Bank is providing financing to Transworld Airlines (Transworld), and has secured this financing by taking a security interest in Transworld’s airplanes. Bank has properly perfected its security interest in the airplanes. When the airplanes reach a certain mileage point, Transworld sells the airplanes to buy new planes. This is the standard industry practice. Transworld has sold dozens of airplanes to SEC Airlines, a competitor, in a regular fashion for about a year or so. Transworld did not gain Bank’s consent to make these sales, but Bank did not object to the sales upon learning of them. Does Bank still have a security interest in the planes sold to SEC Airlines?
1. No, because its failure to object to the sales established authorization to sell by course of performance.
2. Yes, because under Article 9, a buyer of collateral takes subject to pre-existing security interests under the derivative title rule.
3. No, because SEC is a buyer in the ordinary course of business.
4. Yes, because Bank had properly perfected its security interest in the airplanes.