409.306 Annotation
Sub. (3m) was created by the Special Committee to protect an innocent buyer for value who acquires proceeds purchased with cash proceeds from the sale of the original collateral or the sale of noncash proceeds of the original collateral. This subsection provides that a buyer under these circumstances is not subject to a security interest in the original collateral if the goods he is acquiring are not a type of property described in the financing statement covering the original collateral. This buyer is not considered innocent if he has knowledge of the fact that the property was purchased with cash proceeds from the sale of the original collateral or if he makes his purchase after a financing statement describing this property has been filed.
409.306 Annotation
For example, a bank finances the purchase of a tractor by first buyer. The bank takes a security interest in the tractor and files a financing statement which covers both the tractor and proceeds. First buyer sells the tractor without authorization from the bank. The bank has a continuing security interest in the tractor and in the cash proceeds first buyer received from the sale [409.306 (2) and 409.306 (3)]. Next, the cash proceeds are used by first buyer to purchase an oil painting. Even though the oil painting is not property of a type described in the financing statement covering the tractor, it is considered "proceeds" of the tractor and the bank has a security interest in the oil painting while it is in the hands of first buyer. However, if first buyer sells the oil painting for value to second buyer who has no knowledge of the bank's security interest in the oil painting because the painting was not the type of property described in the financing statement covering the tractor and a financing statement describing the oil painting has not been filed, then under sub. (3m) second buyer takes free of the bank's security interest in the oil painting and the bank has a security interest only in the proceeds which first buyer received from the sale of the painting and in the tractor. This buyer is not considered innocent if he has knowledge of the fact that the property was purchased with cash proceeds from the sale of the original collateral or if he makes his purchase after a financing statement describing this property has been filed. (Bill 177-S)
409.306 Annotation
If a security agreement does not explicitly provide that transfer of collateral constitutes default and the secured party is not entitled to immediate possession, sale of collateral is not a conversion. Production Credit Association of Chippewa Falls v. Equity Coop Livestock,
82 Wis. 2d 5,
261 N.W.2d 127 (1978).
409.306 Annotation
The rights of a security holder in collateral survive the transfer of the collateral under s. 409.311 made without the secured party's consent. Production Credit Association of Madison v. Nowatzski,
90 Wis. 2d 344,
280 N.W.2d 118 (1979).
409.306 Annotation
A condition imposed by a secured party on authorization to sell collateral is ineffective unless performance of the condition is within the buyer's control. Production Credit Association of Baraboo v. Pillsbury Co.
132 Wis. 2d 243, 392 N.W.2d (Ct. App. 1986).
409.306 Annotation
Commingling funds in a bank account does not defeat a security interest in proceeds. Rights to a payment made in the ordinary course of business that would defeat a secured party's interest in proceeds are discussed. Textron Financial Corp. v. Firstar Bank Wisconsin,
217 Wis. 2d 582,
579 N.W.2d 48 (Ct. App. 1998).
409.307
409.307
Protection of buyers of goods. 409.307(1)
(1) A buyer in ordinary course of business as defined in
s. 401.201 (9) other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his or her seller even though the security interest is perfected and even though the buyer knows of its existence.
409.307(2)
(2) In the case of consumer goods having an original purchase price not in excess of $500, a buyer takes free of a security interest even though perfected if the buyer buys without knowledge of the security interest, for value and for the buyer's personal, family or household purposes unless prior to the purchase the secured party has filed a financing statement covering such goods.
409.307 Annotation
The status of a party as a buyer in the ordinary course of business is not dependent upon a secured party's knowledge thereof. Antigo Coop. Credit Union v. Miller,
86 Wis. 2d 90,
271 N.W.2d 642 (1978).
409.307 Annotation
Purchasers became buyers in the ordinary course of business when goods became identified to a purchase contract. Daniel v. Bank of Hayward,
144 Wis. 2d 931,
425 N.W.2d 416 (1988).
409.307 Annotation
When a sale involves farm products, 7 USC s. 1631 determines whether the buyer takes free of security interest. Farm Credit Bank of St. Paul v. F&A Dairy,
165 Wis. 2d 360,
477 N.W.2d 357 (Ct. App. 1991).
409.307 Annotation
Buyer in ordinary course of business under article 9 of the uniform commercial code (and related matters). Skilton, 1974 WLR 1.
