MEMORANDUM *

Metropolitan Bank & Trust Co. (Metropolitan) appeals from the district court’s judgment for Pacific Business Capital Corp. (PBCC) after a bench trial on PBCC’s conversion claim. We have jurisdiction under 28 U.S.C. § 1291. “We review the district court’s findings of fact after a bench trial for clear error and its conclusions of law de novo.” Friends of Yosemite Valley v. Norton, 348 F.3d 789, 793 (9th Cir. 2003). We affirm in part and reverse in part.

I

To establish a defense under Uniform Commercial Code (U.C.C.) § 9-308(a) 1 Metropolitan needed to prove that without its own actual knowledge of PBCC’s security interest, it (1) gave new value for the mobile home loan contracts (Home Loans) and (2) took possession of the Home Loans in the ordinary course of its business. See U.C.C. § 9-308 cmt. 3; 9 Anderson on the Uniform Commercial Code § 9-308:7 (1999); see also Cal. Comm.Code § 1201(25)(c) (noting that “[a] person ‘knows’ or has ‘knowledge’ of a fact when he or she has actual knowledge of it.”). The district court incorrectly attributed Mountain Community Bank’s knowledge to Metropolitan. As the district court did not determine whether Metropolitan acted without actual knowledge of PBCC’s security interest with respect to the initial 128 Home Loans or the substitute Home Loans, we must reverse for it to make these findings. 2

*766 II

The district court properly rejected Metropolitan’s U.C.C. § 9-306(2) defense. To establish this defense, Metropolitan needed to prove the transactional documents between PBCC and Silver State Mobile Homes and Galaxy Financial Services (collectively, Silver/Galaxy) authorized Silver/Galaxy to sell Home Loans. The transactional documents authorized Silver/Galaxy to sell Home Loans only with PBCC’s express written consent. The district court’s apparent reading of section 2(f) of the Pledge Agreements as a prohibition against selling Home Loans without consent is consistent with the scope of the Pledge Agreements. It also matches the parties’ course of conduct. As PBCC did not expressly consent to Silver/Galaxy’s initial sale of 128 Home Loans to Mountain Community Bank — or Silver/Galaxy’s subsequent transfer of substitute Home Loans to Metropolitan — Metropolitan’s U.C.C. § 9-306(2) defense fails. 3

III

Finally, the district court’s damage award was not faulty or overstated. 4 First, under California Commercial Code § 9503, PBCC had a right to take possession of the Home Loans on April 3, 1998, the date Silver/Galaxy caused an “Event of Default” under the transactional documents by selling Home Loans without PBCC’s consent. Second, the district court reasonably refused to reduce damages for returned Home Loans. To the extent these returned loans had any value, the value was realized, for the most part, by Silver/Galaxy and not PBCC. Third, the district court reasonably concluded the Home Loans’ actual value at the time of conversion was at least equal to the amount Metropolitan originally paid for those loans.

Each party shall bear its own costs on appeal.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.