## Facts

- Gordon Lee Bonner contracted with Carman Boats, Inc. to build a custom 46-foot motorboat for a stated price of $278,950, with progress payments and a specification sheet; the written contract did not contain specific delivery terms.
- Construction continued for almost three years. Bonner made substantial progress payments (including payments tied to changes), but the court found that some amount remained unpaid after accounting for the contract price and change-related payments.
- By the time Carman Boats, Inc. filed Chapter 7 bankruptcy (along with its principal), the boat was still at Carman’s boatyard and was not complete.
- The remaining work was largely finish work (including cabinetry, built-in furniture, woodwork, painting, and other finishing tasks). The engines had been installed and tested, but no final sea trial had occurred.
- Bonner grew dissatisfied with delays and considered having another yard complete the boat. Carman indicated Bonner could pick up the boat, but Bonner asked Carman to keep it temporarily while he sought a completion price and made arrangements; shortly before the filing, he was still awaiting a price quote from another yard.
- Carman began the process of documenting/registering the boat with the United States Coast Guard in Bonner’s name, but the Coast Guard rejected the paperwork because Carman had not signed it; no Coast Guard documentation issued as of the bankruptcy filing.
- The Chapter 7 trustee proposed selling the unfinished boat at auction as property of the estate. Bonner objected, claiming he owned the boat under Maryland UCC § 2-401(3)(b).

## Issues

1. Under Maryland UCC § 2-401(3)(b), did title to the unfinished boat pass to Bonner at the time of contracting because the contract was silent on delivery and the parties did not agree to deliver documents of title?
2. Even if the boat was identified to the contract under Maryland UCC § 2-501, did Bonner’s resulting interest amount to ownership that kept the boat out of the bankruptcy estate under 11 U.S.C. § 541 and barred the trustee’s sale?
3. Did the incomplete and rejected Coast Guard documentation process show a completed transfer of ownership or otherwise change the UCC title analysis?

## Decision

- The court overruled Bonner’s objection.
- The court held the unfinished 46-foot boat was property of the Carman Boats, Inc. bankruptcy estate as of the petition date.
- The court allowed the Chapter 7 trustee to proceed with the sale of the boat, treating Bonner’s interest as something less than full title.

## Legal Principles

- Property of the estate under 11 U.S.C. § 541 includes the debtor’s legal and equitable interests in property as of the petition date; state law generally defines the nature and extent of those interests.
- Under Maryland UCC § 2-401(1), title passes as the parties explicitly agree; if they do not, Article 2’s default rules apply.
- Maryland UCC § 2-401(3)(b) allows title to pass at contracting only if, at the time of contracting, the goods are already identified to the contract and no documents of title are to be delivered.
- For goods to be manufactured, identification under Maryland UCC § 2-501 may give the buyer a limited “special property”/insurable interest, but identification alone does not necessarily transfer legal title or remove the goods from a seller’s bankruptcy estate.
- An attempted but unsuccessful Coast Guard documentation effort (rejected paperwork and no issued documentation) does not, by itself, establish a completed transfer of ownership as of the bankruptcy filing.
- A bankruptcy trustee may sell estate property under 11 U.S.C. § 363, with a buyer’s rights addressed through bankruptcy claims and any limited Article 2 remedies rather than by excluding the property from the estate.

## Conclusion

Because the contract was for a boat that was still being built and the statutory conditions for passage of title at contracting under Maryland UCC § 2-401(3)(b) were not met, Bonner did not hold title to the unfinished vessel when Carman Boats, Inc. filed for Chapter 7; the boat entered the bankruptcy estate, and the trustee could sell it notwithstanding Bonner’s objection.


In re Carman Boats, Inc., 399 B.R. 158 (2009)