344
Chapter 20
Title, Risk, and Insurable
Interest
Case 20.1
283 Conn. 65, 925 A.2d 1048
Supreme Court of Connecticut.
Kerstin LINDHOLM
v.
Peter M. BRANT et al.
No. 17729.
Argued Nov. 29, 2006.
Decided July 3, 2007.
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 345
plaintiff did not appeal from the judgment in favor of the Brant Foundation, Inc., and withdrew her complaint against
Malmberg prior to trial. For purposes of this appeal, therefore, references to the defendant are to Peter M. Brant.
FN3. General Statutes § 42a-2-403(2) provides: “Any entrusting of possession of goods to a merchant who deals in
goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.”
The record reveals the following facts and procedural history, as detailed in the trial court’s memorandum of decision. The plaintiff
was introduced to Anders Malmberg, a Swedish art dealer, in the late 1970’s or early 1980’s during the course of her marriage to
FN4. The defendant had purchased Red Elvis in or around 1969, when he was a young college student, and had owned
the painting fora brief period of time.
In 1996, the Guggenheim Museum (Guggenheim) decided to sponsor an exhibition of Warhol paintings that would travel to several
European venues, ending in New York City during the summer of 2000. Vivien Greene, an assistant curator at the Guggenheim,
prepared a list of Warhol works of art to be considered for inclusion in the exhibition. Red Elvis was one of the works of art on the
dealer. At that time, the defendant did not personally know either the plaintiff or Lindholm.
Through the efforts of Holm, who had contacted Malmberg, the plaintiff agreed to lend Red Elvis to the exhibition. Holm notified
the defendant that the plaintiff would lend Red Elvis to the Guggenheim and that her name would be listed on the loan forms.
Malmberg helped the plaintiff to complete the loan forms, in which the plaintiff requested that the exhibition display Red Elvis with
an identification plaque that read “ ‘Private Collection, Courtesy Anders Malmberg, Malmo, Sweden.’ ” The defendant assisted the
FN5. This order was not lifted until the Lindholms’ divorce was finalized in June, 2000.
During this same time period, Holm, who had been working closely with the defendant in the purchase and sale of other Warhol
works of art, advised the defendant, on the basis of a conversation with Malmberg, that Malmberg had purchased **1052 Red
Elvis. Holm also asked whether the defendant would be interested in purchasing the painting if it became available for sale.
FN6. The Art Loss Register is a permanent international database of stolen and missing works of art recognized as the
best mechanism for determining whether a piece of art is stolen.
The defendant and Malmberg exchanged numerous drafts of the contract during the negotiations, which were completed on March
20, 2000. Ultimately, Malmberg agreed to delay payment of the balance until the delivery of Red Elvis to a bonded warehouse in
FN7. “Flipping” is a term of art in the art industry that refers to a situation in which the purchaser of a painting immediately
sells the painting for a higher price. The second purchase is often conditioned on the new owner’s concealing the sale
from the original owner. To prevent flipping, owners often will ask purchasers to agree not to resell the painting for a
period of one year.
**1053 On February 17, 2000, during the contract negotiations between the defendant and Malmberg, the Guggenheim notified the
shipped to Denmark because, at that time in the negotiations, he had agreed to accept delivery there. Myerowitz then told Greene
about her conversation with the defendant, after which Greene called the plaintiff. During this conversation, the plaintiff informed
*73 Greene that she had changed her mind and had decided to lend the painting to the Louisiana Museum. The plaintiff also
informed Greene that Red Elvis should be released to Malmberg’s custody because he was going to arrange for the shipment of
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 347
but, instead, relied on Malmberg’s representations that the painting was there. In the fall of 2000, Malmberg informed the plaintiff
that Red Elvis had not arrived at the Louisiana Museum in time to be a part of the exhibition. Thereafter, following an inquiry from
Malmberg, the plaintiff authorized the sale of Red Elvis for $4.6 million to a Japanese buyer. The plaintiff authorized Malmberg to
ship Red Elvis to Japan. In January, 2001, the plaintiff met with Malmberg and delivered an invoice conveying title to Red Elvis
*74 to one of Malmberg’s companies, Eagle Eye Art Investments, Inc. The plaintiff agreed to have the sale proceeds sent directly
FN8. In January, 2003, the plaintiff filed a complaint in Sweden seeking to have Malmberg criminally prosecuted. In
March, 2003, the Swedish court convicted Malmberg of gross fraud embezzlement and rendered judgment in favor of the
plaintiff in the amount of $4.6 million. The Swedish court allowed the plaintiff to pursue additional damages against
Malmberg in the future. Subsequently, on May 24, 2005, the plaintiff withdrew her claims against Malmberg in this
action. See footnote 2 of this opinion.
