In re: JERSEY TRACTOR TRAILER TRAINING INC v. JERSEY TRACTOR TRAILER TRAINING, INC. and YALE FACTORS NJ, LLC Yale Factors NJ, LLC

Honorable Jan E. DuBois, Senior Judge, United States*
District Court for the Eastern District of Pennsylvania, sitting by
designation.
1
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-3471
In re: JERSEY TRACTOR TRAILER TRAINING INC,
Debtor
------------------------------
WAWEL SAVINGS BANK,
v.
JERSEY TRACTOR TRAILER TRAINING, INC. and
YALE FACTORS NJ, LLC
Yale Factors NJ, LLC,
Appellant
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civil No. 07-cv-05853)
District Judge: Honorable Mary L. Cooper
Argued: June 26, 2009
Before: BARRY, SMITH, Circuit Judges, and DuBOIS District*
Judge

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(Opinion Filed: September 1, 2009)
Cory M. Gray, Esq. (Argued)
Greenberg Traurig
200 Park Avenue
P.O. Box 677
Florham Park, NJ 07932-0000
Counsel for Appellant
Thomas P. Monahan, Jr., Esq. (Argued)
Law Office of Dennis A. Maycher
935 River Drive
Garfield, NJ 07026
Counsel for Appellee
OPINION OF THE COURT
BARRY, Circuit Judge
This case arises out of the competing claims of Wawel
Savings Bank (“Wawel”) and Yale Factors LLC (“Yale”) to the
accounts receivable of debtor Jersey Tractor Trailer Training, Inc.
(“JTTT”). Wawel entered into a loan agreement with JTTT and its
president, William B. Oliver, for the principal amount of $315,000.
In the corresponding security agreement, JTTT pledged all capital
equipment and assets of the company as collateral, and Wawel
perfected its security interest by filing Uniform Commercial Code
Financing Statements (“UCC-1s”) with the New Jersey Department
of the Treasury and the Bergen County Clerk’s Office.
Approximately one year later, JTTT entered into a factoring
agreement with Yale whereby JTTT agreed to sell the rights to its
accounts receivable in return for, inter alia, a 61.5 percent up-front
payment of the amount due on the particular account receivable.

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Wawel also sought damages from Yale for tortious1
interference and conversion. The Bankruptcy Court found in favor
of Yale on both claims, and Wawel neither challenged that decision
in the District Court nor does so before us.
The parties agree that New Jersey law applies. New Jersey2
has adopted the Revised Article 9 of Uniform Commercial Code
for secured transactions, see N.J.S.A. § 12A:9-101, et seq; the
U.C.C. is codified in New Jersey as N.J.S.A. § 12A, followed by
the relevant U.C.C. section number.
-3-
Yale subsequently filed a UCC-1 statement describing its lien on
all present and after-acquired accounts receivable of JTTT.
On April 4, 2006, JTTT filed a voluntary petition for
bankruptcy under Chapter 11 of the United States Bankruptcy
Code, see 11 U.S.C. § 1101, et seq., and on June 29, 2006, Wawel
brought this action seeking declaratory relief that its lien on JTTT’s
accounts receivable had priority over Yale’s lien; that it was
entitled to the proceeds of JTTT’s accounts receivable that had
been held in escrow following a state action filed by Yale; and that
it was entitled to JTTT’s outstanding accounts receivable until its
lien was satisfied. Because the parties did not dispute that Wawel1
had a “first in time” lien against JTTT’s accounts receivable – and
thus a senior security interest – the central issue was whether Yale
could establish that it maintained a priority position as a matter of
law. See N.J.S.A § 12A:9-322(a)(1); U.C.C. § 9-322(a)(1)
(“Except as otherwise provided . . . [c]onflicting perfected security
interests . . . rank according to priority in time of filing or
perfection.”). More specifically, unless Yale could establish (a)2
that Wawel consented to the sale of JTTT’s accounts receivable
free of its security interest, see U.C.C. § 9-315(a)(1), or (b) that it
was a holder in due course of JTTT’s accounts receivable, see id.
at 9-331(a), or (c) that it was a purchaser of instruments, see id. at
9-330(d), then Wawel was entitled to the relief it sought.
Following a two-day bench trial, the Bankruptcy Court
found in favor of Wawel, stating that it was “entitled . . . to a
judgment granting it . . . all [accounts] receivable proceeds
presently held in escrow, as well as the proceeds of all outstanding

