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 ordinary course of business.
"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.
The rights of other purchasers of goods and of lien creditors are governed by the articles on secured transactions (Article 9 of this title), bulk transfers (Article 6 of this title), and documents of title (Article 7 of this title).
(Code 1933, § 109A-2 - 403, enacted by Ga. L. 1962, p. 156, § 1.)
Cross references.- Effect of sale to person without notice of equity, § 23-1-19.
Law reviews.- For article discussing, "Voidability of Minors' Contracts: A Feudal Doctrine in a Modern Economy," see 1 Ga. L. Rev. 205 (1967). For article discussing the resolution of conflicting claims to goods between an unsecured seller of goods and a creditor of a buyer claiming under an after-acquired property clause, see 28 Mercer L. Rev. 625 (1977). For article, "The Good Faith Purchase Idea and the Uniform Commercial Code," see 15 Ga. L. Rev. 605 (1981). For article surveying developments in Georgia commercial law from mid-1980 through mid-1981, see 33 Mercer L. Rev. 33 (1981). For comment on Hewitt v. Malone, 105 Ga. App. 281, 124 S.E.2d 501 (1962), see 25 Ga. B.J. 218 (1962).
JUDICIAL DECISIONSANALYSIS
General Consideration
Editor's notes.
- In light of the similarity of the provisions, decisions under former Code 1933, § 96-207 are included in the annotations for this section.
Subsection (2) and (3) applied only to the owner of the goods as the entruster. Superior Bank, FSB v. Human Servs. Emples. Credit Union, 252 Ga. App. 489, 556 S.E.2d 155 (2001).
Exception to rule that seller can convey no greater title than possesses.
- O.C.G.A. § 11-2-403 and former § 11-9-306 (see now O.C.G.A. §§ 11-9-102 and11-9-315) provide precisely limited exception to common-law rule that seller can convey no greater title than seller has as to rights of an entrustor, because as between the seller and an innocent purchaser, it is entrustor whose act or omission enables wrongdoer to commit fraud. Commercial Credit Equip. Corp. v. Bates, 159 Ga. App. 910, 285 S.E.2d 560 (1981).
Divestment of true owner's title.
- Where owner of personal property gives another apparent right to sell such property by reason of having conferred upon the other indicia of title, a sale to an innocent purchaser divests true owner's title. Teague Ford Sales, Inc. v. Commercial Auto Loan Corp., 96 Ga. App. 129, 99 S.E.2d 524 (1957) (decided under former § 96-207).
Special application of O.C.G.A. § 23-1-14. - Rule that where owner has given to another such evidence of right to sell goods as, according to custom of trade or common understanding of the world, usually accompanies authority of disposal, or has given external indicia of the right of disposing of property, sale to an innocent purchaser divests true owner's title, is merely a special application of rule embodied in O.C.G.A. § 23-1-14, that, when one of two innocent persons must suffer by act of third person, owner who put it in power of third person to inflict injury shall bear loss. Cook Motor Co. v. Richardson, 103 Ga. App. 129, 118 S.E.2d 502 (1961) (decided under Code 1933, § 96-207).
Innocent purchaser protected.
- The estoppel is based on justice of protecting an innocent purchaser against damage that would otherwise come to purchaser through original act of owner in making it possible for one, whether immediate or in succession, to appear as rightfully entitled to sell that for which innocent party parts with money or property. Morris v. Courts, 59 Ga. App. 666, 1 S.E.2d 687 (1939) (decided under former § 96-207).
O.C.G.A. § 11-2-403(2) and (3) are applicable only to owners of goods. United Carolina Bank v. Sistrunk, 158 Ga. App. 107, 279 S.E.2d 272 (1981).
Where plaintiff was not the owner of a mobile home, it could not be its entruster, and hence defendant's contention that the remedy provided by O.C.G.A. § 11-2-403(2) and (3) applied was without merit. Sunnyland Employees' Fed. Credit Union v. Fort Wayne Mtg. Co., 182 Ga. App. 5, 354 S.E.2d 645 (1987).
Merchant.
