Sale of stolen property

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Latest post Wed, Apr 26 2006 11:26 PM by RickInNoCal. 7 replies.
  • Wed, Apr 26 2006 1:00 PM

    Question [=?] Sale of stolen property

    From yesterday's "Judge Judy" (Yeah, I know.... ) This occurred in Arkansas.

    In 2003, Defendant buys an unused, unregistered 2001 model JetSki from an unknown seller in a Home Depot parking lot. He pays $3,500. He goes and registers it in his name. The registration documents he is given show it as a 1991 model, but he doesn't do anything about that.

    In early summer 2005 he sells it to the Plaintiff, also for $3,500. He lists it as a 2001 model, and she notices that the papers say 1991. He tells her that that's simply a typo from the Dept of Fish and Game (who apparently register watercraft in AR) and assures her it is a 2001. She does not register it in her name as it already has 2005 tags. She uses it all summer. In the fall she takes it to a dealer to be winterized.

    She gets a phone call from the police a couple of days later. The dealer had noticed that the VIN plate seemed loose, and that the VIN number indicated the JetSki as a 1991, when it was in fact a 2001. They checked the serial number on the Engine with the maker, and found it was one of a truckload of JetSki's stolen before delivery to a dealer back in 2001. The VIN plate was from an older JetSki that had probably been junked.

    Anyway.... the plaintiff sued the defendant for the return of the purchase price, since he sold her a stolen JetSki. The defendant countered that he didn't know the JetSki was stolen, had gotten it registered in his name, and sold it in good faith.

    The defendant won the case. Judge Judy said the law requires closure at some point, and that the seller was as much a victim as was the buyer.

    Do the lawyers here think this was a correct verdict? I thought that if you bought something that was stolen then you didn't have a legal title to it anyway, and any sale you made of it was invalid - regardless of whether you knew it was stolen or not.

    Richard
  • Wed, Apr 26 2006 3:34 PM In reply to

    Ok [+0+] re: Sale of stolen property

    CAVEAT: One’s eyes are likely to glaze over in reading this. However, because Rick loves the nuances in the law, I am posting this primarily for his purpose!

    Rick, you are going to love the level of detail in this “can of worms” that you have opened. This is a UCC problem. Relying on my law school notes, you should be able to resolve the issue. As it relates to the parties in your fact pattern, at a cursory glance, I’d conclude that Judge Judy was correct. However, I’d have to really focus on this to be confident of my answer. Let us know if you agree with Jude Judy's decision!

    OWNERSHIP CLAIMS - THE BASIC RULE

    Suppose that a thief (T) steals goods from O [Dealer in your facts] and sells them to S [Defendant in your facts] who pays value in good faith and without knowledge of O's title.

    S resells the goods to B [Plaintiff in your facts], a good faith purchaser. Later, O learns that B has "his" goods and attempts to replevy them.

    Of course, the issue becomes whether O can replevy the goods from the third party, B.

    On these facts, O will prevail under the first sentence in 2-403(l): a "purchaser of goods," even though a good faith purchaser, (GFP) acquires "all title which his transferor had or had power to transfer . . . "

    Here, S, "his transferor," had neither title nor power to transfer title because he purchased from a thief. As between O and B, both innocents, the risk is placed upon B.

    1) B's remedy is against S for breach of warranty of title, see 2-312(l)(a),
    2) and S's recourse is against T, if T can be found.

    This is the basic common law rule, which was thought to preserve the security of property and remains the case whenever a “void” title is involved.

    Thus, Judge Judy was correct. The plaintiff’s remedy here was to sue the defendant for breach of warranty of title under UCC 2-312(l)(a).

    THE CODE EXCEPTIONS

    Section 2-403, however, gives B better title than S had power to convey in two situations where a “voidable title or an entrusting is involved:

    (1) Where O delivers the goods to S in a "transaction of purchase," which is voidable for fraud or some other defect, and S sells the goods to B, a GFP, [this exception applies to your facts] and

    (2) Where O entrusts the goods to S, a merchant who deals in goods of that kind, and S sells them to a "buyer in the ordinary course of business." (BIOCB) See 1-201(9).

    Note that in both cases, O has intentionally done something; that is, delivered the goods to S, and created a risk that B will be mislead by S's possession.

    But the purpose of the delivery is different:

    1) in the first case, O intends to sell the goods to S
    2) in the second he does not.

    The purpose notwithstanding, in both, B has an excellent chance to obtain good title.

    Note again, however, that the UCC does not make an exception where O has not voluntarily surrendered his property to S; i.e., where a thief has stolen O’s property. However, it is an error to make the statement that “whenever a “void” title is involved, O will still prevails against all subsequent purchasers if he chooses to replevy the property.” A void title can be procured under either of the exceptions, even under circumstances that rise to the level of criminal larceny.

    Because, the first exception applies, let’s only deal with it . . .

    Transaction of Purchase

    Section 2-403(l) provides that a person with "voidable title has power to transfer a good title to a good faith purchaser for value."

    The terms, "good faith," "purchaser" and "value" are defined in 1-201.

