-
USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 93-1136
EVERGREEN MARINE CORPORATION,
Plaintiff, Appellant,
v.
SIX CONSIGNMENTS OF FROZEN SCALLOPS,
IN REM, ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge]
___________________
____________________
Before
Torruella, Selya and Cyr,
Circuit Judges.
______________
____________________
Joseph F. De May, Jr. with whom Cichanowicz, Callan & Keane,
_______________________ ____________________________
Thomas J. Muzyka, and Clinton & Muzyka, P.C. were on brief for
_________________ ________________________
appellant.
Evan Slavitt with whom Hugh J. Gorman III and Hinckley, Allen &
____________ ___________________ __________________
Snyder were on brief for appellees.
______
____________________
September 17, 1993
____________________
CYR, Circuit Judge. Appellant Evergreen Marine Cor-
CYR, Circuit Judge.
_______ _____
poration, an ocean carrier, was fraudulently induced to discharge
six consignments of frozen scallops, valued at $1.2 million, to
Gloucester Corporation, without taking up possession of the bills
of lading. After Gloucester became insolvent, the discharged
scallops were seized by appellees Fleet National Bank and Cooper-
ative Centrale Raiffeisen-Boerenleenbank B.A. (hereinafter,
collectively, "the Banks"), holders of security interests in
Gloucester's after-acquired inventory. The district court
entered summary judgment for the Banks on Evergreen's claim for
conversion. As we conclude on the present record that Evergreen
held a superior claim to the scallops, we vacate the judgment and
remand for further proceedings.
I
I
FACTS
FACTS
_____
On various dates in 1991, Evergreen contracted with
Towamarin, Ltd. to carry six consignments of frozen scallops from
Tokyo, Japan to Port Elizabeth, New Jersey. Evergreen thereupon
issued order bills of lading, designating Gloucester as "Notify
Party."1 When the scallops arrived at Port Elizabeth, Glouces-
____________________
1An order bill of lading is a negotiable instrument, issued
by the carrier to the shipper at the time goods are loaded aboard
ship, which serves "as a receipt that the carrier has received
[the] goods for shipment; as a contract of carriage for those
goods; and as documentary evidence of title to those goods."
ter represented that it held title to the scallops but that the
bills of lading were still in transit. For present purposes, the
circumstantial evidence, infra, compels the inference that
_____
Gloucester's representations of title were false and fraudulent
at the time made. See Continental Grain Co. v. Puerto Rico
___ ______________________ ____________
Maritime Shipping Auth., 972 F.2d 426, 429-30 (1st Cir. 1992)
________________________
(under Rule 56(c), all reasonable inferences must be drawn in
favor of party opposing summary judgment).
Evergreen released the scallops to Gloucester, without
taking up the original bills of lading, upon Gloucester's execu-
tion of certain indemnity and guarantee agreements ("letters of
guaranty"). The letters of guaranty included Gloucester's
representations of title to the scallops under the bills of
lading; its promise to produce the bills of lading "as soon as
[the bills] shall have arrived and/or come into [Gloucester's]
possession;" and its agreement to defend and indemnify Evergreen
____________________
Fuentes v. Sea-Land Services, 665 F.Supp. 206, 209 (S.D.N.Y.
_______ __________________
1987). The shipper sends the bill of lading to the intended
recipient of the goods (consignee); upon notification that the
goods have arrived, the consignee presents the bill to the
carrier at the delivery port, and receives the goods in return.
Because an order bill is negotiable, however, the consignee or
"notify party" designated on the bill of lading is not necessari-
ly the holder of the bill at the time and place of delivery.
Under these circumstances, subject to extremely limited excep-
tions, a carrier which delivers to a "notify party," or to any
other person, without taking up and canceling its order bill
"remains liable to anyone who has purchased the bill for value in
good faith, before or after the improper delivery." G. Gilmore &
C. Black, Admiralty 110-12 (2d ed. 1975). See also Allied
_________ ___ ____ ______
Chemical Intl. Corp. v. Companhia de Navegacao Lloyd Brasileiro,
____________________ _______________________________________
775 F.2d 476, 481-82 (2d Cir. 1985) (discussing obligations of
carrier in maritime documentary transaction), cert. denied, 475
_____ ______
U.S. 1099 (1986).
