Title: Price v. Universal CIT Credit Corporation
Citation: 102 Ariz. 227, 427 P.2d 919
Docket Number: 7860
State: Arizona
Issuer: Arizona Supreme Court
Date: May 18, 1967

102 Ariz. 227 (1967) 427 P.2d 919 William PRICE, Appellant, v. UNIVERSAL C.I.T. CREDIT CORPORATION, a corporation, and Herbert C. Easley, Jr., Appellees. No. 7860. Supreme Court of Arizona, In Banc. May 18, 1967. *228 Leibsohn, Garrett &amp; Goldstein, by Philip T. Goldstein, Phoenix, for appellant. Jennings, Strouss, Salmon &amp; Trask, by Charles R. Esser, Phoenix, for appellee Universal C.I.T. Credit Corporation. Rawlins, Ellis, Burrus &amp; Kiewit, by William H. Burrus, Phoenix, for appellee Herbert C. Easley, Jr. McFARLAND, Justice. The trial court, with ample support in the evidence, found the following facts which form the basis for this opinion: Plaintiff-appellant, hereinafter referred to as Price, entered into an agreement with one Daymus to finance the latter in his used car business. Price agreed to advance money to purchase cars which were left on Daymus's lot to be sold by Daymus, who promised that upon the sale of each car he would repay the amount advanced plus fifty dollars for each month's use of the money. Price's security was to be a lien on each car thus purchased. The liens, however, were not to be in strict accord with legal requirements, but would result from Price's holding the certificates of title endorsed in blank by the parties from whom Daymus bought the vehicles. Both parties thought that this would safeguard Price's advances, because a buyer from Daymus would not be able to see a clear title certificate while Price held it, and therefore presumably would not pay for the car until Daymus redeemed the certificate from Price. At the same time it was felt that this interesting method of creating security would expedite the selling of cars which would otherwise be delayed by the fact that applications for title certificates are sometimes delayed for weeks by the Motor Vehicle Division of the State Highway Department. Defendant-appellee, hereinafter referred to as CIT, commenced buying conditional sales contracts from Daymus about January 31, 1959. On March 19th Price advanced Daymus the money to buy a Jaguar and a Porsche, which Daymus sold a few days later by conditional sales contracts the Jaguar to one Walden, and the Porsche to one Easley. The conditional sales contracts were assigned to and bought for cash by CIT, and the purchasers were notified to make their payments to CIT. Neither buyer asked to see the title certificates, and CIT relied upon Daymus to send the titles and conditional sales contracts to the Motor Vehicle Division for proceessing. Daymus took the money from CIT, failed to pay Price, and went into bankruptcy. In May, Price sent the blank titles to the motor vehicle department and had them re-issued in his name. Easley completed his payments and sold the car to Stewart Motors. Walden refused to pay, and was released from his contract by CIT, who took over the ownership *229 of the vehicle. The car was later stolen from CIT, and has not been seen since. Price filed a complaint against CIT in four counts: The legal ramifications of this series of transactions are both momentous and mutifarious. We need consider here only those questions which determine which of the parties is to bear the loss, as between CIT, Price, and the automobile purchasers, as Daymus is no longer responsible financially. The main problem is succinctly set out in the following language taken from 16 Law &amp; Contemporary Problems, 197: In Sorensen v. Pagenkopf, 151 Kan. 913, 101 P.2d 928, the court said that the purpose of the statute was not only to make it more difficult for a thief to dispose of a stolen car, but that: In Pacific Finance Co. v. Gherna, 36 Ariz. 509, 287 P. 304, we said: Although different states have expressed the purposes of the act in different ways, there can be no question but what the act was passed to prevent as many as possible of the evils arising out of car thefts and car frauds, by making it as difficult as possible *230 to cheat an innocent purchaser or an innocent lienholder. One of the clearest and best-reasoned cases is Fogle v. General Credit Inc., 74 App.D.C. 208, 122 F.2d 45, 136 A.L.R. 814, in which a dealer had possession of an auto with authority from the mortgagee to offer it for sale in regular course of business, but not to complete a sale until the mortgagee was paid off. The mortgage was recorded, and the mortgagee, as additional protection, had the dealer assign and deliver the certificate of title to him. The dealer then sold the car to the plaintiff who took possession of it. Upon learning that the mortgagee had the title certificate, the buyer demanded it. When his demand was not satisfied, he brought suit against the mortgagee to obtain the certificate of title free and clear of the mortgage. The