    A classic example of voidable title is where O has been induced to sell goods by S's fraudulent misrepresentation.

    1) As between O and S, O can avoid the contract for sale and recover the goods.
    2) Between O and a GFP who has taken delivery, however, O loses!

    Thus, despite O being a victim, the UCC will protect the GFP over O.

    In addition to the fraudulent misrepresentation, 2-403(l) provides further that when "goods have been delivered under a transaction of purchase the purchaser has such power [to pass good title] even though:

    (a) the transferor was deceived as to the identity of the purchaser, or
    (b) the delivery was in exchange for a check which is later dishonored,
    (c) it was agreed that the transaction was to be a “cash” sale, or
    (d) the delivery was procured through fraud punishable as larcenous under the criminal law.

    In these four scenarios, the purchaser has acquired a “voidable” title and O is at risk of not being able to replevin if S resells the property.

    These four situations were included to:

    1) clarify and expand B’s, the GFP, protection in a transaction of purchase
    2) and to avoid the conclusion sometimes reached at common law that S's title was "void" rather than "voidable."

    An example of "void" title would be where O was induced by fraud to sign a writing thinking it was a bailment agreement when in fact it was a contract for sale.

    When a “void” tile is involved; i.e., O delivers goods to S and S resold them to a GFP, O could replevy them from the GFP because S got a "void" rather than "voidable" title. See Inmi-Etti v. Aluisi, 63 Md.App. 293, 492 A.2d 917 (1985).

    Making substantive outcomes turn on such fine distinctions did not appeal to the drafters of the Code.

    1) Note that S need not be a merchant and B need not be a BIOCB for good title to pass.
    2) The key is whether delivery is under a "transaction of purchase" and whether B is a good faith purchaser (GFP) for value.
  • Wed, Apr 26 2006 4:06 PM In reply to

    Ok [+0+] re: Sale of stolen property - Oops

    >>>>Thus, Judge Judy was correct. The plaintiff’s remedy here was to sue the defendant for breach of warranty of title under UCC 2-312(l)(a).

    Oops, I change my mind. Under the general rule, Judge Judy was wrong! IMHO.

    Here, P suit against D should have been for breach of warranty of title under UCC 2-312(l)(a).

    D's recourse is against the Thief, if T can be found.

    Under the UCC exceptions, I don't want to think that hard. We will let Rick do so and he can let us know if (1) he agrees with Judge Judy under the general rule and (2) if the UCC excpetions would change the outcome!

  • Wed, Apr 26 2006 4:09 PM In reply to

    • Ford
      Lawyer
    • Top 10 Contributor
    • Joined on Thu, Mar 16 2000
    • Posts 12,797

    Feedback [*=*] re: Sale of stolen property

    My recollection is that you can't take any sort of good title from a thief, so the seller should lose as breach of contract.

    However, I didn't take Sales/Article Seventy-Four or whatever it is... (Three?)

    Sounds more like Judy might have balanced the equities. That often results in crazy conclusions.
  • Wed, Apr 26 2006 4:19 PM In reply to

    More [=+=] re: Sale of stolen property

    >>>>However, I didn't take Sales/Article Seventy-Four or whatever it is... (Three?)

    Actually, Ford, it is article 2.

    ARTICLE 2, SALES
    ARTICLE 2A, LEASES
    ARTICLE 3, COMMERCIAL PAPER
    ARTICLE 4, BANK DEPOSITS - COLLECTIONS
    ARTICLE 4A, FUNDS TRANSFERS
    ARTICLE 5, LETTERS OF CREDIT
    ARTICLE 6, BULK TRANSFERS; BULK SALES
    ARTICLE 7, DOCUMENTS OF TITLE
    ARTICLE 8, INVESTMENT SECURITIES
    ARTICLE 9, SECURED TRANSACTIONS

    I also did not take article 2. We just have an UCC obsessed contracts professor for contracts!
  • Wed, Apr 26 2006 5:14 PM In reply to

    Agree [=|=] Thanks Ford & Trentzz

    My thoughts were exactly that... that the seller had no valid title and therefore no right to sell to the buyer, and that the buyer should therefore have prevailed.

    I further thought that I couldn't really call the seller a Good Faith Buyer when HE bought the JetSki to start with - he bought an two-year old but still unused JetSki (A red flag to start with!) for an extremely low price from a stranger in a parking lot, and the DMV record for the VIN number came back to a JetSki ten years older than the one he'd bought.

    I strongly suspect that he at least suspected that it was 'warm' - after all he sold it after over two years for the same price he paid for it.

    Richard
  • Wed, Apr 26 2006 5:36 PM In reply to

    • Ford
      Lawyer
    • Top 10 Contributor
    • Joined on Thu, Mar 16 2000
    • Posts 12,797

    Note [#=#] re: Sale of stolen property

    Didn't take 3 either. 9. It was 9. Boring. Ugh.
  • Wed, Apr 26 2006 11:26 PM In reply to

    re: Sale of stolen property

    "Didn't take 3 either. 9. It was 9. Boring. Ugh."

    Try a full year of charter party's :-(
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