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accounts receivable.” (App. at 97.) The Bankruptcy Court found,
as a matter of fact, that Wawel did not authorize JTTT’s factoring
agreement with Yale, and held that Yale could not be considered
a purchaser of instruments or a holder in due course because it did
not establish that it acted in good faith by observing reasonable
commercial standards of fair dealing. Yale conducted lien searches
for “Jersey Tractor Trailer Training,” omitting “Inc.” from JTTT’s
full corporate name; those searches, the Bankruptcy Court
determined, were substandard. Yale appealed to the District Court
pursuant to 28 U.S.C. § 158(a), and the District Court affirmed.
We will affirm in part because the Bankruptcy Court
properly concluded that Wawel had not authorized the sale of
JTTT’s accounts receivable free of its security interest. The
Bankruptcy Court’s analysis of whether Yale should be considered
a purchaser of instruments or a holder in due course, however, is
undermined by its legal conclusion that a lien search is
commercially unreasonable if it does not include the debtor’s full
corporate name. We will, therefore, vacate the judgment of the
District Court affirming the order of the Bankruptcy Court, and
remand to the District Court with the direction that the case be
remanded to the Bankruptcy Court to determine whether Yale
qualifies as a holder in due course or as a purchaser of instruments.
I. Background
A. Facts
JTTT is a closely-held New Jersey corporation that
specializes in training truck drivers to pass the uniform
Commercial Driver’s License (“CDL”) exam. In January 2002,
JTTT’s owner and president, William B. Oliver, applied to Wawel,
seeking a loan in the amount of $315,000. JTTT’s application was
granted and, on March 7, 2002, JTTT and Wawel entered into a
loan agreement. The corresponding security agreement pledged all
of JTTT’s assets, including its accounts receivable, as collateral for

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A UCC-1 statement setting forth Wawel’s security3
interests was filed with the New Jersey Department of the Treasury
on May 24, 2002, and the Bergen County Clerk’s Office on June
12, 2002. The parties do not dispute that Wawel perfected its
security interest.
Perkal requested a list of JTTT’s clients and performed a4
credit check. Perkal also reviewed Yale’s two most recent monthly
bank statements. Although the two largest payments made by
JTTT during those months were to Wawel, Perkal testified that he
did not see a repetitive deduction for a loan.
-5-
the loan. The agreement further stated that “[i]f this agreement3
includes accounts, I [, Oliver,] will not settle any account for less
than its full value without your written permission [and] I will
collect all accounts until you tell me otherwise.” (App. at 837.)
At the time, the JTTT loan was the largest commercial loan
made by Wawel, and bank president Robert Ranzinger, Sr., was
personally responsible for its administration. In an effort to keep
an eye on JTTT’s finances, Ranzinger asked Oliver to move
JTTT’s business bank accounts to Wawel, and Oliver agreed to do
so. As Ranzinger testified, the security agreement allowed JTTT
to sell its assets, including its accounts receivable, unless it was in
default. It did not, however, allow JTTT to sell its accounts
receivable for less than their full value.
Nevertheless, under Oliver’s direction, JTTT did just that.
On March 12, 2003, Oliver applied to enter into a factoring
agreement with Yale. Before granting Oliver’s application, Harry
Perkal, Yale’s president, engaged in a limited review of JTTT’s
finances. Perkal testified that he asked Dun & Bradstreet to4
perform a lien search on JTTT’s property, and that the search was
conducted on “Jersey Tractor Trailer Training,” although Perkal
knew JTTT’s full name to be “Jersey Tractor Trailer Training,
Inc.” He also testified that Dun & Bradstreet performed monthly
lien searches thereafter. The earliest such search included in the
record is dated May 8, 2003. That search, despite not including
“Inc.” in the search term, revealed a terminated lien against “Jersey
Tractor Trailer Training, Inc.,” but did not reveal Wawel’s

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The agreement stated that JTTT “grants [Yale] a5
continuing first priority interest in and to the Collateral,” (Dist. Ct.
Docket No. 7-3 at 18), which it defined, in pertinent part, as “all
accounts (including [any] accounts purchased by [Yale] . . .).” (Id.
at 14.) Yale filed a UCC-1 financing statement setting forth its
secured interest on March 26, 2003.
If JTTT’s clients failed to pay within 90 days of the6
assignment, Yale charged an extra one percent fee every ten days.
Furthermore, after 90 days, Yale could require JTTT to repurchase
the accounts receivable. Yale did so on a number of occasions
because JTTT’s state and municipal clients would only pay if their
employees passed the CDL test, and a number of them did not.
-6-
outstanding lien.
Yale and JTTT entered into the factoring agreement on
March 20, 2003. The agreement provided that, upon receiving
commitments to pay from its clients, JTTT would assign those
commitments to Yale in exchange for 70 percent of their face value
less an 8.5 percent fee – a net 61.5 percent. JTTT represented on5
each assignment that it was the “sole owner” of each account
receivable “free and clear of all liens, claims, security interests and
encumbrances except in [Yale’s] favor.” (Dist. Ct. Docket No. 7-3
at 28.) When Yale received the payment from JTTT’s clients, it
would rebate the remaining 30 percent to JTTT.6
At the outset of the factoring agreement, Yale wired its
payments into JTTT’s bank account at the Bank of New York, and
Oliver withdrew the money and transferred it to JTTT’s account at
Wawel. Oliver and Perkal agreed, however, that the process took
too long, and soon Perkal sought to wire money directly to JTTT’s
account at Wawel. Because Wawel was a savings and loan bank,
it did not have access to the Federal funds system and was not able
to directly receive wire transfers. Instead, Wawel maintained an
account at the Federal Home Loan Bank of New York (“FHLB”)
to allow its customers access to wire transfers. Beginning in
November 2003, Yale purchased JTTT’s accounts receivable by