reasonable commercial standards of fair dealing in the art industry and by taking reasonable steps to investigate title. The court
further recognized that “the vast majority of art transactions … are completed on a handshake and an exchange of an invoice,” and
found that the defendant had taken the unusual steps of “retaining counsel, authorizing counsel to engage in due diligence and
insisting on formal contract documents [containing warranties and representations] in addition**1055 to an invoice.” In addition,
the court indicated that the defendant’s counsel had conducted a lien search and *76 an Art Loss Register search that revealed no
Malmberg’s ability to convey title; (2) applicable commercial standards of fair dealing required the defendant to “investigate [the
transaction] scrupulously”; (3) the investigation conducted by the defendant’s counsel provided only “minimal assurances” that
Malmberg had good title; (4) Malmberg refused to provide documentary proof that he owned Red Elvis; and (5) the defendant
could have discovered that Malmberg did not have good title and that a court order precluded the plaintiff from selling the painting
if he had telephoned the plaintiff, the plaintiff’s counsel, Lindholm, or Lindholm’s counsel. We disagree and, accordingly, affirm the
[4][5] The plaintiff claims that the trial court improperly found that the defendant had established his affirmative defense that he was
a buyer in the ordinary course, and, therefore, took all of the plaintiff’s rights to Red Elvis. “It is an elementary rule that whenever
the existence of any fact is necessary in order that a party may make out his case or establish his defense, the burden is on such
party to show the existence of such fact.” (Internal quotation marks omitted.)
Zhang v. Omnipoint Communications Enterprises,
Inc.,
272 Conn. 627, 645, 866 A.2d 588 (2005). Therefore, the burden was on the defendant to show the existence of such facts
course of business.
A “ ‘[b]uyer in [the] ordinary course of business’ ” is defined as “a person that buys goods in good faith, without knowledge that the
sale violates the rights of another person in the goods, and in the ordinary course from a person … in the business of selling goods
of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices
in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices….” General Statutes §
42a-1-201(9).FN9 A person buys goods in good faith if there *79 is “honesty in fact and the observance of reasonable commercial
standards of fair dealing” in the conduct or transaction concerned. General Statutes § 42a-1-201(20).FN10
FN9. The trial court in its analysis relied on the current version of § 42a–1-201(9). At the time of the sale from Malmberg
to the defendant, a buyer in the ordinary course of business was defined as “a person who in good faith and without
knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys
FN10. The trial court in its analysis used the version of the statute in effect at the time of the sale, which provided that “
‘[g]ood faith’ in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of
fair dealing in the trade.” General Statutes (Rev. to 1999) § 42a-2-103 (1)(b). That language currently is codified at §
42a-1-201(20). See Public Acts 2005, No. 05-109, § § 7 and 23. Because both definitions contain identical language,
we refer to the current definition of good faith in § 42a-1-201(20) for convenience.
conditions of the purchase.
We are compelled to conclude, however, that the sale from Malmberg to the defendant was unlike the vast majority of art
transactions. The defendant had good reason to be concerned that Lindholm might have claims to the painting. Several courts
have held that, under such circumstances, a handshake and an exchange of invoice is not sufficient to confer status as a buyer in
the ordinary course. In
Porter v. Wertz,
68 A.D.2d 141, 143, 416 N.Y.S.2d 254 (1979), aff’d, 53 N.Y.2d 696, 421 N.E.2d 500, 439
ordinary course of business status. Id., at 146-47, 416 N.Y.S.2d 254.
