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Watch out for security interests when you purchase goods

By Melissa Higham - 7 Sep 2012

There are many things a buyer must think about when buying goods. One that is often overlooked, with serious consequences, is securities which may be registered over the goods you are buying. If there is a security over the goods you are buying, you may not get clear title to those goods.

Under the Personal Property Securities Act a buyer of goods takes the goods free of any security interest when the goods are sold in the ordinary course of the seller's business unless the buyer knows that the sale constitutes a breach of a security agreement.

The recent case of Stockco Limited v Gibson highlights the importance of a buyer accurately assessing when goods are in fact being sold "in the ordinary course of business".  

In this case Stockco relied on the vendor's representation that the sale of livestock was in the ordinary course of the vendor's business. The Court found that it was not.   This case confirms that relying on a vendor's representation is no longer enough.  

As a buyer you should make your own enquiries as to:

  1. any security interests held in the goods; and
  2. whether the sale is within the seller's ordinary course of business.  

Working out whether a sale is within the seller's ordinary course of business requires investigation into the factual circumstances of the sale. You must consider whether the sale is an isolated transaction or is part of a wider transaction that is out of the ordinary. If so, further investigations should be made to ensure that you can make the purchase free of any security interest. 

If there are security interests and there is any question as to whether the sale is in the seller's ordinary course of business, the safest and best approach is to seek a release of the security interests held over the goods you are buying.

Prudent purchasers should always check the Personal Property Securities Register for any security interests and deal with any potential problems before they arise.  Better not to take the risk!

For more information, or if you have any concerns relating to any purchase you may be making, please contact:

Melissa Higham


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