If the interest in the deposit takes precedence over a security interest previously declared by an inventory lender for the recipient, does the priority of the shipper`s interest extend to the proceeds from the sale of the goods shipped? Lenders have two options if they discover by due diligence that a borrower is a shipper who owns shipped goods that are delivered to a recipient for sale. First, a lender may perfect a security right over the goods shipped by taking the following steps: A shipment is, under customary law, a surety of goods by a supplier (the shipper) on sale to a merchant (the consignee).  The shipper remains the owner of the goods shipped. The recipient is actually a sales agent for the shipper when selling the goods. The recipient, when selling them, sells them on behalf of the sender, takes a commission on the sale and takes precedence over the balance of the proceeds from the sale to the sender. If the goods are not sold, the consignee is not obliged to pay for the goods and instead returns them to the sender. When the shipped goods are returned to the sender, is the return subject to the interest of the insured lender`s guarantee of the inventory? The shipper must take the same steps as a party with an asset purchase guarantee, so that its interest in deposit takes precedence over the guarantee interest of a lender of the secured beneficiary, where the secured lender has previously filed against the beneficiary an effective financing statement covering the recipient`s inventory.  The consignor must conduct a PEC search against the consignee in the State where the consignee is located, as provided for in Section 9 to 307 of the PEC. If the recipient is a U.S. organized capital company, limited liability company, limited partnership, or legal business corporation, the home state would be the state under whose law the recipient was organized.
The consignor may take the position that the consignment is not covered by the CSCE definition of the term “consignment”, generally because the consignee “is well known to his creditors that he is primarily involved in the sale of the goods of others”. If the shipper succeeds with this argument, the shipper, as the owner of the goods, prevails over the claims and interests of the creditors and the receiver`s liquidator, as mentioned above. However, this position depends on facts that may or may not favour the shipper and leads to costly and lengthy litigation. A shipper`s understanding of the business rules applicable to shipments, including those of the PEA, and the shipper`s careful planning should avoid this type of dispute. . . .