3
against third party claims.2 Shortly after issuing the letters
of guaranty and removing the scallops to its Massachusetts ware-
house, Gloucester became insolvent; the scallops were seized by
the Banks pursuant to their security interests in Gloucester's
after-acquired inventory.
On February 7, 1992, a third party, Raiffeisenbank
Lekkerkerk Holland ("Dutch Bank"), notified Evergreen that it
____________________
2The executed letters of guaranty provided:
The above goods were shipped on [the listed vessel] by
. . . TOWAMARIN, LTD. . . . (and consigned to us) but
the relevant Bill(s) of Lading have not arrived. We
hereby request you to deliver such goods to THE GLOU-
CESTER CORPORATION (us) without production of the
Bill(s) of Lading. In consideration of your complying
with our above request we hereby agree as follows:
1. To indemnify you, your servants and agents and to
hold all of you harmless in respect of any liability
loss or damage of whatsoever nature which you may
sustain by reason of delivering the goods to US . . .
in accordance with our request.
2. In the event of any proceedings being commenced
against you or any of your servants or agents in con-
nection with the delivery of the goods as aforesaid to
provide you or them from time to time with sufficient
funds to defend the same.
* * * *
4. As soon as all original Bill(s) of Lading for the
above goods shall have arrived and/or come late into
our possession, to produce and deliver the same to you
whereupon our liability hereunder shall cease.
* * * *
/s/ THE GLOUCESTER CORPORATION
4
held the true bills of lading for the six consignments of scal-
lops.3 Facing liability to Dutch Bank, Evergreen sued the
Banks, Gloucester, and the scallops, seeking recovery of the
scallops or tort damages for their value.4 See Evergreen Marine
___ ________________
Corp. v. Six Consignments of Frozen Scallops, 806 F. Supp. 291
_____ ____________________________________
(D. Mass. 1992). The district court denied admiralty jurisdic-
tion and dismissed Evergreen's Rule D claim against the scallops
in rem. Upon affirming its diversity jurisdiction, however, the
__ ___
court applied Massachusetts law to Evergreen's remaining claims.
Id. at 293-94. The court dismissed Evergreen's claim against the
___
Banks for tortious interference with contract, see id. at 296,
___ ___
and entered summary judgment for the Banks on Evergreen's conver-
sion and replevin claims, on the ground that the Banks' perfected
security interest in Gloucester's inventory was superior to
Evergreen's reclamation rights. See id. at 297. As Evergreen's
___ ___
brief on appeal is expressly limited to its conversion claim, its
other claims are deemed waived. See Washington Legal Found. v.
___ ________________________
Massachusetts Bar Found., 993 F.2d 962, 970 n.4 (1st Cir. 1993)
________________________
____________________
3Lekkerkerk is identified as "Lekkekerk" in the Banks'
brief, and as "Lekkerrerk" in Gloucester's complaint and the
district court opinion. See 806 F. Supp. at 293. The Banks
___
assert, without contradiction, that "although [Lekkerkerk] has a
somewhat similar name, [it] is an entirely different bank" from
defendant-appellee Cooperative Centrale Raiffeisen-Boerenleen
Bank.
4Evergreen's amended complaint included counts (1) against
Gloucester, for misrepresentation and breach of contract;
(2) against the scallops, in rem, under Supplemental Admiralty
__ ___
Rule D; and (3) against the Banks, for conversion and replevin.
A default judgment was entered against Gloucester on December 10,
1992, for failure to defend the action.
5
(claims not raised on appeal are deemed abandoned); Sheinkopf v.
_________
Stone, 927 F.2d 1259, 1263 (1st Cir. 1991) (similar).
_____
II
II
GOVERNING LAW
GOVERNING LAW
_____________
As an initial matter, Evergreen asserts that its
conversion claim was subject to the district court's admiralty
jurisdiction. Although the Banks do not challenge diversity
jurisdiction, see 806 F. Supp. at 295, they contest admiralty
___
jurisdiction, apparently to avoid the application of maritime
law. See, e.g., Austin v. Unarco Inds., Inc., 705 F.2d 1, 6 n.1
___ ____ ______ __________________
(1st Cir.), cert. dismissed, 463 U.S. 1247 (1983) ("once admiral-
_____ _________
ty jurisdiction is established, then all of the substantive rules
and precepts peculiar to the law of the sea become applicable")
(quoting Brance v. Shumann, 445 F.2d 175, 178 (5th Cir. 1971)).
