Evergreen Marine Corp. v. Six Consignments of Frozen Scallops

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1136

EVERGREEN MARINE CORPORATION,

Plaintiff, Appellant,

v.

SIX CONSIGNMENTS OF FROZEN SCALLOPS,
IN REM, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Robert E. Keeton, U.S. District Judge]

Before

Torruella, Selya and Cyr,

Circuit Judges.

Joseph F. De May, Jr. with whom Cichanowicz, Callan & Keane,

Thomas J. Muzyka, and Clinton & Muzyka, P.C. were on brief for

appellant.
Evan Slavitt with whom Hugh J. Gorman III and Hinckley, Allen &

Snyder were on brief for appellees.

September 17, 1993

CYR, Circuit Judge. Appellant Evergreen Marine Cor-
CYR, Circuit Judge.

poration, an ocean carrier, was fraudulently induced to discharge

six consignments of frozen scallops, valued at $1.2 million, to

Gloucester Corporation, without taking up possession of the bills

of lading. After Gloucester became insolvent, the discharged

scallops were seized by appellees Fleet National Bank and Cooper-

ative Centrale Raiffeisen-Boerenleenbank B.A. (hereinafter,

collectively, "the Banks"), holders of security interests in

Gloucester's after-acquired inventory. The district court

entered summary judgment for the Banks on Evergreen's claim for

conversion. As we conclude on the present record that Evergreen

held a superior claim to the scallops, we vacate the judgment and

remand for further proceedings.

I

FACTS

On various dates in 1991, Evergreen contracted with

Towamarin, Ltd. to carry six consignments of frozen scallops from

Tokyo, Japan to Port Elizabeth, New Jersey. Evergreen thereupon

issued order bills of lading, designating Gloucester as "Notify

Party."1 When the scallops arrived at Port Elizabeth, Glouces-

1An order bill of lading is a negotiable instrument, issued
by the carrier to the shipper at the time goods are loaded aboard
ship, which serves "as a receipt that the carrier has received
[the] goods for shipment; as a contract of carriage for those
goods; and as documentary evidence of title to those goods."

ter represented that it held title to the scallops but that the

bills of lading were still in transit. For present purposes, the

circumstantial evidence, infra, compels the inference that

Gloucester's representations of title were false and fraudulent

at the time made. See Continental Grain Co. v. Puerto Rico

Maritime Shipping Auth., 972 F.2d 426, 429-30 (1st Cir. 1992)

(under Rule 56(c), all reasonable inferences must be drawn in

favor of party opposing summary judgment).

Evergreen released the scallops to Gloucester, without

taking up the original bills of lading, upon Gloucester's execu-

tion of certain indemnity and guarantee agreements ("letters of

guaranty"). The letters of guaranty included Gloucester's

representations of title to the scallops under the bills of

lading; its promise to produce the bills of lading "as soon as

[the bills] shall have arrived and/or come into [Gloucester's]

possession;" and its agreement to defend and indemnify Evergreen

Fuentes v. Sea-Land Services, 665 F.Supp. 206, 209 (S.D.N.Y.

1987). The shipper sends the bill of lading to the intended
recipient of the goods (consignee); upon notification that the
goods have arrived, the consignee presents the bill to the
carrier at the delivery port, and receives the goods in return.
Because an order bill is negotiable, however, the consignee or
"notify party" designated on the bill of lading is not necessari-
ly the holder of the bill at the time and place of delivery.
Under these circumstances, subject to extremely limited excep-
tions, a carrier which delivers to a "notify party," or to any
other person, without taking up and canceling its order bill
"remains liable to anyone who has purchased the bill for value in
good faith, before or after the improper delivery." G. Gilmore &
C. Black, Admiralty 110-12 (2d ed. 1975). See also Allied

Chemical Intl. Corp. v. Companhia de Navegacao Lloyd Brasileiro,

775 F.2d 476, 481-82 (2d Cir. 1985) (discussing obligations of
carrier in maritime documentary transaction), cert. denied, 475

U.S. 1099 (1986).

3

against third party claims.2 Shortly after issuing the letters

of guaranty and removing the scallops to its Massachusetts ware-

house, Gloucester became insolvent; the scallops were seized by

the Banks pursuant to their security interests in Gloucester's

after-acquired inventory.

