Fariba

On these appeals we are confronted with an issue of first impression that centers on tire interpretation of those portions of the California Uniform Commercial Code dealing with the priority of security interests in personal property among competing creditors. Specifically, where a secured creditor of a business has actual knowledge that the business is substantially engaged in selling the goods of others, i.e., consignment sales, are the rights of the consignor superior to those of the secured creditor? We hold that they are.

INTRODUCTION

Plaintiff Behyar Fariba is an automobile wholesaler. California Auto Sales & Leasing (CASL), which is not a party to this action, was an independent retail automobile dealer to which Fariba provided vehicles on a consignment basis. Defendant Dealer Services Corporation (DSC) is a finance company that financed CASL’s inventory under a written promissory note and had a perfected security interest in, among other things, CASL’s inventory of vehicles.

When CASL went out of business and Fariba attempted to retrieve his vehicles, he discovered 14 of his vehicles were being repossessed by DSC. When DSC refused to return the vehicles, Fariba…