Colorado § 4-2-403 - Power to transfer - good faith purchase of goods - "entrusting".

§ 4-2-403. Power to transfer - good faith purchase of goods - "entrusting".

(1) A purchaser of goods acquires all title which his transferor had or had power to transfer; except, that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase, the purchaser has such power even though:

(a) The transferor was deceived as to the identity of the purchaser, or

(b) The delivery was in exchange for a check which is later dishonored, or

(c) It was agreed that the transaction was to be a "cash sale", or

(d) The delivery was procured through fraud punishable as larcenous under the criminal law.

(1.5) Notwithstanding any other provision of this section, when livestock have been delivered under a transaction of purchase and on the accompanying brand inspection certificate or memorandum of brand inspection certificate the seller has conspicuously noted that payment of the consideration for the transaction has not been received, the buyer does not have power to transfer good title to a good faith purchaser for value until payment is made.

(2) 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.

(3) "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.

(4) The rights of other purchasers of goods and of lien creditors are governed by the articles on secured transactions (article 9 of this title) and documents of title (article 7 of this title).

Source: L. 65: p. 1320, § 1. C.R.S. 1963: § 155-2-403. L. 75: (1.5) added, p. 232, § 3, effective June 20. L. 91: (4) amended, p. 270, § 4, effective July 1.

Editor's note - Colorado legislative change: Colorado added subsection (1.5). There is no counterpart to subsection (1.5) in the uniform act. Colorado adopted Revised Article 6 - Bulk Sales (Alternative B) which was repealed in 1991 and the corresponding reference to "bulk sales" was deleted in subsection (4) in 1991.

ANNOTATION

Law reviews. For article, "Buyer-Secured Party Conflicts Under Section 9-307(1) of the Uniform Commercial Code", see 46 U. Colo. L. Rev. 333 (1974-75). For article, "Commercial Law", see 58 Den. L.J. 279 (1981).

Annotator's note. Since § 4-2-403 is similar to repealed § 121-1-24, CRS 53, and CSA, C. 143A, § 23 (uniform sales act), cases construing this provision have been included in the annotations to this section.

Section conflicts with § 18-4-405 which holds that a good faith purchaser of stolen property does not divest the original owner of his or her right to the property. UCC section prevails because it was later in time and because original owner was in a better position to protect his or her interests than the subsequent good faith purchaser. West v. Roberts, 143 P.3d 1037 (Colo. 2006).

The concept of good faith purchaser for value does not require that the purchaser buy from a merchant or dealer. West v. Roberts, 143 P.3d 1037 (Colo. 2006).

The test of a bona fide purchaser is purchase without notice of the defect in the title of the person from whom he purchased and without notice of the right of the original seller to avoid or rescind the sale. General Credit Corp. v. Bill Olsen's Motor, Inc., 147 Colo. 227, 363 P.2d 489 (1961).

Mere possession of personalty fraudulently obtained was held not alone enough to protect a good faith purchaser against the demands of the defrauded owner where the authorities indicated that possession had to be accompanied by indicia of title. Panhandle Pipe & Supply Co. v. S. W. Pressey & Son, 125 Colo. 355, 243 P.2d 756 (1952).

Effect of right to reclaim on title. The right to reclaim goods sold in a cash sale transaction is a right to undo that transaction; until reclamation is completed, title, as well as the power to pass good title, remains in the purchaser. Ranchers & Farmers Livestock Auction Co. v. Honey, 38 Colo. App. 69, 552 P.2d 313 (1976).

The voidable title which a purchaser receives when payment is made by check is dependent upon the seller's power to transfer an interest in the goods conveyed. Guy Martin Buick, Inc. v. Colo. Springs Nat'l Bank, 184 Colo. 166, 519 P.2d 354 (1974).

Lender receives enforceable right to security interest as purchaser. Unless there is some showing of conduct amounting to bad faith, a lender receives an enforceable right to its security interest as a purchaser, even though the seller of the security interest has only a voidable title to the underlying goods. Guy Martin Buick, Inc. v. Colo. Springs Nat'l Bank, 184 Colo. 166, 519 P.2d 354 (1974).

After certificates of title of some automobiles were delivered to a bank, the purchaser acquired a voidable title and could convey an enforceable right in the automobile to the lending bank as a good faith purchaser for value, even though check to the seller was later dishonored. Guy Martin Buick, Inc. v. Colo. Springs Nat'l Bank, 184 Colo. 166, 519 P.2d 354 (1974).

Purchaser clothed with voidable title on proper transfer of title certificates. Where before the seller presented the purchaser's check for collection, the certificates of title to automobiles were delivered to a bank as security for the bank's loan to the purchaser, in accordance with a security agreement between the purchaser and bank, it could be implied that the bank took possession of the certificates of title as the purchaser's agent. At the moment the seller delivered the certificates of title to the purchaser, through the bank as its agent, the requirements of § 42-6-108 were satisfied. Moreover, once the certificates of title were properly transferred, the purchaser was clothed with voidable title and could legally encumber the automobiles. Guy Martin Buick, Inc. v. Colo. Springs Nat'l Bank, 184 Colo. 166, 519 P.2d 354 (1974).

Leaving property with a merchant who customarily sells that kind of goods clothes the merchant with either apparent ownership or apparent authority to sell the goods. The overall policy underlying this provision is to restrict impediments to the free flow of commerce when buyers in the ordinary course of business are involved. Keybank, Nat'l Ass'n v. Mascarenas, 17 P.3d 209 (Colo. App. 2000).

When an entrustment occurs within the meaning of the statute, the fact that the entrustee procured the entrustment through larceny, trick, or fraud punishable under the criminal law does not defeat the ability of a merchant-trustee to transfer title to the goods to a buyer in the ordinary course of business. Keybank, Nat'l Ass'n v. Mascarenas, 17 P.3d 209 (Colo. App. 2000).

Applied in Rochester Ranch Co. v. Stubblefield, 640 P.2d 267 (Colo. App. 1981); Cugnini v. Reynolds Cattle Co., 648 P.2d 159 (Colo. App. 1981), aff'd, 687 P.2d 962 (Colo. 1984).

PART 5

PERFORMANCE