Legal Definitions - entrusting

Entrusting, in commercial law, describes a situation where an owner gives possession of goods to a merchant who regularly deals in items of that kind. When this occurs, the law generally allows that merchant to transfer full ownership of those goods to an unsuspecting customer who buys them in the ordinary course of business.

Essentially, by entrusting an item to such a merchant, the original owner takes the risk that the merchant might sell the item to an innocent third party. If this happens, the innocent buyer typically acquires legal ownership of the item, even if the original owner never intended for it to be sold.

Here are a few examples to illustrate this concept:

• Imagine Sarah takes her antique grandfather clock to a specialized clock repair shop for restoration. This shop also sells restored antique clocks. While Sarah's clock is at the shop, the owner mistakenly (or fraudulently) sells it to a collector who believes they are purchasing one of the shop's own clocks. Because Sarah entrusted her clock to a merchant who deals in antique clocks, the innocent collector who bought it in good faith would likely acquire full legal ownership, and Sarah would lose her right to reclaim the clock from the collector, though she might have a claim against the shop owner.

• Consider David, a sculptor, who leaves several of his finished pieces with an art gallery for a temporary exhibition. The gallery regularly sells artwork from various artists. A new client visits the gallery and purchases one of David's sculptures, believing it is part of the gallery's general inventory for sale. In this scenario, David entrusted his sculptures to a merchant (the gallery) who deals in art. The client, as an ordinary course buyer, would likely gain full ownership of the sculpture, even if David only intended for it to be exhibited and not sold by the gallery without his direct approval for that specific sale.

• Suppose Emily drops off her designer handbag at a high-end consignment store, intending for the store to sell it on her behalf. However, the store also buys and sells designer handbags outright. Before Emily signs the formal consignment agreement, the store owner mistakenly sells her bag directly to a customer who walks in and pays the listed price. Because Emily entrusted her bag to a merchant who deals in designer handbags, the customer who bought the bag in the ordinary course of business would likely become its legal owner, even though the formal consignment terms hadn't been finalized with Emily.