Great Am. Ins. Co. v. Nextday Network Hardware Corp.

73 F. Supp. 3d 636 (D. Md. 2014)

 

RULE:

For the entrustment provision to apply, (1) there must be an entrustment of goods; (2) that entrustment must be to a "merchant who deals in goods of that kind"; and (3) the transfer must be to a buyer in the ordinary course of business who purchases in good faith, without knowledge that the sale violates ownership rights.

FACTS:

Defendant company bought information technology equipment from an individual who stole the equipment from his employer. Plaintiff, the employer’s insurer, filed suit against the defendant. The Complaint asserted claims for conversion, aiding and abetting conversion, and civil conspiracy. The defendant moved to dismiss for failure to state a claim. Defendant claimed that it is classified as a “merchant who deals in goods of that kind” thus as a buyer in the ordinary course of business, the entrustment provision of the Commercial Law Article of the Maryland Code, which adopts a provision of the Uniform Commercial Code ("UCC"), precludes any conversion claim.

ISSUE:

Whether or not defendant company is a buyer in the ordinary course of the stolen IT equipment.

ANSWER:

No.

CONCLUSION:

For the entrustment provision to apply, (1) there must be an entrustment of goods; (2) that entrustment must be to a "merchant who deals in goods of that kind"; and (3) the transfer must be to a buyer in the ordinary course of business who purchases in good faith, without knowledge that the sale violates ownership rights. The entrustment provision inherently requires three separate parties — an owner, a merchant, and a buyer — as it only applies when a rightful owner attempts to sue a buyer after the buyer purchases goods from a merchant. The defendant cannot be both the merchant and the buyer in this scenario. Besides, the entrustment provision protects subsequent buyers of the merchant from conversion, not the merchant itself.

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