State of Tennessee v. Benjamin Brown

IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
October 6, 2009 Session
IN RE MUSIC CITY RV, LLC
Rule 23 Certified Question of Law
from the United States Bankruptcy Court
for the Middle District of Tennessee
No. 08-07724-MH3-7
No. M2009-00051-SC-R23-CQ - Filed February 12, 2010
The certified question from the United States Bankruptcy Court for the Middle District of
Tennessee that we address in this case is: whether the consignment of a recreational vehicle
(“RV”) by a consumer to a Tennessee RV dealer for the purpose of selling the RV to a third
person is a transaction covered under Tennessee Code Annotated section 47-2-326, a part of
Tennessee’s version of Article 2 of the Uniform Commercial Code. We answer the certified
question in the negative.
Tenn. Sup. Ct. R. 23 Certified Question of Law
S HARON G. L EE, J., delivered the opinion of the court, in which J ANICE M. H OLDER, C.J.,
C ORNELIA A. C LARK, G ARY R. W ADE, and W ILLIAM C. K OCH, J R., JJ., joined.
David I. Komisar, Nashville, Tennessee, for the petitioner, Dudley King.
Robert H. Waldschmidt, Nashville, Tennessee, for the respondent, Robert H. Waldschmidt,
Trustee.
OPINION
Factual and Procedural Background
Petitioner Dudley King and eight other unrelated individuals consigned their RVs for
sale on the lot of the debtor, Music City RV, LLC (“MCRV”), an RV dealer. Subsequently,
on August 28, 2008, an involuntary Chapter 7 bankruptcy petition was filed in the United
States Bankruptcy Court for the Middle District of Tennessee against MCRV. At issue
before the bankruptcy court was whether the consigned RVs on MCRV’s lot were the
property of the estate. See In re Music City RV, LLC, 2009 WL 77248, at *1 (Bankr. M.D.
Tenn. Jan 5, 2009). The parties stipulated the following for the purposes of the hearing on
this issue:
(1) MCRV was not primarily engaged in the business of selling consigned
vehicles.
(2) MCRV was a merchant as defined under UCC § 9-102(20).
(3) The consignor defendants turned their vehicles over to MCRV for the
purposes of consignment and not for some other purpose.
(4) Each vehicle was on the premises at the time of the filing of the
bankruptcy.
(5) MCRV performed the services of a consignee.
(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 rights of perfected lien creditors, including
the Trustee as a judicial lien creditor under 11 U.S.C. § 544. Mr. King argues that because
the consignment of his RV was a true consignment, not a sale, of a “consumer good” as
defined by the UCC, the UCC does not apply and the RV is not a part of the estate.
Issue
We accepted certification of the following question of law from the United States
Bankruptcy Court for the Middle District of Tennessee:
Whether the consignment of an R.V. by a consumer (not another business) to
a Tennessee R.V. dealer, for the purpose of selling that R.V. to a third person,
is a transaction covered under § 47-2-326 of the Uniform Commercial Code,
as adopted in Tennessee.
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Analysis
Of significant import to the determination of this question is the effect of the revision
to the UCC, as enacted in Tennessee, that took place in 2001. Prior to 2001, former UCC
section 2-326 provided as follows:
(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 making delivery
until payment or resale or uses such words as “on consignment” or “on
memorandum”. However, this subsection is not applicable if the person making
delivery:
(a) complies with an applicable law providing for a consignor’s interest
or the like to be evidenced by a sign, or
(b) establishes that the person conducting the business is generally
known by his creditors to be substantially engaged in selling the goods
of others, or
(c) complies with the filing provisions of the chapter on Secured
Transactions (chapter 9 of this title).
Tenn. Code Ann. § 47-2-326 (1996 & 2000 Supp.) (emphasis added). It is clear from the
italicized portion of the statute above, and the parties agree, that under the former version of
the UCC prior to 2001, the consignments at issue here would have been deemed on “sale or
return” and the consigned property held to have been part of the bankruptcy estate and
subject to claims of creditors.
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However, effective July 1, 2001, Tennessee Code Annotated section 47-2-326 was
amended to delete entirely subsection (3), the provision referring to consignments, resulting
in the following version that was effective at all times pertinent to this case:
(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 of this chapter on parol or extrinsic evidence (§ 47-2-202).
Tenn. Code Ann. § 47-2-326 (2001).
Regarding this statutory amendment, the Official Comments to the UCC state that
“[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. See, e.g., Sections 9-109(a)(4); 9-103(b); 9-319.” Tenn. Code Ann. § 47-2-326
(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., — N.Y.S.2d —, 2009 WL
4016652, at *5 (N.Y. Sup. Nov. 18, 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).
Revised Article 9, however, does not define “consignments” so broadly as to include
all true consignment transactions; it includes several exceptions, including consignments of
goods that are “consumer goods” immediately before delivery:
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“Consignment” means a transaction, regardless of its form, in which a person
delivers goods to a merchant for the purpose of sale and:
(A) the merchant:
(i) deals in goods of that kind under a name other than the name of the person
making delivery;
(ii) is not an auctioneer; and
(iii) is not generally known by its creditors to be substantially engaged in
selling the goods of others;
(B) with respect to each delivery, the aggregate value of the goods is one
thousand dollars ($1,000) or more at the 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 used or bought for use primarily
for personal, family, or household purposes.” Tenn. Code Ann. § 47-9-102(a)(23)(2001 &
Supp. 2009), and apparently the bankruptcy court agreed.1
Regarding the consignment transactions in the instant case, consignor Mr. King argues
that the effect of the 2001 amendment to Tennessee Code Annotated section 47-2-326 was
to remove all consignment transactions from the province of Article 2 of the UCC.