On February 7, 1992, a third party, Raiffeisenbank

Lekkerkerk Holland ("Dutch Bank"), notified Evergreen that it

2The executed letters of guaranty provided:

The above goods were shipped on [the listed vessel] by
. . . TOWAMARIN, LTD. . . . (and consigned to us) but
the relevant Bill(s) of Lading have not arrived. We
hereby request you to deliver such goods to THE GLOU-
CESTER CORPORATION (us) without production of the
Bill(s) of Lading. In consideration of your complying
with our above request we hereby agree as follows:

1. To indemnify you, your servants and agents and to
hold all of you harmless in respect of any liability
loss or damage of whatsoever nature which you may
sustain by reason of delivering the goods to US . . .
in accordance with our request.

2. In the event of any proceedings being commenced
against you or any of your servants or agents in con-
nection with the delivery of the goods as aforesaid to
provide you or them from time to time with sufficient
funds to defend the same.

* * * *

4. As soon as all original Bill(s) of Lading for the
above goods shall have arrived and/or come late into
our possession, to produce and deliver the same to you
whereupon our liability hereunder shall cease.

* * * *

/s/ THE GLOUCESTER CORPORATION

4

held the true bills of lading for the six consignments of scal-

lops.3 Facing liability to Dutch Bank, Evergreen sued the

Banks, Gloucester, and the scallops, seeking recovery of the

scallops or tort damages for their value.4 See Evergreen Marine

Corp. v. Six Consignments of Frozen Scallops, 806 F. Supp. 291

(D. Mass. 1992). The district court denied admiralty jurisdic-

tion and dismissed Evergreen's Rule D claim against the scallops

in rem. Upon affirming its diversity jurisdiction, however, the

court applied Massachusetts law to Evergreen's remaining claims.

Id. at 293-94. The court dismissed Evergreen's claim against the

Banks for tortious interference with contract, see id. at 296,

and entered summary judgment for the Banks on Evergreen's conver-

sion and replevin claims, on the ground that the Banks' perfected

security interest in Gloucester's inventory was superior to

Evergreen's reclamation rights. See id. at 297. As Evergreen's

brief on appeal is expressly limited to its conversion claim, its

other claims are deemed waived. See Washington Legal Found. v.

Massachusetts Bar Found., 993 F.2d 962, 970 n.4 (1st Cir. 1993)

3Lekkerkerk is identified as "Lekkekerk" in the Banks'
brief, and as "Lekkerrerk" in Gloucester's complaint and the
district court opinion. See 806 F. Supp. at 293. The Banks

assert, without contradiction, that "although [Lekkerkerk] has a
somewhat similar name, [it] is an entirely different bank" from
defendant-appellee Cooperative Centrale Raiffeisen-Boerenleen
Bank.

4Evergreen's amended complaint included counts (1) against
Gloucester, for misrepresentation and breach of contract;
(2) against the scallops, in rem, under Supplemental Admiralty

Rule D; and (3) against the Banks, for conversion and replevin.
A default judgment was entered against Gloucester on December 10,
1992, for failure to defend the action.

5

(claims not raised on appeal are deemed abandoned); Sheinkopf v.

Stone, 927 F.2d 1259, 1263 (1st Cir. 1991) (similar).

II

GOVERNING LAW

As an initial matter, Evergreen asserts that its

conversion claim was subject to the district court's admiralty

jurisdiction. Although the Banks do not challenge diversity

jurisdiction, see 806 F. Supp. at 295, they contest admiralty

jurisdiction, apparently to avoid the application of maritime

law. See, e.g., Austin v. Unarco Inds., Inc., 705 F.2d 1, 6 n.1

(1st Cir.), cert. dismissed, 463 U.S. 1247 (1983) ("once admiral-

ty jurisdiction is established, then all of the substantive rules

and precepts peculiar to the law of the sea become applicable")

(quoting Brance v. Shumann, 445 F.2d 175, 178 (5th Cir. 1971)).

The parties have identified no material difference between

maritime law and Massachusetts law governing these conversion

claims. Compare Goodpasture, Inc. v. M/V Pollux, 602 F.2d 84, 87

(5th Cir. 1979), cert. denied, 460 U.S. 1084 (1983) (identifying

elements of conversion claim in admiralty), with, e.g., Joseph R.

