Purchase-Money Security Interest. When a customer opens a credit-card account with Sears, Roebuck & Co, the customer fills out an application and sends it to Sears for review; if the application is approved, the customer receives a Sears card. The

Question

application contains a security agreement, a copy of which is also sent with the card. When a customer buys an item using the card, the customer signs a sales receipt that describes the merchandise and contains language granting Sears a purchase-money security interest (PMSI) in the merchandise. Dayna Conry bought a variety of consumer goods from Sears on her card. When she did not make payments on her account, Sears filed a suit against her in an Illinois state court to repossess the goods. Conry filed for bankruptcy and was granted a discharge. Sears then filed a suit against her to obtain possession of the goods through its PMSI, but it could not find Conry's credit-card application to offer into evidence. Is a signed Sears sales receipt sufficient proof of its security interest? In whose favor should the court rule? Explain.

Answer 1

Purchase-money security interest
The court ruled in favor of Conry. Sears appealed to a state intermediate appellate court, which reversed the order of the lower court. The appellate court held that "a security interest was adequately proven by Sears when it produced [Conry's] signed credit card sales receipts incorporating a Sears security agreement by reference and stating that [she] granted Sears a security interest in the merchandise." The court acknowledged that a security interest "is not enforceable against the debtor with respect to the collateral and does not attach unless the debtor has signed a security agreement which contains a description of the collateral, value has been given, and the debtor has rights in the collateral." The court noted that "other courts have ruled that signed Sears sales receipts or invoices with identical or similar language to the sales receipts in this case provided sufficient proof of such a security interest." In this case, Conry "signed Sears credit card sales receipts incorporating a security agreement by reference and granting Sears a security interest in the items purchased. . . . [T]he signed Sears credit card receipts [satisfy] the Illinois statutory requirement of a signed security agreement."