Keybank, Nat. Ass'n v. Mascarenas

• Decision Date: 24 November 2000
• Docket Number: No. 99CA1949.,99CA1949.
• Citation: 17 P.3d 209
• Parties: KEYBANK, NATIONAL ASSOCIATION, Plaintiff-Appellee, v. Johnny MASCARENAS and Nathan Schlegel, Defendants-Appellants.
• Court: Colorado Court of Appeals

17 P.3d 209

KEYBANK, NATIONAL ASSOCIATION, Plaintiff-Appellee, v. Johnny MASCARENAS and Nathan Schlegel, Defendants-Appellants.

No. 99CA1949.

Colorado Court of Appeals, Div. IV.

November 24, 2000.

Brown, Berardini & Dunning, P.C., Brian J. Berardini, Harvey L. Kramer, Denver, CO, for Plaintiff-Appellee.

Clayton and Stone, L.L.C., F. Brittin Clayton, III, Boulder, CO, for Defendants-Appellants.

Opinion by Judge CASEBOLT.

In this declaratory judgment action involving the ownership of motor vehicles, defendants, Johnny Mascarenas and Nathan Schlegel, appeal the trial court's order denying their request to conduct discovery and the summary judgment entered in favor of plaintiff, Keybank, National Association (Keybank). We affirm.

The following facts are undisputed. Defendants consigned their cars to a used-car dealer and authorized him to sell the vehicles. The dealer engaged in a scheme in which he procured used cars on consignment from their owners, sold the cars to new purchasers, and then kept the proceeds of the sale rather than remitting the proceeds to the consignors. When the county clerk and recorder learned of the fraudulent activity, she refused to transfer record title to the vehicles sold by the dealer.

Keybank had loaned money to individuals to purchase vehicles from the dealer, intending to obtain liens on the vehicles to secure the loans. When the clerk and recorder refused to transfer title to the vehicles, Keybank instituted this action seeking a judgment declaring that the new purchasers were the rightful owners of the vehicles. It also sought an order compelling the clerk and recorder to register title to the vehicles in the names of the purchasers, subject to Keybank's liens. In addition, Keybank filed a request for a speedy hearing under C.R.C.P. 57(m), asserting that the case should be advanced on the docket because the purchasers had possession of the vehicles but could not register them, while the consignors had record title to the vehicles but were without possession.

Keybank asserted that the Uniform Commercial Code (UCC) applied to the transactions and that, under § 4-2-403, C.R.S.2000, which deals with entrustment of goods, its borrowers were the rightful owners of the vehicles. Defendants asserted that the dealer had stolen their vehicles and that, under § 18-4-405, C.R.S.2000, they retained ownership of the vehicles.

To expedite the proceedings, the court ordered the parties to submit a set of stipulated facts and briefs on cross-motions for summary judgment. Concluding that § 4-2-403 was applicable and that the new purchasers were the rightful owners of the vehicles, the court granted summary judgment in favor of Keybank. It ordered the clerk and recorder to register the vehicles in the new purchasers' names, subject to Keybank's liens.

The clerk and recorder and the new purchasers were parties in the trial court but have not appeared in this appeal.

I.

Defendants contend the trial court erred in determining that § 4-2-403 is applicable here, rather than § 18-4-405. We disagree.

Appellate review of a summary judgment is de novo. Aspen Wilderness Workshop, Inc. v. Colorado Water Conservation Board, 901 P.2d 1251 (Colo.1995)

. What law applies presents a question of law for a court to decide. See Johnson v. Regional Transportation District, 916 P.2d 619 (Colo. App.1995).

A.

At common law and under the Uniform Sales Act, the mere entrustment of goods to a merchant engaged in selling goods of the kind did not prevent the owner from recovering them from a bona fide purchaser for value who purchased them from the merchant on the assumption that the merchant had the power to transfer good title. However, the provisions of § 4-2-403 of the UCC reverse this rule. Executive Financial Services, Inc. v. Pagel, 238 Kan. 809, 715 P.2d 381 (1986); 5 W. Hawkland, Uniform Commercial Code Series § 2-403:07 (1999).

Section 4-2-403, C.R.S.2000, of the UCC provides in pertinent part that:

(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 in the 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.

These sections of the UCC in effect provide that the leaving of property with a merchant who customarily sells that kind of goods clothes the merchant with either apparent ownership or apparent authority to sell the goods. They specify that any entrusting of possession of goods to a merchant who deals in such goods accords the merchant the power to transfer all of the entruster's rights to a buyer in the ordinary course of business. 4 R. Anderson, Uniform Commercial Code § 2-403:90 (3d ed.1997).

