Rayfield Investment Co. v. Kreps - Carlton Fields

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35 So.3d 63, 35 Fla. L. Weekly D994, 72 UCC Rep.Serv.2d 110(Cite as: 35 So.3d 63)Page 2Secured Transactions 349A 139.1349A Secured Transactions349AIII Construction and Operation349AIII(B) Rights as to Third Parties andPriorities349Ak139 Unperfected Security Interests,Priority Over349Ak139.1 k. In general. Most CitedCasesTo satisfy the requirement that a consignee be generallyknown by its creditors to be substantially engagedin selling the goods of others, in order to defeatthe priority of secured creditors, a consignormust show that a majority of the consignee's creditorswere aware that the consignee was substantiallyengaged in selling the goods of others by consignmentsales, and the majority is determined by thenumber of creditors, not by the amount of theirclaims. West's F.S.A. § 679.1021(1)(t).*64 James K. Green of James K. Green, P.A., WestPalm Beach, for appellant.Howard Kreps, Miami, appellee.FARMER, J.Opposing creditors clash over security interests in apainting found in the inventory of a failed art gallery.One creditor is its operating capital lenderclaiming a perfected security interest in all its inventory.The other is a consignor who placed apainting with the gallery for sale but without perfectinghis interest in the consigned goods. Concludingthat the governing statutes for security interestsgive the priority to the lender, we reverse thejudgment awarding the painting to the consignor.Lender made a series of loans totaling $300,000over a three-year period to a New York corporationdoing business in Palm Beach under the trade nameStyle de Vie. Apparently its lifestyle did not allow itto pay its lender, for the gallery defaulted on theloan. Lender sued to foreclose its security intereston the gallery's inventory. Lender proved nonpaymentand that it had perfected its security interestby filing a UCC-1 financing statement inFlorida. Lender obtained a judgment and a writ ofreplevin for the inventory.Consignor intervened after lender's replevin of theinventory and claimed the painting. The evidenceshowed that he placed the painting with the galleryafter lender's security interest had been perfected.FN1 He did not attach any tag or legend to thepainting that it was on consignment. FN2 Nor did hefile a UCC-1 financing statement in Florida givingnotice of his prior interest in the painting. Followinga trial, the court found consignor's interest superiorto lender's perfected interest, reasoning:FN1. The painting was by an artist namedCortes. The consignment agreement statedthat gallery was free to sell for not lessthan $42,000.FN2. Florida law requires the consignor ofworks of art to give notice to the public by:“affixing to such work of art a sign ortag which states that such work of art isbeing sold subject to a contract of consignment,or such consignee shall post aclear and conspicuous sign in the consignee'splace of business giving noticethat some works of art are being soldsubject to a contract of consignment.”§ 686.502(2), Fla. Stat. (2009).“[lender] had actual knowledge that [gallery] soldantiques and other goods on consignment. Specifically... [lender] entered into a Profit ParticipationAgreement with [gallery] which contemplatedparticipation in the profits of the sales ofconsigned goods. Further ... [lender] had actualknowledge and contemplated*65 the continuingconsignment of goods at [gallery], and contemplatedparticipation in the profits from the sale ofconsigned goods. [Consignor] has shown by clearand convincing evidence that he has a superior© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
35 So.3d 63, 35 Fla. L. Weekly D994, 72 UCC Rep.Serv.2d 110(Cite as: 35 So.3d 63)Page 3right and title to the painting that is the subject ofthis law suit.”From the judgment in consignor's favor, lenderappeals.The Florida Uniform Commercial Code (UCC)governs sales and secured transactions. The UCCspecifies that the term “security interest” means “aninterest in personal property ... which secures paymentor performance of an obligation” and“includes any interest of a consignor....” §671.201(35), Fla. Stat. (2009). As for consignments,UCC Article 9 further specifies:“Consignment means a transaction, regardless ofits form, in which a person delivers goods to amerchant for the purpose of sale and:1. The merchant deals in goods of that kind undera name other than the name of the personmaking delivery; is not an auctioneer; and is notgenerally known by its creditors to be substantiallyengaged in selling the goods of others;2. With respect to each delivery, the aggregatevalue of the goods is $1,000 or more at the timeof delivery;3. The goods are not consumer goods immediatelybefore delivery; and4. The transaction does not create a security interestthat secures an obligation.” [internal subheadingsomitted]§ 679.1021(1)(t), Fla. Stat. (2009). Again the recordindisputably shows that consignor did nothing toperfect a prior interest in the painting by filing aUCC-1, by affixing a tag or by having the gallerypost a sign that some inventory is on consignment.At trial consignor presented evidence that lender'sprincipal knew some of the gallery's items were onconsignment. The lender's principal complainedthat the gallery failed to furnish inventories duringthe three years before the consignment. When he finallyreceived an inventory, it listed several thousanditems for sale but there were not more than 60at the time. According to some records, consignmentgoods never exceeded 15% of inventory in thefew years preceding the store's demise.[1] While lender knew there were some consignmentgoods for sale, there is absolutely no recordevidence as to whether the gallery was “generallyknown by its creditors to be substantially engagedin selling the goods of others.” § 679.1021(1)(t)1c.Consignor presented no evidence as to who or howmany creditors the gallery had when he placed hispainting there for sale in 2006. Similarly there is noevidence that lender knew this painting was on consignmentor of any agreement between the galleryand consignor. So it is clear this case involves a priorperfected security interest in inventory and asubsequent unperfected security interest in a paintingplaced with the gallery for sale on consignment.[2] The law does not support the trial judge's decision.The Florida UCC explicitly provides that aperfected security interest in goods takes priorityover all subsequently perfected and unperfected securityinterests in the same goods. § 679.322(1),Fla. Stat. (2009). Florida law also explicitlyprovides that a consignor's interest in goods placedfor sale with a consignee who routinely sells suchgoods is merely an unperfected security interestsubject to the claims of those with prior perfectedsecurity interests. See §§ 679.319 and679.322(1)(b), Fla. Stat. *66 (2009); see also In reCorvette Collection of Boston Inc., 294 B.R. 409,414 (Bkry.S.D.Fla.2003) (holding that as to consignedgoods, presumption is that goods are held byconsignee on sale or return basis subject to claimsof consignee's creditors).The consignor in this case could have defeated thepriority of secured creditors only by proving that amajority of the gallery's creditors knew that it wassubstantially engaged in consignment sales. See e.g.Corvette Collection, 294 B.R. at 414. But consignoroffered no evidence as to who the gallery's creditorswere or what they knew about his goods for sale.The cases follow a general rule of thumb that con-© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
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Rayfield Investment Co. v. Kreps - Carlton Fields

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