- O.C.G.A. § 11-2-403 requires, from an objective viewpoint, that the entruster know, or in the exercise of reasonable diligence should know, that the entrustor placed the goods with one who might appear to third persons to be a dealer in the type of goods in question, and where entrustor met entrustee at an auction bidding for the litigated tractor, agreed for entrustee to install equipment on tractor and visited entrustee's repair shop, entrustee could reasonably appear to be a merchant. Perez-Medina v. First Team Auction, Inc., 206 Ga. App. 719, 426 S.E.2d 397 (1992).
Stolen property not included within section.
- Georgia Court of Appeals held that stolen property was not within the ambit of O.C.G.A. § 11-2-403. Cars v. W. Funding II, 349 Ga. App. 517, 826 S.E.2d 370 (2019).
Cited in Charles S. Martin Distrib. Co. v. Banks, 111 Ga. App. 538, 142 S.E.2d 309 (1965); First Nat'l Bank & Trust Co. v. Smithloff, 119 Ga. App. 284, 167 S.E.2d 190 (1969); First Nat'l Bank & Trust Co. v. McElmurray, 120 Ga. App. 134, 169 S.E.2d 720 (1969); Marshall v. Universal C.I.T. Credit Corp., 121 Ga. App. 751, 175 S.E.2d 84 (1970); Greater S. Distrib. Co. v. Usry, 124 Ga. App. 525, 184 S.E.2d 486 (1971); Rockwin Corp. v. Kincaid, 124 Ga. App. 570, 184 S.E.2d 509 (1971); Tri-County Livestock Auction Co. v. Bank of Madison, 228 Ga. 325, 185 S.E.2d 393 (1971); International Harvester Credit Corp. v. Commercial Credit Equip. Corp., 125 Ga. App. 477, 188 S.E.2d 110 (1972); Cone Mills Corp. v. A.G. Estes, Inc., 399 F. Supp. 938 (N.D. Ga. 1975); Chastain-Roberts Co. v. Better Brands, Inc., 141 Ga. App. 186, 233 S.E.2d 5 (1977); Sylvester Motor & Tractor Co. v. Farmers Bank, 153 Ga. App. 614, 266 S.E.2d 293 (1980); Commercial Credit Equip. Corp. v. Bates, 154 Ga. App. 71, 267 S.E.2d 469 (1980); McConnell v. Barrett, 154 Ga. App. 767, 270 S.E.2d 13 (1980); Hanington v. Palmer, 103 Bankr. 348 (Bankr. M.D. Ga. 1989); First Nat'l Bank v. Proceeding Ayres Aviation Holdings, Inc. (In re Ayres Aviation Holdings, Inc.), 342 Bankr. 104 (Bankr. M.D. Ga. 2006).
Good Faith Purchaser for Value
Proof of ownership not required.
- There is no requirement that a good faith purchaser for value receive a bill of sale or other proof of ownership before the purchaser can hold good title to a tractor. Brown v. Allen, 203 Ga. App. 894, 418 S.E.2d 153 (1992).
One holding perfected security interest in after-acquired property.
- Where seller did not perfect purchase money security interest, lien of security instrument previously perfected by filing held by plaintiff bank covering after-acquired property attached to property sold when it came into possession of buyer, even though at that time buyer had only voidable title, having paid with bad check, thus giving bank priority over the seller as a purchaser for value, provided bank had acted in good faith. Central Bank v. American Charms, Inc., 149 Ga. App. 218, 253 S.E.2d 857 (1979).
Bank was a good faith purchaser for value of certain cars under the following circumstances: The proprietor of a used-car business maintained a special checking account with the bank; the proprietor purchased cars from a car auction company with checks drawn upon this account; the proprietor then executed a promissory note to the bank, which loaned the proprietor the purchase price and took a security interest in the car; the account became overdrawn and the bank refused to honor the checks made out to the auction company. Georgia Cas. & Sur. Co. v. Tennille Banking Co. (In re Smith), 51 Bankr. 904 (Bankr. M.D. Ga. 1985).
Dealer acquiring vehicle from forger.
- Automobile dealer, who acquired a vehicle from a person who gave a forged check to its owner and then purported to "sell" the vehicle to the dealer, was a good faith purchaser for value. Charles Evans BMW, Inc. v. Williams, 196 Ga. App. 230, 395 S.E.2d 650 (1990).
