Thursday, July 9, 2009

Double-Crossed Diamond Dealers Dinged By UCC 2-403

Ishaia Trading Corp. v. Anter, 2009 WL 1913184 (July 6, 2009) (Not Officially Reported)

This case disproves the familiar slogan “diamonds are forever.”

A diamond dealer was swindled out of several gems, including a 23 carat, pear-shaped, flawless diamond. The transaction involved a complicated series of consignments between international characters with such exotic sounding names as “Chayto,” “Shamash,” “Achmed,” and an alleged “Mrs. Mobutu,” (yes, that Mobutu—the infamous African dictator). When the diamond-dust settled, the owner and consigner had worthless checks and no diamonds.

The owner/consigner sued the persons who ended up with the gems and lost. They were done in by UCC 2-403 (California’s version is at Ca. Comm. Code 2403.) Good title will pass if a bona fide purchaser acquires title from a defrauder, but not a thief. As the court put it, “an involuntary transfer [theft] results in void title, while a voluntary transfer, even if fraudulent results in voidable title.” (2009 WL 1913184, at *9.) Section 2-403(1) states, in part: “A person with voidable title has power to transfer a good title to a good faith purchaser for value.” Since the defendant was a good faith purchaser for value, it could keep the diamonds.

The case also pivoted on the application of California vs. Spanish law and contains a good discussion of choice-of-law issues. The opinion should be officially published--not only because of the key law it reinforces, but also because it opens such an interesting window into the world of diamond trading.

Perhaps the defrauded diamond owners can recover some value by selling the movie rights.

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