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Upon receiving the wired amount from Yale, the FHLB7
would notify Wawel in four ways – by phone, by facsimile, by
letter confirming the transfer, and by a daily update on wires
received. Each facsimile clearly identified the originating party as
“Yale Factors NJ LLC,” and so too did the official record that was
mailed to the bank. Upon notification, Wawel transferred the
wired amount into JTTT’s account. Yale wired money to JTTT on
199 occasions from November 2003 until the end of the factoring
relationship; the transfers amounted to approximately one million
dollars. Ranzinger testified that the wire transfer-related
documents were “clerical” in nature, and that he was “[a]bsolutely
not” aware that JTTT was receiving wired money from Yale.
(App. at 174-75.) The Bankruptcy Court credited his testimony.
Neither Ranzinger nor the Bankruptcy Court discussed the phone
notifications.
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wiring money to Wawel’s account at the FHLB.7
By December 2005, JTTT’s business checking account had
a negligible balance and the company had missed several loan
payments. Ranzinger met with Oliver on December 9, 2005 to
discuss the matter. It was at that time, according to Ranzinger, that
Oliver first notified him of JTTT’s factoring agreement with Yale.
Ranzinger testified that any prior notice of factoring would have set
off “bells and whistles and red lights.” (App. at 156.) Oliver
agreed, testifying that he purposefully concealed the factoring
agreement from Wawel because “if they knew about it[,] I’d be in
big trouble with the bank.” (Id. at 405.) Following the meeting,
Oliver faxed the factoring agreement to Ranzinger, who reviewed
it and demanded a meeting with Yale. That meeting, with Perkal,
Ranzinger, Oliver and JTTT’s accountant in attendance, occurred
on December 20, 2005. At the meeting, Perkal and Ranzinger
discussed the details of the factoring agreement, including the
amount JTTT owed Yale, which was approximately $600,000 in
overdue accounts receivable. Ranzinger testified that he told
Perkal about the Wawel loan, and about Wawel’s security interest
in JTTT’s accounts receivable. Within days after the meeting,
Ranzinger notified Oliver that the factoring agreement was in
violation of the Wawel loan terms. In January 2006, Oliver sought

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Also in March 2006, prior to the expiration of the factoring8
agreement, Yale learned that JTTT had been collecting payments
on its accounts receivable rather than directing those payments to
Yale. Yale then brought an action on March 6, 2006 in the
Superior Court of New Jersey alleging, inter alia, breach of
contract. On March 8, 2006, the Superior Court ordered JTTT to
show cause why Yale was not entitled to preliminary injunctive
relief, and temporarily restrained JTTT from transferring or
otherwise disposing of assets up to $700,000 in value. Wawel
subsequently intervened in the action, which was stayed when
JTTT filed for Chapter 11 bankruptcy.
The decision contained several credibility findings, among9
them that Ranzinger was “highly credible,” and that Oliver’s
testimony carried “little, if any, weight.” (App. at 87, 88). While
the Bankruptcy Court did not expressly address Perkal’s credibility,
it did find – contrary to Perkal’s testimony – that Ranzinger was
unaware of the factoring agreement until December 9, 2005.
-8-
to end the factoring agreement, informing Yale that JTTT would
not renew the agreement when it expired on March 20, 2006.
In March 2006, Perkal reviewed the records of the earlier
lien searches, and discovered that the search term omitted “Inc.”
from JTTT’s full corporate name. He then asked a Yale employee
to conduct a lien search using the full name and that search
revealed Wawel’s lien (including the fact that it was filed one year
before Yale’s).8
B. Procedural History
Wawel filed this action against Yale and JTTT, and the
Bankruptcy Court held a two-day bench trial. The Bankruptcy
Court rejected Yale’s argument that Wawel had consented to
JTTT’s sale of its accounts receivable, and instead found that
Ranzinger and the bank itself “had no actual notice” of the
factoring agreement until “the December 9, 2005 meeting between
Mr. Ranzinger and Mr. Oliver.” (Id. at 88). Because the9
Bankruptcy Court concluded that Wawel did not have knowledge
of JTTT’s sale of its accounts receivable, it held that Wawel could

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The parties have not challenged the Bankruptcy Court’s10
assumption that JTTT’s accounts receivable were instruments for
purposes of Article 9. See U.C.C. § 9-102(a)(47).
-9-
not have “authorized the disposition” of JTTT’s accounts
receivable “free of [its] security interest.” See U.C.C. § 9-
315(a)(1).
The Bankruptcy Court also concluded that Yale could
neither be considered a holder in due course nor a purchaser of
instruments. See U.C.C. § 9-331(a) (Article 9 “does not limit the
rights of a holder in due course of a negotiable instrument . . .
[which] take[s] priority over an earlier security interest, even if
perfected . . . .”); id. § 9-330(d) (stating that a “purchaser of an
instrument has priority over a security interest in the instrument
perfected by a method other than possession if the purchaser gives
value and takes possession of the instrument in good faith and
without knowledge that the purchase violates the rights of the
secured party”). In this context, as the Bankruptcy Court
recognized, the questions of whether Yale is a holder in due course
and whether it is purchaser of instruments overlap significantly.
The Bankruptcy Court first accepted, for purposes of its
analysis, that the invoices associated with JTTT’s accounts
receivable qualified the accounts receivable as “instruments.” See
U.C.C. §§ 9-102(b) and 3-302(a) (“‘holder in due course’ means
the holder of an instrument . . . ”) (emphasis added); id. at § 9-
330(d) (“purchaser of an instrument”) (emphasis added).10
Because it is clear that Yale bought the accounts receivable for
value, the Bankruptcy Court focused on whether Yale had
purchased them in “good faith.” See U.C.C. § 3-302(a) (A person
may only be considered a holder in due course where he has
“t[aken] the instrument for value, in good faith, [and] without
notice” of various defects or claims.); id. at § 9-330(d) (“[A]
purchaser of an instrument [is one who] gives value and takes
possession of the instrument in good faith and without knowledge
that the purchase violates the rights of the secured party.”); id. at §§
3-103(a)(4) and 9-102(a)(43) (“‘Good faith’ means honesty in fact
and the observance of reasonable commercial standards of fair

