AN UPDATE ON ADVERSE CLAIMS AND PROPERTY INTERESTS
UNDER UCC ARTICLE 8
In Meadow Homes Development Corp. v. Bowens, the Horvats agreed to sell a security to Meadow Homes Development (Meadow) for $50,000, then turned around and sold the security to Bowens. The Horvats being insolvent, Meadow sued Bowens to recover the security for the $50,000 price it had agreed to pay the Horvats. Bowens responded that under Article 8 of the Uniform Commercial Code he was a "protected purchaser" of the security who took the security free of adverse claims.
Much of the Uniform Commercial Code is devoted to liberating commercial objects from their histories in order to afford transactions a certain amount of finality. The good faith purchaser for value of Article 2, the holder in due course of article 3, the holder to whom a negotiable document of title has been transferred under Article 7, and the buyer in the ordinary course of business of Article 9 are all fellows with the protected purchaser of Article 8: All are allowed to rise above various squabbles about title and rights that might impede the flow of commerce.
To qualify as a "protected purchaser" of a security, a purchaser can not have notice of an adverse claim to the security. Bowens was a party to the original agreement for the sale of the security to Meadow, and so he knew that by selling him the security, the Horvats were breaching their agreement. But was this knowledge of an adverse claim?
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