Nolan & Laurie J. Santorio, 37 Massachusetts Practice: Tort Law,

55 (2d ed. 1989), at 65 (identifying elements of conversion

claim under Massachusetts law). Assuming differences exist,

however, see Furness Withy (Chartering), Inc. v. World Energy

Sys. Assoc., 854 F.2d 410, 412 (11th Cir. 1988), cert. denied,

6

489 U.S. 1013 (1989), we agree with the district court that

Massachusetts law governs Evergreen's claim.

The admiralty jurisdiction test for tort claims is

"clearly established." Shea v. Rev-Lyn Contracting Co., 868 F.2d

515, 517 (1st Cir. 1989). It comprises two functional inquiries:

first, the traditional "situs" analysis determines whether the

tort was committed or the alleged injury occurred on navigable

waters, see id. (citing The Plymouth, 70 U.S. (3 Wall.) 20, 33

(1866)); and, second, the more recently developed "nexus" analy-

sis determines whether the alleged tort bears a significant

relationship to traditional maritime activities. See Foremost

Ins. Co. v. Richardson, 457 U.S. 668 (1982); Executive Jet

Aviation, Inc. v. Cleveland, 409 U.S. 249 (1972). The "situs"

and "nexus" requirements must both be met before admiralty

jurisdiction can attach. See, e.g., Shea, 868 F.2d at 517

(noting dual nature of test); Carey v. Bahama Cruise Lines, 864

F.2d 201, 207 n.4 (1st Cir. 1988) (same); accord, Cochran v.

E.I. DuPont de Nemours & Co., 933 F.2d 1533, 1537 (11th Cir.

1991) ("The Court in Executive Jet did not replace the tradition-

al locality test, but instead added a second prong, the nexus

test"), cert. denied, 112 S.Ct. 881 (1992).

The present conversion claim founders on the "situs"

prong of the Executive Jet analysis. In the admiralty context,

as elsewhere, conversion is simply an intentional and wrongful

exercise of dominion or control over a chattel, which seriously

interferes with the owner's rights in the chattel. See

7

Goodpasture, 602 F.2d at 87; Berry v. Boat Giannina B., Inc., 460

F. Supp. 145, 150 (D. Mass. 1978); Restatement (Second) of Torts

222A (1965). Admiralty jurisdiction over a conversion claim

accordingly depends on whether the chattel was "on navigable

waters" at the time of the alleged wrongful exercise of dominion.

See, e.g., Leather's Best, Inc. v. S/S Mormaclynx, 451 F.2d 800,

808 (2d Cir. 1971) (no admiralty jurisdiction over warehouseman

whose loss of property, entrusted by ocean carrier, occurred

while goods were on land); cf. Schoening v. Shipment of 102 Jute

Bags, 132 F. Supp. 561, 562 (E.D. Pa. 1955) (no admiralty juris-

diction over ocean carrier for shipment of goods converted from

onshore warehouse; "the conversion was completed when the goods

were removed from the warehouse"); see generally The Lydia, 1

F.2d 18, 23 (2d Cir.) cert. denied, 266 U.S. 616 (1924) ("conver-

sion is a tort, . . . and if that tort is committed on navigable

waters, admiralty has jurisdiction"). In the present case, long

before the Banks asserted dominion over the scallops under the

terms of their security agreements, Gloucester had removed the

scallops to its storage warehouse in Massachusetts, some four

hundred miles from the point of Evergreen's disaffreightment in

Port Elizabeth, thereby severing any conceivable maritime situs.

Compare Leather's Best, 451 F.2d at 808.

Evergreen bases its assertion of admiralty jurisdiction

on the ground that the district court's decision "directly

affects the integrity of order bills of lading." Thus, apparent-

ly Evergreen would extend the so-called "impact" test for admi-

8

ralty jurisdiction, applicable to claims for intentional inter-

ference with contractual relations, to the present claim for

conversion. See Carroll v. Protection Maritime Ins. Co., 512

F.2d 4, 8 (1st Cir. 1975) (articulating "impact" test); see also

Pino v. Protection Maritime Ins. Co., 599 F.2d 10, 12-13 (1st

Cir.) cert. denied, 444 U.S. 900 (1979) (reaffirming Carroll's

"extension of location test"). We agree with the district court

that the Carroll "impact test" does not apply to the present

transaction.