______ _______
The parties have identified no material difference between
maritime law and Massachusetts law governing these conversion
claims. Compare Goodpasture, Inc. v. M/V Pollux, 602 F.2d 84, 87
_______ _________________ __________
(5th Cir. 1979), cert. denied, 460 U.S. 1084 (1983) (identifying
_____ ______
elements of conversion claim in admiralty), with, e.g., Joseph R.
____ ____
Nolan & Laurie J. Santorio, 37 Massachusetts Practice: Tort Law,
_________________________________
55 (2d ed. 1989), at 65 (identifying elements of conversion
claim under Massachusetts law). Assuming differences exist,
however, see Furness Withy (Chartering), Inc. v. World Energy
___ __________________________________ ____________
Sys. Assoc., 854 F.2d 410, 412 (11th Cir. 1988), cert. denied,
____________ _____ ______
6
489 U.S. 1013 (1989), we agree with the district court that
Massachusetts law governs Evergreen's claim.
The admiralty jurisdiction test for tort claims is
"clearly established." Shea v. Rev-Lyn Contracting Co., 868 F.2d
____ _______________________
515, 517 (1st Cir. 1989). It comprises two functional inquiries:
first, the traditional "situs" analysis determines whether the
tort was committed or the alleged injury occurred on navigable
waters, see id. (citing The Plymouth, 70 U.S. (3 Wall.) 20, 33
___ ___ ____________
(1866)); and, second, the more recently developed "nexus" analy-
sis determines whether the alleged tort bears a significant
relationship to traditional maritime activities. See Foremost
___ ________
Ins. Co. v. Richardson, 457 U.S. 668 (1982); Executive Jet
________ __________ ______________
Aviation, Inc. v. Cleveland, 409 U.S. 249 (1972). The "situs"
_______________ _________
and "nexus" requirements must both be met before admiralty
jurisdiction can attach. See, e.g., Shea, 868 F.2d at 517
___ ____ ____
(noting dual nature of test); Carey v. Bahama Cruise Lines, 864
_____ ____________________
F.2d 201, 207 n.4 (1st Cir. 1988) (same); accord, Cochran v.
______ _______
E.I. DuPont de Nemours & Co., 933 F.2d 1533, 1537 (11th Cir.
______________________________
1991) ("The Court in Executive Jet did not replace the tradition-
_____________
al locality test, but instead added a second prong, the nexus
test"), cert. denied, 112 S.Ct. 881 (1992).
_____ ______
The present conversion claim founders on the "situs"
prong of the Executive Jet analysis. In the admiralty context,
______________
as elsewhere, conversion is simply an intentional and wrongful
exercise of dominion or control over a chattel, which seriously
____ _ _______
interferes with the owner's rights in the chattel. See
___
7
Goodpasture, 602 F.2d at 87; Berry v. Boat Giannina B., Inc., 460
___________ _____ ______________________
F. Supp. 145, 150 (D. Mass. 1978); Restatement (Second) of Torts
_____________________________
222A (1965). Admiralty jurisdiction over a conversion claim
accordingly depends on whether the chattel was "on navigable
waters" at the time of the alleged wrongful exercise of dominion.
See, e.g., Leather's Best, Inc. v. S/S Mormaclynx, 451 F.2d 800,
___ ____ ____________________ ______________
808 (2d Cir. 1971) (no admiralty jurisdiction over warehouseman
whose loss of property, entrusted by ocean carrier, occurred
while goods were on land); cf. Schoening v. Shipment of 102 Jute
___ _________ _____________________
Bags, 132 F. Supp. 561, 562 (E.D. Pa. 1955) (no admiralty juris-
____
diction over ocean carrier for shipment of goods converted from
onshore warehouse; "the conversion was completed when the goods
were removed from the warehouse"); see generally The Lydia, 1
___ _________ _________
F.2d 18, 23 (2d Cir.) cert. denied, 266 U.S. 616 (1924) ("conver-
_____ ______
sion is a tort, . . . and if that tort is committed on navigable
waters, admiralty has jurisdiction"). In the present case, long
before the Banks asserted dominion over the scallops under the
terms of their security agreements, Gloucester had removed the
scallops to its storage warehouse in Massachusetts, some four
hundred miles from the point of Evergreen's disaffreightment in
Port Elizabeth, thereby severing any conceivable maritime situs.
