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Sales - Bona Fide Purchaser for Value - Credit on Pre-Existing Debt Robert A

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Sales - Bona Fide Purchaser for Value - Credit on Pre-Existing Debt Robert A Louisiana Law Review Volume 26 | Number 2 The 1965 Bailey Lectures Personal Jurisdiction Symposium February 1966 Sales - Bona Fide Purchaser for Value - Credit on Pre-Existing Debt Robert A. Seale Jr. Repository Citation Robert A. Seale Jr., Sales - Bona Fide Purchaser for Value - Credit on Pre-Existing Debt, 26 La. L. Rev. (1966) Available at: https://digitalcommons.law.lsu.edu/lalrev/vol26/iss2/20 This Article is brought to you for free and open access by the Law Reviews and Journals at LSU Law Digital Commons. It has been accepted for inclusion in Louisiana Law Review by an authorized editor of LSU Law Digital Commons. For more information, please contact [email protected]. 19661 NOTES general. If courts continue to assume that the advertisement is an offer without closely analyzing the individual case, advertisers will be forced to publish the complete terms of any possible con- tract which might result from the advertisement. It is submitted that such a result would be an unreasonable burden. The public understands that advertisements are deliberately terse to give the reader a general idea of what is available without having to state the details of a possible contract. The presumption against advertisements as offers 2 must be maintained in order to promote the most efficient communication between the ad- vertiser and the public. A. J. Gray, III SALES-BONA FIDE PURCHASER FOR VALUE-CREDIT ON PRE-EXISTING DEBT Plaintiff-consignor shipped gear equipment to consignee for sale on plaintiff's account. Consignee transferred part of the equipment to defendant in what appeared to be a C.O.D. sale for $1800. Actually, consignee had an unpaid account with defendant, who credited this account with the value of the equip- ment, thus cancelling the account. After defendant had sold the equipment in a subsequent transaction, plaintiff brought suit to recover the equipment or its value. The trial court held that the pre-existing debt constituted valuable considera- tion and that defendant was a bona fide purchaser for value. The Fourth Circuit Court of Appeal reversed. On certiorari, the Louisiana Supreme Court affirmed. Held, a person who takes property in satisfaction of a pre-existing debt has not given valuable consideration and therefore cannot be a bona fide purchaser for value. Diesel Equipment Corp. v. Epstein, 246 La. 953, 169 So. 2d 61 (1964). It has generally been held in Louisiana and at common law that a bona fide purchaser for value is one who parts with new consideration at the time of his purchase and does not have prior notice of any adverse interest sought to be enforced against the property acquired.1 Although there is no uniform pronounce- 27. See text accompanying note 2 supra. 1. Port Fin. Co. v. Ber, 45 So.2d 404, 406 (La. App. Orl. Cir. 1950), wherein the court stated: "Louisiana has received the common law concept of bona fide purchaser into its jurisprudence." Quoting from Note, 23 TUL. L. REV. 420, LOUISIANA LAW REVIEW [Vol. XXVI ment as to what constitutes value, several attempts have been made to define this term.2 As to whether credit on a pre-exist- ing debt constitutes value sufficient to make a third party a bona fide purchaser for value, not only are the common law jurisdictions in conflict, but the question appears to be res nova in Louisiana. The most pertinent provision of the Louisiana Civil Code is article 2138, which provides that if a debtor undertakes to discharge his obligation by giving in payment a thing he has no right to deliver, the true owner may reclaim it from the creditor, unless the thing given has been consumed in use.3 The only relevant Louisiana case is Frantz v. Fink, where a consignee attempted indirectly to give in payment certain earrings belong- ing to the plaintiff.4 In allowing recovery of the earrings from 421 (1949), the court explained this concept as follows: " 'The common law rule that a bona fide purchaser for value and without notice prevails over the original seller has its origin in equity and is based on the theory that the legal right of the third party cuts off the equity of the original seller. It is essential that the third party have no notice of the defective title.' " It should be noted that the court omitted a portion of the quotation from the Note and that this omission contains a necessary element of the entire bona fide purchaser rule, which is: "A third party who acquires property without payment of value is not entitled to protection as a bona fide purchaser." For a precise enumeration of the ele- ments of a 'bona fide purchaser in relation to sales, see Barthelmess v. Cavalier, 2 Cal. App. 2d 477, 488, 38 P.2d 484, 490 (1934) : "The elements of bona fides in the law of sales are: (1) a valuable consideration; (2) the absence of notice; and (3) the presence of good faith." 