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The Bankruptcy Court did not reach the notice-related11
requirements for holder-in-due-course and purchaser-of-
instruments status because it determined that Yale had not
purchased the accounts receivable in good faith.
The District Court found “that the findings of fact12
underlying the Bankruptcy Court’s determination that Wawel did
not consent to [JTTT’s] sale of its collateral to Yale free of
Wawel’s security interest[] were not clearly erroneous,” and that
Yale did not act in good faith because it “had a[n unmet] duty to
search both [JTTT’s] correct corporate name, as well as the roots
of that name, for financing statements covering the [d]ebtor’s
accounts receivable.” (App. at 51, 61-62)
-10-
dealing.”). The Bankruptcy Court concluded, without discussion,11
that “Yale failed to observe reasonable commercial standards of
fair dealing . . . when it conducted its series of UCC searches on .
. . the incorrect corporate name.” (App. at 94.) Additionally, it
concluded that “a search of JTTT revealing no significant secured
bank debt, at a time when the company faced liquidity issues
necessitating the use of a factor, should have raised red flags,” and
Yale acted in bad faith by ignoring those flags. (Id.)
Consequently, the Bankruptcy Court found that Wawel was
entitled to “all [accounts] receivable proceeds presently held in
escrow, as well as the proceeds of all outstanding accounts
receivable.” (Id. at 97.) The District Court affirmed.12
II. Jurisdiction & Standard of Review
We have jurisdiction pursuant to 28 U.S.C. § 158(d). “In
reviewing an appeal to a District Court of a bankruptcy decision,
we stand in the shoes of the District Court and review the
Bankruptcy Court’s decision.” In re Sterten, 546 F.3d 278, 282 (3d
Cir. 2008) (quotation marks and citation omitted). Accordingly,
“we review the Bankruptcy Court’s findings of fact for clear error
and its legal conclusions de novo.” In re Pransky, 318 F.3d 536,
542 (3d Cir. 2003).
III. Discussion

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New Jersey has adopted revised Article 9 of the U.C.C.,13
see N.J.S.A 12A:9-101, et sec., and its decisions interpreting the
U.C.C. are binding on us. See Adams v. Madison Realty & Devel.,
853 F.2d 163, 166 (3d Cir. 1988). Where, as here, such case law
is lacking, we look to other courts’ interpretation of the same
language. See id.
Whether Wawel explicitly or implicitly waived its security14
interest in JTTT’s accounts receivable is a “factual [question],
which must be evaluated under the clearly erroneous standard.”
Neu Cheese Co. v. Fed. Deposit Ins. Co., 825 F.2d 1270, 1272 (8th
Cir. 1987); see In re Great W. Sugar Co., 902 F.2d 351, 355 (5th
Cir. 1990); J.I. Case Credit Corp. v. Crites, 851 F.2d 309, 312
-11-
Generally, “[c]onflicting perfected security interests . . .
rank according to priority in time of filing or perfection.” U.C.C.
§ 9-322(a)(1). There are, however, exceptions – three of which
Yale argues apply here. First, a senior secured creditor may waive
its security interest, see id. at § 9-315(a)(1), and Yale asserts that
Wawel did precisely that. Alternatively, Yale asserts that it should
be considered a holder in due course, see id. at § 9-331(a), or a
purchaser of instruments, see id. at § 9-330(d), and should
therefore have priority over Wawel’s senior security interest. We
will address each assertion in turn.13
A. Consent to Sale & U.C.C. § 9-315(a)(1)
Yale’s argument that Wawel waived its security interest in
JTTT’s accounts receivable relies on U.C.C. § 9-315(a)(1), which
states that “a security interest . . . continues in collateral
notwithstanding sale . . . or other disposition thereof unless the
secured party authorized the disposition free of the security interest
. . . .” (Emphasis added). The general rule, as the commentary
notes, is “that a security interest survives the disposition of the
collateral,” and Yale must establish that JTTT’s sale of its accounts
receivable fits within the exception for “authorized disposition
‘free of’ the security interest.” Id. at cmt. 2. The question we must
answer is whether the Bankruptcy Court clearly erred in concluding
that it did not do so.14

