IX. — 5:303 Transfer of encumbered asset

Where ownership of an encumbered asset is transferred to another person, neither the existence nor the effectiveness against third persons of a security right in the asset is affected. As of the time of the transfer, the transferee is regarded as the security provider.

The preceding paragraph does not apply if the transferor acted with authority to dispose of the encumbered asset free of the encumbrance or if the transferee acquires the asset free of the encumbrance on the basis of a good faith acquisition.

Security rights which before transfer of ownership of the encumbered asset had been created for secured creditors in future assets of the new owner do not have priority over security rights encumbering the transferred asset at the time of the transfer.

The preceding paragraphs apply with appropriate adaptations where there is a transfer of the rights of a buyer, hire-purchaser, lessee or consignee in or relating to the supplied assets subject to an existing retention of ownership device.