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.
Any "or return" term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this article (Code Section 11-2-201) and as contradicting the sale aspect of the contract within the provisions of this article on parol or extrinsic evidence (Code Section 11-2-202).
(Code 1933, § 109A-2 - 326, enacted by Ga. L. 1962, p. 156, § 1; Ga. L. 1963, p. 188, § 2; Ga. L. 2001, p. 362, § 6.)
The 2001 amendment, effective July 1, 2001, deleted "consignment sales and" in the catchline, substituted "Goods" for "Except as provided in subsection (3) of this Code section, goods" at the beginning of subsection (2), deleted subsection (3), which read: "Where goods are delivered to a person for sale and such person maintains a place of business at which he 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 his creditors to be substantially engaged in selling the goods of others; or (c) Complies with the filing provisions of the article on secured transactions (Article 9 of this title).", and redesignated former subsection (4) as present subsection (3).
Law reviews.- For survey article on commercial law, see 34 Mercer L. Rev. 31 (1982).
JUDICIAL DECISIONS
Purpose of O.C.G.A. § 11-2-326 is to protect creditors of person in possession of goods (the dealer) who would have a right to assume goods were property of dealer. Guardian Disct. Co. v. Settles, 114 Ga. App. 418, 151 S.E.2d 530 (1966).
One purpose behind O.C.G.A. § 11-2-326 is subordination of secret consignment seller claims to claims of consignment buyer's creditors. Financeamerica Corp. v. Morris (In re KLP, Inc.), 7 Bankr. 256 (Bankr. N.D. Ga. 1980).
O.C.G.A. § 11-2-326 importance lies primarily in role it plays, along with notice provisions of Article 9 of this title, in giving disclosed claims to property priority over secret claims. Financeamerica Corp. v. Morris (In re KLP, Inc.), 7 Bankr. 256 (Bankr. N.D. Ga. 1980).
O.C.G.A. § 11-2-326 applies to transactions which are not true sales at all, since section governs agreements which somehow provide that "delivered goods may be returned by the buyer even though they conform to the contract." Financeamerica Corp. v. Morris (In re KLP, Inc.), 7 Bankr. 256 (Bankr. N.D. Ga. 1980).
The burden of proof is on the defendant to prove that the consignee is generally known by creditors to be substantially engaged in selling the goods of others. Loeb v. G.A. Gertmenian & Sons (In re A.J. Nichols, Ltd.), 21 Bankr. 612 (Bankr. N.D. Ga. 1982).
Consignment sales insufficient.
- Debtor aviation company's index of consignment sales at 10 percent over the course of a ten year period was insufficient to render it substantially engaged in the sale of goods to others within the meaning of O.C.G.A. § 11-2-326. ATG Aerospace, Inc. v. High-Line Aviation Ltd., 149 Bankr. 730 (Bankr. N.D. Ga. 1992).
Car delivered by owner to dealer to secure offers for owner's approval.
- Where individual owner of automobile delivers it to automobile dealer for the purpose of having said dealer secure offers for purchase thereof, and to sell same upon approval of offer by individual owner, the automobile dealer to receive a commission of set sum regardless of sale price, such transaction is not a "sale or return" transaction between a buyer and a seller within meaning of O.C.G.A. § 11-2-326. Allgeier v. Campisi, 117 Ga. App. 105, 159 S.E.2d 458 (1968).
Transaction between a mobile home manufacturer and a retail dealer, involving a mobile home claimed by a floor-plan financer was a "sale or return," and the mobile home was subject to the financer's claim arising from a security interest in the dealer's after-acquired inventory without regard to whether the manufacturer was compensated for the mobile home. GECC v. Catalina Homes, Inc., 178 Ga. App. 319, 342 S.E.2d 734 (1986).
Voidable preference under Bankruptcy Code.- Debtor's return of goods held on sale or return within the preference period constituted a voidable preference under the Bankruptcy Code, 11 U.S.C.S. § 547(b). Loeb v. G.A. Gertmenian & Sons (In re A.J. Nichols, Ltd.), 21 Bankr. 612 (Bankr. N.D. Ga. 1982).
Cited in McDonald v. Peoples Auto. Loan & Fin. Corp., 115 Ga. App. 483, 154 S.E.2d 886 (1967); Evans Implement Co. v. Thomas Indus., Inc., 117 Ga. App. 279, 160 S.E.2d 462 (1968); Knox Jewelry Co. v. Cincinnati Ins. Co., 130 Ga. App. 519, 203 S.E.2d 739 (1974); King's Appliance & Elecs., Inc. v. Citizens & S. Bank, 157 Ga. App. 857, 278 S.E.2d 733 (1981); Logan Paving Co. v. Massey-Ferguson Credit Corp., 172 Ga. App. 368, 323 S.E.2d 259 (1984); Amatulli Imports, Inc. v. House of Persia, Inc., 191 Ga. App. 827, 383 S.E.2d 192 (1989).
RESEARCH REFERENCES
Am. Jur. 2d.
- 67 Am. Jur. 2d, Sales, §§ 465-502.
6 Am. Jur. Pleading and Practice Forms, Commercial Code, § 2:315.
C.J.S.- 35 C.J.S., Factors, §§ 1, 56, 60, 63.
U.L.A.- Uniform Commercial Code (U.L.A.) § 2-326.
ALR.
- Duty of purchaser of goods "on trial" or "on approval" regarding notice of rejection, 78 A.L.R. 533.
Reasonableness or personal judgment of buyer as test where goods are sold subject to being satisfactory to the buyer, 86 A.L.R.2d 200.
Time for return of goods sold on "sale or return" absent specific time provision in contract, 93 A.L.R.2d 342.
Consignment transactions under the Uniform Commercial Code, 40 A.L.R.3d 1078.
"Sale on approval" and "sale or return" contracts under Uniform Commercial Code § 2-326, 44 A.L.R.6th 441.