Summary:
Clean Burn Fuels (CBF) operated a pant that converted corn supplied by Purdue Bionery (Purdue) into ethanol. The agreement between the parties provided that Purdue would retain ownership of the corn until it was delivered to CBF, defined as the when it passed over a weigh belt, the final stage before the conversion of the corn into ethanol began. The Trustee, however, contended that the agreement instead provided that the corn was delivered when it was received at CBF’s facility and placed in the storage bins leased by Purdue.
The bankruptcy court first found that pursuant to the Parol Evidence Rule, it could not consider any additional information outside of the agreement as to when the corn was delivered. The agreement not only was clear and unambiguous that delivery was complete when the corn arrived on site. Further, the agreement contained a specific merger clause that not only was agreement complete and exclusive, but that evidence as to course of dealings, usage of trade, or course of performance could not be considered. As such, CBF owned the corn when it reached the storage bins, even though leased by Purdue, and ultimately became an asset of the bankruptcy estate.
Pursuant to UCC § 2-401, the court then determined that “[e]ven if the parties agreed by contract that title to the goods remains with the seller and the buyer had no interest in owning the goods, the most that a seller can retain in the delivered goods is a security interest. See Nanak Resorts, Inc. v. Haskins Gas Serv., Inc. (In re Rome Family Corp.), 407 B.R. 65, 75 (Bankr. D. Vt. 2009).
Purdue did not perfect its resulting security interest through any filing, but argued that it was allowed to perfect its security interest through possession of the corn in the storage bins, which it had leased. The bankruptcy court held that such possession must be ‘unequivocal, absolute and notorious, so
that third parties may be advised.” Hutchinson v. C.I.T. Corp., 726 F.2d 300, 302 (quoting Transp. Equip. Co. v. Guar. State Bank, 518 F.2d 377, 381 (10th Cir. 1975)). The court then found that, while Purdue did have control over access to the corn in the storage bins, the lack of signs or other notice to third parties prevented perfection by possession as “[p]roperty interests that are not open and notorious should be deemed constructively fraudulent against creditors.”
Commentary:
While specifically dealing with sales and delivery of goods under Article 2 of the UCC, this case does have application more generally. The bankruptcy court cites more than two full pages of examples concerning delivery of property, including motor vehicles, sewing machines, etc., that are useful for consumer cases.
For a copy of the opinion, please see:
Clean Burn Fuels v. Purdue Bioenergy (In re Clean Burn Fuels)- UCC and Delivery of Goods; Parol Evidence Rule.pdf
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