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(10th Cir. 1988); see also U.C.C. Permanent Editorial Board (PEB)
Commentary No. 3 (1990) (Whether the secured party authorized
the disposition of collateral “subject to” or “free and clear of” its
security interest presents “a factual question”).
-12-
Yale argues, first, that because the security agreement
accompanying Wawel’s loan to JTTT did not expressly prohibit the
sale of collateral, Wawel waived its security interest. That
argument is without merit, especially given that in its agreement
with Wawel, JTTT represented that it “w[ould] not settle any
account for less than its full value without your written
permission,” and that it would “collect all accounts until [told]
otherwise.” (App. at 837.) JTTT’s sale of its accounts receivable,
therefore, ran afoul of the security agreement.
Alternatively, Yale argues that Wawel, in its course of
dealing, implicitly waived its security interest. That argument has
two components: first, that the Bankruptcy Court clearly erred in
finding that Wawel lacked knowledge of the factoring agreement
until December 9, 2005; and, second, that Wawel approved of the
agreement to the extent that it surrendered its security interest in
JTTT’s accounts receivable. We are receptive to Yale’s position
regarding knowledge. At least one of four officers at Wawel –
each of whom, according to Ranzinger’s testimony, had the
authority to bind the bank – received notification (via phone,
facsimile, or mail) of each of the 199 wire transfers from “Yale
Factors NJ LLC” to JTTT. Cf. NCP Litig. Trust v. KPMG LLC,
901 A.2d 871, 879 (N.J. 2006) (“The imputation doctrine is derived
from common law rules of agency . . . [and p]ursuant to those
common law rules, a principal is deemed to know facts that are
known to its agent”). We assume, therefore, for purposes of our
analysis (and contrary to the Bankruptcy Court’s factual
determination), that Wawel was aware that JTTT was involved
with a factor – and thus was selling its accounts receivable.
Even assuming that knowledge, however, there is a
substantial difference between Wawel knowing of the sale of
JTTT’s accounts receivable, and Wawel authorizing the sale “free
of its security interest.” See U.C.C. § 9-315(a)(1). Yale argues to

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Former U.C.C. § 9-306(2) was, at times, interpreted to15
state that a creditor who knew of but did not prevent the sale of its
collateral had waived its security interest. See, e.g., LifeWise
Master Funding v. Telebank, 374 F.3d 917, 923 (10th Cir. 2004)
(“It is well settled . . . that under [U.C.C.] § 9-306(2), a lienholder
who authorizes the sale of property in which he has a security
interest waives the lien on the collateral . . . [and] courts have even
terminated security interests simply by implying authorization from
a party’s conduct”) (citations omitted); Neu Cheese, 825 F.2d at
1273 (where bank failed to object to debtor’s repeated sales of
collateral its “conduct warrant[ed] an inference of the
relinquishment of the bank’s right in the collateral”). That
interpretation was not unanimous. In J.I. Case Credit Corp., for
example, the Tenth Circuit (interpreting Oklahoma law) held that,
even assuming a creditor knew of the sale of its collateral, it did not
waive its security interest where there was no suggestion in the
record that the creditor “intended to ratify the prior sale and free
the [collateral] from its security interest.” 851 F.2d at 313
(emphasis in original).
The question of whether a creditor’s tacit approval of the
sale of collateral was enough to waive that creditor’s security
interest was also addressed by the American Law Institute’s
Permanent Editorial Board (“PEB”) for the U.C.C. in 1990. See
U.C.C. P.E.B. Commentary No. 3 (1990). The PEB analyzed
whether there was a “conflict between [former] U.C.C. § 9-306(2),
-13-
the contrary, but relies exclusively on cases interpreting former
U.C.C. § 9-306(2), which was replaced by revised U.C.C. § 9-
315(a)(1) in New Jersey, effective July 1, 2001. See U.C.C. § 9-
315 cmt. 2 (stating that “Subsection (a)(1) . . . derives from former
Section 9-306(2)”). The two sections differ in one material respect.
Former § 9-306(2) stated that “a security interest continues in
collateral notwithstanding sale, exchange or other disposition
thereof, unless the disposition was authorized by the secured party
in the security agreement or otherwise . . . ” (emphasis added),
while revised § 9-315(a)(1) states: “a security interest . . . continues
in collateral notwithstanding sale, lease, license, exchange, or other
disposition thereof unless the secured party authorized the
disposition free of the security interest . . . .” (emphasis added).15