Carroll was an action for tortious interference with

contractual relationships, brought by various seamen and commer-

cial fishermen, against marine insurers whose "blacklist" of past

claimants allegedly interfered with the claimants' efforts to

contract for employment on marine vessels. Although it was

alleged that the blacklist prevented the claimants, while on

land, from securing contracts of employment, its purpose and

effect was to prevent their employment aboard seagoing vessels.

512 F.2d at 6. On these facts, the Carroll court concluded, "the

critical focus should not be 'where the wrongful act or omission

has its inception, but where the impact of the act or omission

produces [the] injury," id. at 8 (citing O'Connor & Co. v. City

of Pascagoula, 304 F. Supp. 681, 683 (S.D. Miss. 1969)). Apply-

ing this principle, Carroll held that "the impact of defendants'

alleged actions, at least where existing employment was terminat-

ed, was felt in the operations of the affected vessels at sea,"

id., and was "so interwoven with present and potential maritime

9

contractual relationships traditional concerns of admiralty

as to fall within [the admiralty] jurisdiction," id. at 8-9.

Unlike the Carroll claim for interference with a

contract, Evergreen's conversion claim alleges interference with

chattels. A chattel has a determinate location; hence the

"situs" of the tort of conversion is more readily identified, and

does not depend solely on an assessment of its impact upon mari-

time activities. Furthermore, the relevant purposeful act in the

tort of conversion is the exercise of dominion over a chattel,

which may entail liability even though the defendant initially

acted on a good-faith, non-maritime claim of right. See, e.g.,

Restatement (Second) of Torts 244 (1965) ("actor is not re-

lieved of liability . . . for conversion by his belief, because

of a mistake of law or fact not induced by the other, that he

. . . is entitled to . . . immediate possession [of the converted

chattel]"). In these circumstances, the "maritime nexus," found

"dominant" in Carroll, see 512 F.2d at 6, is sufficiently attenu-

ated that a Carroll-based "impact" analysis would invite "open-

ended expansion of admiralty jurisdiction," id. Thus, the

district court correctly concluded that Evergreen's conversion

claim implicated its diversity jurisdiction, rather than admiral-

ty jurisdiction, and that to the extent differences exist

the conversion claim was governed by Massachusetts law, rather

than maritime law.

III

10

DISCUSSION

A plaintiff asserting a conversion claim under

Massachusetts law must show that: (1) the defendant intention-

ally and wrongfully exercised control or dominion over the

personal property, (2) the plaintiff had an ownership or posses-

sory interest in the property at the time of the alleged conver-

sion; (3) the plaintiff was damaged by the defendant's conduct;

and (4) if the defendant legitimately acquired possession of the

property under a good-faith claim of right, the plaintiff's

demand for its return was refused.5 See 806 F. Supp. at 296-97

(citing Magaw v. Beals, 272 Mass. 334, 172 N.E. 347 (1930)); see

also In re Halmar Distributors, Inc., 968 F.2d 121, 129 (1st Cir.

1992); MacNeil v. Hazelton, 306 Mass. 366, 367, 28 N.E.2d 477,

478 (1940). Since the evidence establishes beyond dispute that

the Banks asserted dominion over the scallops, and refused

Evergreen's demands for their return, see 806 F. Supp. at 295-97,

the principal issue before us is whether any rights the Banks may

have acquired by virtue of their security interests in Glou-

cester's after-acquired inventory were superior to Evergreen's

5Federal courts sitting in diversity apply the choice-of-law
rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg.

Co., 313 U.S. 487, 496 (1941). Since the parties have ignored

choice-of-law issues on appeal, we indulge their assumption that
Massachusetts would apply its own substantive law. See Carey,

864 F.2d at 206 (given "reasonable relation" between dispute and
forum whose law is invoked by parties, court of appeals may
"forego independent analysis" of choice-of-law issue); Borden v.

Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir. 1991)

(similar).

11

reclamation rights as bailee of the scallops under the order

bills of lading.

We review summary judgments de novo, affirming only if

it appears after considering all competent evidence and

reasonable inferences in the light most favorable to the non-

moving party that there is no genuine issue as to any material

fact and the moving party is entitled to judgment as a matter of

law. See, e.g., Continental Grain Co., 972 F.2d at 429-30;

National Expositions, Inc. v. Crowley Maritime Corp., 824 F.2d

131, 134 (1st Cir. 1987).

