DeWeldon, Ltd. v. McKean

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 97-1175

DEWELDON, LTD.,

Plaintiff - Appellant,

v.

ROBERT MCKEAN,

Defendant - Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Ernest C. Torres, U.S. District Judge]

Before

Lynch, Circuit Judge,

Hill* and John R. Gibson,** Senior Circuit Judges.

Keven A. McKenna, with whom Karen A. Clark and Keven A.

McKenna, P.C. were on brief for appellant.

Matthew T. Oliverio for appellee.

September 24, 1997

* Of the Eleventh Circuit, sitting by designation.

** Of the Eighth Circuit, sitting by designation.

HILL, Senior Circuit Judge. DeWeldon, Ltd. sued in
HILL, Senior Circuit Judge.

district court to recover three paintings it alleges are in the

possession of Robert McKean but to which he is not entitled.

After a bench trial, the district court ruled that McKean is

entitled to retain possession of the paintings and entered

judgment for McKean. This appeal ensued.

I.

Felix DeWeldon is a well-known sculptor and art

collector. He owned three paintings valued at $26,000. He

displayed these, and other collection-grade paintings, on the

walls of his home--Beacon Rock, in Newport, Rhode Island. He

declared bankruptcy in 1991. In 1992, Deweldon, Ltd. purchased

all Felix DeWeldon's personal property from the bankruptcy

trustee. In 1993, Nancy Wardell, the sole shareholder of

DeWeldon, Ltd., sold all her DeWeldon, Ltd. stock to the Byron

Preservation Trust, which in turn sold Felix DeWeldon an option

to repurchase the paintings and a contractual right to continue

to retain possession of the paintings until the option expired.

At all times, Felix DeWeldon continued to possess and display the

paintings at Beacon Rock. In 1994, his son Byron approached

Robert McKean, an acquaintance, and told him that his father was

interested in selling some of his paintings. McKean viewed the

paintings at Beacon Rock and subsequently purchased the paintings

at issue for $50,000. DeWeldon, Ltd. sued in district court to

recover the paintings. The district court entered judgment for

McKean. For the following reasons, we affirm.

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II.

We conclude that the evidence sufficiently establishes

the following facts found by the district court. Felix DeWeldon

was a "well-known artist" and "collector." After DeWeldon, Ltd.

purchased Felix DeWeldon's paintings from his bankruptcy estate,

Frederick Crevoiserat, director of DeWeldon, Ltd., entrusted the

paintings to Felix DeWeldon as custodian. DeWeldon, Ltd. allowed

Felix DeWeldon to maintain possession of the paintings; it put no

signs on the premises, nor tags or labels on the paintings

themselves to indicate that Felix DeWeldon no longer owned the

paintings. The paintings remained on the walls of Beacon Rock.

McKean viewed the paintings on the walls at Beacon

Rock. The only tags on the back of the paintings were those of

Christie's--the auction house.1 McKean inquired of Christie's,

and was informed that the paintings had not sold at auction and

DeWeldon had "re-purchased" them.2 McKean paid more than the

appraised value of the paintings and Felix DeWeldon gave him a

bill of sale.

In June of 1993, a Mr. Panteleakis recorded a UCC lien

in Newport, Rhode Island claiming a security interest in the

paintings.3 The lien had been granted by DeWeldon, Ltd. of 646

1 At some time prior to the filing of bankruptcy, Felix DeWeldon
had commissioned Christie's to auction the paintings.

2 This term of art in the trade means that DeWeldon had taken
the paintings back when they did not sell at auction.

3 Apparently Mr. Panteleakis had underwritten DeWeldon, Ltd.'s
purchase of DeWeldon's personal property.

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Bellevue Ave, not by Felix DeWeldon of 145 Harrison Ave. There

is no evidence of any recorded interest in the paintings,

security or otherwise, having been granted by Felix DeWeldon.

In December of 1993, DeWeldon, Ltd. sued Felix DeWeldon

seeking possession of the paintings. The Rhode Island court

denied the relief based upon Felix DeWeldon's option to

repurchase and right of possession, but enjoined Felix DeWeldon

from transferring or removing the paintings from Beacon Rock.

III.

The district court concluded from these facts that

DeWeldon, Ltd. is equitably estopped from asserting, against

McKean, its ownership interest in the paintings. We need not

review this holding, as we conclude that the judgment of the

district court may be affirmed on other grounds under the laws of

Rhode Island.4

As a general rule, a seller cannot pass better title

than he has himself. Nevertheless, the Uniform Commercial Code

(UCC) as adopted by Rhode Island provides that an owner who

entrusts items to a merchant who deals in goods of that kind

gives him or her power to transfer all rights of the entruster to

a buyer in the ordinary course of business. R.I. Gen. Laws 6A-

2-403(2).5 "'Entrusting' includes any delivery and any

4 We may affirm the judgment on any independently sufficient
ground established by the record of the case. Ticketmaster-New

York, Inc. v. Alioto, 26 F.3d 201, 204 (1st Cir. 1994); Inmates

of Suffolk County Jail v. Rufo, 12 F.3d 286, 291 (1st Cir. 1993).