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which terminate[d] a security interest upon any disposition of
collateral that ha[d] been authorized by the secured party, and . . .
[former] U.C.C. § 9-402(7), which continue[d] the effectiveness of
a financing statement with respect to collateral that ha[d] been
transferred even though the secured party kn[ew] of and
consent[ed] to the transfer[.]” Id. The PEB found no conflict
because the “intent underlying [§ 9-306(2) was] to permit a
disposition of the collateral free and clear of the security interest
when the secured party has authorized the disposition free and clear
of its security interest . . . .” Id. The PEB continued: § 9-306(2),
which set forth an “exception to the rule of survivability,” applied
only if the secured party specifically “authorized the disposition, by
agreement or otherwise, free and clear of the security interest.” Id.
(emphasis in original). The PEB Commentary was expressly
adopted by revised U.C.C. § 9-315(a)(1). See U.C.C. § 9-315 cmt.
2.
-14-
Consistent with revised U.C.C. § 9-315(a)(1), we must
determine whether there is any evidence to support Yale’s
contention that Wawel impliedly authorized the sale of JTTT’s
accounts receivable free and clear of its security interest. In so
doing, we keep in mind that the theory underlying U.C.C. § 9-
315(a)(1) “is that a security interest would be meaningless if the
secured party could not reach the collateral in the hands of a third
party . . . when the debtor disposes of it without authorization.”
William D. Hawkland, Frederick H. Miller & Neil B. Cohen, 9B
Hawkland U.C.C. Series § 9-315:1 [Rev] (2008). Because § 9-
315(a)(1) does not require a secured party to take action to preserve
its security interest, inaction alone may not lead to a finding of
implied authorization. Inaction, however, is all Yale can
demonstrate – specifically that Wawel failed to stop the ongoing
sales of JTTT’s accounts receivable. Acts of “[i]mplied
authorization . . . must unequivocally demonstrate an intent to
waive the security interest,” Lary Lawrence, 11 Anderson U.C.C.
§ 9-315:9 [Rev] at 439 (2007), and evidence of such unequivocal
intent is absent here.
B. Holder in Due Course & Purchaser of Instruments

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While there are several differences between holders in16
due course and purchasers of instruments, only one is relevant here.
Specifically, to be a holder in due course, Yale must have taken
without knowledge that Wawel had a security interest in the
accounts receivable. See U.C.C. § 3-302(a)(2)(v). Alternatively,
“a purchaser who takes even with knowledge of the security
interest qualifies for priority under [U.C.C. § 9-330(d)] if it takes
without knowledge that the purchase violates the rights of the
holder of the security interest.” See id. at § 9-330 cmt. 7.
-15-
Regardless of whether Wawel waived its security interest,
Yale has priority over that interest if it is either a holder in due
course or a purchaser of instruments. “A holder in due course is
one who takes an instrument for value, in good faith, and without
notice of dishonor or any defense against or claim to it on the part
of any person.” Triffin v. Pomerantz Staffing Servs., LLC, 851
A.2d 100, 103 (N.J. Super. Ct. App. Div. 2004) (quotation marks
and citation omitted); see U.C.C. §§ 9-102(b) and 3-302(a)
(defining holder in due course). If those requirements are met, a
holder in due course “take[s] priority over an earlier security
interest, even if perfected . . . .” U.C.C. § 9-331(a). The same is
true for a purchaser of instruments. See id. at § 9-330(d)
(“purchaser of an instrument has priority over a security interest in
the instrument perfected by a method other than possession . . . ”).
To be considered a purchaser of instruments, Yale must have
“give[n] value and take[n] possession of the instrument in good
faith and without knowledge that the purchase violates the rights
of the secured party.” Id. at § 9-330(d).16
Because it is clear that Yale took the accounts receivable for
value and that they did not bear markings of forgery or
illegitimacy, and because the Bankruptcy Court did not reach the
notice-related requirements in U.C.C. §§ 3-302 and 9-330(d), our
inquiry has one central component – did Yale act in good faith?
“Good faith” is defined in the U.C.C. as “honesty in fact and the
observance of reasonable commercial standards of fair dealing.”
U.C.C. §§ 3-103(a)(4); 9-102(a)(43); see id. at § 9-331 cmt. 5 (“In
order to qualify as a holder in due course, the junior [secured
creditor] . . . not only must act ‘honestly’ but also must observe

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-16-
‘reasonable commercial standards of fair dealing’ under the
particular circumstances”; id. at § 9-330 cmt. 7 “[T]he same good
faith requirement applicable to holders in due course” applies to
purchasers of instruments). This definition has both a subjective
prong – “honesty in fact”– and an objective prong – observance of
“reasonable commercial standards of fair dealing.” See Triffin, 851
A.2d at 104 (“a holder in due course must satisfy both a subjective
and objective test of good faith”). The Bankruptcy Court found,
and the parties do not dispute, that Yale satisfied the subjective
requirement of the good faith definition. At issue in this appeal is
the Bankruptcy Court’s determination with regard to Yale’s
objective good faith — whether it observed “reasonable
commercial standards of fair dealing,” see U.C.C. § 9-330 cmt. 7
– and that “determination . . . [is] reviewed de novo.” In re Joe
Morgan, Inc., 985 F.2d 1554, 1558 (11th Cir. 1993) (citations
omitted).
Yale’s primary argument is that it did, in fact, act in good
faith by following reasonable commercial standards of fair dealing.
As the commentary provides, “‘good faith’ does not impose a
general duty of inquiry, e.g., a search of the records in filing
offices,” but “there may be circumstances in which ‘reasonable
commercial standards of fair dealing’ would require such a search.”
U.C.C. § 9-331 cmt. 5. Neither party disputes that a search was
required under the circumstances here. See id. (“Consider, for
example, a junior secured party in the business of . . . buying
accounts who fails to undertake a search to determine the existence
of prior security interests. Because such a search . . . would enable
it to know or learn upon reasonable inquiry that collecting the
accounts violated the rights of a senior secured party, the junior
may fail to meet the good faith standard”). Instead, the issue is
whether the lien searches conducted by Dun & Bradstreet on
Yale’s behalf comported with reasonable commercial standards of
fair dealing. “[F]air dealing is a broad term that must be defined
in context, [but] it is clear that it is concerned with the fairness of
conduct rather than the care with which an act is performed.”

