In re Haley & Steele, Inc.
20 Mass. L. Rptr. 204 (2005)
Rule of Law:
Consumer consignments of goods, which are excluded from the definition of 'consignment' under UCC Article 9-102(a)(20) because they are 'consumer goods,' are not subject to the 'sale or return' provisions of the amended UCC Article 2-326 and are instead governed by common law bailment principles.
Facts:
- Haley & Steele, Inc., a Newbury Street art dealership, failed due to fraud.
- Century Bank & Trust Co. seized a substantial amount of valuable artwork from Haley & Steele as a primary secured creditor.
- Individual customers, identified as 'consumer consignors,' delivered artwork to Haley & Steele for sale pursuant to 'consignment agreements.'
- These consignment agreements generally stipulated that title to the artwork remained with the consignor until the consignor had been paid, or until a designated 'Minimum Retail Price' was obtained.
- The artwork delivered by the consumer consignors consisted of 'consumer goods,' meaning they were used or bought for use primarily for personal, family, or household purposes immediately before delivery to Haley & Steele.
Procedural Posture:
- A Special Master, Camille F. Sarrouf, Esquire, was appointed by the Court to sort out the rights of individuals with claims against Haley & Steele.
- On October 17, 2005, the Special Master submitted his Fifth Report, which included findings and conclusions identifying different categories of claimants, including 'consumer consignors.'
- Certain objections were raised to the Special Master's Fifth Report regarding the rights of these claimants.
- The Court determined it was necessary to rule upon the interplay between common law and two parts of the Massachusetts Uniform Commercial Code (G.L.c. 106, sec. 2-326 and sec. 9-102(a)(20)) in connection with these objections.
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Issue:
Does UCC Article 2-326, as amended in 2001, apply to consumer consignments of artwork, thereby making such goods subject to the claims of the consignee's general creditors while in the consignee's possession, or are these transactions governed by common law bailment?
Opinions:
Majority - van Gestel, Allan, J.
No, UCC Article 2-326, as amended in 2001, does not apply to consumer consignments of artwork; instead, these transactions are governed by common law bailment principles. The court first concluded that artwork delivered by 'consumer consignors' falls outside the definition of 'consignment' in UCC Article 9-102(a)(20) because the goods were 'consumer goods' immediately before delivery. This determination was based on the plain language of the statute, which expressly excludes such goods from its definition of 'consignment,' adhering to established principles of statutory construction where clear language is conclusive as to legislative intent. The court then addressed whether these non-Article 9 consumer consignments could be considered 'sale or return' transactions under the amended UCC Article 2-326. It noted that the pre-2001 version of 2-326(3) explicitly covered consignments, but the 2001 amendments significantly revised subsection (3) and entirely removed any reference to consignments, which the court deemed an intentional legislative act. Furthermore, Article 2 governs 'Sales,' which require the passing of title from seller to buyer. In the typical Haley & Steele consignment agreements, title explicitly remained with the consignor, not passing to Haley & Steele itself, meaning there was no 'present sale' required for a 'sale or return' transaction under 2-326. Referencing Comment 4 to the amended 2-326, the court recognized that 'true consignment transactions' previously covered by former UCC provisions were deleted and replaced by new Article 9 provisions. Since consumer consignments are explicitly excluded from these new Article 9 provisions, they are left without UCC regulation. Consequently, in the absence of specific UCC regulation, consumer consignments revert to being governed by the common law, specifically the law of bailments. Under bailment law, the general title to the goods remains with the bailor (consignor), and the bailee (consignee) maintains only a special interest for the purposes of the bailment, with an obligation to return the goods, thereby protecting the consumer consignor's title against the consignee's general creditors.
Analysis:
This case clarifies a significant interpretive issue regarding consumer consignments under the Uniform Commercial Code (UCC) following the 2001 amendments. By concluding that such transactions are neither Article 9 consignments nor Article 2 'sale or return' transactions, the court ensures that individual consumer consignors are not inadvertently subjected to the complexities of secured lending requirements under the UCC to protect their property from a merchant's creditors. This ruling provides crucial protection for consumers, reinforcing that common law bailment principles apply where the UCC explicitly carves out or excludes certain types of transactions, thus preventing an illogical outcome where consumers would be worse off than commercial consignors. Future cases involving similar consumer-to-merchant transactions for resale, particularly concerning 'consumer goods,' will likely rely on this precedent to revert to common law protections for the original owner.
