In re M & S Grading, Inc.
Bankruptcy Appellate Panel for the Eighth Circuit
457 F.3d 898 (2006)
CIT Group/Equipment Financing (CIT) (creditor) leased certificated equipment to Fehrs Nebraska Tractor & Equipment (Fehrs), retaining the certificates of title; before the lease expired, Fehrs sold the equipment to M & S Grading (M&S Grading) (debtor), then went out of business. M&S Grading later filed bankruptcy, including the equipment in its estate, and CIT sued to recover it; the bankruptcy court, applying UCC §2A-305(3), found Fehrs never had title to the certificated goods and thus couldn't transfer title to M&S Grading, meaning CIT still owned the equipment, and M&S Grading appealed, arguing an analogous sales provision didn't require a buyer in the ordinary course to obtain a certificate of title.
Whether a buyer of leased, certificated goods from an existing lessee, who is a merchant dealing in such goods, receives only the ownership interest the lessee itself held, rather than full title, under Uniform Commercial Code §2A-305(3).