In
Howley v. Sotheby’s, Inc.,
New York Law Journal, Vol. 195 (February 20, 1986) p. 6, col. 3B, the owner of a painting sought its
recovery from the defendant art dealer. The defendant had purchased the painting from the caretaker of the owner’s home, who
had posed as the owner’s nephew, even though the defendant was unsure whether the “owner’s nephew” had authority to sell the
painting. Id. The court concluded that, because the defendant was a professional art dealer, he should have been “scrupulously
This doubt led to a duty to obtain some verification that the seller had good title. Because the buyer had made no efforts to verify
title to the painting, choosing to rely solely on the seller’s assurances, the court concluded that the buyer had not fulfilled his duty
and was liable for conversion. Id., at 368-69.
*82 Finally, in
Morgold, Inc. v. Keeler,
891 F.Supp. 1361, 1369 (N.D.Cal.1995), the court held that an art dealer buyer had obtained
good title to a painting by satisfying “the reasonable commercial standards in the art industry....” FN11 In that case, the buyer and
FN11. Although the court in
Morgold, Inc. v. Keeler,
supra, 891 F.Supp. at 1367, analyzed the buyer’s obligation to act in
good faith pursuant to § 2403 of the California Uniform Commercial Code, that definition is the same as the definition of
good faith applicable to a buyer seeking status as a buyer in the ordinary course of business pursuant to § 42a-2-403,
and is, therefore, relevant to our analysis.
[7] We agree with these courts that a merchant buyer has a heightened duty of inquiry when a reasonable merchant would have
Malmberg had good title to the painting, such searches typically are not conducted during the course of a normal art transaction
and, therefore, provided the defendant with at least some assurance that Lindholm had no claims to the painting.
Moreover, the evidence was sufficient for the trial court reasonably to conclude that at all times during the transaction, both
Malmberg and Holm had reputations as honest, reliable, and trustworthy art dealers. This is not like the situation in
Porter v.
Wertz,
supra, 68 App. Div. at 146, 416 N.Y.S.2d 254, in which the court concluded that the buyer was not a buyer in the ordinary
authorized party only, it was reasonable for the defendant to believe that Malmberg was the true owner of the painting. We
conclude that these steps were sufficient to conform to reasonable commercial standards for the sale of artwork under the
circumstances and, therefore, that the defendant had status as a buyer in the ordinary course of business.
We recognize that the customary practice in the art industry of not requiring a merchant buyer to obtain documentary proof that the
seller owns the work of art whenever there are reasonable doubts or questions regarding the seller’s authority to sell imposes risks
plaintiff
had good title when she sold the painting to Malmberg. In light of the customary practices in the industry, the defendant
reasonably could have concluded that Malmberg was unwilling to produce a **1060 signed copy of the letter because of his desire
to protect the owner’s expectation of confidentiality in their transaction. The purpose of the letter was not to give the defendant
assurance that
Malmberg
had good title to the painting, and any concerns about Malmberg’s title that could be inferred from the
refusal to show the defendant a signed copy of the letter were quickly allayed by Malmberg’s subsequent delivery of the painting to
Case 20.2
426 F.Supp.2d 875
United States District Court,W.D. Wisconsin.
SPRAY-TEK, INC., Plaintiff,
v.
and (2) defendant’s motion to strike plaintiff’s reply brief and supporting affidavits because they were untimely filed. The following
facts are either undisputed or those most favorable to the non-moving party.
BACKGROUND
2.0
PRICING
2.1
Base Spray Dryer System
For one (1) Niro-Bowen spray drying system with 14-ft. diameter, cone-bottom drying chamber, having a design production
capacity as specified in Section 8.0 of this quotation, and including all scope of equipment and services as specified in this
quotation document, F.O.B. points of manufacture in the U.S.A. Freight charges for shipment of mechanical scope to site are to be
pre-paid by Niro and invoiced to Buyer at-cost, utilizing Buyer’s preferred carrier(s) where possible.
Thank you for including Robbins Motor Transportation in this opportunity to bid our services to you again! Below indicates the
price for transportation with dims of:
Load # 1 Vessel 25 x15 x14.75 25,000 lbs. $16,887
Loading on the 18th of October and delivering on the 25th of October. The delivery date is subject to change due to permits and
routing.
Mr. Thoen signed the estimate and faxed it back to defendant on October 14, 2004. Mr. Thoen and Mr. Kauffman never
discussed the value of the drying chamber before the estimate was prepared. However, Mr. Kauffman testified at his deposition
that “value really doesn’t come into play” in preparing an estimate. Additionally, he testified he failed to advise Mr. Thoen that he
could have his rate quotation based on either value or weight and dimensions. Finally, Mr. Thoen testified at his deposition that
he never advised Mr. Kauffman before he prepared the estimate that if defendant failed to deliver the drying chamber by October
himself and his assigns.