Compare Leather's Best, 451 F.2d at 808.
_______ ______________
Evergreen bases its assertion of admiralty jurisdiction
on the ground that the district court's decision "directly
affects the integrity of order bills of lading." Thus, apparent-
ly Evergreen would extend the so-called "impact" test for admi-
8
ralty jurisdiction, applicable to claims for intentional inter-
ference with contractual relations, to the present claim for
conversion. See Carroll v. Protection Maritime Ins. Co., 512
___ _______ _____________________________
F.2d 4, 8 (1st Cir. 1975) (articulating "impact" test); see also
___ ____
Pino v. Protection Maritime Ins. Co., 599 F.2d 10, 12-13 (1st
____ ______________________________
Cir.) cert. denied, 444 U.S. 900 (1979) (reaffirming Carroll's
_____ ______ _______
"extension of location test"). We agree with the district court
that the Carroll "impact test" does not apply to the present
_______
transaction.
Carroll was an action for tortious interference with
_______
contractual relationships, brought by various seamen and commer-
cial fishermen, against marine insurers whose "blacklist" of past
claimants allegedly interfered with the claimants' efforts to
contract for employment on marine vessels. Although it was
alleged that the blacklist prevented the claimants, while on
_____ __
land, from securing contracts of employment, its purpose and
____
effect was to prevent their employment aboard seagoing vessels.
__________ ______ ________ _______
512 F.2d at 6. On these facts, the Carroll court concluded, "the
_______
critical focus should not be 'where the wrongful act or omission
has its inception, but where the impact of the act or omission
produces [the] injury," id. at 8 (citing O'Connor & Co. v. City
___ ______________ ____
of Pascagoula, 304 F. Supp. 681, 683 (S.D. Miss. 1969)). Apply-
______________
ing this principle, Carroll held that "the impact of defendants'
_______
alleged actions, at least where existing employment was terminat-
ed, was felt in the operations of the affected vessels at sea,"
id., and was "so interwoven with present and potential maritime
___
9
contractual relationships traditional concerns of admiralty
as to fall within [the admiralty] jurisdiction," id. at 8-9.
___
Unlike the Carroll claim for interference with a
_______
contract, Evergreen's conversion claim alleges interference with
________
chattels. A chattel has a determinate location; hence the
________
"situs" of the tort of conversion is more readily identified, and
does not depend solely on an assessment of its impact upon mari-
time activities. Furthermore, the relevant purposeful act in the
tort of conversion is the exercise of dominion over a chattel,
________ __ ________
which may entail liability even though the defendant initially
acted on a good-faith, non-maritime claim of right. See, e.g.,
___ ____
Restatement (Second) of Torts 244 (1965) ("actor is not re-
______________________________
lieved of liability . . . for conversion by his belief, because
of a mistake of law or fact not induced by the other, that he
. . . is entitled to . . . immediate possession [of the converted
chattel]"). In these circumstances, the "maritime nexus," found
"dominant" in Carroll, see 512 F.2d at 6, is sufficiently attenu-
_______ ___
ated that a Carroll-based "impact" analysis would invite "open-
_______
ended expansion of admiralty jurisdiction," id. Thus, the
__
district court correctly concluded that Evergreen's conversion
claim implicated its diversity jurisdiction, rather than admiral-
ty jurisdiction, and that to the extent differences exist
the conversion claim was governed by Massachusetts law, rather
than maritime law.
III
III
10
DISCUSSION
DISCUSSION
__________
A plaintiff asserting a conversion claim under
Massachusetts law must show that: (1) the defendant intention-
ally and wrongfully exercised control or dominion over the
personal property, (2) the plaintiff had an ownership or posses-
sory interest in the property at the time of the alleged conver-
sion; (3) the plaintiff was damaged by the defendant's conduct;
and (4) if the defendant legitimately acquired possession of the
property under a good-faith claim of right, the plaintiff's
demand for its return was refused.5 See 806 F. Supp. at 296-97
___
(citing Magaw v. Beals, 272 Mass. 334, 172 N.E. 347 (1930)); see
_____ _____ ___
also In re Halmar Distributors, Inc., 968 F.2d 121, 129 (1st Cir.