A. Evergreen's Interest

The district court likened Evergreen's interest in the

scallops to that of a seller of goods, and Gloucester to "an

insolvent buyer", see 806 F. Supp. at 297; hence the putative

"sale," though voidable, was not void until Evergreen disavowed

it and moved to reclaim the goods. See Mass. Gen. L. ch. 106

2-702(2) ("seller [who] discovers that the buyer has received

goods on credit while insolvent . . . may reclaim the goods upon

demand") (emphasis added). Under this analysis, since an Article

9 secured party is a "purchaser" of the debtor's interest in the

collateral, see id. at 1-201(32), 1-201(33); Burk v. Emmick,

637 F.2d 1172, 1174 (8th Cir. 1980); In re Samuels & Co., 526

F.2d 1238, 1242 (5th Cir.), cert. denied, 429 U.S. 834 (1976),

Evergreen's failure to disavow the sale prior to the Banks'

"purchase" through foreclosure subordinated Evergreen's interest

to the Banks' security interests in the scallops. See Mass. Gen.

12

L. ch. 106, 2-702(3) ("the seller's right to reclaim . . . is

subject to the rights of . . . [a] good faith purchaser or lien

creditor under this Article"); see also id. at 2-403(1) ("A

purchaser of goods acquires all title which his transferor had or

had power to transfer . . . . A person with voidable title has

power to transfer good title to a good faith purchaser for value.

Where goods have been delivered under a transaction of purchase

the purchaser has such a power even though . . . (d) the delivery

was procured through fraud") (emphasis added).

The difficulty with the district court's analysis lies

in its fundamental premise, viz., that Evergreen, in releasing

the scallops to Gloucester pursuant to the letters of guaranty,

was a "seller," and Gloucester, in thus acquiring possession, was

a "buyer." Rather, we think the transaction was one of "entrust-

ment," see Mass. Gen. L. ch. 106, 2-403(2),(3), whereby neither

Gloucester nor the Banks acquired an interest in the scallops

superior to Evergreen's limited right to their possession.

Under the Uniform Commercial Code, a "seller" is "a

person who sells or contracts to sell goods," id at 2-103(1)-

(d), and a "buyer" one "who buys or contracts to buy goods," id.

at 2-103(1)(a). A "sale," by definition, "consists in the

passing of title from the seller to the buyer for a price (sec-

tion 2-401)," id. at 2-106(1) (emphasis added), and a "contract

for sale" means "a present sale of goods or a contract to sell

goods at a future time." Id. Accordingly, though U.C.C. 2-401

does not define "title," noting simply that "each provision of

13

. . . Article [2] with regard to the rights, obligations and

remedies of the seller, the buyer, purchasers and other third

parties applies irrespective of title to the goods except where

the provision refers to such title,"6 id. at 2-401 (emphasis

added), no "sale" of goods occurs, within the meaning of 2-106,

without a present or future capacity on the part of the "seller"

to convey title to the "buyer." See generally William L. Tabac,

The Unbearable Lightness of Title Under the Uniform Commercial

Code, 50 Md. L. Rev. 408 (1991) (noting contradictions in Article

Two references to title; concluding that "title under the Code

means ownership," and that "title principles are still firmly in

place, if not in sight, as the framework for today's commerce in

goods"). We return to the present transaction with these prin-

ciples in mind.

It is well settled that an ocean carrier possesses no

title or other ownership interest in goods carried under a

negotiable bill of lading; title is vested in the holder of the

bill of lading, whose interests the carrier represents, under the

contract of carriage and maritime law, as "a special type of

bailee." See Commercial Molasses Corp. v. New York Tank Barge

Corp., 314 U.S. 104, 109 (1941); Schnell v. The Vallescura, 293

U.S. 296, 303 (1934); C-ART, Ltd. v. Hong Kong Islands Line

America, S.A., 940 F.2d 530, 533 n.2 (9th Cir. 1991), cert.

denied, 112 S.Ct. 1762 (1992); see also Baker Oil Tools, Inc. v.

Delta S.S. Lines, Inc., 562 F.2d 938 (5th Cir. 1977) (bailment

6See, e.g., Mass. Gen. L. ch. 106, 2-403(1),(2),(3).

