Dealer bankruptcy, liquidation, out of business. Who owns title to coins?

[truthteller]

I saw this on the PCGS boards this morning. Quite interesting. Several dealers are reporting coins stolen from them. Supposedly, a certain dealer in question either paid with a bad check, had them on consignment, or some other dubious transaction that caused the owners to post this information

 

"$$REWARD..REWARD$$..REWARD$$

 

FOR THE LOCATION AND RETURN OF THE FOLLOWING COINS...

 

1877 20CENT NGC-PROOF-67 #429170-001....

 

1878 20CENT PCGS-PROOF-64 #03066625....

 

1873 CL3 N.A. 50CENT PCGS-PROOF-64....

 

1881 TRADE$ PCGS-PROOF-63 #21948437....

 

THE RETENTION OF TITLE TO THESE COINS REMAINS WITH FEDERAL COIN & BULLION, INC.

 

Contact Lance

 

Federal Coin & Bullion, Inc.

3959 Van Dyke Road #235

Lutz FL 33558

 

Phone numbers:

Voice (1) 813-264-2254

FAX (1) 813-949-3478

Cellular (1) 813-892-4659

Email fedcoin@msn.com"

 

 

 

So here's the question. If a dealer gives another a bad check for coins, does title remain with the previous owner even if the dealer declares bankruptcy or dissolution of the business? Howabout a consignment?

 

 

 

TRUTH

[Zoins]

Did the purchasing dealer go bankrupt? If the dealer purchased the coins then would the defunct dealer have the coins in inventory but now have an accounts payable? I'm not an expert but my understanding is that the company's priorities are to payoff all debts, anything left over will be divided among the equity holders. I think there are priorities assigned to debt holders in terms of which ones get paid first. Sometimes, assets of the company will be liquidated and the proceeds used to pay off debts. I assume accounts payable are paid off before any long term debt (e.g. bank loans) but I'm not sure. There may also be other competing short term liabilities such as company credit card debt, rent, utilites, etc. I'm also not sure what happens if there aren't enough assets to cover a particular debt/claim.

 

I'd probably contact a lawyer with the specifics of the situation.

[DC Dawg]

So here's the question. If a dealer gives another a bad check for coins, does title remain with the previous owner even if the dealer declares bankruptcy or dissolution of the business? How about a consignment?

This is where having a close relative in the bankruptcy business helps! My father once worked for banks but now is a consultant the works with banks and businesses to help resolve the issues.

 

It depends on how a company does this. Under Chapter 11, assets are protected and the secured creditors petition the courts for resolution. The creditor then negotiates with the company and mediator for a settlement. The settlement is for reorganization of the company with the court's protection in order for the company to exit from Chapter 11 protections.

 

Chapter 7 is for corporate entities only. This is when the company closes the doors and walk away. All assets are turned over to the courts and they dissolves any remaining assets. Secured creditors petitions the courts but are not guaranteed to be paid. Unsecured creditors can petition the court but the chances they will be paid are slim at best. Chapter 7, which is largely abandonment, can result in criminal proceedings for corporate officers. Sole proprietors risk loosing personal assets to make secured creditors whole. LLCs and other partnerships can also loose secured assets used to back the corporation.

 

Since most numismatic operations are LLC's or sole proprietor companies, they can be closed under Chapter 13 with better protections. Secured creditors will be paid proportionally to the assets captured when the company was not protected under the bankruptcy laws and given priority for being paid nearly in full when the company was under bankruptcy protection. However, this can be negotiated for certain creditors to be paid more than others. Unsecured creditors may get some payment, but only as a minimal percentage of the amount owed.

 

If there is a bill of sale or a proof of transfer (e.g., the coins were sold but paid with a check that was returned), the coins would be considered owned by the company that went out of business. The person who wrote the check can be charged with felony fraud for writing bad checks, but the coins are part of the company in question. The seller can petition the court as a secured creditor claiming the sold assets as security and producing the bill of sale and bogus check for evidence of security. The seller can get in line for the assets behind the banks and other financing institutions who are owed larger amounts and are secured by other assets.

 

If there is proof of consignment that can be provided to the court, the judge can order the return of the assets. But that has to be petitioned for and, depending on the amount of the assets, can be sold and only a percentage returned to the seller while the rest are distributed amongst other secured creditors.

 

Finally, if the LLC or sole proprietor just closed their doors and walked away without settling their accounts, secured creditors can petition the courts under Chapter 12 to begin Chapter 13 proceedings leading to a Chapter 7 liquidation. Then, the seller must petition the court for relief. The seller can do this under a civil action if no bankruptcy cases are filed. Then, it is handled largely by the state courts.