409.308
409.308
Purchase of chattel paper and instruments. A purchaser of chattel paper or an instrument who gives new value and takes possession of it in the ordinary course of the purchaser's business has priority over a security interest in the chattel paper or instrument:
409.308(1)
(1) Which is perfected under
s. 409.304 (permissive filing and temporary perfection) or under
s. 409.306 (perfection as to proceeds) if the purchaser acts without knowledge that the specific paper or instrument is subject to a security interest; or
409.308(2)
(2) Which is claimed merely as proceeds of inventory subject to a security interest (
s. 409.306) even though the purchaser knows that the specific paper or instrument is subject to the security interest.
409.308 History
History: 1973 c. 215;
1991 a. 316.
409.309
409.309
Protection of purchasers of instruments, documents and securities. Nothing in this chapter limits the rights of a holder in due course of a negotiable instrument (
s. 403.302) or a holder to whom a negotiable document of title has been duly negotiated (
s. 407.501) or a protected purchaser of a security (
s. 408.303) and such holders or purchasers take priority over an earlier security interest even though perfected. Filing under this chapter does not constitute notice of the security interest to such holders or purchasers.
409.309 History
History: 1985 a. 237 ss.
117,
119;
1997 a. 297.
409.310
409.310
Priority of certain liens arising by operation of law. When a person in the ordinary course of that person's business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statutory and the statute expressly provides otherwise.
409.310 History
History: 1991 a. 316.
409.310 Annotation
"Possession" under this section is not continuous possession. The priority of a mechanic's lien over a previously existing security interest was retained when the lienor conditionally released the property to the owner who subsequently returned it to the lienor. M&I Western State Bank v. Wilson,
172 Wis. 2d 357,
493 N.W.2d 387 (Ct. App. 1992).
409.311
409.311
Alienability of debtor's rights: judicial process. The debtor's rights in collateral may be voluntarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstanding a provision in the security agreement prohibiting any transfer or making the transfer constitute a default.
409.311 Annotation
If a security agreement does not explicitly provide that transfer of collateral constitutes default and the secured party is not entitled to immediate possession, sale of collateral is not a conversion. Production Credit Association of Chippewa Falls v. Equity Coop Livestock,
82 Wis. 2d 5,
261 N.W.2d 127 (1978).
409.311 Annotation
A condition imposed by a secured party on authorization to sell collateral is ineffective unless performance of the condition is within the buyer's control. Production Credit AssociatIon of Madison v. Nowatzski,
90 Wis. 2d 344,
280 N.W.2d 118 (1979).
409.312
409.312
Priorities among conflicting security interests in the same collateral. 409.312(1)
(1) The rules of priority stated in
ss. 409.301 to
409.311 and
409.313 to
409.318 and in the following sections shall govern when applicable:
s. 404.210 with respect to the security interests of collecting banks in items being collected, accompanying documents and proceeds;
s. 409.103 on security interests related to other jurisdictions;
s. 409.114 on consignments; and
s. 409.115 on security interests in investment property.
409.312(2)
(2) A perfected security interest in crops for new value given to enable the debtor to produce the crops during the production season and given not more than 3 months before the crops become growing crops by planting or otherwise takes priority over an earlier perfected security interest to the extent that such earlier interest secures obligations due more than 6 months before the crops become growing crops by planting or otherwise, even though the person giving new value had knowledge of the earlier security interest.
409.312(3)
(3) A perfected purchase money security interest in inventory has priority over a conflicting security interest in the same inventory and also has priority in identifiable cash proceeds received on or before the delivery of the inventory to a buyer if:
409.312(3)(a)
(a) The purchase money security interest is perfected at the time the debtor receives possession of the inventory; and
409.312(3)(b)
(b) The purchase money secured party gives notification in writing to the holder of the conflicting security interest if the holder had filed a financing statement covering the same types of inventory before the date of the filing made by the purchase money secured party, or before the beginning of the 21-day period where the purchase money security interest is temporarily perfected without filing or possession (
s. 409.304 (5)); and
409.312(3)(c)
(c) The holder of the conflicting security interest receives the notification before the debtor receives possession of the inventory; and
409.312(3)(d)
(d) The notification states that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.
409.312(4)
(4) A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter.
409.312(5)
(5) In all cases not governed by other rules stated in this section (including cases of purchase money security interests which do not qualify for the special priorities set forth in
subs. (3) and
(4)), priority between conflicting security interests in the same collateral shall be determined according to the following rules:
409.312(5)(a)
(a) Conflicting security interests rank according to priority in time of filing or perfection. Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfected, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection.
409.312(5)(b)
(b) So long as conflicting security interests are unperfected, the first to attach has priority.
