Ray Duffy v. Danny Elam

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
August 16, 2016 Session
RAY DUFFY, ET AL. v. DANNY ELAM
Direct Appeal from the Circuit Court for McNairy County
No. 15-CV-1 J. Weber McCraw, Judge
No. W2015-01456-COA-R3-CV – Filed August 24, 2016
This appeal involves an unauthorized sale of a trailer by a third party. The circuit court
held that the original owner of the trailer, who holds the certificate of title, is entitled to
possession of the trailer rather than the party claiming to be a bona fide purchaser. The
purchaser appeals. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed and
Remanded
BRANDON O. GIBSON, J., delivered the opinion of the court, in which JOHN W.
MCCLARTY and ARNOLD B. GOLDIN, JJ., joined.
Benjamin Scott Harmon, Savannah, Tennessee, for the appellant, Danny Elam.
Paul Lee Simpson and Ross Mitchell, Selmer, Tennessee, for the appellees, Patrick
Hynes and Ray Duffy.
OPINION
I. FACTS & PROCEDURAL HISTORY
Patrick Hynes and his brother-in-law Raymond Duffy (collectively, “Plaintiffs”)
operated a business called International Turf Applicators, which contracted with golf
courses across the Southeast. In 2001, International Turf Applicators purchased a 1999
Clark 53-foot drop-deck dovetail trailer for $48,000. Plaintiffs used the trailer for
hauling equipment in connection with their business. In 2006, Plaintiff Duffy
individually purchased the trailer from International Turf Applicators.
In 2007, Plaintiffs met Charles Smith. Mr. Smith convinced Mr. Hynes and some
of his family members to invest in a limestone operation he owned called Tennessee
Materials. At that time, the aforementioned Clark trailer was located in New Orleans,
Louisiana. Tennessee Materials owned some equipment that was also located in New
Orleans, so Mr. Hynes permitted Tennessee Materials to use the trailer for transporting
the equipment back to Tennessee. Thereafter, Tennessee Materials maintained
possession of the trailer for the next few years.
The relationship between Mr. Smith and Mr. Hynes deteriorated. Over the course
of two years, Mr. Hynes repeatedly requested the return of the trailer to no avail.
Admittedly, he did not aggressively pursue action against Mr. Smith because he did not
want to “ruffle his feathers” or jeopardize his interest in Tennessee Materials. In October
2011, however, Mr. Hynes had an attorney send a letter to Mr. Smith formally demanding
the return of the trailer.1 Mr. Smith told Mr. Hynes that the trailer had been stolen.
Mr. Hynes reported the incident to the local sheriff’s department, and within 48
hours, law enforcement personnel located the trailer in another county on property
belonging to Danny Elam (“Defendant”). Defendant operates Elam Trucking, a trucking
business that buys, rebuilds, and sells trailers. Law enforcement officers accompanied
Mr. Hynes to Defendant’s property. By all accounts, Defendant was cooperative and
forthcoming. He informed Mr. Hynes and the investigators that Mr. Smith had hired him
to haul the trailer and its cargo, consisting of a large barge, to a local scrapyard.
According to Defendant, the trailer was parked in a gravel pit and had sustained heavy
damage from the barge. Defendant worked on the trailer for a couple of days in order to
repair it to the point that it could be hauled to the scrapyard. Defendant learned that Mr.
Smith intended to sell the trailer to the scrapyard along with the barge, as the scrapyard
had offered $2,000 for the trailer itself. Defendant bought the trailer from Mr. Smith for
$2,000 instead of leaving the trailer at the scrapyard. He produced a “Bill of Sale” from
Tennessee Materials dated June 23, 2012, which listed three “Scrap Trailers” as being
sold to Defendant, including the 53-foot trailer at issue in this case. Mr. Smith signed the
bill of sale on behalf of Tennessee Materials indicating that the trailers were “[his] own
and free of all claims and offset of any and all kinds.” According to Defendant, he asked
Mr. Smith about obtaining the certificate of title to the trailer, and Mr. Smith said that he
would bring it to him, but he never did.
Mr. Hynes produced a certificate of title listing Mr. Duffy as the owner of the
trailer. When Defendant learned of Plaintiffs’ claim to the trailer, he offered to release
the trailer to Mr. Hynes if he paid $7,500 for the repairs Defendant had completed. Mr.
Hynes admittedly “felt sorry” for Defendant and thought that he may have been
“hoodwinked” by Mr. Smith. Mr. Hynes acknowledged that Defendant made $7,500 in
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Mr. Hynes and his brother-in-law Mr. Duffy are both plaintiffs in this action, but only Mr. Hynes
testified at trial. Mr. Duffy was a resident of Florida and executed a special durable power of attorney
authorizing Mr. Hynes to handle all legal matters relating to this case involving the trailer.
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repairs and improvements to the trailer, but his position was that Plaintiffs should not
have to pay for the repairs and improvements because they did not authorize them. Mr.
Hynes believed that Defendant should not have made improvements to a trailer for which
he had no title. As a result, he declined to pay Defendant the amount he demanded for
return of the trailer.