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We refer to the definition of “good faith” – and the17
corresponding commentary – set forth in Article 3 of the U.C.C.
because the provisions of Article 9 regarding holders in due course
refer to Article 3. See U.C.C. § 9-102(b) (stating that the definition
of “[h]older in due course” in U.C.C. § 3-302 applies to Article 9);
id. at § 9-331 cmt. 5 (“[I]n order to qualify as a holder in due
course, the junior [secured party] must satisfy the requirements of
Section 3-302, which include taking in ‘good faith.’”).
Section 3-302 provides, in relevant part, that a holder in due
course must take an instrument in ‘good faith.” U.C.C. § 3-
302(a)(2)(ii). Section 3-103 defines terms used in Article 3, and –
like Section 9-102(a)(43) – it defines good faith as “honesty in fact
and the observance of reasonable commercial standards of fair
dealing.” See U.C.C. §§ 3-103(a)(4) and 9-102(a)(43). The
commentary to Section 3-103(a) guides our analysis of whether
Yale acted in good faith.
Wawel focuses on the timing of the first search in the18
record, which is May 8, 2003, weeks after Yale and JTTT entered
into their factoring agreement on March 20, 2003. While Perkal,
Yale’s president, testified that at least one search was conducted
before the factoring agreement was executed, he could not produce
documentation of that search, nor did he introduce billing records
-17-
U.C.C. § 3-103 cmt. 4 (emphasis added). It is likewise clear that17
“fair dealing . . . [is] to be judged in the light of reasonable
commercial standards . . . .” Id. Our inquiry, therefore, contains
two steps: “[F]irst whether the conduct of the holder [of the
instruments] comported with industry or ‘commercial’ standards
applicable to the transactions and, second, whether those standards
were reasonable standards intended to result in fair dealing.”
Maine Family Fed’l Credit v. Sun Life Assurance Co. of Canada,
727 A.2d 335, 343 (Me. 1999).
We begin with whether the Dun & Bradstreet lien searches
comported with industry standards. We note, initially, that the lien
searches – using the search term “Jersey Tractor Trailer Training”
and omitting “Inc.,” – revealed a terminated lien on the accounts
receivable of “Jersey Tractor Trailer Training, Inc.” (App. at 764)
(emphasis added). Like the Bankruptcy Court, we are “at a loss18

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to establish that Yale had paid for it.
Ultimately, however, the precise timing is irrelevant. The
factoring agreement provided the framework under which Yale
purchased JTTT’s accounts receivable, which it did each time
JTTT received a new account. (See, e.g., Dist. Ct. Docket No. 7-3
at 28 (JTTT assigning its accounts to Yale while “represent[ing]
that it [was] the sole owner, free and clear of all liens, claims,
security interests and encumbrances except in [Yale’s] favor”).)
The lien search conducted on May 8, 2003 was before Yale
purchased any of the accounts receivable at issue in this case.
Thus, even were we to assume the May 8, 2003 search was the first
search conducted, there is no question that Yale “undert[ook] a
search to determine the existence of prior security interests” before
“collecting the [relevant] accounts” of JTTT. See U.C.C. § 9-331
cmt. 5.
-18-
to understand how and/or why the . . . search[es] failed to disclose
Wawel’s filing,” (id. at 94), but it does not follow that the searches
were commercially substandard. As the search records
demonstrate, the Dun & Bradstreet searches were tailored to
discover liens against “Jersey Tractor Trailer Training” and “Jersey
Tractor Trailer Training, Inc.” That they did not reveal Wawel’s
lien is anomalous – and not evidence of commercial
unreasonableness.
The Bankruptcy Court’s determination to the contrary was
shaped by its reliance on In re Thriftway Auto Supply, Inc., 159
B.R. 948 (W.D. Okla. 1993), aff’d 39 F.3d 1193 (10th Cir. 1994).
The Thriftway court addressed what constituted a “‘reasonably
diligent’ search” in a different context – namely whether a UCC-1
filing statement filed under the wrong name still served to perfect
the creditor’s security interest because it would have been
discovered by a reasonably diligent searcher. See 159 B.R. at 951.
The court held that “a searcher should be required to at least take
advantage of the flexibility offered by a computer system to find all
potential filings with similar names,” id. at 953, by using “minimal
creativity” to search common variants of the debtor’s corporate
name. Id. at 954. But see In re Summit Staffing Polk County, Inc.,
305 B.R. 347, 354 n.7 (Bankr. M.D. Fla. 2003) (collecting cases