Because plaintiff cellular telephone trademark holder's packages contained terms and conditions inside and language on the outside of the packages that referenced those terms and conditions, there was a valid "shrink-wrap" contract between the holder and purchasers of the cell phones, and allegations that defendant competitor removed the phones from their original packaging and shipped the phones outside the United States sufficiently raised a reasonable expectation that discovery would reveal evidence that the competitor was aware of the terms and conditions, was afforded an opportunity to reject the terms and conditions, and failed to reject the terms and conditions, such that a breach of contract claim was plausible, and, because the allegations indicated a lack of good faith by the competitor, the bona fide purchaser for value and buyer in the ordinary course defenses under O.C.G.A. §§ 11-1-201 and11-2-403(1)(a) were not available. Tracfone Wireless, Inc. v. Zip Wireless Prods., 716 F. Supp. 2d 1275 (N.D. Ga. 2010).
Thief cannot grant voidable title nor entrust.
- Trial court erred in finding that the finance company was entitled to summary judgment under O.C.G.A. § 11-2-403 because a thief who took the car could neither grant a voidable title to the car nor entrust the car to any other entity to sell on a dealer's behalf since no agency was established. Cars v. W. Funding II, 349 Ga. App. 517, 826 S.E.2d 370 (2019).
Buyer in Ordinary Course of Business
Plaintiffs in attachment proceedings.
- Where plaintiffs in attachment proceedings are seeking refund of down payment after recission of contract, fact that debt is to be satisfied by execution sale of attached mobile home does not make them buyers in ordinary course of business. Troy Lumber Co. v. Williams, 124 Ga. App. 636, 185 S.E.2d 580 (1971).
Security Interest
Security interest continues in collateral notwithstanding sale, exchange, or other disposition, unless authorized by secured party. Commercial Credit Equip. Corp. v. Bates, 159 Ga. App. 910, 285 S.E.2d 560 (1981).
Priority of entruster's security interest.
- Where financing statement giving notice of interest of entruster in office machines entrusted to a bankrupt was signed by debtor, incorporated a security agreement and adequately described collateral, and was filed prior to filing of a bank's financing statement covering inventory, equipment, furniture, and fixtures, the prior security interest must prevail. First Nat'l Bank & Trust Co. v. Olivetti Corp. of Am., 130 Ga. App. 896, 204 S.E.2d 781 (1974).
Application
Placing automobile in hands of dealer.
- Delivery of automobiles by plaintiff, under contract of sale, to one known by plaintiff to be a dealer in used automobiles in Georgia, without taking any security therefor, and with whom plaintiff had done business in a similar manner many times before, constituted such evidence of right to sell plaintiff's automobiles as according to custom of trade or common understanding of the world usually accompanies authority to dispose of them; plaintiff gave to dealer possession of the automobiles under external indicia of ownership, and dealer's subsequent sale to defendant divested plaintiff of title. Cook Motor Co. v. Richardson, 103 Ga. App. 129, 118 S.E.2d 502 (1961).
Defendant, by placing automobile in hands of merchant dealing in automobiles, gives latter power to transfer all defendant's rights to plaintiff buyer in ordinary course of business, and any limitation defendant placed upon authority of merchant is of no moment and not material to the issues. Christopher v. McGehee, 124 Ga. App. 310, 183 S.E.2d 624, aff'd, 228 Ga. 466, 186 S.E.2d 97 (1971).
Where the evidence showed that an automobile dealer entrusted a car to an automobile sales and leasing firm which was a merchant dealing in such goods, under O.C.G.A. § 11-2-403 the sales and leasing firm was empowered to transfer ownership interest in the car to a buyer in the ordinary course of business. Perimeter Ford, Inc. v. Edwards, 197 Ga. App. 747, 399 S.E.2d 520 (1990).
Even though a car dealer did not intend to sell the car to another dealer and authorize it to sell the car to a third party until the latter dealer's check cleared, the facts supported the conclusion that the first dealer entrusted the car to the other dealer with the understanding that the latter would arrange for financing and sell the car to the third party, who, as a buyer in the ordinary course of business, obtained all of the first dealer's interest to the car. Right Touch of Class, Inc. v. Superior Bank, FSB, 244 Ga. App. 473, 536 S.E.2d 181 (2000); Mitchell Motors, Inc. v. Barnett, 249 Ga. App. 639, 549 S.E.2d 445 (2001).
