Barbri Secured Transactions Practice Test

To understand what is required for a consignment relationship to transform into a security interest, it’s essential to recognize the nature of the relationship between the consignor and consignee. When dealing with consignments, a consignor typically provides goods to a consignee to sell on their behalf. However, for this arrangement to be considered a security interest rather than just a consignment, particular criteria must be met.

The correct option highlights that the consignee must not generally sell other people's goods. This is crucial because if a consignee sells other goods, it suggests they are operating more like a retailer than a mere facilitator for the consignor. A security interest implies that the consignee holds the goods in a way that highlights a power of sale, but with the expectation that they are the agent of the consignor, not an independent seller of their own goods. This exclusivity is key in determining that the consignee's role is more aligned with a fiduciary responsibility towards the consignor rather than an open market seller.

When a consignee primarily handles the consignor's goods and does not engage in selling goods from other consignors or their inventory, it strengthens the argument that a security interest exists. This focuses the relationship more tightly between the consignor and