Rayfield Investment Co. v. Kreps

When an art gallery in Palm Beach, Florida, failed, its lender, Rayfield Investment Co. (Rayfield) (plaintiff), foreclosed pursuant to its perfected security interest in the gallery’s inventory and received a judgment and a writ of replevin for the gallery’s inventory. A consignor, Howard Kreps (defendant), intervened, claiming a security interest in a particular painting that he had placed with the gallery on consignment. Kreps did not perfect his interest or comply with Florida law for placing others on notice that a painting was being sold on consignment. Florida law required a consignor to place a sign or a tag on the painting or to have the seller post a sign that the painting was being sold on consignment. Also, the definition of consignment in Florida’s Article 9 of the Uniform Commercial Code (UCC) included goods delivered for sale to a merchant that normally sells goods of that type, not under the deliverer’s name, with the merchant not generally known by its own creditors as being substantially engaged in selling merchandise that belonged to others. Rayfield sued the gallery, and Kreps intervened. At trial, evidence suggested that the gallery never held more than 15 percent of its inventory in consigned goods. Although Kreps presented evidence that Rayfield knew the gallery sold items on consignment, he failed to present evidence regarding (1) whether the art gallery was generally known as being substantially engaged in consignment sales, (2) how many creditors the gallery had when the painting was placed on consignment, or (3) whether Rayfield knew the painting was on consignment or knew of any agreement regarding it. However, a lower court ruled in favor of Kreps, reasoning that Rayfield had actual knowledge that the gallery sold items on consignment, that it received profits from consignment sales, and that Kreps had title to the painting. Rayfield appealed.