Opinion ID: 194930
Heading Depth: 2
Heading Rank: 1

Heading: Evergreen's Interest

Text: 14 The district court likened Evergreen's interest in the scallops to that of a seller of goods, and Gloucester to an insolvent buyer, see 806 F.Supp. at 297; hence the putative sale, though voidable, was not void until Evergreen disavowed it and moved to reclaim the goods. See Mass.Gen.L. ch. 106 Sec. 2-702(2) (seller [who] discovers that the buyer has received goods on credit while insolvent ... may reclaim the goods upon demand ) (emphasis added). Under this analysis, since an Article 9 secured party is a purchaser of the debtor's interest in the collateral, see id. at Secs. 1-201(32), 1-201(33); Burk v. Emmick, 637 F.2d 1172, 1174 (8th Cir.1980); In re Samuels & Co., 526 F.2d 1238, 1242 (5th Cir.), cert. denied, 429 U.S. 834, 97 S.Ct. 98, 50 L.Ed.2d 99 (1976), Evergreen's failure to disavow the sale prior to the Banks' purchase through foreclosure subordinated Evergreen's interest to the Banks' security interests in the scallops. See Mass.Gen.L. ch. 106, Sec. 2-702(3) (the seller's right to reclaim ... is subject to the rights of ... [a] good faith purchaser or lien creditor under this Article); see also id. at Sec. 2-403(1) (A purchaser of goods acquires all title which his transferor had or had power to transfer.... A person with voidable title has power to transfer good title to a good faith purchaser for value. Where goods have been delivered under a transaction of purchase the purchaser has such a power even though ... (d) the delivery was procured through fraud) (emphasis added). 15 The difficulty with the district court's analysis lies in its fundamental premise, viz., that Evergreen, in releasing the scallops to Gloucester pursuant to the letters of guaranty, was a seller, and Gloucester, in thus acquiring possession, was a buyer. Rather, we think the transaction was one of entrustment, see Mass.Gen.L. ch. 106, Sec. 2-403(2), (3), whereby neither Gloucester nor the Banks acquired an interest in the scallops superior to Evergreen's limited right to their possession. 16 Under the Uniform Commercial Code, a seller is a person who sells or contracts to sell goods, id. at Sec. 2-103(1)(d), and a buyer one who buys or contracts to buy goods, id. at Sec. 2-103(1)(a). A sale, by definition, consists in the passing of title from the seller to the buyer for a price (section 2-401), id. at Sec. 2-106(1) (emphasis added), and a contract for sale means a present sale of goods or a contract to sell goods at a future time. Id. Accordingly, though U.C.C. Sec. 2-401 does not define title, noting simply that each provision of ... Article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers and other third parties applies irrespective of title to the goods except where the provision refers to such title, 6 id. at Sec. 2-401 (emphasis added), no sale of goods occurs, within the meaning of Sec. 2-106, without a present or future capacity on the part of the seller to convey title to the buyer. See generally William L. Tabac, The Unbearable Lightness of Title Under the Uniform Commercial Code, 50 Md.L.Rev. 408 (1991) (noting contradictions in Article Two references to title; concluding that title under the Code means ownership, and that title principles are still firmly in place, if not in sight, as the framework for today's commerce in goods). We return to the present transaction with these principles in mind. 17 It is well settled that an ocean carrier possesses no title or other ownership interest in goods carried under a negotiable bill of lading; title is vested in the holder of the bill of lading, whose interests the carrier represents, under the contract of carriage and maritime law, as a special type of bailee. See Commercial Molasses Corp. v. New York Tank Barge Corp., 314 U.S. 104, 109, 62 S.Ct. 156, 160, 86 L.Ed. 89 (1941); Schnell v. The Vallescura, 293 U.S. 296, 303, 55 S.Ct. 194, 195-96, 79 L.Ed. 373 (1934); C-ART, Ltd. v. Hong Kong Islands Line America, S.A., 940 F.2d 530, 533 n. 2 (9th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1762, 118 L.Ed.2d 425 (1992); see also Baker Oil Tools, Inc. v. Delta S.S. Lines, Inc., 562 F.2d 938 (5th Cir.1977) (bailment relationship under contract of carriage continues before and after termination of voyage); cf. U.C.C. Sec. 2-705(1) (referring to goods in possession of a carrier or other bailee). Thus, absent extraordinary circumstances, such as rapid deterioration of the cargo, see T.J. Stevenson & Co. v. 81,193 Bags of Flour, 449 F.Supp. 84, 123 (S.D.Ala.1976), aff'd. in pertinent part, 629 F.2d 338, 383 (5th Cir.1980), the carrier has neither actual nor apparent authority to sell the goods it carries. 