Court Opinion

ID: 9705673
Source: CourtListenerOpinion
Date Created: 2023-08-26 01:15:53.301447+00
Date Added: 2024-06-11T15:24:38.873377
License: Public Domain

Hammond, J.,'
filed the following dissenting opinion, in which Henderson, J., concurred.
To me the statute that deals with the recording of conditional sales contracts is not applicable, or certainly not controlling, in this case for two simple and fundamental reasons.
First, the statute’s design is to protect only those of the classes of third persons expressly therein designated who may subsequently deal with the chattel sold in reliance on the possession of the buyer, without notice that it has not been paid for, and who would be hurt save for the statute. Automobile Acceptance, the second finance company, did not rely, and could not possibly have relied, actually, presumptively, or theoretically, on,Thomas’ possession of the automobile as indicating that he had title to it and was free to sell or encumber it. Automobile Acceptance, without question, acted in the belief that Suburban Nash, when the contract was signed, had both title and possession.
Second, a conditional vendor is an owner, not a lienor. *361The statute protects only purchasers from the conditional vendee and lienors whose liens were created by virtue of, or flow from, the ostensible ownership of the conditional vendee indicated by his possession of the chattel. Automobile Acceptance bought Suburban Nash’s legal title to the car that Thomas had agreed to buy from Suburban Nash, plus the right to receive the balance of the purchase price. It became a creditor of Thomas but not a creditor with a lien. “A person could hardly be said to have a lien on property to which he had the title.” Westinghouse v. State Tax Commission, 206 Md. 392, 402.
Consideration of the theories as to conditional sales generally held throughout the country and of the Maryland view, both ante and post the 1949 amendment to the recording act, may serve to put the case in proper perspective. In the absence of a statute, generally it was held that a seller’s reservation of title for security was good not only between the parties but also against purchasers from and creditors of the vendee. Tatelbaum v. National Store Fixture Sales Co., 196 Md. 599, 604. In Maryland it was good except as against a bona fide purchaser from the conditional vendee without notice of the title of the conditional vendor. Praeger v. Implement Co., 122 Md. 303, 308; Mohr v. Sands, 213 Md. 206, 211. Maryland passed its first recording act as to conditional sales agreements in 1916. Unless recorded, the seller’s reservation of title was ineffective against “third persons without notice.” Third persons were construed to mean all who trusted the conditional vendee after he had obtained possession, whose financial position would be worsened if the reservation of title was effective, including general creditors. “If it had been intended to protect only purchasers and lienors, that purpose would have been expressed.” Roberts & Co. v. Robinson, 141 Md. 37, 43. This statutory protection for all who actually or presumptively relied on the vendee’s possession was far more liberal than the protection given by the Uniform Conditional Sales Act or the laws of most of the States. The Uniform Act protects “any purchaser from or creditor of the buyer, who, without notice” * * * purchases the goods, or acquires a lien on them by attachment or levy. Generally only *362purchasers from, or judicial lien creditors of, the conditional vendee take precedence over the reserved title of the vendor under an unrecorded contract. In 1949 at the instance of the large credit companies who finance most of the conditional sales, the Maryland Legislature expressed the purpose mentioned in the Roberts case to protect only purchasers and lienors for it eliminated the words “third persons without notice” and in their place put “subsequent purchasers, mortgagees, incumbrancers, landlords with liens, pledgees, receivers, and creditors who acquired a lien by judicial proceedings on such goods and chattels * * *.” As Judge Markell said for the Court in the National Store Fixture Sales case (at page 605 of 196 Md.) : “By the Act of 1949 the conditional sale act of 1916 seems to have been so changed as to follow the plan of recording laws in other states and to depart from the peculiar principle of Maryland recording laws.”