…Note-where the rate is dependent on value, shippers are required to state specifically in writing the agreed or declared value of
the property. The agreed or declared value of the property is hereby specifically stated by the shipper to be not exceeding-
$____________________ per____________________
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 353
(2) defendant’s liability cannot be limited by released rate provisions contained within its tariff; and (3) plaintiff’s entitlement to
damages for repair costs. Defendant argues it is entitled to summary judgment on three issues as well: (1) its potential liability
was effectively limited to $2,500.00 per ton because of limited liability provisions contained within its tariff and terms and
conditions; (2) plaintiff is not entitled to special damages; and (3) plaintiff’s common law claims of unjust enrichment and
promissory estoppel are preempted by the Carmack Amendment.
As a preliminary matter, the Court has before it defendant’s motion to strike plaintiff’s reply brief and supporting affidavits because
they were untimely filed. Defendant’s motion is one of form over substance. Defendant was not prejudiced by plaintiff’s minimal
delay in filing its reply brief and supporting affidavits. Accordingly, defendant’s motion to strike is denied.
See
.
Additionally, the Court has before it defendant’s motion to strike the affidavit of Colin Barrett because plaintiff failed to previously
disclose him as an expert witness. Defendant asserts it will suffer prejudice if plaintiff is allowed to use Mr. Barrett’s testimony
because it will have “little or no opportunity to depose Mr. Barrett, rebut his ‘expert’ opinions, nor challenge his credentials, as is
[defendant’s] right.” Additionally, defendant asserts it will not have the opportunity to “solicit expert opinions of its own.” Again,
*881 defendant’s motion is one of form over substance. Trial in this action is not set to begin until April 27, 2006 which gives
defendant approximately three weeks to depose Mr. Barrett and to “solicit expert opinions” of its own. Accordingly, plaintiff‘s
failure to previously disclose Mr. Barrett as an expert witness is harmless within the meaning of and defendant’s motion to strike
the affidavit of Colin Barrett is denied.
Summary judgment is appropriate where the “pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” .
A fact is material only if it might affect the outcome of the suit under the governing law. . Disputes over unnecessary or irrelevant
facts will not preclude summary judgment. Further, a factual issue is genuine only if the evidence is such that a reasonable fact
finder could return a verdict for the nonmoving party. A court’s role in summary judgment is not to “weigh the evidence and
determine the truth of the matter but to determine whether there is a genuine issue for trial.” .
To determine whether there is a genuine issue of material fact for trial courts construe all facts in the light most favorable to the
non-moving party. (citation omitted). Additionally, a court draws all reasonable inferences in favor of that party. However, the
354 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
the property is transported in the United States….Failure to issue a receipt or bill of lading does not affect the liability of a carrier.
. The purpose of the Carmack Amendment is to “establish *882 uniform federal guidelines designed in part to remove the
uncertainty surrounding a carrier’s liability when damage occurs to a shipper’s interstate shipment.” .
The purpose of demonstrating delivery to the carrier in good condition and arrival in damaged condition is to show an adverse
change in the condition of goods while they were in the carrier’s custody which implies that whatever injury occurred was caused
by the carrier. (
citing
Accordingly, carriers are subject to liability under the Carmack Amendment even if goods they were
transporting never arrive at their final destination.
See
(defendant carrier liable to plaintiff under the Carmack Amendment despite
the fact that plaintiff’s goods were stolen before final delivery) and (defendant carrier liable for loss incurred by plaintiff for
household goods destroyed by fire while in transit).
It is undisputed that the drying chamber was damaged when it struck an overpass and became dislodged from defendant’s vehicle.
Additionally, it is undisputed that after the accident the drying chamber was inspected and declared a total loss. Accordingly, the
fact that the drying chamber never arrived at plaintiff’s facility is irrelevant because the record clearly demonstrates that there was
an adverse change in the condition of the drying chamber while it was in defendant’s custody.