14

relationship under contract of carriage continues before and

after termination of voyage); cf. U.C.C. 2-705(1) (referring to

"goods in possession of a carrier or other bailee"). Thus,

absent extraordinary circumstances, such as rapid deterioration

of the cargo, see T.J. Stevenson & Co. v. 81,193 Bags of Flour,

449 F. Supp. 84, 123 (S.D. Ala. 1979), aff'd. in pertinent part,

629 F.2d 338, 383 (5th Cir. 1980), the carrier has neither actual

nor apparent authority to "sell" the goods it carries.7 The

carrier's sole legitimate interest is its limited right to pos-

sess the goods, pending presentment of the bills of lading; and

its temporary release of possession, pending a consignee's

promised production of the bills of lading, is not a "sale" but

an entrustment. See Mass. Gen. L. ch. 106, 2-403(3) ("'En-

trusting' 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

7Indeed, the summary judgment record in the present case
indisputably demonstrates that there can have been no "contract,"
within the meaning of Article 2: "In this Article unless the
context otherwise requires 'contract' and 'agreement' are limited
to those relating to the present or future sale of goods." Mass.
Gen. L. ch. 106, 2-106(1). Moreover, not only does a future
sale of goods require a contract of sale, id., but a "'present

sale' means a sale which is accomplished by the making of the
contract," id. (emphasis added). Since the express terms of the

letters of guaranty flatly belie Evergreen's capacity to effect

either a present or future sale of scallops in which Gloucester
already purportedly held title by virtue of its claim to the
negotiable bills of lading in transit, there could be no contract
or agreement of sale of any kind between Evergreen and Glouces-
ter. See also id. 1-201(3),(11).

15

of the goods have been such as to be larcenous under the criminal

law.").8

On similar analysis, although "purchase" is defined

more broadly than "sale," without reliance on "title" principles,

see id. 1-201(32) ("'purchase' includes taking by sale, dis-

count, negotiation, mortgage, pledge, lien, issue or re-issue,

gift or any other voluntary transaction creating an interest in

property"), under a "transaction of purchase" a "purchaser of

goods acquires [only the] title which his transferor had or had

power to transfer . . . [and] a purchaser of a limited interest

acquires rights only to the extent of the interest purchased,"

id. 2-402(1). Thus, a person who knowingly obtains goods

subject to an outstanding negotiable bill of lading from an

ocean carrier with a mere possessory interest in the goods,

ordinarily "purchases" no "title" (even voidable title) in the

goods. See generally, e.g., Kimberly & European Diamonds, Inc.

v. Burbank, 684 F.2d 363, 366 (6th Cir. 1982) (bailee "had no

title, nor did she have authority to pass title," and putative

8The Banks do not benefit from U.C.C. 2-403(2), which
provides that "any entrusting of goods to a merchant who deals in
goods of that kind gives [the merchant] power to transfer all
rights of the entruster to a buyer in the ordinary course of
business." It is well settled that U.C.C. 2-403(2) protects
only "persons who buy in the ordinary course out of inventory."
See U.C.C. 2-403(2) cmt. 3. The holder of a security interest

in a merchant's inventory is not "a buyer in the ordinary course"
of goods entrusted to the merchant's possession as a result of
the merchant's fraud. See U.C.C. 1-201(9) (defining "buyer in

the ordinary course of business" as excluding a "transfer . . .
as security for . . . a money debt"); see also, e.g., Sitkin

Smelting, 639 F.2d at 1213; Robert A. Hillman et al., Common Law

and Equity Under the Uniform Commercial Code (1985 & Supp. 1991),

at 18.03[2][b].

16

purchaser from bailee "acquired no interest" in bailed property);

In re Sitkin Smelting & Refining Inc., 639 F.2d 1213, 1215-17

(5th Cir. 1981) (similar); Robert A. Hillman et al., Common Law

and Equity Under the Uniform Commercial Code (1985 & Supp. 1991),

at 18.03[2] (collecting cases).9

Finally, on similar reasoning, we cannot credit the

Banks' reliance on the Uniform Commercial Code provisions govern-

ing "consignment sales":

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 re-
sale or uses such words as 'on consignment'
or 'on memorandum.'

Mass. Gen. L. ch. 106, 2-326(3) (emphasis added). Thus, even

assuming that Gloucester "dealt in goods" like these (which

cannot be conclusively determined from the appellate record), the

scallops were not subject to the claims of Evergreen's creditors

unless delivered "for sale" or "for resale," id. 2-326. As

both parties well recognize, Evergreen lacked both the intent and

the legal capacity to empower Gloucester either to resell, see

id. at 2-326(1)(b), or to sell, see id. at 2-326(3), these

scallops so long as title remained exclusively in the holder of

9Of course, restrictions on a "seller's" reclamation rights,
see, e.g., Mass. Gen. L. ch. 106 2-507, 2-702(3), are in-

applicable for the same reason.