It seems clear that at least since 1949 Maryland agrees with most jurisdictions that the purpose of the conditional sales recording act — now Code, 1957, Art. 21, Sec. 66 — is to protect against non-recorded contracts only those designated in the statute who may subsequently deal with the buyer as to the chattel in his possession in reliance on that possession, without notice that the chattel has not been paid for and is not his to dispose of. Tatelbaum v. National Store Fixture Sales Co., 196 Md. 599, 606; Mohr v. Sands, 213 Md. 206, 211, 213, 214, both supra. In the Mohr case, Chief Judge Bruñe said for the Court: “If we approach the matter from the point of view of the purpose of the recording statutes involved, we find that they serve primarily to give protection against the consequences of false or misleading appearances of ownership based upon the possession of chattels”; and later he said that the fact that the recording must be at the place of the residence of the buyer, and the fact that both the statute and business custom contemplate actual delivery to the vendee, “* * * emphasize the view that the statute is concerned primarily with appearances based upon the vendee’s possession of the chattel, and with the protection of the vendor’s rights, notwithstanding the transfer of possession to the vendee, and *363not with the transfer or curtailment of any rights of ownership in the conditional vendor.” (Emphasis supplied.)
It must be plain that a finance company when it buys the reserved title of a dealer to a car he has just delivered to a customer, is under no illusions whatever as to what has happened, both actually and legally. It knows the customer did not have possession when he signed the contract. It knows that at that time the dealer had both possession and title and that it continues to have title. It knows the dealer did not rely on the customer’s possession of, or apparent right to pledge or encumber his own property to secure a debt. As assignee of the dealer’s title and rights, with this knowledge, its standing is that of the dealer and no more. Burrier v. Cunningham Piano Co., 135 Md. 135, 142.
The initial parties to a conditional sale must be a real seller and a real buyer because such a sale must always have its origin in an actual bona fide purchase and sale in the economic sense. It is never available to a borrower in possession and a money lender, even though the latter go through the form of taking title and possession of the chattel he purports to sell. Chattel Security, 57 Yale Law Journal 517, at 541-542; Hughbanks v. Gourley (Wash.), 120 P. 2d 523. In the case before us the finance company was interested in Thomas’ credit, not his possession, for it knew his very recently acquired possession did not indicate legal ownership or title or the right to sell or encumber the car. The majority opinion recognizes this when it says that after Suburban Nash inquired by telephone whether the finance companies would purchase the contract, “each finance company investigated the credit of the customer * * (Emphasis supplied.) The conditional contract of sale itself, which the finance company draws and buys, forbids the vendee to sell or encumber the car.
In Mohr v. Sands, supra, the lack of any possible reliance on the possession of the conditional vendee was held to make the statute inapplicable. In Gunby v. Motor Truck Corp., 156 Md. 19, 25-26, it was held under the liberal 1916 act that creditors who gave credit to the conditional vendee before the *364contract, and obtained judgment before it was recorded, were not protected. The Court said: “If credit was not given in reliance upon ownership of the debtor in the property in controversy, the title of plaintiff was not divested * * Since the elements of belief in, a right to believe in, and trust on the strength of, ostensible title in the buyer, evidenced by possession, are all entirely lacking in the instant case, the statute no more applies than it did in Mohr and Gunby. If the statute does not apply, it must follow that Automobile Acceptance got nothing. Code, 1951, Art. 8, Sec. 2 (relied on by Judge Oppenheimer below, and found by the majority not to be applicable); Lynn Morris Plan Co. v. Gordon (Mass.), 146 N. E. 685; Colella v. Essex County Acceptance Corp. (Mass.), 192 N. E. 622; Commerce Union Bank v. Overall (Tenn. App.), 274 S. W. 2d 15; Commercial Credit Co. v. Neel (Fla.), 107 So. 639; Federal Credit Co. v. Scoggins (Miss.), 130 So. 153; New Britain Real Estate and Title Co. v. Hartford Acceptance Corp. (Conn.), 153 A. 658. As the majority opinion concedes (and Judge Markell in National Store Fixture Sales Co. assumed at page 608 of 196 Md.), there cannot be a second valid agreement of sale for the same chattel between the same parties, and Suburban Nash could not have enforced the second agreement against Thomas. Neither could have Automobile Acceptance since it derived whatever title and rights it got from Suburban Nash and not from Thomas. When Suburban Nash made the first sale to Thomas and assigned the contract to C.I.T., it not only assigned its contract right to collect the purchase price, it also transferred its title to and property in the automobile, and had nothing left to sell to Thomas or to Automobile Acceptance on the next day. Burrier v. Cunningham Piano Co., 135 Md. 135, 142. In the Lynn Morris Plan case, cited above, Chief Justice Rugg said for the Supreme Judicial Court of Massachusetts that after a conditional vendor “transferred his agreement for sale and indorsed the note to the plaintiff, he had no title or interest whatsoever in the automobile * * * and no evidence of title or interest.” Despite this, after the conditional buyer returned the automobile, the original seller sold it to another purchaser. It was held that the title of *365the original assignee was not disturbed by the second sale. The Court said: “The seller stood no better than a stranger to the transaction. The defendant acquired no greater title than his vendor was able to convey.”
