Daniel v. Bank of Hayward
6 U.C.C. Rep. Serv. 2d (West) 958, 425 N.W.2d 416, 144 Wis. 2d 931 (1988)
Rule of Law:
Under the Uniform Commercial Code, a retail purchaser who makes a down payment on a motor vehicle becomes a "buyer in ordinary course of business," taking priority over a secured inventory financer, when the specific vehicle is identified to the contract, rather than when title passes or delivery occurs.
Facts:
- In May 1983, Joseph and Marijane Daniel entered into a motor vehicle purchase contract with Don Hofstadter, Inc., a dealership, to buy a 1984 Chevrolet van that had not yet been manufactured and to trade in their older motor home.
- The Daniels signed over title to their existing motor home and delivered it to the dealership, which subsequently sold the motor home around June 6, 1983.
- The Bank of Hayward (Bank) provided floor plan financing for Don Hofstadter, Inc., employing an unusual procedure where General Motors (GM) would send the Manufacturer's Statement of Origin (MSO) directly to the Bank, effectively retaining control over vehicle title due to concerns about the dealership's financial stability.
- On September 30, 1983, the Bank received a sight draft from GM for the specific 1984 Chevrolet van ordered by the Daniels, including its Vehicle Identification Number (VIN), and the dealership executed a floor plan note granting the Bank a security interest in that van.
- On Friday, October 21, 1983, the Chevrolet van was delivered to the Don Hofstadter, Inc. dealership.
- On Saturday, October 22, 1983, the Bank discovered the dealership was removing collateral, called all outstanding loans, and secured the dealership lot, taking possession of all vehicles, including the Daniels' Chevrolet van.
- On October 24, 1983, the Daniels went to the dealership to complete the purchase of the van and learned of the Bank's security interest.
- To obtain the van for an urgent trip, the Daniels borrowed $9,905.22 from the Bank to pay the Bank's interest in the van, then took title and possession, despite their original contract with the dealership only requiring an outstanding balance of $3,402.00 after their trade-in.
Procedural Posture:
- Joseph and Marijane Daniel filed a complaint against the Bank of Hayward in the circuit court for Sawyer County.
- The circuit court, Judge Alvin L. Kelsey presiding, dismissed the Daniels' complaint and granted summary judgment in favor of the Bank of Hayward.
- The Daniels appealed the judgment.
- The Wisconsin Supreme Court granted a petition to bypass the intermediate appellate court to hear the case directly.
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Issue:
Does a retail purchaser of a motor vehicle become a "buyer in ordinary course of business," taking priority over the dealer's floor plan financer, when the goods are identified to the contract, even if title has not passed and the buyer has not taken delivery?
Opinions:
Majority - Shirley S. Abrahamson, J.
Yes, a retail purchaser of a motor vehicle becomes a "buyer in ordinary course of business" when the goods are identified to the contract, even if title has not passed and the buyer has not taken delivery. The court concluded that relying on the date of title transfer, as previously established in Chrysler Corp. v. Adamatic, was an overly narrow and technical interpretation that contradicted the core principles and commentary of the Uniform Commercial Code (UCC). The UCC drafters intended to de-emphasize the role of "title" in resolving disputes concerning rights in goods. Instead, the court emphasized the UCC's policy of protecting ordinary course buyers to foster commercial practices and acknowledge consumer expectations. The court reasoned that inventory financers are typically in a superior position to anticipate and mitigate risks compared to individual retail buyers. Therefore, based on the specific circumstances of the transaction and customary industry practices, a purchaser achieves buyer in ordinary course status upon the identification of the merchandise to the contract, consistent with UCC section 402.501(1) concerning a "special property interest." This decision explicitly overrules Chrysler Corp. v. Adamatic to the extent of its inconsistency with the present ruling.
Analysis:
This case significantly redefines the moment a retail purchaser gains priority over a secured lender in Wisconsin, shifting from a strict "title-passing" rule to an "identification" rule. This change enhances protection for consumers who make down payments on goods not yet in their possession, aligning Wisconsin law with the majority of other jurisdictions and the fundamental policies of the UCC. Future cases will likely apply this "identification" standard, effectively transferring some risk from individual retail buyers to institutional inventory financers, who are generally better equipped to manage such financial risks.
