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November 29, 2011

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Patrick

I once remarked to a friend while I was studying for the bar: If ever I encounter a genie who offers me three wishes, one of my requests will surely be for eternal status as a bona fide purchaser in good faith for fair value. I'm no UCC god but that's a difficult status to trump.

James Grimmelmann

Sometimes, life hands you a precedent that's so on point the coincidence is staggering. Kahr v. Markland, 543 N.E. 2d 579 (Ill. App. 1989) would suggest that the man can recover as against the purchaser. Kahr donates clothes to Goodwill, and mistaken includes bags of engraved sterling silver. Goodwill sells the silver to Markland. Held, no "entrusting" to Goodwill, so title does not pass to the purchaser. And this by an Illinois court.

TJ

I'm no commercial paper specialist, but why doesn't the special status of money distinguish the Kahr case? Traditionally, a recipient of money takes free of all prior claims absent explicit knowledge of the money's illicit source. See Merchants' Loan & Trust Co. v. Lamson, 90 Ill.App. 18, 21 (1899).

James Grimmelmann

One could argue that money sewn in the lining of a coat is not being transferred as money, so that the policies favoring extreme negotiability don't apply.

TJ

Right, but the original owner then has to thread a very fine needle. If the object being given to Goodwill is defined as "a suit with money," then it would seem that Goodwill is a merchant to suits that has been entrusted to it, and the purchaser takes free of prior claims under 2-403. If the objects being given to Goodwill are regarded separately as "a suit" and "money" (which is how I read Kahr as conceptualizing the silver), then intellectual consistency would demand that the money be considered transferred separately from the suit and be subject to the holder in due course rule.

What the original owner needs to argue is that the object being transferred is "a suit" and "money" when O gives to Goodwill (so no entrusting of the money portion), but then becomes "a suit with money" when Goodwill transfers to A (so the entire transaction is subject to the nemo dat rule). While I can certainly see a court buying the argument, there is a contradiction there.

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