17

the negotiable bills of lading.10 Thus, we join those courts

which have held that temporary entrustments of possession by a

bailee, without more, are not "sales on consignment," within the

meaning of U.C.C. 2-326. See Sitkin Smelting, 639 F.2d at 1218

(delivery of waste film, for processing and extraction, not a

"delivery for sale" under U.C.C. 2-326); cf. e.g., In re

Zwagerman, 115 B.R. 540 (Bankr. W.D. Mich. 1990) (delivery of

cattle, for "feeding," not a "delivery for sale"), aff'd, 125

B.R. 486 (W.D. Mich. 1991); In re Key Book Service, Inc., 103

B.R. 39 (Bankr. D. Conn. 1989) (delivery of books, merely for

shipping, billing, warehousing, not a "delivery for sale"); see

generally Hillman, supra, at 18.03-[2][c] & n.126 (discussing

meaning of "delivery for sale").

Finally, under Mass. Gen. L. ch. 106, 9-203(1)(c),

"[a] security interest is not enforceable against the debtor or

third parties with respect to the collateral and does not attach

unless . . . the debtor has rights in the collateral." (Emphasis

added.) Although the term "rights in the collateral" is not

defined in the Code, and has been viewed broadly by courts on

occasion, see, e.g., Kinetecs Technology Int'l Corp. v. Fourth

Nat'l Bank, 705 F.2d 396 (10th Cir. 1983) ("the Code clearly does

10The letters of guaranty are not phrased in terms of a
delivery for sale or resale, but of an entrustment of possession
pending Gloucester's presentment of the order bills of lading.
See supra note 2. Thus, the letters of guaranty evince (1)

Gloucester's acknowledgement that title to the scallops was in
the holder of the order bills of lading, not Evergreen, and
(2) Gloucester's representation that it was the holder of the
bills.

18

not require that a debtor have full ownership rights"), it

clearly contemplates some property interest in goods, not mere

bare possession acquired from a bailee under a transaction of

entrustment. Sitkin Smelting, 639 F.2d at 1217-18; Northwestern

Bank v. First Virginia Bank, 585 F. Supp. 425, 428-29 (W.D. Va.

1984) ("Mere possession by the debtor is insufficient to estab-

lish a right in the collateral upon which to base a security

interest . . . . The debtor must acquire some ownership interest

in the collateral before a valid security interest arises"); see

generally James J. White & Robert S. Summers, Uniform Commercial

Code 23-5 (3d ed. 1988), at 263 ("if the transaction [endowing

debtor with possession] were merely a bailment . . . the law

would be clear: the bailed goods would be returned to the

owner"); Hillman, supra, at 18.03[1]. Since mere possession of

goods under a transaction of entrustment clothes a debtor with no

"rights in the collateral" to which a security interest can

attach, within the meaning of Mass. Gen. L. ch. 106, 9-203-

(1)(c), the Banks acquired no enforceable lien in the scallops by

virtue of their security interests in Gloucester's after-acquired

inventory.11

II

CONCLUSION

11 As Dutch Bank is not a party to these proceedings, we
take no position on any potential claim it may have for Ever-
green's entrustment of possession of the scallops to Gloucester
without first taking up possession of the bills of lading. But

see supra n.1.

19

Evergreen was not a "seller," Gloucester was not a

"buyer," and the temporary entrustment of possession of the

scallops to Gloucester was neither a "sale" nor a delivery for

sale or resale. Thus, as a bailee, Evergreen retained reclama-

tion rights to the scallops under a common law claim for conver-

sion. See Restatement (Second) of Torts, 225 & cmt. b; see

also id. at 222A, illustr. 9. As the Banks' Article 9 security

interests in Gloucester's after-acquired inventory did not attach

to the entrusted scallops, Evergreen retained a possessory claim

sufficient to overcome the Banks' motion for summary judgment.12

The district court judgment is vacated and the case is

remanded for further proceedings consistent herewith; each party

to bear its own costs on appeal.

12Evergreen filed no cross-motion for summary judgment,
however. Accordingly, the case must be remanded to the district
court for such further proceedings as are consistent with this
opinion.

20