409.312(6)
(6) For the purposes of
sub. (5) a date of filing or perfection as to collateral is also a date of filing or perfection as to proceeds.
409.312(7)
(7) If future advances are made while a security interest is perfected by filing, the taking of possession, or under
s. 409.115 or
409.116 on investment property, the security interest has the same priority for the purposes of
sub. (5) or
s. 409.115 (5) with respect to the future advances as it does with respect to the first advance. If a commitment is made before or while the security interest is so perfected, the security interest has the same priority with respect to advances made pursuant thereto. In other cases a perfected security interest has priority from the date the advance is made.
409.312 Annotation
A seller of goods on credit must perfect its claim to priority, under this section, by filing the agreement and financing statements as required by this section. House of Stainless, Inc. v. Marshall & Ilsley Bank,
75 Wis. 2d 264,
249 N.W.2d 561 (1977).
409.312 Annotation
Equipment financing and the lease paradox of article 9. Tuthill, WBB October 1981.
409.313
409.313
Priority of security interests in fixtures. 409.313(1)
(1) In this section and in the provisions of
ss. 409.401 to
409.408 referring to fixture filing, unless the context otherwise requires:
409.313(1)(a)
(a) A mortgage is a "construction mortgage" to the extent that it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates.
409.313(1)(b)
(b) A "fixture filing" is the filing in the office where a mortgage on the real estate would be filed or recorded of a financing statement covering goods which are or are to become fixtures and conforming to the requirements of
s. 409.402 (5).
409.313(1)(c)
(c) Goods are "fixtures" when they become so related to particular real estate that an interest in them arises under real estate law.
409.313(2)
(2) A security interest under this chapter may be created in goods which are fixtures or may continue in goods which become fixtures, but no security interest exists under this chapter in ordinary building materials incorporated into an improvement on land.
409.313(3)
(3) This chapter does not prevent creation of an encumbrance upon fixtures pursuant to real estate law.
409.313(4)
(4) A perfected security interest in fixtures has priority over the conflicting interest of an encumbrancer or owner of the real estate where:
409.313(4)(a)
(a) The security interest is a purchase money security interest, the interest of the encumbrancer or owner arises before the goods become fixtures, the security interest is perfected by a fixture filing before the goods become fixtures or within 10 days thereafter, and the debtor has an interest of record in the real estate; or
409.313(4)(b)
(b) The security interest is perfected by a fixture filing before the interest of the encumbrancer or owner is of record, the security interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the debtor has an interest of record in the real estate; or
409.313(4)(c)
(c) The fixtures are readily removable factory or office machines or readily removable replacements of domestic appliances which are consumer goods, and before the goods become fixtures the security interest is perfected by any method permitted by this chapter;
409.313(4)(d)
(d) The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this chapter; or
409.313(4)(e)
(e) The security interest is created by a master lease entered into by the state under
s. 16.76 (4), the security interest is perfected under
s. 16.76 (4) (e) before the interest of the encumbrancer or owner is of record, the security interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner and the debtor has an interest of record in the real estate.
409.313(5)
(5) A security interest in fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate where:
409.313(5)(a)
(a) The encumbrancer or owner has consented in writing to the security interest or has disclaimed an interest in the goods as fixtures; or
409.313(5)(b)
(b) The debtor has a right to remove the goods as against the encumbrancer or owner. If the debtor's right terminates, the priority of the security interest continues for a reasonable time.
409.313(6)
(6) Notwithstanding
sub. (4) (a) but otherwise subject to
subs. (4) and
(5), a security interest in fixtures is subordinate to a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent that it is given to refinance a construction mortgage, a mortgage has this priority to the same extent as the construction mortgage.
409.313(7)
(7) In cases not within the preceding subsections, a security interest in fixtures is subordinate to the conflicting interest of an encumbrancer or owner of the related real estate who is not the debtor.
409.313(8)
(8) When the secured party has priority over all owners and encumbrancers of the real estate, the secured party may, on default, subject to
ss. 409.501 to
409.507 remove the secured party's collateral from the real estate but the secured party must reimburse any encumbrancer or owner of the real estate who is not the debtor and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate security for the performance of this obligation.
409.313(9)
(9) The priority provisions of this section do not apply to security interests in vehicles for which certificates of title are required under
ch. 342 and which are subject to
s. 409.302 (3) (b).