In an action upon a consignment of a motor home between the consignors and a dealer, once a dealer transferred a motor home to the buyer other than by the creation of a security interest, whether the buyer obtained title to the motor home was governed by O.C.G.A. § 11-2-403(2); the fact that the dealer did not obtain a title certificate at the time of the consignment did not prevent it from transferring good title to the buyer. Smith v. Hardeman, 281 Ga. App. 402, 636 S.E.2d 106 (2006).
Leaving purchased truck with dealer for modifications.
- Where truck dealer sells same truck to two customers successively, first purchaser is estopped from asserting otherwise good claim to ownership against subsequent purchaser and possessor where the first purchaser allowed truck to stay under control of dealer after transaction so as to effect modifications of truck amounting to an "entrusting" or acquiescence under O.C.G.A. § 11-2-403, giving the dealer power to transfer all rights in the truck. Simson v. Moon, 137 Ga. App. 82, 222 S.E.2d 873 (1975), cert. dismissed, 236 Ga. 786, 225 S.E.2d 314 (1976).
Automobile dealer "entrusted" cars to a leasing firm even though the vehicles were delivered directly to the firm's customers, where the delivery of the cars was simultaneous with the execution of lease agreements. Classic Cadillac v. World Omni Leasing, Inc., 199 Ga. App. 115, 404 S.E.2d 452 (1991).
Authority of automobile broker.
- O.C.G.A. § 11-2-403(2) was inapplicable to the sale of an automobile by an automobile broker where the automobile owner's son indicated acceptance of a lower selling price in a telephone conversation with a salesperson for the automobile broker; the broker was acting within its authority in selling the automobile. McDowell v. Owens, 170 Ga. App. 421, 317 S.E.2d 275 (1984).
Title revoked upon return of automobile to dealer.
- The plaintiffs obtained all the rights to an automobile originally held by the defendant when they purchased the automobile from the dealer to whom it had been entrusted. However, after returning the car to the dealer in hopes this would enable the dealer to obtain a proper certificate of title, the plaintiffs eventually agreed to give up their claim to the automobile in exchange for the dealer's promise to order them a new and different automobile. This subsequent agreement with the dealer revoked any right or title the plaintiffs had to the automobile in question and revested title back to the original owner, the defendant. Walker v. Castello, 187 Ga. App. 196, 369 S.E.2d 527 (1988).
Dealer with title, but finance company in possession.
- Trial court erred by denying a used car dealer's motion for summary judgment on the dealer's counterclaims for trover and conversion because the undisputed evidence showed that the dealer held the title to car but that the finance company was in possession and refused to return the car upon demand. Cars v. W. Funding II, 349 Ga. App. 517, 826 S.E.2d 370 (2019).
Where car is purchased by check later found to be worthless, and where such car is put into possession of purchaser and is later sold by original purchaser to innocent purchaser for valuable consideration, trover will not lie for original seller to recover property. Gouldman-Taber Pontiac, Inc. v. Thomas, 96 Ga. App. 279, 99 S.E.2d 711 (1957) (decided under former § 96-207).
Where, under contract of sale of automobiles, by terms of which payment was to be made in cash, vendor delivered possession of automobiles to vendee, accepted in payment a check or draft which later was found to be worthless, and where such vendee, being in possession of automobiles, later sold the same to an innocent purchaser for value, trover would not lie to aid the original seller in recovering the property from the possession of the second vendee. Cook Motor Co. v. Richardson, 103 Ga. App. 129, 118 S.E.2d 502 (1961).
An insurer of a vehicle was not entitled to summary judgment on the insurer's claims of trover and conversion against a buyer as the buyer was a good faith purchaser for value who acquired good title to the car pursuant to the voidable title doctrine under O.C.G.A. § 11-2-403, despite the fact that the check paid by the buyer's seller was later dishonored. Moreover, because the insurer stood in the shoes of the insured, it could have no greater right of recovery than that insured. Stein v. GEICO Indem. Ins. Co., 289 Ga. App. 739, 658 S.E.2d 153 (2008).
