Downtown Appliance is a local appliance store located in Columbia, Missouri that sells its products primarily to local consumers. Also, on rare occasions in the past, Downtown Appliance has sold its product to other wholesale stores. Downtown Appliance finances much of its operations with loans from Boone National and historically keeps $500,000 of inventory on hand. Also, Downtown Appliance has granted Boone National a security interest in its inventory, and Boone National properly perfected the security interest by filing a UCC-1 financing statement.
Last month Out-of-Town Appliance, a wholesale appliances chain operating in the Midwest, purchased large quantities of the following items from Downtown Appliance (1) refrigerators; (2) gas and electric ranges; (3) dishwashers; and (4) ovens. At the time of the purchase, Downtown Appliance told Out-of-Town Appliance it would receive a 10% discount on the purchase price of $300,000 (for a total sales price of $270,000) because unloading such a large amount of its inventory would finally allow Downtown Appliance to wind down its appliances business and start up a real estate speculation venture.
Yesterday, Out-of-Town Appliance received a letter from Boone National detailing that last week Downtown Appliance had defaulted on its obligations and that since it possesses a security interest in Downtown Appliance’s inventory, Out-of-Town Appliance would be required to surrender all of the appliances recently purchased.
Which of the following statements is true?
1. Because all transactions that exceed $100,000 are treated as a “bulk sale” under the UCC, Out-of-Town Appliance will not qualify as a buyer in the ordinary course of business and must adhere to Boone National’s request.
2. Because Downtown Appliance has made past sales to wholesalers, its sale to Out-of-Town Appliance will be treated as a sale in the ordinary course of business.
3. Because the sale involved over half of Downtown Appliance's inventory and Out-of-Town Appliance has notice that Downtown Appliance was winding down its business as an appliance retailer, this sale will likely be treated as a “bulk sale" not in the ordinary course of business.
4. For the purposes of determining whether a “bulk sale” has occurred, the buyer’s knowledge (actual or constructive) regarding the seller’s future business plans is irrelevant.