the text itself. Use of the word, "person," instead of "seller" in a law as carefully crafted as the UCC is a conscious choice. That choice recognizes that there will be those who hold out goods for sale who do not have title, e.g., consignees such as Gateleys, in circumstances in which the stability of the marketplace would be undermined if good faith purchases from those parties were not valid. This point is made even more clear by the textual exclusion of "pawnbroker"--a special kind of consignee--from the definition. Finally, the text of ORS 71.2010(9) recognizes that a sale to a buyer in ordinary course may be "in violation of the ownership rights * * * of a third party." Any ownership rights in a third party would mean that the "person in the business" did not have title to the goods. Thus, the text of ORS 71.2010(9) indicates that "person" does not mean "seller."

If there were any doubt about the foregoing conclusion, the UCC provides other contextual clues to flesh out the concept of a buyer in ordinary course for the purposes of ORS 71.2010(9). ORS 72.4030(3), which is a part of the "sales" chapter of the UCC, provides that "[a]ny entrusting of possession of goods to a merchant who deals in goods of that kind gives the merchant power to transfer all rights of the entruster to a buyer in ordinary course of business." (Emphasis added.) And, as already noted, another section in that chapter, ORS 72.1060(1), defines a "sale" as "the passing of title from the seller to the buyer for a price." When those two sections are read together, it becomes clear that the UCC presumes that a buyer can qualify as a buyer in the ordinary course when the buyer purchases goods from a dealer who only possesses, but does not have legal title to, those goods. 2

Moreover, in examining context, we also look to the UCC commentary and to the decisions of other jurisdictions. See Security Bank v. Chiapuzio, 304 Or. 438, 445 n. 6, 747 P.2d 335 (1987) (so stating). 3 The UCC commentary does not address explicitly the question whether a buyer who buys from a consignment dealer qualifies as a buyer in the ordinary course. However, the commentary apparently presumes that such a buyer can so qualify. Most jurisdictions similarly have presumed that buyers who buy from consignment dealers can qualify as buyers in the ordinary course. See, e.g., Martin v. Nager, 192 N.J.Super. 189, 469 A.2d 519 (1983); American Lease Plans, Inc. v. R.C. Jacobs Plumbing, Heating & Air Conditioning, Inc., 274 S.C. 28, 260 S.E.2d 712 (1979); Williams v. Western Sur. Co., 6 Wash.App. 300, 492 P.2d 596 (1972); Kranich & Bach v. Miller, 3 UCC Rep Serv 449, 1966 WL 8947 (N.Y.Sup.Ct.1966); Al's Auto Sales v. Moskowitz, 203 Okla. 611, 224 P.2d 588 (1950) (illustrating proposition). 4

The Court of Appeals concluded that plaintiffs were not buyers in the ordinary course for purposes of ORS 79.3070(1). However, in so concluding, the Court of Appeals defined "buyer in ordinary course" by reference to the terms of ORS 79.3070(1) itself, rather than by reference to the definition in ORS 71.2010(9). That approach was erroneous. ORS 79.3070(1) does not define buyer in ordinary course, nor does it have any effect on whether a buyer buys in ordinary course. To the contrary, ORS 79.3070(1) requires as a precondition that there already have been a finding that buyers bought in...

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