Entrustment of stolen corn.
- Plaintiff could not recover in trover and conversion from defendant grain elevator company for corn sold to defendant by plaintiff's manager, who had pocketed the proceeds, where the purchases were made in the ordinary course of business, and, since the allegedly stolen goods had been entrusted to the manager by plaintiff, the manager had the power to transfer all rights of the entruster to defendant. Locke v. Arabi Grain & Elevator Co., 197 Ga. App. 854, 399 S.E.2d 705 (1990).
Purchase of stolen goods.
- When items stolen from an electric company were sold to a supply company, the supply company was not entitled to summary judgment dismissing the electric company's conversion claim against it as a good faith purchaser for value, under O.C.G.A. § 11-2-403, because the exception in that statute was designed to protect a purchaser acting in good faith, and whether the supply company or its principal were good faith purchasers was a jury question. Fed. Ins. Co. v. Westside Supply Co., 264 Ga. App. 240, 590 S.E.2d 224 (2003).
Entrustment of auctioned tractor.
- Auctioned tractor was entrusted despite the fact that it was placed in merchant's possession only for the purpose of installing equipment for plaintiff rather than for sale. Perez-Medina v. First Team Auction, Inc., 206 Ga. App. 719, 426 S.E.2d 397 (1992).
Horses not included with farm.
- Purchasers of a horse farm did not acquire title to horses as good faith purchasers for value, even though the horses were listed both on a security agreement as collateral for a loan the purchasers had made to the vendor and in the sales agreement for the farm, where the horses in question were awarded to the vendor's former partner as part of a judgment and the partner obtained the horses through levy on the judgment, so that the vendor had no title in the horses and had no legal right to sell what was not owned. Russell v. Lawrence, 234 Ga. App. 612, 507 S.E.2d 161 (1998).
Delivered stock certificate bearing blank assignment and power of attorney.
- Blank assignment and power of attorney endorsed on delivered stock certificate estops transferor from claiming any further interest or title in stock as against a bona fide transferee. This concept is based upon the principle that where an owner has given to another external indicia of right to dispose of property, a sale to an innocent purchaser divests true owner's title, and upon principle that when one of two innocent persons must suffer by act of a third person, the one who puts it in the power of the third person to inflict the injury shall bear the loss. Morris v. Courts, 59 Ga. App. 666, 1 S.E.2d 687 (1939) (decided under former § 96-207).
Preexisting security interest in collateral.
- Since O.C.G.A. § 11-2-403(2) would not give a buyer title free of a preexisting security interest, it did not alter the result reached by the trial court granting appellee lender's motion and request for a writ of possession of a machine against appellant corporation, a bona fide purchaser. Intermet Corp. v. Fin. Fed. Credit, Inc., 263 Ga. App. 622, 588 S.E.2d 810 (2003).
RESEARCH REFERENCES
Am. Jur. 2d.
- 67 Am. Jur. 2d, Sales, §§ 432-464. 68A Am. Jur. 2d, Secured Transactions, § 13.
6 Am. Jur. Pleading and Practice Forms, Commercial Code, § 2:363.
C.J.S.- 31 C.J.S., Estoppel and Waiver, §§ 118, 119.
U.L.A.- Uniform Commercial Code (U.L.A.) § 2-403.
ALR.
- Factor's failure to account for proceeds of sale as affecting rights of seller and purchaser inter se, 50 A.L.R. 1301.
Purchaser's right to protection under factor's act where transaction involves exchange of goods, 132 A.L.R. 525.
Selling agent's power to exchange or barter principal's personal property, 44 A.L.R.2d 1058.
Rights and duties of parties to conditional sales contract as to resale of repossessed property, 49 A.L.R.2d 15.
Relative rights as between assignee of conditional seller and a subsequent buyer from the conditional seller after repossession or the like, 72 A.L.R.2d 342.
Sales: what is "entrusting" goods to merchant dealer under UCC § 2-403, 59 A.L.R.4th 567.
PART 5 PERFORMANCE
Cross references.
- Performance of contracts generally, § 13-4-20 et seq.