An additional argument defendant asserts concerning plaintiff’s second element of its prima facie case is that plaintiff cannot
demonstrate it owned the drying chamber during transport. However, the contract plaintiff entered into with Niro establishes that it
was the owner of the drying chamber when it was damaged. The contract provided that the terms of sale were F.O.B. points of
manufacture in the U.S.A. According to the declaration of David Brand who serves as plaintiff’s vice-president and general
manager F.O.B. *883 points of manufacture means that the drying chamber became plaintiff’s property once it was “placed on
board the delivery truck at its point of manufacture in Hudson, Wisconsin.”
Plaintiff met its burden of establishing a prima facie case under the Carmack Amendment. Accordingly, the burden now shifts to
defendant to prove that it was both free from negligence and that damage to the shipment was due to one of the excepted causes
relieving it of liability. (citation omitted). Defendant concedes it failed to produce any evidence establishing that damage to the
shipment was due to one of the accepted causes. Accordingly, plaintiff is entitled to summary judgment on the issue of
defendant’s liability under the Carmack Amendment.
B. Limitation of defendant’s liability under the Carmack Amendment and plaintiff’s entitlement to repair costs
Defendant asserts it limited its liability to $32,500.00 because of limited liability provisions contained within its tariff and terms and
conditions which serve to limit its liability to $2,500.00 per ton unless a shipper declares a higher value. Accordingly, because Niro
failed to declare a value for the drying chamber on the Bill of Lading defendant argues it is entitled to summary judgment limiting is
liability to $32,500.00. Plaintiff asserts defendant failed to provide Niro with notice of its released rate valuation or provide it with
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 355
an opportunity to choose between two different levels of liability. Additionally, plaintiff asserts defendant’s tariff is void as a matter
of law. Accordingly, plaintiff argues it is entitled to summary judgment concerning the non-limitation of defendant’s liability which
would entitle it to damages for repair costs in the amount of $233,100.00. An exception to the general rule that a carrier is liable
for the actual loss or injury to property exists pursuant to . Said statute provides in relevant part:…a carrier…may…establish rates
for the transportation of property… under which the liability of the carrier for such property is limited to a value established by
written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be
reasonable under the circumstances surrounding the transportation.
a tariff] upon which any rate applicable to a shipment, or agreed to between the shipper and the carrier is based.” .
Plaintiff asserts defendant cannot limit its liability under the Carmack Amendment based on provisions contained within its tariff
because its tariff is entirely void by operation of law. A carrier is no longer required to file a tariff with the Surface Transportation
Board. Accordingly, tariffs are no longer automatically binding upon a shipper.
See
However, as previously indicated a carrier’s
liability can be effectively limited based on a liability limitation provision contained within a tariff if said tariff is part of an enforceable
contract between the parties. Accordingly, the fact that defendant’s tariff is not automatically applicable is not dispositive of the
matter because the Court must still determine what documents served as enforceable contracts between Niro; defendant; and
plaintiff as Niro’s assign.
First, the Court concludes defendant’s October 14, 2004 estimate served as an enforceable contact between the parties. The
estimate contained all required contract elements: (1) offer; (2) acceptance; and (3) consideration.
See
. However, that does
not end the Court’s inquiry because a subsequently issued Bill of Lading can also serve as an enforceable contract.
See
.
Accordingly, if the Bill of Lading served as an enforceable contract the parties’ motions for summary judgment are ones of contract
interpretation. When a motion for summary judgment concerns contract interpretation summary judgment is only proper if the
contract “is clear and unambiguous as a matter of law, meaning that [it] can be read only one way.” (
citing
). The Court
concludes the Bill of Lading served as an enforceable contract between Niro and defendant.*885 Accordingly, elements two and
four of the test were established when: (1) Niro prepared its Bill of Lading; and (2) Mr. Thoen and defendant’s driver signed the
Bill of Lading. However, summary judgment is not proper because the contract is ambiguous concerning the issue of whether
defendant gave Niro a reasonable opportunity to choose between two or more levels of liability.
356 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
C. Plaintiff’s entitlement to special damages
Defendant asserts it is entitled to summary judgment on the issue of special damages because it never received notice of any
circumstances which would give rise to plaintiff’s special damages. Plaintiff asserts its change order and additional general
contracting costs were natural and probable consequences of defendant’s breach. Accordingly, plaintiff argues defendant’s
motion for summary judgment concerning the issue of special damages should be denied.
