Part 6- Credit, Chapter 29: Security Interests in Personal Property, Doc 4 | Indiana University Bloomington - Edubirdie

University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
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407

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1
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bratrochanter

In Woven Treasures, Inc. v. Hudson Capital, L.L.C., the court dealt with the priority of security interests in consigned inventory. Woven Treasures consigned oriental rugs to a furniture store owned by Richard Clarke, which later transferred the rugs to a new store without Woven Treasures’ formal notice. TSR Imports, the new store owner, defaulted on its loan, and Compass Bank, holding a perfected security interest in TSR's inventory, sold the assets to Hudson Capital, which perfected its interest as well. Hudson Capital argued it held priority over Woven Treasures, which had not filed a financing statement for its consigned rugs. Under UCC Article 9, the court found that TSR, as consignee, had rights over the rugs, allowing Hudson Capital to perfect its interest. Due to Woven Treasures’ failure to perfect, Hudson Capital's interest had priority. This case underscores that consignors must file financing statements to secure priority over other perfected interests. Key Legal Takeaways:   Consignment and Priority: Under UCC §9-319, consignees are treated as owners for creditors' rights, allowing creditors with perfected interests to have priority. Unperfected Security Interest: A consignor’s failure to perfect can result in loss of priority over other creditors who file correctly. This case exemplifies the necessity for consignors and other creditors to properly file to protect their interests in a debtor's inventory, as failure to do so can lead to loss of ownership claims to competing perfected creditors.

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