The second reason why the recording statute is not applicable is because, under it, a conditional vendor is not a lienor. It is held generally, as it is, and has always been, in Maryland, that a conditional vendor does not hold a lien or encumbrance on the chattel, but that he has title to and ownership of it, with the right to regain possession for condition broken. The conditional vendee has the right to possession as long as he fulfills his obligations and the right to obtain title by their complete fulfillment. The Uniform Conditional Sales Act is so construed. In re Lake’s Laundry, 79 F. 2d 326 (2nd Cir. 1935), cert. den. 296 U. S. 622. There it was held that the chattel was not to be reckoned as the property or among the assets of the conditional buyer and that the seller did not have a lien on the chattel but was the title holder and owner in law. In Stern Co. v. Rosenberg, 89 F. 2d 843 (D. C. Cir. 1937), the vendee was held to be a bailee. The interest of a conditional vendor is not a pledge interest, Maxwell v. Tufts (N. M.), 45 P. 979; Winton Motor Carriage Co. v. Broadway Automobile Co. (Wash.), 118 P. 817; and is not a lien in the nature of a chattel mortgage, In re Lake’s Laundry, supra. In Maryland the reasoning and the conclusions of the Lake case have been accepted and,applied as the law, both before and after the passage of the recording acts. Arnold, Conditional Sales of Chattels in Maryland, 1 Maryland Law Review 187, 188; Praeger v. Implement Co., 122 Md. 303, supra; Burrier v. Cunningham Piano Co., supra; Tatelbaum v. National Store Fixture Sales Co., 196 Md. 599, supra; Mohr v. Sands, supra.
The very statute involved recognizes and applies the difference between title and a lien. It says: “Every * * * contract for the sale of goods and chattels * * * wherein the title thereto, or a lien thereon, is reserved until the same be paid * * * shall in respect to such reservation * * * be void as to subsequent purchasers, mortgagees, incumbrancers (Emphasis supplied.) So, too, does the Retail In*366stallment Sales Act (although, as the Court’s opinion recognizes, its definition is applicable only to it), when in Code, 1957, Art. 83, Sec. 152 (o), it says that the term security interest “* * * shall include any reservation of title * * * whenever such title is in substance retained for security only, any lien or encumbrance against such goods, and any interest of a mortgagee of such goods.” (Emphasis supplied.) The inference that must be drawn from the quoted language, as I see it, is that a reservation of title for security is not considered to be encompassed in terms or in concept by a “lien” or an “encumbrance” or the “interest of a mortgagee.” That Code, 1957, Art. 66J4, for the self-limited purposes of licensing and regulating motor vehicles only, now defines, as it long has, a conditional vendee as an owner does not indicate the contrary. The very necessity of such a definition shows that except for it, the vendee would not be an owner, and the security interest of the vendor would not be treated as a lien for automobile title certificate purposes. In rejecting a similar limited definition as without significance as to the legal status of a conditional vendee, the Indiana Court in Champa v. Consolidated Finance Corp., 110 N. E. 2d 289, 292, said: “The word ‘owner’ does not ordinarily include a conditional vendee. If it did, it would have been unnecessary for the legislature to define a conditional vendee as an ‘owner’ in the enactments above-mentioned. Recognition of the fact that a conditional vendee is not an ‘owner’ is found in § 2 of the Uniform Conditional Sales Act, * * * which provides that the buyer ‘shall * * * have the right to acquire the property in the goods on the performance of the conditions of the contract.’-”
Yet the majority says that one who reserves title can at the same time be both an owner and an incumbrancer. Such a construction and result seem to me to be in the teeth of all pertinent established principles and of the language and intent of the statute. If a conditional vendee sells the chattel to a third person or creates, or brings about or permits the creation of, a lien on the chattel in favor of a third person, and that third person does not know of his limited interest and rights, then and then only does the statute come into *367play and transform the vendee into the holder of the legal title for the purpose of allowing its passage to the purchaser or supporting a lien. An automobile dealer who sells a car to a customer and retains title remains an owner, and when he sells his ownership to the finance company, it becomes the owner. Burrier v. Cunningham Piano Co., supra. Neither can be said to acquire a lien because a lien interest must pass from either an actual owner, or one the law makes an owner because reliance has been put on his possession, to the lienor. This was recognized, as we have noted before, in Westinghouse v. State Tax Commission, 206 Md. 392, 404. In Roberts & Co. v. Robinson, 141 Md. 37, 43, 49, the conditional contract reserved in the seller the title to the cans purchased and gave a lien on their contents when filled by the vendee with produce obtained from others. The Court said: “In regard to either of these purposes, and to both combined, the agreement is within the effect of the statute we have quoted.” Again the Court noted that “With respect to the contents of the cans replevied in the present case, the plaintiffs’ claim is not of a title reserved under a conditional sale, but of a lien on material bought from other persons.”