The Carmack Amendment is comprehensive enough to “embrace all damages resulting from any failure to discharge a carrier’s
duty with respect to any part of the transportation to the agreed destination.” (internal quotation marks and citation omitted).
Accordingly, an injured party can recover damages for delay, non-speculative lost profits and all reasonably foreseeable
consequential damages. (citations omitted). However, the Carmack Amendment has not changed the common law rule that
special damages are usually not recoverable in a breach of contract action. (citation omitted). Special damages are those that a
carrier would not reasonably foresee as the ordinary consequence of a breach at the time the contract was made. (citations
omitted). To recover special damages plaintiff must show that defendant had notice of circumstances which might lead to such
damages. (citations omitted). Additionally, under the general rule notice of special damages must be given when the shipping
contract is made. (
citing
). Plaintiff cannot meet its burden of demonstrating that at the time the initial contract was made
defendant had notice of circumstances which would lead to special damages. Accordingly, defendant is entitled to summary
judgment on this issue.
Mr. Thoen testified at his deposition as follows:
Q …Did you say anything to Robbie Kauffman or anyone else at [defendant] regarding what had happened if [plaintiff] didn’t
receive the dryer by the delivery date?
A. No.
Q. …Did you tell [defendant] anything about time being of the essence or consequential damages?
CHAPTER 20: TITLE, RISK, AND INSURABLE INTEREST 357
was subject to change due to permits and routing.
Plaintiff asserts that it was “obvious to [defendant] that Niro was shipping a unique, one–of-a-kind object that was part of a larger
system being assembled at [plaintiff’s] facility.” However, plaintiff cannot rest on conclusory allegations alone and successfully
defeat a motion for summary judgment. The undisputed evidence in the record establishes that defendant did not have the
prerequisite notice at the time it entered into the initial contract with Niro that failure to deliver the drying chamber by October 25,
2004 would subject plaintiff to special damages. Accordingly, plaintiff cannot seek recovery for its change order or additional
general contracting costs in the form of special damages under its Carmack Amendment claim. Defendant’s motion for summary
Case 20.3
Tenn.,2010.
In re Music City RV, LLC
— S.W.3d —-, 2010 WL 520999 (Tenn.)
2-326, a part of Tennessee’s version of Article 2 of the Uniform Commercial Code. We answer the certified question
in the negative.
Factual and Procedural Background
(2) MCRV was a merchant as defined under UCC § 9–102(20).
(4) Each vehicle was on the premises at the time of the filing of the bankruptcy.
(6) There was no agreement between any of the consignors and MCRV concerning a designation of the
consignment as “sale on approval” or “sale or return.”
Id.
None of the consignors filed a UCC-1 financing statement. The Bankruptcy Trustee argues that the rights of the
consignors are governed by Article 2 of the Uniform Commercial Code (“UCC”) and as such are subordinate to the
(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the
contract, the transaction is:
(a) a “sale on approval” if the goods are delivered primarily for use, and
(b) a “sale or return” if the goods are delivered primarily for resale.
(2) Except as provided in subsection (3), goods held on approval are not subject to the claims of the buyer’s
creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer’s possession.
(3)
Where goods are delivered to a person for sale and such person maintains a place of business at which he
deals in goods of the kind involved, under a name other than the name of the person making delivery, then with
respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return.
The provisions of this subsection are applicable even though an agreement purports to reserve title to the person
(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the
contract, the transaction is:
(a) a “sale on approval” if the goods are delivered primarily for use, and
(b) a “sale or return” if the goods are delivered primarily for resale.
(2) Goods held on approval are not subject to the claims of the buyer’s creditors until acceptance; goods held on
sale or return are subject to such claims while in the buyer’s possession.
(3) Any “or return” term of a contract for sale is to be treated as a separate contract for sale within the Statute of
Frauds section of this chapter (§ 47-2-201) and as contradicting the sale aspect of the contract within the provisions
2-326 (UCC § 2-326) cmt. 4 (2001). Following the 2001 amendment, many consignment transactions came under the
governance of Amended Article 9, the article dealing with secured transactions, rather than Article 2, the article
dealing with sales.
