In re Music City RV, LLC

304 S.W.3d 806, 2010 Tenn. LEXIS 86 (2010)

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In re Music City RV, LLC

Tennessee Supreme Court
304 S.W.3d 806, 2010 Tenn. LEXIS 86 (2010)

Facts

Music City RV, LLC (Music City) (debtor) was a dealer of recreational vehicles (RV) that was subject to an involuntary bankruptcy petition under Chapter 7. At the time of the bankruptcy, Music City’s lot contained the RVs of Dudley King and eight other people (defendants) who had consigned their RVs to Music City. A question arose before the bankruptcy court as to whether the RVs on consignment were assets of the bankruptcy estate. The parties stipulated the following facts: (1) consignment selling was not Music City’s primary business, (2) consignment was the only reason that King and the other consignors gave their vehicles to Music City, (3) the consignors’ RVs were on Music City’s lot when the bankruptcy was filed, and (4) there was not an agreement listing the RVs as sales on approval or on return as described in Article 2 of the Uniform Commercial Code (UCC). Also, King and the consignors did not file financing statements. The bankruptcy court certified to the Tennessee Supreme Court the question of whether Article 2 covered consignment transactions of an RV to an RV dealer by a consumer, rather than by a business, for the dealer to sell the RV to another person. The bankruptcy trustee (plaintiff) argued that consignments were covered by Article 2 of the UCC and that a perfected lien creditor’s interest in the RVs was superior to the rights of the consignors. King argued that the UCC did not apply to true consignments of consumer goods and the RVs were not assets of the bankruptcy estate. Under the UCC prior to the 2001 revision, Article 2 covered consignments. However, that provision was deleted, and consignment transactions were dealt with under Article 9. Yet Article 9’s treatment of consignments was not so expansive as to cover every true consignment. For example, there was an exception for consignments of goods that were consumer goods immediately prior to consignment. Therefore, King argued that the impact of the revision was that all consignments were removed from Article 2, and because the consignments at issue met an exception under Article 9, the UCC did not apply, but rather the common law now governed the subject consignments. The bankruptcy trustee countered that consignments not covered by Article 9 were still covered by Article 2 as sales on approval or on return.

Rule of Law

Issue

Holding and Reasoning (Lee, J.)

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