Plaintiffs filed this action in general sessions court seeking to recover the trailer,
damages, and attorney’s fees from Defendant. Plaintiffs did not sue Mr. Smith because
he was under federal investigation and also in bankruptcy. The general sessions court
ruled in favor of Defendant on the basis that he was “a good faith purchaser for value”
and therefore the owner of the trailer. Plaintiffs appealed to circuit court. A bench trial
was held on June 25, 2015. Plaintiffs asserted that they had the superior right to the
trailer because they held the certificate of title; Defendant asserted that he had the
superior claim to the trailer because he was a bona fide purchaser for value. However,
the parties did not cite any legal authority in support of their respective positions.
The trial court ultimately ruled in favor of Plaintiffs and ordered Defendant to
return the trailer, but it permitted Defendant to retain any improvements he made to the
trailer that could be easily removed.2 The trial court reasoned that “the Title-Holder is
the legal owner of a piece of property, regardless of Bill of Sale or customary practice.”
It made no finding regarding whether Defendant was a bona fide purchaser. Defendant
timely filed a notice of appeal.
II. ISSUES PRESENTED
Defendant presents the following issues, slightly re-worded, for review on appeal:
1. Did the trial court err by failing to find that Defendant Elam was a
bona fide purchaser for value and without notice where the proof
demonstrated that the trailer was of scrap value, the fair market value for
scrap was paid, and Defendant received a Bill of Sale indicating that the
trailer was free of all claims and offsets of any kind?
2. Did the trial court err in placing inappropriate weight upon factors
that are not included in a legal determination of bona fide purchaser status?
3. Did the trial court err by failing to recognize Plaintiffs’ burden of
proof necessary to avoid the transfer in question, as the evidence failed to
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Defendant testified that he had invested a total of $20,670 in the trailer by the time of trial, including
expenditures for ramps, wheels, and other items that could be removed if he was required to return the
trailer to Plaintiffs.
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establish a prima facie showing of bad faith on the part of Defendant Elam?
4. Did the trial court err in failing to find that Plaintiff Duffy was
estopped from seeking recovery from Defendant Elam, where the evidence
showed that Smith acted with actual or apparent authority to bind the
company, Tennessee Materials, to the sale of the trailer, and where
Defendant relied upon that authority?
For the following reasons, we affirm the decision of the circuit court and remand for
further proceedings.
III. STANDARD OF REVIEW
A trial court’s findings of fact from a bench trial are presumed to be correct, and
we will not overturn those factual findings unless the evidence preponderates against
them. Tenn. R. App. P. 13(d); In re Estate of Ledford, 419 S.W.3d 269, 277 (Tenn. Ct.
App. 2013). “For the evidence to preponderate against a trial court’s finding of fact, it
must support another finding of fact with greater convincing effect.” Watson v. Watson,
196 S.W.3d 695, 701 (Tenn. Ct. App. 2005)(citation omitted). Appellate courts afford
trial courts considerable deference when reviewing issues that hinge on the credibility of
witnesses because trial courts are “uniquely positioned to observe the demeanor and
conduct of the witnesses.” Kelly v. Kelly, 445 S.W.3d 685, 692 (Tenn. 2014) (citation
omitted). However, we review the trial court’s resolution of legal questions de novo with
no presumption of correctness. 1963 Jackson, Inc. v. De Vos, 436 S.W.3d 278, 286
(Tenn. Ct. App. 2013).
IV. DISCUSSION
Although the parties did not cite any legal authority before the trial court, they
agree on appeal that the Uniform Commercial Code (“UCC”), Tenn. Code Ann. § 47-2-
101, et seq., governs the transaction at issue as a sale of goods. Article 2 of the UCC sets
forth provisions that govern certain sales transactions involving goods. Audio Visual
Artistry v. Tanzer, 403 S.W.3d 789, 797 (Tenn. Ct. App. 2012). On appeal, Defendant
relies on one particular statute within Article 2 of the UCC, Tennessee Code Annotated
section 47-2-403. Defendant’s argument regarding this statute is difficult to determine
from his brief. He mentioned the statute only in a footnote, where he quoted the text in
full. However, Defendant emphasized the second and third subsections of the statute
with bold font and underlining. Those sections provide:
(2) Any entrusting of possession of goods to a merchant who deals in goods
of that kind gives him power to transfer all rights of the entruster to a buyer
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in ordinary course of business.
(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.
Tenn. Code Ann. § 47-2-403(2)(3). Defendant’s brief suggests that this statute applies
because “[t]he transaction at issue here occurred within the normal course of [the]
respective businesses [of Tennessee Materials and Elam Trucking].” Defendant’s
position, then, as we understand it, is that Plaintiffs entrusted possession of the trailer to
Tennessee Materials and/or Mr. Smith, and therefore, Tennessee Materials and/or Mr.
Smith had the power to transfer all of Plaintiffs’ rights to Defendant if he was “a buyer in
ordinary course of business.” Tenn. Code Ann. § 47-2-403(2).