Id.; see also Italian Designer Import Outlet, Inc. v. N.Y. Cent. Mut. Fire Ins. Co.,
26 Misc.3d 631,
891 N.Y.S.2d 260, 266 (2009);
Excel Bank v. Nat’l Bank of Kansas City,
290 S.W.3d 801, 804-05 (Mo.Ct.App.2009);
In re Haley & Steele, Inc.,
No. 051617BLS, 2005 WL 3489869, at *2-3 (Mass.Super.Nov.14, 2005).
time of delivery;
(C)
the goods are not consumer goods immediately before delivery;
and
(D) the transaction does not create a security interest that secures an obligation.
Tenn.Code Ann. § 47-9-102(a)(20) (2001 & Supp.2009) (emphasis added). In the case at bar, the parties agree that
Article 9 does not apply because the consigned RVs were “consumer goods,” defined by the UCC as “goods that are
by Article 2, and each consignment transaction should be deemed a “sale or return” by operation of Tennessee Code
Annotated Section 47-2-326 (2001). Our review of the statutory language at issue and the Official Comments to the
UCC persuades us that Mr. King’s position is correct.
[2][3][4][5][6][7] The certified question presented requires statutory construction. The primary rule governing our
construction of any statute is to ascertain and give effect to the legislature’s intent.
Walker v. Sunrise Pontiac-GMC
ambiguous … the plain and ordinary meaning of the statute must be given effect”). We presume that “the General
Assembly is aware of prior enactments and of decisions of the courts when enacting legislation.”
Carter v. Bell,
279
S.W.3d 560, 564 (Tenn.2009).
The United States Bankruptcy Court for the Middle District of Tennessee correctly observed that Tennessee courts
have not been previously presented with the question certified here. In fact, very few jurisdictions across the country
Further, Tennessee Code Annotated section 47-2-326 expressly applies to situations where “delivered goods may be
returned
by the buyer
even though they conform to the contract.” (Emphasis added). Subsection (2) of the statute
similarly refers to “the buyer” in describing applicable transactions: “(g)oods held on approval are not subject to the
claims of
the buyer’s
creditors until acceptance; goods held on sale or return are subject to such claims while in
the
buyer’s
possession.” Tenn.Code Ann. § 47-2-326(2) (emphasis added). Article 2 of the UCC as adopted in
S.W.3d 442, 447 (Tenn.1999). The Official Comments state, “[c]ertain true consignment transactions were dealt with
in former Sections 2-326(3) and 9-114.
These provisions
have been deleted and have been replaced by new
provisions in Article 9.” Tenn.Code Ann. § 47-2-326 cmt. 4 (emphasis added). The most natural and reasonable
interpretation of these comments is that “these provisions” mentioned in the second sentence refer to those
provisions that dealt with the “certain true consignment transactions” previously governed by Article 2, at former
(2002) (noting that, following the 2001 revisions, “consignments are no longer subject to Article 2, and its rule that
goods on sale-or–return are subject to the claims of creditors no longer applies to them”); Robert M. Lloyd,
The New
Article 9: Its Impact on Tennessee Law (Part I),
67 Tenn. L. Rev. 125, 165 (1999) (stating that “[w]ith this [2001]
change, Article 2 will no longer apply to consignments”);
In re Haley & Steele, Inc.,
2005 WL 3489869, at *4
FN1. In its original order certifying the question to this Court, the bankruptcy court stated, “[t]here is no
relevant Tennessee law discussing how consignments that do not fit within the new Article 9 definition should
be treated. Do such consignments fall back under Article 2, as argued by the trustee, or do the parties refer to
state common law, as argued by the defendant?”
In re Music City RV, LLC,
2009 WL 77248, at *2.
FN2. The Trustee argues that because the topic heading in the title to revised section 47-2-326 retains the
words “consignment sales,” stating “Sale on approval and sale or return-Consignment sales and rights of
creditors,” revised section 47-2-326 must still apply to certain consignment transactions. We are not
persuaded by this argument. The General Assembly, in the public act amending Tennessee’s version of the
362 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
amended, probably as a result of the scrivener’s oversight or error. In any event, the remaining presence of
the words “consignment sales” in the title’s topic heading does not change our analysis of the statutory
language at issue here.
FN3. We note that the certified question, as presented, presumes that the transactions at issue are true