409.313 Annotation
Legislative Council Note, 1973: Sub. (9) is not contained in the official text. It was added by the Special Committee to make it clear that vehicles perfected by filing under the motor vehicle title statutes, including mobile homes, are not subject to fixture filing regardless of how they may be attached to the land; therefore, the rules of priority set out in this section do not apply. (Bill 177-S)
409.314(1)(1) A security interest in goods which attaches before they are installed in or affixed to other goods takes priority as to the goods installed or affixed (called in this section "accessions") over the claims of all persons to the whole except as stated in
sub. (3) and subject to
s. 409.315 (1).
409.314(2)
(2) A security interest which attaches to goods after they become part of a whole is valid against all persons subsequently acquiring interests in the whole except as stated in
sub. (3) but is invalid against any person with an interest in the whole at the time the security interest attaches to the goods who has not in writing consented to the security interest or disclaimed an interest in the goods as part of the whole.
409.314(3)
(3) If the subsequent purchase is made, the lien by judicial proceedings obtained or the subsequent advance under the prior perfected security interest is made or contracted for without knowledge of the security interest and before it is perfected, the security interests described in
subs. (1) and
(2) do not take priority over:
409.314(3)(a)
(a) A subsequent purchaser for value of any interest in the whole; or
409.314(3)(b)
(b) A creditor with a lien on the whole subsequently obtained by judicial proceedings; or
409.314(3)(c)
(c) A creditor with a prior perfected security interest in the whole to the extent that the creditor makes subsequent advances.
409.314(3m)
(3m) A purchaser of the whole at a foreclosure sale other than the holder of a perfected security interest purchasing at that holder's own foreclosure sale is a subsequent purchaser within this section.
409.314(4)
(4) When under
subs. (1) or
(2) and
(3) a secured party has an interest in accessions which has priority over the claims of all persons who have interests in the whole, the secured party may on default subject to
ss. 409.501 to
409.507 remove the secured party's collateral from the whole but the secured party must reimburse any encumbrancer or owner of the whole who is not the debtor and who has not otherwise agreed for the cost of repair of any physical injury but not for any diminution in value of the whole caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the security party gives adequate security for the performance of this obligation.
409.314 History
History: 1991 a. 316.
409.315
409.315
Priority when goods are commingled or processed. 409.315(1)(1) If a security interest in goods was perfected and subsequently the goods or a part thereof have become part of a product or mass, the security interest continues in the product or mass if:
409.315(1)(a)
(a) The goods are so manufactured, processed, assembled or commingled that their identity is lost in the product or mass; or
409.315(1)(b)
(b) A financing statement covering the original goods also covers the product into which the goods have been manufactured, processed or assembled.
409.315(1m)
(1m) In a case to which
sub. (1) (b) applies, no separate security interest in that part of the original goods which has been manufactured, processed or assembled into the product may be claimed under
s. 409.314.
409.315(2)
(2) When under
sub. (1) more than one security interest attaches to the product or mass, they rank equally according to the ratio that the cost of the goods to which each interest originally attached bears to the cost of the total product or mass.
409.316
409.316
Priority subject to subordination. Nothing in this chapter prevents subordination by agreement by any person entitled to priority.
409.317
409.317
Secured party not obligated on contract of debtor. The mere existence of a security interest or authority given to the debtor to dispose of or use collateral does not impose contract or tort liability upon the secured party for the debtor's acts or omissions.
409.318
409.318
Defenses against assignee; modification of contract after notification of assignment; term prohibiting assignment ineffective; identification and proof of assignment. 409.318(1)(1) Unless an account debtor has made an enforceable agreement not to assert defenses or claims arising out of a sale as provided in
s. 409.206 the rights of an assignee are subject to:
409.318(1)(a)
(a) All the terms of the contract between the account debtor and assignor and any defense or claim arising therefrom; and
409.318(1)(b)
(b) Any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives notification of the assignment.
409.318(2)
(2) So far as the right to payment or a part thereof under an assigned contract has not been fully earned by performance, and notwithstanding notification of the assignment, any modification of or substitution for the contract made in good faith and in accordance with reasonable commercial standards is effective against an assignee unless the account debtor has otherwise agreed but the assignee acquires corresponding rights under the modified or substituted contract. The assignment may provide that such modification or substitution is a breach by the assignor.
409.318(3)
(3) The account debtor is authorized to pay the assignor until the account debtor receives notification that the amount due or to become due has been assigned and that payment is to be made to the assignee. A notification which does not reasonably identify the rights assigned is ineffective. If requested by the account debtor, the assignee must seasonably furnish reasonable proof that the assignment has been made and unless the assignee does so the account debtor may pay the assignor.