7 The carrier's sole legitimate interest is its limited right to possess the goods, pending presentment of the bills of lading; and its temporary release of possession, pending a consignee's promised production of the bills of lading, is not a sale but an entrustment. See Mass.Gen.L. ch. 106, Sec. 2-403(3) ( 'Entrusting' includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law.). 8 18 On similar analysis, although purchase is defined more broadly than sale, without reliance on title principles, see id. Sec. 1-201(32) ( 'purchase' includes taking by sale, discount, negotiation, mortgage, pledge, lien, issue or re-issue, gift or any other voluntary transaction creating an interest in property), under a transaction of purchase a purchaser of goods acquires [only the] title which his transferor had or had power to transfer ... [and] a purchaser of a limited interest acquires rights only to the extent of the interest purchased, id. Sec. 2-402(1). Thus, a person who knowingly obtains goods--subject to an outstanding negotiable bill of lading--from an ocean carrier with a mere possessory interest in the goods, ordinarily purchases no title (even voidable title) in the goods. See generally, e.g., Kimberly & European Diamonds, Inc. v. Burbank, 684 F.2d 363, 366 (6th Cir.1982) (bailee had no title, nor did she have authority to pass title, and putative purchaser from bailee acquired no interest in bailed property); In re Sitkin Smelting & Refining Inc., 639 F.2d 1213, 1215-17 (5th Cir.1981) (similar); Robert A. Hillman et al., Common Law and Equity Under the Uniform Commercial Code (1985 & Supp.1991), at p 18.03 (collecting cases). 9 19 Finally, on similar reasoning, we cannot credit the Banks' reliance on the Uniform Commercial Code provisions governing consignment sales: 20 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 making delivery until payment or resale or uses such words as 'on consignment' or 'on memorandum.' 21 Mass.Gen.L. ch. 106, Sec. 2-326(3) (emphasis added). Thus, even assuming that Gloucester dealt in goods like these (which cannot be conclusively determined from the appellate record), the scallops were not subject to the claims of Evergreen's creditors unless delivered for sale or for resale, id. Sec. 2-326. As both parties well recognize, Evergreen lacked both the intent and the legal capacity to empower Gloucester either to resell, see id. at Sec. 2-326(1)(b), or to sell, see id. at Sec. 2-326(3), these scallops so long as title remained exclusively in the holder of the negotiable bills of lading. 10 Thus, we join those courts which have held that temporary entrustments of possession by a bailee, without more, are not sales on consignment, within the meaning of U.C.C. Sec. 2-326. See Sitkin Smelting, 639 F.2d at 1218 (delivery of waste film, for processing and extraction, not a delivery for sale under U.C.C. Sec. 2-326); cf. e.g., In re Zwagerman, 115 B.R. 540 (Bankr.W.D.Mich.1990) (delivery of cattle, for feeding, not a delivery for sale), aff'd, 125 B.R. 486 (W.D.Mich.1991); In re Key Book Service, Inc., 103 B.R. 39 (Bankr.D.Conn.1989) (delivery of books, merely for shipping, billing, warehousing, not a delivery for sale); see generally Hillman, supra, at p 18.03-[c] & n. 126 (discussing meaning of delivery for sale). 22 Finally, under Mass.Gen.L. ch. 106, Sec. 9-203(1)(c), [a] security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless ... the debtor has rights in the collateral. (Emphasis added.) Although the term rights in the collateral is not defined in the Code, and has been viewed broadly by courts on occasion, see, e.g., Kinetecs Technology Int'l Corp. v. Fourth Nat'l Bank, 705 F.2d 396 (10th Cir.1983) (the Code clearly does not require that a debtor have full ownership rights), it clearly contemplates some property interest in goods, not mere bare possession acquired from a bailee under a transaction of entrustment. Sitkin Smelting, 639 F.2d at 1217-18; Northwestern Bank v. First Virginia Bank, 585 F.Supp. 425, 428-29 (W.D.Va.1984) (Mere possession by the debtor is insufficient to establish a right in the collateral upon which to base a security interest.... The debtor must acquire some ownership interest in the collateral before a valid security interest arises); see generally James J. White & Robert S. Summers, Uniform Commercial Code Sec. 23-5 (3d ed. 1988), at 263 (if the transaction [endowing debtor with possession] were merely a bailment ... the law would be clear: the bailed goods would be returned to the owner); Hillman, supra, at p 18.03. Since mere possession of goods under a transaction of entrustment clothes a debtor with no rights in the collateral to which a security interest can attach, within the meaning of Mass.Gen.L. ch. 106, Sec. 9-203(1)(c), the Banks acquired no enforceable lien in the scallops by virtue of their security interests in Gloucester's after-acquired inventory. 11 IV