Wednesday, February 27, 2013

Yet another entrustment case. Buyer wins.

It seems there with regularity appear cases that well illustrate the "entrustment" doctrine, often concerning artwork that falls into ownership by a buyer in the ordinary course.  UCC section 2-403 governs the rights of buyers in the ordinary course who receive the goods from a merchant dealing in goods of the kind, even where the merchant did not have authorization to sell from the actual owner of the goods.  Application of this section was at issue in the case of Joseph P.Carroll Ltd. v. Baker concerning ownership of the painting Untitled (1943) by John D. Graham (“the Painting”).  Craig Baker (“Baker”) purchased the Painting in a private sale, but later consigned the Painting with a third party gallery owned by Lawrence Salander (“SOG”) for sale.  In 2000, John P. Carroll Ltd. (“Carroll”) expressed an interest in the Painting but did not purchase it from SOG until 2007.  Four months after the sale, Baker discovered the sale and confronted SOG; however SOG had declared bankruptcy in the interim and, consequently, Baker was not paid for the painting.  Applying section 2-403, the court determined that Baker entrusted the painting to SOG, a merchant.  Because Carroll was a buyer in the ordinary course that purchased the Painting in good faith and without knowledge of the rights of Baker, SOG effectively transferred all of Baker’s rights to the painting to Carroll. Therefore, Carroll held title to the painting.  See also Lakes Gas Co. v. Clark Oil Trading Co., 875 F. Supp. 2d 1289, 1305–06 (D. Kan. 2012) (finding that summary judgment precluded where there were genuine issues of material fact as to whether Lakes effectively entrusted its propane to Stevenson to sell to third parties, as to whether Clark Oil comported with usual or customary practices in buying propane from Stevenson, and as to whether Clark Oil qualified as a buyer in the ordinary course within meaning of the section 2-403).

While indeed this is a harsh result to the former owner of the painting, the message is that those who entrust valuable objects to others should look into filing a Financing Statement in the proper office to protect the interest.


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