Belmont Intern., Inc. v. American Intern. Shoe Co.

Decision Date23 April 1992
Docket NumberCV-88-537-RE
Citation313 Or. 112,831 P.2d 15
Parties, 17 UCC Rep.Serv.2d 415 BELMONT INTERNATIONAL, INC., Plaintiff-Appellant, v. AMERICAN INTERNATIONAL SHOE COMPANY, First Interstate Bank of Oregon, N.A., and Richard Wurth, Defendants-Appellees. USDC; USCA 88-4460; SC S37322.
CourtOregon Supreme Court

I. Franklin Hunsaker, of Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland, argued the cause and filed the briefs, for plaintiff-appellant. With him on the briefs were Thomas A. Gordon and Randy L. Arthur, Portland.

Lee C. Nusich, Portland, argued the cause, for defendants-appellees First Interstate Bank of Oregon, N.A. Jeffrey M. Batchelor, of Lane Powell Spears Lubersky, Portland, filed the brief.

GILLETTE, Justice.

This case is before this court on certification from the United States Court of Appeals for the Ninth Circuit pursuant to ORS 28.200 to 28.255. 1 907 F.2d 154. See Western Helicopter v. Rogerson Aircraft, 311 Or. 361, 811 P.2d 627 (1991) (setting out and explaining the certification process). The five questions certified are:

"1. Does ORS 72.3260 apply to money collected "on open account" from customers of the consignee?

"2. Does ORS 79.3015 apply to money collected "on open account" from customers of the consignee?

"3. Assuming that either ORS 72.3260 or ORS 79.3015 applies, would a consignor, who did not file or otherwise protect itself under those sections, have priority in the proceeds of a consignment sale over a secured creditor with actual knowledge of the consignment?

"4. Assuming that neither ORS 72.3260 nor ORS 79.3015 applies, would a perfected secured creditor's priority pursuant to ORS 79.2010 and/or ORS 79.3010 preempt a common law claim for money had and received?

"5. Assuming that such a claim has not been preempted, has [consignor] stated a claim for money had and received?"

As the stated questions imply, this is a claim for money had and received. In its complaint, plaintiff Belmont International, Inc. (Belmont), alleged that it consigned shoes to defendant American International Shoe Co. (American) for sale to American's customers. All proceeds from American's sale of the consigned shoes were deposited in and handled through a separate account 2 that American established at defendant First Interstate Bank of Oregon (Bank). 3 Bank is a creditor of American and has a perfected security interest in all of American's accounts including, Bank argues the account containing the proceeds from the sale of the consigned shoes.

American defaulted on a loan and security agreement with Bank, and Bank applied all of American's accounts, including the account at issue here, to the outstanding loan. Both Belmont and Bank asserted priority in American's account containing the proceeds of the consignment sales. Belmont filed this case against Bank in the United States District Court for the District of Oregon, asserting claims for money had and received and for negligence. On Bank's motion, the district court dismissed the action, holding that Belmont had failed to state a claim. The district court ruled that the dispute was governed by Article 9 of the Uniform Commercial Code (UCC), ORS chapter 79, and that Belmont's rights were inferior to those of Bank under the pertinent provisions of the UCC. Belmont appealed to the United States Court of Appeals for the Ninth Circuit. 4 The Ninth Circuit certified five questions of law to this court, and we accepted certification.

1. Does ORS 72.3260 apply to money collected "on open account" from customers of the consignee?

The answer is "no."

ORS 72.3260, as pertinent to this proceeding, provides:

"(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) of this section, 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 the person 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 the creditors of the person to be substantially engaged in selling the goods of others; or

"(c) Complies with the filing provisions of ORS 79.1010 to 79.5070 on secured transactions."

The interesting thing about this first question is that both parties agree on the answer: ORS 72.3260 cannot apply to a dispute between Belmont and Bank over an account that contains proceeds from the sale of consigned goods, because the focus of that statute is on "goods," not on money that may be derived from the sale of those goods. This is a reasonable construction. The legislature has demonstrated elsewhere that it knows how, within the UCC, to deal with proceeds from the sale of goods on consignment. See ORS 79.3015, discussed post. The fact that ORS 72.3260 does not, by its terms, apply to the situation before us does not mean, however, that the language of the statute cannot inform our judgment as to what the policy of the law should be in such circumstances. We believe that an explanation of this point now will facilitate our answer to later questions.

We assume, for the purposes of this case, that the relationship between Belmont and American was a true consignment. This means that, under normal circumstances "the absolute ownership of the property is in the consignor, [and] absent a basis to apply an estoppel (including apparent or ostensible ownership), the consignee has no interest that can be transferred to his creditors or trustee in bankruptcy." Manger v. Davis, 619 P.2d 687, 691 (Utah 1980). The effect of ORS 72.3260(3) is to modify this general rule where the consigned goods are delivered to a person for sale and such person is in the business of selling goods of that kind. Under such circumstances, and with respect to the creditors of the consignee, "the goods [delivered on consignment] are deemed to be on sale or return." ORS 72.3260(3). For the purposes of this case, American was such a "person". Therefore, the goods consigned to American by Belmont were "deemed to be on sale or return."

The phrase, "the goods [delivered on consignment] are deemed to be on sale or return," means that, for the purposes of the consignee's creditors, the consignee is deemed to have title in the consigned goods. See In re Miller, 119 B.R. 660 (W.D.Ark.1990) (so holding); Fuller v. Texas Western Financial Corp., 635 S.W.2d 787, 789 (Tex.App.), aff'd 644 S.W.2d 442 (Tex.1982) (same); Annot., Consignment Transactions Under the Uniform Commercial Code, 40 ALR3d 1078, 1088, § 3(a) (1971) (discussing principle).

Even under such circumstances, however, the consignor is not without protection. Under ORS 72.3260(3)(a) to (c), the consignor can escape the rule of ORS 72.3260(3) if it can show either (a) that it has complied with an applicable law providing for a consignor's interest to be evidenced by a sign, or (b) that the person conducting the business generally is known by the person's creditors to be engaged substantially in selling the goods of others, or (c) that the consignor has made an appropriate filing pursuant to the secured transaction provisions of the UCC.

Belmont concedes that its allegations in the present case do not suggest compliance with the requirements of either subsections (a) or (c) of ORS 72.3260(3). Belmont argues, however, that it has alleged facts that, if proved, would bring it within subsection (b) of that statute. 5 We agree. Paragraph 7 of Belmont's complaint in the district court alleged:

"At all material times, [Bank] was aware of the business relationship between [Belmont] and * * * American * * * and had actual knowledge that American * * * was substantially engaged in selling the goods of [Belmont]." 6

Even though Belmont did not allege that American was generally known by its creditors to be engaged in selling goods of others, an allegation that the creditor making the claim had such knowledge was sufficient to invoke the exception found in ORS 72.3260(3)(b).

Bank argues that the allegation is insufficient because it does not assert that American's creditors generally knew that American was engaged in selling the goods of others. Belmont responds that such a reading of ORS 72.3260(3)(b) is too narrow, given the purpose that the exception was intended to serve. Belmont asserts that, "where a secured creditor has received actual prior notice that a consignee is substantially engaged in selling consigned goods, the consignor is entitled to superior rights." Belmont explains that construing ORS 72.3260(3)(b) to constitute an "actual knowledge" exception is reasonable, because "creditors with actual knowledge of the consignment relationship simply do not need the protection that the UCC provides to creditors of consignees that do not have such knowledge."

It is true that, as Bank argues, ORS 72.3260(3)(b) states that the consignee must be "generally known by the creditors of the person to be substantially...

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