trial court's judgment for the defendant was reversed by the U.S. District Court of Appeals for the District of Columbia, which used the following language in its opinion: See also Allen Parker Company v. Taylor, Fla.App., 120 So. 2d 52, 56. In Mixon v. Whitman, 279 Ala. 249, 184 So. 2d 332, the Supreme Court of Alabama said: See also Al's Auto Sales v. Moskowitz, 203 Okl. 611, 224 P.2d 588. As stated in 43 Mich.Law Rev. 605: When one of two persons must under these circumstances bear the loss, it should fall upon the one whose business is the handling of such transactions, rather than upon the one who enters into an isolated purchase of an automobile. By this rule we shift the risk of loss to the one who has the necessary expertise to protect himself, the facilities to make continuous inquiry about the credit and moral character of the dealer, and the ability to charge for the loan of his money a sufficient fee to enable him to absorb an occasional loss out of the profits from many other successful deals. See Sorensen v. Pagenkopf, 151 Kan. 913, 101 P.2d 928. Our certificate-of-title act provides, in A.R.S. § 28-325: A.R.S. § 28-1310 provides: Appellant contends that the buyers of the two automobiles were not innocent purchasers for value because they could have ascertained Daymus's lack of title by consulting available public records. The difficulty with this argument is that it is not true. Had the buyers consulted the motor vehicle division they would have been advised that title was in the names of the previous owners, and had the buyers contacted the previous owners they would *232 have been informed that the vehicles had been sold to Daymus. The Supreme Court of Idaho, in Dissault v. Evans, 74 Idaho 295, 261 P.2d 822, said: Appellant also argues that ownership of an automobile can be transferred only by compliance with the statutes of the State of Arizona, and can be established only through the documentary evidence prescribed thereby. He construes Pacific Finance Company v. Gherna, supra, to mean that a certificate of title must be transferred and assigned, to effect a valid sale, and that therefore the sales of the automobiles in the instant case were "void ab initio." The trial court found that it was the custom for automobile dealers in Phoenix to handle the paper work and forward title certificates to the Motor Vehicle Division for transfer. If appellant's argument is correct, then nearly all of the sales of cars in Phoenix are "void ab initio." We do not so construe Gherna, supra, in which we said: This is certainly not language describing a contract that is void ab initio on the contrary, the language indicates that the contract is valid and that the seller owes a duty to deliver the title certificate to the buyer. Appellant's argument is even more clearly refuted by Associates Discount Corp. v. Hardesty, 74 App.D.C. 44, 122 F.2d 18, decided by the United States Court of Appeals for the District of Columbia, where the statute is similar to ours. In that case the court said: We conclude, therefore, that the buyers from Daymus acquired good title to the Porsche and the Jaguar, free and clear of any lien of Price securing the money that he loaned to Daymus. Acceptance of this conclusion carries with it a determination that the buyers had the right and the ability to transfer good title to the vehicles, and therefore that any action by Price against CIT for the conversion of the Jaguar must fail. There remains the question of whether or not there was a conversion by CIT of the conditional sales contract for the Porsche, and whether a constructive trust in favor of Price ought to be imposed upon the conditional sales contract and upon the money received by CIT from the buyer of the Porsche. The principal argument on this point in favor of Price is the statement in his brief that the assignee of a conditional sales contract cannot acquire a greater right than that possessed by his assignor. Unfortunately for Price this principle is not applicable where the conditional sales contract is sold in the ordinary course of trade to a bona fide purchaser for value and without notice. The same considerations govern the sale of such a contract as govern the sale of the automobile itself. It is true that where a chattel (here, an automobile) is sold in the ordinary *233 course of trade so as to destroy a lien on it, the lien will, under certain conditions, attach to the proceeds of the sale (here, the conditional sales contract). Whether the conditions were met in the instant case need not be decided, since the lien if any attached is merely an equitable lien which, though valid against certain persons, would not follow the conditional sales contract into the hands of a bona fide purchaser such as CIT in the instant case. Judgment of the trial court is affirmed. BERNSTEIN, C.J., and STRUCKMEYER, UDALL, and LOCKWOOD, JJ., concur.