## Facts

- A Palm Beach, Florida art gallery borrowed money from Rayfield Investment Co. (Rayfield), and Rayfield obtained and perfected a security interest in the gallery’s inventory under Florida’s version of U.C.C. Article 9.
- The gallery later failed, and Rayfield foreclosed based on its perfected inventory lien, obtaining a judgment and a writ of replevin for the gallery’s inventory.
- Howard Kreps delivered a painting to the gallery to be sold on consignment and claimed a superior interest in that painting.
- Kreps did not file a financing statement to perfect any Article 9 interest and did not comply with Florida’s consignment-notice requirements for artwork (such as placing a tag/sign on the painting or having the gallery post a sign that consigned goods were being sold).
- Florida’s Article 9 definition of “consignment” covered goods delivered for sale to a merchant that normally sells goods of that kind, where the goods are not sold under the consignor’s name, and the merchant is not generally known by its creditors to be substantially engaged in selling goods belonging to others.
- At trial, evidence suggested the gallery never held more than about 15% of its inventory as consigned goods.
- Kreps presented evidence that Rayfield knew the gallery sold some items on consignment and that the gallery shared profits from such sales.
- Kreps did not present evidence regarding how many creditors the gallery had when the painting was consigned or whether the gallery was generally known by its creditors as substantially engaged in consignment sales; he also did not show Rayfield knew this particular painting was consigned or knew of any specific agreement covering it.
- The trial court ruled for Kreps, relying on Rayfield’s actual knowledge of the gallery’s consignment activity, the gallery’s profit-sharing on consignments, and Kreps’s title to the painting.
- Rayfield appealed.

## Issues

1. Whether Kreps’s delivery of the painting to the gallery was a “consignment” governed by Florida’s Article 9 so that Kreps needed to perfect (or give the required statutory notice) to protect his interest against the gallery’s secured inventory lender.
2. Whether Kreps proved the transaction fell outside Article 9 because the gallery was “generally known by its creditors” to be substantially engaged in selling the goods of others.
3. Whether Rayfield’s general awareness that the gallery conducted some consignment sales could defeat Rayfield’s prior perfected inventory security interest in favor of Kreps’s unperfected interest.

## Decision

- The Fourth District Court of Appeal reversed the judgment for Kreps.
- The court held Rayfield’s perfected security interest in the gallery’s inventory had priority over Kreps’s claim to the painting.
- The court concluded Kreps failed to prove the “generally known by its creditors” exception; the record lacked evidence about the gallery’s creditor community and general creditor knowledge, and the evidence that consigned goods were at most about 15% of inventory was not enough.
- The court rejected the trial court’s reliance on Rayfield’s actual knowledge of some consignment activity as a substitute for Article 9’s filing/notice-based priority rules, particularly where there was no proof Rayfield knew this specific painting was consigned.
- The case was remanded for entry of relief consistent with Rayfield’s superior claim.

## Legal Principles

- Under Florida’s U.C.C. Article 9, many consignments are treated within Article 9’s secured-transactions framework, exposing a consignor to Article 9 perfection and priority rules when the statutory “consignment” definition is met.
- A perfected inventory security interest generally has priority over an unperfected consignor’s interest in goods held out as the consignee’s inventory.
- A consignor can protect its position by perfecting (typically by filing) and, where applicable, complying with statutory notice measures for consignments of artwork (e.g., tags or signage) so that third parties are alerted that goods are consigned.
- The “generally known by its creditors” exception requires proof about what the consignee’s creditors generally know; proof of occasional consignment dealings, without evidence of broad creditor knowledge, does not satisfy the exception.
- A secured lender’s general awareness that a debtor sometimes sells consigned goods does not by itself displace Article 9’s priority rules, especially absent evidence the lender knew the particular goods were subject to a consignment arrangement.

## Conclusion

Rayfield Investment Co. v. Kreps holds that a lender with a prior perfected security interest in a gallery’s inventory prevails over an art consignor who neither perfected nor gave the statutory consignment notice and who could not prove the gallery was generally known by its creditors to be substantially engaged in selling others’ goods; general lender knowledge of some consignment activity did not change the Article 9 priority result.


Rayfield Investment Co. v. Kreps, 35 So. 3d 63, 72 U.C.C. Rep. Serv. 2d 110 (2010)