____ _______________________________
1992); MacNeil v. Hazelton, 306 Mass. 366, 367, 28 N.E.2d 477,
_______ ________
478 (1940). Since the evidence establishes beyond dispute that
the Banks asserted dominion over the scallops, and refused
Evergreen's demands for their return, see 806 F. Supp. at 295-97,
___
the principal issue before us is whether any rights the Banks may
have acquired by virtue of their security interests in Glou-
cester's after-acquired inventory were superior to Evergreen's
____________________
5Federal courts sitting in diversity apply the choice-of-law
rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg.
___ __________ __________________
Co., 313 U.S. 487, 496 (1941). Since the parties have ignored
___
choice-of-law issues on appeal, we indulge their assumption that
Massachusetts would apply its own substantive law. See Carey,
___ _____
864 F.2d at 206 (given "reasonable relation" between dispute and
forum whose law is invoked by parties, court of appeals may
"forego independent analysis" of choice-of-law issue); Borden v.
______
Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir. 1991)
___________________________
(similar).
11
reclamation rights as bailee of the scallops under the order
bills of lading.
We review summary judgments de novo, affirming only if
__ ____
it appears after considering all competent evidence and
reasonable inferences in the light most favorable to the non-
moving party that there is no genuine issue as to any material
fact and the moving party is entitled to judgment as a matter of
law. See, e.g., Continental Grain Co., 972 F.2d at 429-30;
___ ____ ______________________
National Expositions, Inc. v. Crowley Maritime Corp., 824 F.2d
___________________________ ______________________
131, 134 (1st Cir. 1987).
A. Evergreen's Interest
A. Evergreen's Interest
____________________
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
___
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 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 (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.
___
12
L. ch. 106, 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 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).
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 "entrust-
ment," see Mass. Gen. L. ch. 106, 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.
Under the Uniform Commercial Code, a "seller" is "a
person who sells or contracts to sell goods," id at 2-103(1)-
__
(d), and a "buyer" one "who buys or contracts to buy goods," id.
___
at 2-103(1)(a). A "sale," by definition, "consists in the
________ __ ___
passing of title from the seller to the buyer for a price (sec-
_______ __ _____
tion 2-401)," id. at 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. 2-401
___
does not define "title," noting simply that "each provision of
13
. . . Article [2] 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 2-401 (emphasis
___ _________ ______ __ ____ _____ ___
added), no "sale" of goods occurs, within the meaning of 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 prin-
ciples in mind.
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 (1941); Schnell v. The Vallescura, 293
_____ _______ _______________
U.S. 296, 303 (1934); C-ART, Ltd. v. Hong Kong Islands Line
___________ _______________________
America, S.A., 940 F.2d 530, 533 n.2 (9th Cir. 1991), cert.
______________ _____
denied, 112 S.Ct. 1762 (1992); see also Baker Oil Tools, Inc. v.
______ ___ ____ _____________________
Delta S.S. Lines, Inc., 562 F.2d 938 (5th Cir. 1977) (bailment
_______________________
____________________
6See, e.g., Mass. Gen. L. ch. 106, 2-403(1),(2),(3).
___ ____
14
relationship under contract of carriage continues before and
after termination of voyage); cf. U.C.C. 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. 1979), 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 pos-
____
sess 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, 2-403(3) ("'En-
___________ ___
trusting' 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
____________________
7Indeed, the summary judgment record in the present case
indisputably demonstrates that there can have been no "contract,"
within the meaning of Article 2: "In this Article unless the
context otherwise requires 'contract' and 'agreement' are limited
to those relating to the present or future sale of goods." Mass.
Gen. L. ch. 106, 2-106(1). Moreover, not only does a future
sale of goods require a contract of sale, id., but a "'present
___
sale' means a sale which is accomplished by the making of the
contract," id. (emphasis added). Since the express terms of the
________ ___
letters of guaranty flatly belie Evergreen's capacity to effect
________
either a present or future sale of scallops in which Gloucester
already purportedly held title by virtue of its claim to the
negotiable bills of lading in transit, there could be no contract
or agreement of sale of any kind between Evergreen and Glouces-
ter. See also id. 1-201(3),(11).