That one cannot be an owner and lienor at the same time in respect to the same chattel is illustrated by the decisions that a conditional seller waives his reservation of title by seeking to enforce, or enforcing, a mechanics lien on chattels affixed to realty, or by obtaining a judicial lien after judgment for the purchase price. See 78 C. I. S-, Sales, Sec. 588, page 333.
In the case of C. I. T. Corp. v. Guy, 195 S. E. 659, 662, the Virginia Supreme Court of Appeals in effect adopted a lower court decision that a conditional sale was not an encumbrance, saying that in Osmond-Barringer Co. v. Hey, 7 Va. Law Reg., N. S., 175: “Judge Crump was of opinion that a conditional sale was not an encumbrance and so did not fall under the ban of the statute. Chattel mortgages are encumbrances and to cover them is one of the reasons for its enactment. It is perfectly true that this decision of Judge Crump is not controlling authority, but it is the considered *368opinion of a great judge, who afterwards became president of our Special Court of Appeals.”
With more logic and reason than can be found to support the conclusion that a conditional vendor is an incumbrancer, it could have been argued that Automobile Acceptance was a subsequent purchaser. It bought legal title to the car and was its owner subject to Thomas’ right to obtain title on paying the price. This argument, of course, immediately reveals what to me are the fatal weaknesses and flaws in the position of the majority. Automobile Acceptance was a subsequent purchaser without question but not from Thomas. It was a purchaser from Suburban Nash. The statute protects only purchasers from Thomas. Mohr v. Sands, cited before. So also the statute protects only against ■encumbrances created by or flowing from Thomas. Agreeing to buy a chattel from its owner and to pay for it, while at the same time acknowledging and agreeing that the chattel is to continue to belong to the owner-seller until paid for, cannot change the seller from an owner to the holder of a lien. Such a. new purchaser has no ownership or title to encumber or pledge or mortgage, and the dealer and the finance company knew this. There was no ostensible ownership or title for them to have relied on or have been fooled by, such as would have caused the law to transform Thomas into an owner to avoid injustice.
Almost universally conditional sales agreements forbid the buyer to pledge, mortgage or encumber the chattel. The extensive general and long continued use of such provisions is made manifest by a discussion of the forbidding of encumbrances in Goldenberg v. Finance & Credit Co., 150 Md. 298, and the many cases throughout the country cited in the annotation in 36 A. E. R. 2d 198, 222-224. Nevertheless, automobile buyers, and buyers of other chattels, flout such restrictive conditions and do encumber the chattels they possess and apparently can deal with as their own. It is this evil that the recording statutes are concerned with. In addition, in some States statutes have been passed making it a crime for a conditional vendee to sell or encumber the chattel with intent to defraud the vendor. Under such statutes it 'is a *369necessary element of the crime that title be in the seller. 78 C. J. S.j Sales, Sec. 648. Maryland has such a statute— Code, 1957, Art. 27, Sec. 214.
The term “incumbrancer” as used in the statute to me seems to have been intended to mean one whose lien came from the conditional buyer as an apparent and ostensible legal owner. It would seem to have been called for by, and to have contemplated, the kind of situation forbidden by the criminal statutes, and found in Goldenberg and similar cases. I do not see any of the elements of such a situation in the facts of the present case. I would affirm the decree below.
Judge Henderson has authorized me to say that he concurs in the views herein expressed.