5 Rhode Island law applies to this diversity action.

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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." R.I. Gen. Laws

6A-2-403(3). Under this provision, a buyer in the ordinary

course of business will prevail over the claim of a party who

entrusted such items to the merchant. In order for McKean to be

protected by 6A-2-403, DeWeldon, Ltd. must have allowed Felix

DeWeldon to retain possession of the paintings. McKean must have

bought the paintings in the ordinary course of business. He must

have given value for the paintings, without actual or

constructive notice of DeWeldon Ltd.'s claim of ownership to

them. Finally, Felix DeWeldon must have been a merchant as

defined by R.I. Gen. Laws 6A-2-104. Under this section, a

merchant is one who has special knowledge or skill and deals in

goods of the kind or "otherwise by his or her occupation holds

him or herself out as having knowledge or skill peculiar to the

practices or goods involved in the transaction. . . ." Id.

Under the facts found by the district court, McKean's

purchase of the paintings is protected by the entrustment

doctrine. First, DeWeldon, Ltd. entrusted the paintings to Felix

DeWeldon. After DeWeldon, Ltd. purchased the paintings, it

acquiesced in Felix DeWeldon's retention of them. Although

DeWeldon, Ltd. made some late efforts to regain possession of the

paintings, these efforts were frustrated by its own prior grant

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to Felix DeWeldon of an option and right of possession until the

expiration of the option.

Second, McKean was a buyer in the ordinary course of

business. Byron informed McKean that Felix DeWeldon wished to

sell some paintings. The paintings were hanging in Felix

DeWeldon's home when McKean viewed and subsequently bought them.

He knew that Felix DeWeldon had sold paintings out of his home

before. McKean gave value for the paintings. In fact, he paid

more than their appraised value.

McKean had no actual notice that Felix DeWeldon was no

longer the true owner of the paintings. DeWeldon, Ltd. did

nothing to shield the paintings in the cloak of its ownership.

It did not place markings on the paintings, as Christie's had

when the paintings were in its possession; it posted no notice of

ownership by or near the paintings; it failed to post the

injunction it secured against transfer of the paintings by Felix

DeWeldon; it posted, but then terminated, a security guard at

DeWeldon's residence despite such a guard's being expressly

permitted in the injunction; it posted no warnings against

removal of the paintings from the residence. There were no

markings on the paintings or other notice that Felix DeWeldon no

longer owned the paintings. The paintings were hanging in Felix

DeWeldon's home.

Neither did McKean have any constructive notice of

another's ownership interest in the paintings. The lien recorded

by Mr. Panteleakis did not constitute such notice because there

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was no way McKean could have discovered it upon a reasonable

inquiry. It was not granted by Felix DeWeldon.

Third, under the facts of this case, Felix DeWeldon

acted as a merchant within the meaning of the Rhode Island

Commercial Code. Under the Code, "merchant" is given an

expansive definition. Providence & Worcester R. Co. v. Sargent &

Greenleaf, Inc., 802 F. Supp. 680, 684 n.2 (D.R.I. 1992). The

Code provides that a merchant is "one who . . . by his occupation

holds himself out as having knowledge or skill peculiar to the

practices . . . involved in the transaction . . . ." R.I. Gen.

Laws 6A-2-104. Comment 2 to this section notes that "almost

every person in business would, therefore, be deemed to be a

'merchant'." Id.

The entrustment provision of the UCC is designed to

enhance the reliability of commercial sales by merchants who deal

in the kind of goods sold. Porter v. Wertz, 421 N.E.2d 500 (N.Y.

1981) (art dealer is a merchant when dealing in goods of the

kind--paintings). It shifts the risk of resale to the one who

leaves his property with the merchant. Id. at 500-01. See also

Atlas Auto Rental Corp. v. Weisberg, 281 N.Y.S.2d 400 (N.Y. City

1967).

The district court found that Felix DeWeldon was a

"well-known" artist whose work was for sale commercially and a

"collector." There was art work all over Felix DeWeldon's home.

He had recently sold paintings to a European buyer. By his

occupation he held himself out as having knowledge and skill

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peculiar to art and the art trade. McKean viewed him as an art

dealer.

We conclude from these facts that Felix DeWeldon was a

"merchant" within the meaning of the entrustment provision of the

UCC as adopted by the Rhode Island Commercial Code.

When a person knowingly delivers his property into the

possession of a merchant dealing in goods of that kind, that

person assumes the risk of the merchant's acting unscrupulously

by selling the property to an innocent purchaser. The

entrustment provision places the loss upon the party who vested

the merchant with the ability to transfer the property with

apparent good title. The entrustor in this case, DeWeldon, Ltd.,

took that risk and bears the consequences.

V.

DeWeldon, Ltd. entrusted three paintings to the care of

Felix DeWeldon. Felix DeWeldon was a merchant who bought and

sold paintings. Robert McKean was a purchaser in the ordinary

course of business who paid value for the paintings without

notice of any claim of ownership by another. Under the law of

Rhode Island, McKean took good title to the paintings. The

judgment of the district court is affirmed.
affirmed

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