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We note that the New Jersey Department of Treasury19
U C C S e a r c h M a n u a l R u l e 1 ( G ) , a v a i l a b l e a t
http://www.state.nj.us/treasury/revenue/dcr/geninfo/uccsrch.html
(last visited July 13, 2009), instructs UCC-1 searchers to exclude
“noise words,” including “Inc.” from their search terms.
-19-
interpreting former Article 9 as requiring a more limited search).
The Bankruptcy Court’s reliance on Thriftway was error, because
“[r]evised Article 9 rejects the duty of a searcher to search using
any names other than the name of the debtor . . . .” Summit Staffing,
305 B.R. at 354-55. Indeed, revised U.C.C. § 9-506(c) narrows the
responsibility of a reasonable searcher, providing that a misfiled
financing statement will be considered seriously misleading unless
“a search of the records of the filing office under the debtor’s
correct name, using the filing office’s standard search logic, if any,
would disclose [the misfiled] financing statement . . . .”
Using revised U.C.C. § 9-506(c) as a guide, we hold that a
commercially reasonable lien search is a “search of the records of
the [relevant state or county] filing office, under the debtor’s
correct name, using the filing office’s standard search logic
. . . .” (emphasis added). It appears that the Dun & Bradstreet
searches met that standard. See Int’l Ass’n of Commercial Adm.,
Uniform Commercial Code, Article 9, Model Administrative Rules,
Rule 503.1.5 (2007) (in conducting searches “words and
abbreviations at the end of an organization name that indicate the
existence or nature of the organization” including “Inc[.],” “are
‘disregarded’ to the extent practicable”). We nevertheless leave19
that determination to the Bankruptcy Court in the first instance.
In this narrow context, the second element of the reasonable
commercial standards of fair dealing inquiry – specifically
“whether [the industry] standards were reasonable standards
intended to result in fair dealing,” Maine Family, 727 A.2d at 343
– yields a clear answer. See U.C.C. § 3-103 cmt. 4 (“fair dealing
is a broad term that must be defined in context”). A lien search that
complies with the standard set forth in U.C.C. § 9-506(c)
necessarily reflects “fairness of conduct,” see id. at § 3-103 cmt. 4,
tailored to reveal senior security interests. Thus, if the lien

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We note, however, that the Bankruptcy Court’s finding20
that Yale acted in good faith is unchallenged and may not be
relitigated.
The Bankruptcy Court expressly did not address whether21
Yale purchased JTTT’s accounts receivable without notice of
Wawel’s security interest. (App. at 94-95 n.7.) If the Bankruptcy
Court were to conclude on remand that Yale had notice, it could
not be a holder in due course. U.C.C. § 3-302(a)(2)(v); see id. at
-20-
searches conducted on Yale’s behalf used the “standard search
logic,” U.C.C. § 9-506(c) – a question left to the Bankruptcy Court
on remand – they were in keeping with reasonable commercial
standards of fair dealing. Whether the searches, if properly
conducted, and Yale’s other pre-factoring-agreement investigation
of JTTT’s business, were sufficient to meet Yale’s duty to deal
fairly in purchasing JTT’s accounts receivable is likewise left to the
Bankruptcy Court on remand. See id. at § 9-331 cmt. 5 (Whether
the junior secured party acts in good faith is “fact-sensitive and
should be decided on a case-by-case basis”).20
The Bankruptcy Court added that “a search of JTTT
revealing no significant bank debt[] at a time when the company
faced liquidity issues necessitating the use of a factor, should have
raised red flags,” and that Yale’s failure to heed those red flags was
evidence of its “reckless[ness].” (App. at 94.) Reasonable
commercial standards of fair dealing doubtlessly require a lien
searcher to “examine the results of a proper search with reasonable
diligence,” Summit Staffing, 305 B.R. at 355, and a complete
absence of secured debt may be an indication that the lien search
was improperly conducted. Yale argues, however, that the absence
of secured debt may not be a “red flag” at all – noting that many
companies that enter into factoring agreements do so because their
credit rating is too low to take out traditional secured loans. While
that might well be so, a wiser course may have been to have
inquired about the absence of not only recently-acquired secured
debt, but also past-acquired debt. The fact that Yale did not do so
is, without more, insufficient support for the Bankruptcy Court’s
conclusion that Yale failed to comport with reasonable commercial
standards of fair dealing.21

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§ 9-330 cmt. 7 (“notice of a conflicting security interest precludes
a purchaser from becoming a holder in due course”). Should the
Bankruptcy Court reach that conclusion, Yale nevertheless could
be a U.C.C. § 9-330(d) purchaser of instruments provided that it
bought the accounts receivable without the knowledge that its
purchase violated the terms of the security agreement between
Wawel and JTTT. See id. at § 9-330(d) cmt. 7. We leave both
fact-based determinations to the Bankruptcy Court.
-21-
III. Conclusion
For the foregoing reasons, we will affirm the District
Court’s decision to the extent it affirms the Bankruptcy Court’s
determination that Wawel did not waive its security interest in
JTTT’s accounts receivable. We will, however, vacate and remand
that part of the District Court’s decision that affirms the
Bankruptcy Court’s holding that Yale did not act in good faith and
therefore cannot be a holder in due course or a purchaser of
instruments. Accordingly, the District Court is to remand this
matter to the Bankruptcy Court to determine whether Yale qualifies
as a holder in due course or a purchaser of instruments, and to
resolve the good faith element of that analysis in accordance with
this Opinion.

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