 

Confused? This is why you hire an attorney specializing in this stuff and pray that the recovery of the coins will not cost more than their worth!

 

Scott

[Zoins]

This is where having a close relative in the bankruptcy business helps! My father once worked for banks but now is a consultant the works with banks and businesses to help resolve the issues.

 

It depends on how a company does this. [....]

Great post Scott!

[truthteller]

"If there is proof of consignment that can be provided to the court, the judge can order the return of the assets. But that has to be petitioned for and, depending on the amount of the assets, can be sold and only a percentage returned to the seller while the rest are distributed amongst other secured creditors."

 

 

Good information.

 

Next question. Howabout auction houses? I know they are bonded, but can individually owned auction lots be covered under the umbrella of an auction house bankruptcy? That's a really scarey scenario.

 

 

 

TRUTH

[DC Dawg]

Next question. Howabout auction houses? I know they are bonded, but can individually owned auction lots be covered under the umbrella of an auction house bankruptcy? That's a really scarey scenario.

 

Ok... that's beyond my knowledge. I will be speaking with my father tonight and will ask.

 

Scott

[BillJones]

Checks are not legal. Not even cashiers’ checks are legal tender. CASH is legal tender. Therefore a bad check paid in a contract does not result in the change in title for the merchandise. If the dealer holding the coins goes bankrupt, the coins are not part of his assets because he never had a property right to them.

 

Ditto for a consignment. In legal terms a consignment is a bailment, not a sale.

 

BUT in practical terms getting back the merchandise can be a problem. It becomes a bigger problem if the merchandise is nondescript and can’t be readily picked out in the bankrupt dealer’s inventory.

 

But from a legal point of view, title does not pass until the check has cleared.

[DC Dawg]

Checks are not legal. Not even cashiers’ checks are legal tender. CASH is legal tender. Therefore a bad check paid in a contract does not result in the change in title for the merchandise. If the dealer holding the coins goes bankrupt, the coins are not part of his assets because he never had a property right to them.

Umm... no. Checks are legally a promisory note and negotiable paper, the same as selling on credit. I have it confirmed that as soon as you transfer any type of negotiable paper, including checks, cash, money orders, etc., you are tranferring ownership on that credit-based transaction. Therefore, the coins are owned by the buyer. The original statement that the company continues to own title to the coins is wrong and will not stand up in court.

 

Ditto for a consignment. In legal terms a consignment is a bailment, not a sale.

Again... no. Consignments are the same as a credit-based sale unless there is a written agreement otherwise. Many consignment contracts are written to return the items after a certain amount of time if they do not sell. Only after that time period does ownership return to the original owner. But this is based on the contents of a written agreement. In the absence of a written agrement, ownership has been transferred once the consignment has been made as a credit-based sale.

 

BUT in practical terms getting back the merchandise can be a problem. It becomes a bigger problem if the merchandise is nondescript and can’t be readily picked out in the bankrupt dealer’s inventory.

Only after the secured creditors have been paid. This is where I was wrong before, the seller is NOT a secured creditor in this type of action. Only those with secured and collateralized notes (e.g., the banks) are secured creditors. Secured creditors are paid first to the limit of the security of the note. Unsecured creditors are paid after the secured creditors, if there are assets left. Unsecured creditors are paid proportionally to the amount owed. Essentially, the unsecured creditor goes to the back of the line to hope that there are assets to salvage.

 

But from a legal point of view, title does not pass until the check has cleared.

Based on what law? The Fair Credit Act considers this a credit-based transaction. This is recognized by both the federal bankruptcy and banking laws. If you accept the check as a negotiable instrument, you've made the sale on credit and the title transfers. The holder of the bad paper has to try to collect on the unsecured debt.

 

Unless there is a clear and written agreement on the condition of sale or consignment, the sale is assumed to be a credit sale under the law. The burden is on the seller to collect on the bad debt. If the purchaser is an individual or a sole proprietor, the seller can go to the jurisdiction of the person who wrote the check to file a claim in court. Small claims court is an option if the amount owed is less than the legal limit--the limit is different in each jurisdiction.

 

As for the previous question about bonded auction houses, the consigner would make a claim on the transaction per the conditions in the consignment agreement. There is no single answer here because agreements and insurance can vary from company-to-company and state-to-state. You have to read the consignment contranct to understand the insurance company's true liability in the transaction.

 

Scott

[truthteller]

Thank you for the very informational post.

 

Coin dealers in general have very poor understanding of such legalities, even in their own state.