Accordingly, because the transactions at issue do not fall within Article 9’s definition of
“consignment,” Tennessee Code Annotated section 47-9-102(a)(20), the UCC does not apply
and the consignments here are governed by the common law of bailments. The Bankruptcy
Trustee argues that the 2001 Amendment did not remove all consignments from Tennessee
Code Annotated section 47-2-326. Consequently, those consignment transactions that do not
fall within Article 9’s definition of “consignment” continue to be governed 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
1
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.
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the Official Comments to the UCC persuades us that Mr. King’s position is correct.
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 Truck, Inc., 249 S.W.3d 301, 309 (Tenn. 2008). To
that end, we begin by examining the language of the statute. Curtis v. G.E. Capital Modular
Space, 155 S.W.3d 877, 881 (Tenn. 2005). In our examination of statutory language, we
must presume that the legislature intended that each word be given full effect. Lanier v.
Rains, 229 S.W.3d 656, 661 (Tenn. 2007). When the language of a statute is ambiguous in
that it is subject to varied interpretations producing contrary results, Walker, 249 S.W.3d at
309, we construe the statute’s meaning by examining “the broader statutory scheme, the
history of the legislation, or other sources.” State v. Sherman, 266 S.W.3d 395, 401 (Tenn.
2008). However, when the import of a statute is unambiguous, we discern legislative intent
“from the natural and ordinary meaning of the statutory language within the context of the
entire statute without any forced or subtle construction that would extend or limit the
statute’s meaning.” State v. Flemming, 19 S.W.3d 195, 197 (Tenn. 2000); see also In re
Adoption of A.M.H., 215 S.W.3d 793, 808 (Tenn. 2007) (recognizing that “where the
statutory language is not 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 have addressed this issue.
A close examination of the statutory language at issue, however, provides the answer.
As an initial matter, we note that Tennessee Code Annotated section 47-2-326 no
longer makes reference to consignments, nor does it describe a transaction that could be
characterized as a “consignment.”2 A “classic consignment” has been described as a
2
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
UCC, provided that “[t]he topic headings in this act are for reference purposes only and do not constitute a
part of the law enacted hereby.” Act of May 17, 2000, ch. 846, § 37(b), 2000 Tenn. Pub. Acts 2402, 2539;
see also Tenn. Code Ann. § 1-3-109 (2003) (providing that “[h]eadings to sections in this code . . . shall not
be construed as part of the law”). The General Assembly also directed the Tennessee Code Commission to
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transaction where “the owner of goods delivers possession to a bailee who is also given the
power to sell the goods to its customers. Title remains with the consignor until the goods are
sold to the ultimate buyer and the consignee is free to return any unsold goods to the
consignor.” G. Ray Warner, Consigned to Confusion: Consignments Under Revised Article
9, 20 Am. Bankr. Inst. J. 30, 30 (2002) (hereinafter “Warner”). There is no indication on the
limited facts presented here that title to the RVs did not remain with the consignors; as noted,
the parties stipulated that the consignors “turned their vehicles over to MCRV for the
purposes of consignment and not for some other purpose” and that “MCRV performed the
services of a consignee.” 3
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 Tennessee defines “buyer” as “a person who buys or
contracts to buy goods.” Tenn. Code Ann. § 47-2-103(1)(a)(2001). In this case, there is no
indication that MCRV contracted to buy the RVs at issue, but rather, as a consignee, MCRV
agreed to take possession and to try to sell them to a third party for a commission. Similarly,
there was no “sale” as defined at Tennessee Code Annotated Section 47-2-106(1)(2001) as
“the passing of title from the seller to the buyer for a price.” MCRV was not a buyer of the
RVs, and it consequently follows that Tennessee Code Annotated section 47-2-326 does not
apply under the circumstances of this case.
The Official Comments to section 47-2-326 support this conclusion. This Court has
observed that “[w]hile not controlling authority, the Official Comments to the UCC provide
guidance in construing statutory language and offer assistance in discerning the intent of the
“include such descriptive headings in any compilation or publication containing the provisions of the act,
and to make any conforming adjustments in other provisions of Title 47, Chapters 1-9 which are amended
or revised by the National Commissioner on Uniform State Laws.” Id. Although the topic heading for
revised section 2-326 of the UCC was amended to delete “consignment sales,” Tennessee’s version was not
similarly 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.
3
We note that the certified question, as presented, presumes that the transactions at issue are true
consignments, and that there is no indication or argument that any of the transactions actually involved
disguised security interests.
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legislature in adopting the statutory scheme.” Wakefield v. Crawley, 6 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
Tennessee Code Annotated section 47-2-326(3) (1996 & Supp. 2000). It follows that current
Tennessee Code Annotated section 47-2-326 does not apply to consignment transactions.
At least two informed commentators and one court addressing the same issue have reached
the same conclusion. See Warner, 20 Am. Bankr. Inst. J. 30, 31 (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 (observing that “Sec.
2-326 requires a sale. Title must be delivered to a buyer, which is not what happens when
goods pass from a consignor to a consignee” and concluding that “consumer consignments
are now governed, once again, by the common law”).
Conclusion
In answering the certified question of law from the United States Bankruptcy Court
for the Middle District of Tennessee, we conclude that the consignment of an RV by a
consumer (not another business) to a Tennessee RV dealer, for the purpose of selling that RV
to a third person, is not a transaction covered under section 47-2-326 of the Uniform
Commercial Code, as adopted in Tennessee. Costs of this appeal are assessed to the
respondent, Robert H. Waldschmidt, Trustee.
______________________________
SHARON G. LEE, JUSTICE
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