___ ____ ___
15
of the goods have been such as to be larcenous under the criminal
law.").8
On similar analysis, although "purchase" is defined
more broadly than "sale," without reliance on "title" principles,
see id. 1-201(32) ("'purchase' includes taking by sale, dis-
___ ___
count, 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. 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
____________________
8The Banks do not benefit from U.C.C. 2-403(2), which
provides that "any entrusting of goods to a merchant who deals in
goods of that kind gives [the merchant] power to transfer all
rights of the entruster to a buyer in the ordinary course of
business." It is well settled that U.C.C. 2-403(2) protects
only "persons who buy in the ordinary course out of inventory."
See U.C.C. 2-403(2) cmt. 3. The holder of a security interest
___
in a merchant's inventory is not "a buyer in the ordinary course"
of goods entrusted to the merchant's possession as a result of
the merchant's fraud. See U.C.C. 1-201(9) (defining "buyer in
___
the ordinary course of business" as excluding a "transfer . . .
as security for . . . a money debt"); see also, e.g., Sitkin
___ ____ ____ ______
Smelting, 639 F.2d at 1213; Robert A. Hillman et al., Common Law
________ __ __ __________
and Equity Under the Uniform Commercial Code (1985 & Supp. 1991),
____________________________________________
at 18.03[2][b].
16
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 18.03[2] (collecting cases).9
Finally, on similar reasoning, we cannot credit the
Banks' reliance on the Uniform Commercial Code provisions govern-
ing "consignment sales":
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 re-
sale or uses such words as 'on consignment'
or 'on memorandum.'
Mass. Gen. L. ch. 106, 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. 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 2-326(1)(b), or to sell, see id. at 2-326(3), these
___ ___ ___
scallops so long as title remained exclusively in the holder of
____________________
9Of course, restrictions on a "seller's" reclamation rights,
see, e.g., Mass. Gen. L. ch. 106 2-507, 2-702(3), are in-
___ ____
applicable for the same reason.
17
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. 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. 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 18.03-[2][c] & n.126 (discussing
_________ _____
meaning of "delivery for sale").
Finally, under Mass. Gen. L. ch. 106, 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
__________
____________________
10The letters of guaranty are not phrased in terms of a
delivery for sale or resale, but of an entrustment of possession
pending Gloucester's presentment of the order bills of lading.
See supra note 2. Thus, the letters of guaranty evince (1)
___ _____
Gloucester's acknowledgement that title to the scallops was in
the holder of the order bills of lading, not Evergreen, and
(2) Gloucester's representation that it was the holder of the
bills.
18
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 estab-
lish 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 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 18.03[1]. 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, 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
II
II
CONCLUSION
CONCLUSION
__________
____________________
11 As Dutch Bank is not a party to these proceedings, we
take no position on any potential claim it may have for Ever-
green's entrustment of possession of the scallops to Gloucester
without first taking up possession of the bills of lading. But
___
see supra n.1.
___ _____
19
Evergreen was not a "seller," Gloucester was not a
"buyer," and the temporary entrustment of possession of the
scallops to Gloucester was neither a "sale" nor a delivery for
sale or resale. Thus, as a bailee, Evergreen retained reclama-
tion rights to the scallops under a common law claim for conver-
sion. See Restatement (Second) of Torts, 225 & cmt. b; see
___ ______________________________ ___
also id. at 222A, illustr. 9. As the Banks' Article 9 security
____ ___
interests in Gloucester's after-acquired inventory did not attach
to the entrusted scallops, Evergreen retained a possessory claim
sufficient to overcome the Banks' motion for summary judgment.12
The district court judgment is vacated and the case is
___ ________ _____ ________ __ _______ ___ ___ ____ __
remanded for further proceedings consistent herewith; each party
________ ___ _______ ___________ __________ ________ ____ _____
to bear its own costs on appeal.
__ ____ ___ ___ _____ __ ______
____________________
12Evergreen filed no cross-motion for summary judgment,
however. Accordingly, the case must be remanded to the district
court for such further proceedings as are consistent with this
opinion.
20
Document Info
Docket Number： 93-1136
Filed Date： 9/17/1993
Precedential Status： Precedential
Modified Date： 9/21/2015