 

 

 

TRUTH

[BillJones]

Based on what law?

 

The law that I learned when I took business law as part the accounting major I completed in undergraduate school, and then took again in MBA school.

 

Checks are not legal tender PERIOD. They are financial instruments that can be assigned to third parties as you stated. BUT if the check is no good, the title to the property has not passed PERIOD.

[IGWT]

The law that I learned when I took business law as part the accounting major I completed in undergraduate school, and then took again in MBA school.

 

Checks are not legal tender PERIOD. They are financial instruments that can be assigned to third parties as you stated. BUT if the check is no good, the title to the property has not passed PERIOD.

 

Generally speaking, unless the buyer and seller explicitly agree otherwise, title passes to the buyer at the time that the seller delivers the coins. And, unless the seller has retained a security interest in the coin, he has no greater recourse than any other general creditor.

[ArtR]

I don't know much about the Legal side of this, but hate to see Lance get stuck with a bad check that was used to pay for the coins. Lance is a good friend and an overall nice person. Hopefully he will get his money, or at least get the coins back.

[BillJones]

Yes, Lance is a good guy, and I'd hate to see him get stuck with bad check. Some states come down hard on people who pass bad checks with theft in mind. "Go to jail. Go directly to jail. Do not pass "GO." Do not collect $200."

 

That's the way it should be.

[truthteller]

The law that I learned when I took business law as part the accounting major I completed in undergraduate school, and then took again in MBA school.

 

Checks are not legal tender PERIOD. They are financial instruments that can be assigned to third parties as you stated. BUT if the check is no good, the title to the property has not passed PERIOD.

 

Generally speaking, unless the buyer and seller explicitly agree otherwise, title passes to the buyer at the time that the seller delivers the coins. And, unless the seller has retained a security interest in the coin, he has no greater recourse than any other general creditor.

 

 

Even when you accept cash $US, are you not receiving nothing of "value", only a note secured by "full faith and credit" of the US government? SO, accepting someone's check is accepting a promise to pay in government funds? Isn't the bounced check a commodity by which another person/business can pay a percentage in the hope of retrieving eventual full value? If so, then title does pass since the bounced check does have value to a third party/collection agency.

 

 

 

TRUTH

[truthteller]

I did a little research and found a Colorado apellate decision. Good title DOES pass with the issuance of a bad cashier's check(forgery). This is case specific, but much of what is discussed applies here. The key is that the initial property owner INTENDED TO SELL his "commodity" and the theft/stolen provisions of law do not apply and the initial property owner could not recover the "commodity". However, the decision does not address a specific merchant transaction. So, if you live in Colorado, title does pass, PERIOD.

 

http://www.cobar.org/opinions/opinion.cfm?OpinionID=5821

 

 

Frie, Arndt & Danborn P.C.

Paul R. Danborn

 

Arvada, Colorado

Attorneys for Petitioner

 

Law Offices of Joaquin G. Padilla, PLLC

Joaquin G. Padilla

Lucia Padilla Gallery

 

Denver, Colorado

Attorneys for Respondent

 

JUSTICE BENDER delivered the Opinion of the Court. JUSTICE EID dissents, JUSTICE COATS joins in the dissent.

 

I. Introduction

 

We review on certiorari an appellate decision from the district court, which construed Colorado Revised Statute section 18-4-405. We hold that this statute, which permits the rightful owner of stolen property to recover that property from the possession of another person, does not apply when the rightful owner intends to part with the property.

 

Kenneth James West relinquished his car in exchange for a cashier's check that appeared valid, but which thereafter proved to be a worthless counterfeit. When he later located the car in the possession of a subsequent purchaser, Tammy Roberts, West sued to recover the car under section 18-4-405. However, the trial court found that section 18-4-405 does not apply to situations, like this case, in which an owner voluntarily relinquishes the property, even if he is defrauded into doing so. Instead, the trial court applied Uniform Commercial Code (UCC) section 2-403, as enacted in Colorado as section 4-2-403, C.R.S. (2006) . The trial court found that the UCC provision entitled Roberts, as a good faith purchaser for value, to retain ownership of the car. On appeal, the district court, acting as an appellate court, upheld the trial court's decision.

 

We agree with the district court's conclusion and hold that, although "theft" in our criminal code includes theft by deception, UCC section 2-403 abrogates section 18-4-405 so that "theft" in that provision does not include theft in which an owner voluntarily relinquishes property to a thief under a transaction of purchase.

 

Thus we affirm the district court and hold that Tammy Roberts, as a good faith purchaser for value, obtained good title to the car under C.R.S. section 4-2-403.