2. UNIFORM SALEs ACT § 76: "Value is any consideration sufficient to sup- port a simple contract. An antecedent or pre-existing claim, whether for money or not, constitutes value where goods or documents of title are taken either in satisfaction thereof or as security therefor." See also BRANNAN, NEGOTIABLE INSTRUMENTS LAW § 25 (7th ed. 1948) "Value is any consideration to support a simple contract. An antecedent or pre- existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time." Compare the above with UNIFORM COMMERCIAL CODE § 1-201 (44) : "Except as otherwise provided with respect to negotiable instruments and bank collections . a person gives 'value' for rights if he acquires them . (b) as security for or in total or partial satisfaction of a pre-existing claim." But see id. § 1-201(9) where it is stated that a "buyer in the ordinary course of business" does not include one who takes goods in bulk or as security for or in total or partial satisfaction of a money debt. 3. LA. CIVIL CODE art. 2138 (1870) : "If the debtor give a thing in payment of his obligation, which he has no right to deliver, it does not discharge his obliga- tion, and the owner of the thing given may reclaim it in the hands of the creditor, unless the obligation has been discharged by the payment of money, or the delivery of some of those things which are consumed in the use, and the creditor has used them; in which case neither the money nor the things consumed can be reclaimed, and the payment will be good." 4. William Frantz & Co. v. Fink, 125 La. 1013, 52 So. 131 (1910). Consignee attempted to give in payment earrings belonging to plaintiff in exchange for defendant cancelling his claim against the consignee for a certain diamond brooch he had made for defendant but which consignee had pledged to a pawnbroker. Consignee pledged the earrings to another pawnbroker and defendant was to acquire his brooch and earrings by redeeming consignee's pledges with the pawn- brokers. Plaintiff was allowed to recover these earrings from the defendant. 1966] NOTES the defendant-creditor the court apparently based its decision on the fact that the defendant had prior knowledge of the consignee's misdealings rather than on the ground that the de- fendant had not parted with value." In the same case, the de- fendant had purchased another set of earrings from the consignee and was held to be a bona fide purchaser against the plaintiff, the court reasoning the defendant had parted with value and the consignee had the necessary indicia of ownership6 to trans- fer a valid title. A majority of common law jurisdictions hold that the giving of credit on a pre-existing debt in exchange for chattels does not constitute value sufficient to place the creditor in the posi- tion of a bona fide purchaser against the true owner seeking to reclaim his goods.7 On the other hand, some jurisdictions have held the creditor to be a bona fide purchaser for value even though the only consideration given was credit on a pre-existing indebtedness." However, it should be noted that if payment was It may be noted that this was not a true dation en paiement, but an indirect one, as the defendant used the pawnbroker's ticket to acquire the earrings. 5. Id. at 1034, 52 So. at 139: "We put our decision distinctly on the fact that the earrings were not acquired from a merchant having them for sale to the public generally, but were redeemed from a pawnbroker's shop at the request of an embezzler as a means of settlement for the embezzlement." 6. Id. at 1031, 52 So. at 138: "It is a plain proposition that the mere posses- sion of movable property is not such indicium of ownership as will enable the possessor to convey a good title as against the true owner. He [the owner] must have to some extent accredited the title of the possessor--clothed him with more pronounced indicium of ownership than mere possession. "This may be done in various ways, and one way would be . consent that a vendor of jewelry exhibit the jewels as part of his stock of goods, or as belonging to him." In Frantz the court found the "more than mere possession" to be the fact that both plaintiff and defendant dealt with Moss knowing him to be a trader in the same business, which seems to be the reasoning of the trial court in the instant case. However, in both cases the only visible indicium of ownership was mere possession.
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