Opinion ID: 8407293
Heading Depth: 2
Heading Rank: 3

Heading: The “Deals In” Requirement of Section 2-403(2)

Text: As the district court noted, two provisions of the NYUCC are relevant to the parties’ competing claims to the Diamond. The first is section 2-104(1), which provides three alternative definitions for the stand-alone term “merchant” under the code: [1] a person who deals in goods of the kind or [2] otherwise by his occupation holds himself out as having knowledge or skill peculiar to -the practices or goods involved in the transaction or [3] to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. N.Y. U.C.C. Law § 2-104(1) (emphases and bracketed numbers added; formatting altered). The second relevant provision is section 2-403(2), which states that “[a]ny entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights ó'f the entruster to a buyér in ordinary course of business.” N.Y. U.C.C. Law § 2-403(2) (emphasis added). 7 Both of these provisions precisely track the model Uniform Commercial' Code (the “UCC”). See U.C.C. §§ 2-104(1), 2-403(2) (Am. Law Inst. & Unif. Law Comm’n 1977). In concluding that the Zaretskys are the rightful owners of the Diamond, the district court construed section 2-403(2) as empowering anyone who qualifies as a “merchant” under section 2-104(1) with the ability to pass title to an entrusted good. The court then considered whether, as a matter of law, Khan fit any of the three definitions contained in section 2-104(1). The court determined that whether Khan qualified as a merchant under the first definition—as a person who “deals in goods of the kind”—was a disputed question of fact that it could not resolve, and that the third definition was inapplicable because there was no evidence that Khan employed any intermediary, Zaretsky, 69 F.Supp.3d at 390-91 & nn. 26, 32. But the district court then decided that Khan, by holding himself out as having knowledge or skill peculiar to jewelry, was a “merchant” under the second definition contained in section 2-104(1), and that the entrustment provision under section 2-403(2) therefore enabled him to transfer all rights to the Diamond to others. Id. at 391-92. We disagree with the district court’s construction of section 2-403(2) of the NYUCC. Section 2-403(2) enables a mérchant to transfer rights to an entrusted good only if the person is a “merchant” who “deals in goods of that kind,” in this case diamonds or other high-end jewelry. This entrustment provision therefore applies to a person who is a “merchant” under section 2-104(l)’s first definition, which itself includes'the requirement that the person be one who “deals in” the relevant good. But section 2-403(2) does not necessarily apply to á person who is a “merchant” under the second or third definitions. To qualify as a merchant under those definitions, the person or entity need not “deal[ ] in goods of that kind,” yet that is a prerequisite to being déemed a merchant with the power to transfer rights to entrusted goods to a buyer under section 2-403(2). See N.Y. U.C.C. Law § 2-403(2); cf. U.C.C. § 2-104 cmt; 2 (restricting the class of merchants to which section 2-403(2) applies “to a much smaller group than everyone who is engaged in business” and requiring that the merchant have.“a professional status as to particular kinds of goods”). Even if, as the district court determined, Khan was a “merchant”-under section 2-104(l)’s second definition, the court was also required to find that Khan dealt in goods like the Diamond in order for him to have transferred rights to it under section 2-403(2).