A liquidation can be a sale that does not qualify as being in the ordinary course of business. See Sindone v. Farber, 432 N.Y.S.2d 778, 781, 105 Misc.2d 634, 638–39 (Sup.Ct.1980); see also Lopa v. Selgar Realty Corp., (In re Selgar Realty Corp.), 85 B.R. 235, 240 (Bankr.E.D.N.Y.1988) (Under the bankruptcy code, “The sale of a substantial part of a debtor's inventory is not in the ordinary course of business since it is not in the ordinary course to engage in one's own liquidation.”). However, courts have also recognized that a sale made during a liquidation or a bankruptcy could, under certain circumstances, be a sale made in the ordinary course of business.
A liquidation can be a sale that does not qualify as being in the ordinary course of business. See Sindone v. Farber, 432 N.Y.S.2d 778, 781, 105 Misc.2d 634, 638-39 (Sup. Ct. 1980); see also Lopa v. Selgar Realty Corp., (In re Selgar Realty Corp.), 85 B.R. 235, 240 (Bankr. E.D.N.Y. 1988) (Under the bankruptcy code, "The sale of a substantial part of a debtor's inventory is not in the ordinary course of business since it is not in the ordinary course to engage in one's own liquidation."). However, courts have also recognized that a sale made during a liquidation or a bankruptcy could, under certain circumstances, be a sale made in the ordinary course of business.
However, several out-of-state cases as well as the annotations at 73 A.L.R.3d 338 discuss the concept. According to Sindone v. Farber (1980) 105 Misc.2d 634 [432 N.Y.S.2d 778], the critical question is whether the seller was in the regular business of selling the particular product on a systematic basis, not merely an isolated transaction. ( Id. at p. 781.) Examples of nonqualifying sales might be a bulk sale, a sale in distress at an obvious loss price, or a sale in liquidation.
However, under New York law, whether a sale is an ordinary sale of similar goods turns on whether the goods sold are classified as capital equipment or as inventory. In Hempstead Bank v. Andy's Car Rental Sys., 35 A.D.2d 35, 312 N.Y.S.2d 317 (2d Dep't 1970), the court held that a rental company's used car sales were not in the ordinary course of business, even though such sales are common in the industry, because the used cars were capital equipment of the leasing company and not inventory. Accord Sindone v. Farber, 105 Misc.2d 634, 432 N.Y.S.2d 778 (Sup.Ct. 1980). IAL's reliance on Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 N.Y.2d 632, 350 N.E.2d 590, 385 N.Y.S.2d 260 (1976), is misplaced.
Accordingly, the law is clear that a "buyer in ordinary course" "does not include a pawnbroker." Tanbro Fabrics Corp. v. Deering Milliken, Inc. , 39 N.Y.2d 632, 636, 350 N.E.2d 590, 385 N.Y.S.2d 260 (1976) ; seeBank of Utica v. Castle Ford, Inc. , 36 A.D.2d 6, 9, 317 N.Y.S.2d 542 (4th Dep't 1971) (noting that the nature of a buyer's business is generally immaterial in determining whether a buyer is a buyer in ordinary course of business and takes free of a security interest, unless the buyer is a pawnbroker); Sindone v. Farber , 105 Misc.2d 634, 638, 432 N.Y.S.2d 778 (Sup. Ct. Nassau Cty. 1980) (same (citing Bank of Utica , 36 A.D.2d at 9, 317 N.Y.S.2d 542 )); see also 1 Eldon H. Reiley, Security Interests in Personal Property § 6:3, Westlaw (database updated Dec. 2020) (noting that "if the buyer is a pawnbroker it cannot be a [buyer in ordinary course] ... because persons selling to pawnbrokers are not selling in the ordinary course of their business"). New York Uniform Commercial Code Section 1 -201was amended in 1999, but the definition of "buyer in ordinary course of business" has not changed.
Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 N.Y.2d 632, 636, 350 N.E.2d 590, 385 N.Y.S.2d 260 (1976); see Bank of Utica v. Castle Ford, Inc., 36 A.D.2d 6, 9, 317 N.Y.S.2d 542 (4th Dep't 1971) (noting that the nature of a buyer's business is generally immaterial in determining whether a buyer is a buyer in ordinary course of business and takes free of a security interest, unless the buyer is a pawnbroker); Sindonev. Farber, 105 Misc.2d 634, 638, 432 N.Y.S.2d 778 (Sup. Ct. Nassau Cty. 1980) (same (citing Bank of Utica, 36 A.D.2d at 9)); see also 1 Eldon H. Reiley, Security Interests in Personal Property § 6:3, Westlaw (database updated Dec. 2020) (noting that “if the buyer is a pawnbroker it cannot be a [buyer in ordinary course] . . . because persons selling to pawnbrokers are not selling in the ordinary course of their business”). New York Uniform Commercial Code Section 1-201was amended in 1999, but the definition of “buyer in ordinary course of business” has not changed.
New York courts have specifically held that sales that do not qualify for protection under UCC § 1–201(9) include “bulk sale[s], [ ] sale[s] in distress at an obvious loss price, [and][ ] sale[s] in liquidation.” Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 N.Y.2d 632, 637, 385 N.Y.S.2d 260, 350 N.E.2d 590, 592 (1976) ; Sindone v. Farber, 105 Misc.2d 634, 639, 432 N.Y.S.2d 778, 782 (Sup.Ct. Nassau Cnty.1980). Thus, New Trend's liquidation sale at prices that Ms. Chang acknowledged to be “closeout” prices (Chang Decl. dated Feb. 10, 2012 at 7) presumably would not qualify as a transaction in the ordinary course of business.
business of selling them therefore, its periodic sale of used rental cars was found to be merely "incidental" to its leasing business); Aircraft Trading and Services, Inc. v. Braniff, Inc., 819 F.2d 1227 (2nd Cir. 1987) (commercial airline carrier's sale of jet aircraft engine presumed to be equipment since sold only upon carrier approaching financial difficulties with no indication engine was originally intended to be "held for sale"); Northern Commercial Company v. Cobb, 778 P.2d 205 (Alaska 1989) (unauthorized sale of collateral with no "purchase order" or equivalent documentation establishing collateral at issue was ever intended to be "held for sale"); Orix Credit Alliance, Inc. v. Tooling Connection, Inc., 1995 WL 705213 (Ohio App. 3d 1995) (machinery used in manufacturing process found to be equipment and despite policy of defendant to sell obsolete equipment, no "buyer in the ordinary course" status attained by purchaser since defendant not in business of selling collateral); Sindone v. Farber, 432 N.Y.2d 778 (N.Y.Sup.Ct. 1980) (sale of a tow truck by an auto salvage business as a "fixed asset used in the operation of the auto salvage business" deemed equipment and not inventory). Here, even though the Shipped Tooling may ultimately be characterized as equipment, if it is determined the sale of tooling otherwise complies with Section 9320(a), GM may still be deemed a buyer in the ordinary course of business as contemplated by Sections 1201 and 9320(a).
Under New Jersey law, which governs the dealer's agreement between Hann and Malcar-NJ, Malcar-NJ was not licensed to sell motor vehicles ( see NJ Stat Ann § 39:10-19). Further, as a leasing company, Malcar-NJ did not hold the subject cars as part of its sales inventory, and at the time Hann purchased the subject motor vehicles, Malcar-NJ was not authorized to do business in New Jersey. Accordingly, we agree with the Supreme Court that Hann was not a buyer in the ordinary course of business, as defined by UCC 1-201 (9) and 9-320 (a), and as such, its ownership of the 31 subject motor vehicles is subject to the defendants' security interests ( see Porter v. Wertz, 68 AD2d 141, affd 53 NY2d 696; Hempstead Bank v. Andy's Car Rental Sys., 35 AD2d 35; Sindone v. Farber, 105 Misc 2d 634; Sea Harvest v. Rig Crane Equip. Corp., 181 NJ Super 41, 436 A2d 553 [1981]; cf. Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 NY2d 632). The plaintiffs' remaining contentions are without merit.
Other courts have considered the nature of the security agreement as indicative of the status of the collateral. See, e.g., Sindone v. Farber, 105 Misc.2d 634, 432 N.Y.S.2d 778, 782 (1980). Certainly there is nothing in the plaintiff's security agreement which suggests a sale was contemplated when it was executed.