The overall policy underlying this provision is to restrict impediments to the free flow of commerce when buyers in the ordinary course of business are involved. Cugnini v. Reynolds Cattle Co., 687 P.2d 962 (Colo.1984). Thus, as between the entruster and the buyer, the risk of the dishonesty of the dealer is to be borne by the entruster. Executive Financial Services, Inc. v. Pagel, supra.

And, the purchaser from the entrustee-dealer is not affected by any breach of fiduciary duty of the entrustee owed to the entruster, whether it is a breach in the making of the sale, or in failing to remit the proceeds of the sale to the entruster. See 4 R. Anderson, supra, § 2-403:131; Coffman Truck Sales v. Sackley Cartage Co., 58 Ill. App.3d 68, 15 Ill.Dec. 554, 373 N.E.2d 1026 (1978).

Here, it is undisputed that defendants delivered their vehicles to the used-car dealer within the meaning of § 4-2-403(3), see § 4-1-201(14), C.R.S.2000 (delivery means voluntary transfer of possession), and that they acquiesced in his retention of them. Indeed, defendants specifically consigned their vehicles to the dealer. See Zuckerman v. Guthner, 105 Colo. 176, 96 P.2d 4 (1939) (consignment occurred where owner of automobiles delivered them to dealer who was authorized to sell them and to pay purchase money to owner). Hence, an entrustment occurred within the meaning of § 4-2-403. See Mattek v. Malofsky, 42 Wis.2d 16, 165 N.W.2d 406 (1969)

(entrustment occurred when owner authorized son to put car out for display and son delivered it to a licensed used-car dealer who put it on display for sale).

It is also undisputed that the dealer dealt in goods of the kind and that the dealer sold the vehicles to buyers in the ordinary course of business. Accordingly, unless the operation of § 4-2-403 is somehow precluded, the dealer had power to transfer defendants' ownership rights in the vehicles, and the new purchasers became their rightful owners.

B.

Defendants contend that the entrustment provisions are defeated by the operation of § 18-4-405, C.R.S.2000, which provides, in pertinent part, that "all property obtained by theft ... shall be restored to the owner, and no sale, whether in good faith on the part of the purchaser or not, shall divest the owner of his right to such property."

As noted in Cedar Lane Investments v. American Roofing Supply of Colorado Springs, Inc., 919 P.2d 879 (Colo.App.1996), § 18-4-405 permits the rightful owner of property to recover stolen property in the possession of another person, even if the person in possession is a bona fide purchaser for value. However, we conclude that the statute is not applicable here.

As noted in the Official Comment to § 4-2-403, the principles embodied in the entrustment statute "are ... freed from any technicalities depending on the extended law of larceny; such extension of the concept of theft to include trick, particular kinds of fraud, and the like is for the purpose of helping conviction of the offender; it has no proper application to the long-standing policy of civil protection of buyers from persons guilty of such trick or fraud."

Thus, it is clear that, when an entrustment occurs within the meaning of the statute, the fact that the entrustee procured the entrustment through larceny, trick, or fraud punishable under the criminal law does not defeat the ability of a merchant-entrustee to transfer title to the goods to a buyer in the ordinary course of business. See Cugnini v. Reynolds Cattle Co., supra

(entrusting of possession within the meaning of § 4-2-403 "includes everything short of armed robbery, and larceny is expressly approved"); Jernigan v. Ham, 691 S.W.2d 553 (Tenn.App.1984) (larceny by trick is defined as theft by fraud or deception. Once property is voluntarily delivered, it cannot be procured by theft in the ordinary sense of the term; larceny by trick does not fall into the category of ordinary theft).

With ordinary theft, a physical taking of which the owner is unaware occurs, see Hodges Wholesale Cars v. Auto Dealer's Exchange, 628 So.2d 608 (Ala.1993),

and the owner has no intention to part with his or her property. However, in the case of fraud or larceny by trick, the owner willingly entrusts his or her property to the hands of another for some purpose, unaware that he or she is being deceived. See Jernigan v. Ham, supra (the distinction between theft and fraud in the context of § 4-2-403 of the UCC is found in the definitions of delivery and purchase. Delivery concerns a "voluntary transfer of possession" under the UCC).

We therefore conclude that "theft" as used in § 18-4-405 does not encompass a larceny by trick or fraud, even if punishable under the criminal law, in which a person voluntarily delivers possession of his or her property under an agreement, giving the perpetrator authority to sell it under the UCC. Accordingly, here, under the undisputed facts, the dealer did not steal defendant's property within the...