The entrustment statute does not provide relief to Defendant under the
circumstances presented here. The majority of Defendant’s argument on appeal centers
on whether he should be considered a bona fide or good faith purchaser within the
meaning of the relevant statutes. However, purchasing in good faith and for value, “by
itself, is not sufficient to entitle the buyer to the protection of U.C.C. § 2-403(2).” 3A
Lawrence’s Anderson on the Uniform Commercial Code § 2-403:100 (3d. ed.)
(hereinafter, “Anderson U.C.C.”); see also Ballard v. Wetzel, No. 03A01-9705-CH-
00189, 1997 WL 650878, at *2 (Tenn. Ct. App. Oct. 16, 1997) (“status as a good faith
purchaser for value, alone, does not establish good title”). The entrustment statute
“imposes qualifications both in terms of the status of the seller and the circumstances
surrounding the sale.” Anderson U.C.C. § 2-403:100. Specifically, the entrustment
statute applies to those who entrust possession of goods “to a merchant who deals in
goods of that kind.” Tenn. Code Ann. § 47-2-403(2). In turn, the statute protects “a
buyer in ordinary course of business” who purchases from the “merchant who deals in
goods of that kind.” Id. A “buyer in the ordinary course of business” means “a person
that buys goods in good faith, without knowledge that the sale violates the rights of
another person in the goods, and in the ordinary course from a person, other than a
pawnbroker, in the business of selling goods of that kind.” Tenn. Code Ann. § 47-1-
201(a)(9) (emphasis added). A merchant who “deals in goods” should be construed as
“one who is engaged regularly in selling or leasing goods of the kind.” Anderson U.C.C.
§ 2-403:73. “The limitation of U.C.C. § 2-403 to a merchant who deals in the particular
kind of goods shows that mere possession does not give the possessor the power to
transfer title[.]” Id. Because “the entrustment provision is dependent upon the
entrustee’s dealing in goods of the kind in question,” it is not operative when the sale in
question is a casual sale by a casual seller who would not qualify as dealing in goods of
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that kind. Anderson U.C.C. § 2-403:81.
The record contains no evidence to demonstrate that Mr. Smith was a merchant
who dealt in trailers of the kind at issue here. Mr. Hynes testified that Mr. Smith
operated Tennessee Materials as a limestone operation. Although Mr. Hynes mentioned
that he transferred the title to some other trailers to Mr. Smith, and Defendant purchased
a total of three scrap trailers from Mr. Smith according to the bill of sale, the evidence
simply does not support a finding that Mr. Smith or Tennessee Materials was “in the
business of selling goods of that kind” on a regular basis. See Tenn. Code Ann. § 47-1-
201(a)(9). To the contrary, the record suggests that Mr. Smith’s sale of the scrap trailer
to Defendant was an isolated casual sale. As such, Defendant is not entitled to the
protection of the entrustment statute regardless of whether he might have purchased the
trailer in good faith or otherwise qualified as a bona fide purchaser.
Defendant’s next argument on appeal is that Plaintiffs were required to make a
prima facie showing of bad faith by Defendant in order to rescind the sale of the trailer.
However, the only cases cited by Defendant to support this argument pre-date the
adoption of the Uniform Commercial Code or involve sales of real property, and in any
event, they do not stand for the rule he suggests. See, e.g., Land Developers, Inc. v.
Maxwell, 537 S.W.2d 904, 913 (Tenn. 1976) (considering whether reciprocal easements
or restrictions upon use may be imposed on real property remaining in the hands of the
grantor); Hewgley v. Gen. Motors Acceptance Corp., 286 S.W.2d 355, 359 (Tenn. Ct.
App. 1955) (holding that the “complainant failed to carry the burden of proving that he
was a bona fide purchaser of the car without notice” without mentioning the term bad
faith). The cited cases are not applicable to the transaction at issue here. See Ballard,
1997 WL 650878, at *2 (involving a sale of goods governed by the UCC and rejecting
the plaintiff’s reliance on cases pre-dating Tennessee’s adoption of the UCC and cases
dealing with titles to real property, as such cases “do not apply in this context”).
Finally, Defendant argues that “[t]his Court should find that Plaintiffs are estopped
from bringing the instant claim against Defendant Elam because Plaintiffs have sat upon
their rights and negligently allowed Smith to carry on with the business of Tennessee
Materials, creating an actual or apparent authority in Smith to dispose of the trailer in the
regular course of business.” From our review of the record, Plaintiffs did not raise an
estoppel argument before the trial court, so this issue is waived. A party may not raise an
issue for the first time on appeal. In re Estate of Smallman, 398 S.W.3d 134, 148 (Tenn.
2013); see also Welch v. Bd. of Prof’l Responsibility, 193 S.W.3d 457, 465 (Tenn.2006)
(citations omitted) (“It has long been the general rule that questions not raised in the trial
court will not be entertained on appeal.”).
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V. CONCLUSION
For the aforementioned reasons, the decision of the circuit court is hereby affirmed
and remanded for further proceedings. Costs of this appeal are taxed to the appellant,
Danny Elam, and his surety, for which execution may issue if necessary.
_________________________________
BRANDON O. GIBSON, JUDGE
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