Summary
holding that a bank could recover for conversion against a car dealership that had sold certain cars in which the bank had a security interest, because the bank's unperfected security interest took priority over any interest of the dealership
Summary of this case from Former TCHR, LLC v. First Hand Management LLCOpinion
No. 72-137
Decided April 24, 1973. Rehearing denied May 30, 1973. Certiorari granted July 23, 1973.
Prior to his check paid in the purchase of certain automobiles being negotiated, purchaser obtained loan from bank using automobiles as collateral. Upon the check being returned for insufficient funds, seller took possession of the cars from the purchaser, but bank refused to deliver certificates of title. In action to determine priority of rights of the seller and the bank, seller prevailed, and the bank appealed.
Reversed
1. SALES — Automobiles — Title Passed — Specified Price — Within — UCC. Transaction which passed title to automobiles from plaintiff to purchaser for a specified price was a transaction within the scope of the sales chapter of the Uniform Commercial Code.
2. AUTOMOBILES — Sold and Delivered — Check From Purchaser — Delivery — Passed Title — Despite — No Certificates of Title. In transaction where cars were sold and delivered to purchaser in exchange for check from purchaser, delivery of the automobiles was sufficient to pass title to purchaser in spite of the failure of the seller to provide the certificates of title to the automobiles.
3. SALES — Check Dishonored — Seller — Right to Reclaim — Automobiles — Unless — Loan to Purchaser — Bank — Security Interest — Superior. When check given in purchase of automobiles was dishonored, the seller had the right to reclaim vehicles it had delivered to purchaser, unless bank, by virtue of its loan and trust receipt agreement with purchaser, had gained a security interest in the vehicles superior to that of the seller.
4. SECURED TRANSAIONS — Purchaser — Automobiles — Executed — "Trust Receipt Agreement" — Bank — Security Interest Attached — Unperfected. At the time that lending bank gave value to purchaser of automobiles and "trust receipt" agreement making the vehicles collateral was executed, the purchaser, whose check given in purchase was later dishonored, had encumberable rights in the automobiles; hence, a security interest in favor of the bank attached to the automobiles at that time, albeit unperfected by filing or otherwise.
5. Check Dishonored — Seller — Right to Reclaim — Not — Priority — Bank's Security Interest — Loan to Purchaser. Although seller of vehicles had right to reclaim them upon purchaser's check being dishonored, its right to reclaim does not take priority over the unperfected security interest of bank which security interest bank had obtained by virtue of loan to purchaser while he had possession of the vehicles and before his check was dishonored.
Appeal from the District Court of El Paso County, Honorable George M. Gibson, Judge.
Kane, Donley Wills, Lee Wills, for plaintiff-appellee.
Spurgeon, Aman and Hanes, Richard W. Hanes, for defendant-appellant.
Division I.
The facts of this appeal, essentially undisputed, present the question of a seller's right to recover items delivered to a purchaser whose secured lender obtained a security interest in the items.
On or about May 15, 1970, Mark III purchased four used cars from Guy Martin Buick, and upon delivery of the cars executed and delivered a $2,700 check payable to Guy Martin Buick. Immediately thereafter, Mark III went to the Colorado Springs National Bank for a loan of $2,500. At that time, Mark III did not have the certificates of title to the cars because one of the certificates had not yet been received from out of state. The record indicates that Guy Martin Buick delayed depositing Mark III's check until it obtained the certificates of title to the cars. Upon request from the bank, Guy Martin Buick agreed to deliver the title certificates directly to the bank. On this assurance, the bank made the loan. A document entitled "trust receipt" was executed by Mark III on May 18, 1970, which document identified three of the four cars sold by Guy Martin Buick to Mark III as security for the loan, specified the terms of the loan agreement, and specified that the bank would hold a security interest in the three automobiles as collateral for the loan of $2,500. On May 25, 1970, Guy Martin Buick delivered the three certificates of title to the bank and, shortly thereafter, deposited Mark III's check in its own account. Subsequently, Mark III's check was returned for insufficient funds, and Guy Martin Buick immediately picked up the cars from Mark III's lot. Guy Martin Buick then demanded the certificates of title from the bank. The bank refused and demanded that Guy Martin Buick deliver the cars to the bank.
Guy Martin Buick initiated the present action for a mandatory injunction requiring Colorado Springs National Bank to deliver the title certificates. In addition, it requested compensatory damages, for depreciation of the cars during the time that the bank withheld the titles, and exemplary damages, together with interest and costs. The bank's answer denied that its refusal to surrender the certificates of title to Guy Martin Buick was wrongful. The bank then counterclaimed against plaintiff seeking a mandatory injunction requiring plaintiff to deliver the three automobiles and requesting damages for the alleged conversion of the automobiles in the amount of $2,500, plus interest. Thereafter, Guy Martin Buick applied for a preliminary mandatory injunction ordering the bank to surrender the certificates of title so that Guy Martin Buick might sell the cars in mitigation of damages. This motion was granted and the automobiles were sold.
Trial was to the court, which determined that Guy Martin Buick's interest as seller took priority over the bank's security interest. The court then ordered that Guy Martin Buick was entitled to retain the $1,850 proceeds received from sale of the three automobiles, denied the bank's counterclaim, and entered judgment accordingly. The bank appeals. We reverse.
[1] The transaction between Guy Martin Buick and Mark III passed title to the automobiles from Guy Martin Buick to Mark III for a specified price. C.R.S. 1963, 155-2-106. The automobiles were movable goods at the time of their identification to the contract for sale. C.R.S. 1963, 155-2-105. The transaction was within the scope of the sales chapter of the Uniform Commercial Code. C.R.S. 1963, 155-2-102. There is no controversy concerning the fact that a sale occurred between Guy Martin Buick and Mark III, rather the crux of this dispute involves the determination of the priority of Guy Martin Buick's interest in the automobiles and the conflicting interest of the bank in the automobiles.
[2,3] The extent of Guy Martin Buick's interest in the automobiles is dependent upon the effect of its sale of the three automobiles to Mark III. The sale was a cash transaction where payment was due and demanded upon delivery. C.R.S. 1963, 155-2-507. Mark III paid Guy Martin Buick, but since the payment was by a check, payment was conditional upon the check being honored at presentment. C.R.S. 1963, 155-2-511. Delivery of the automobiles was sufficient to pass title to Mark III in spite of the failure of Guy Martin Buick to provide the certificates of title to the automobiles. C.R.S. 1963, 155-2-401. Waggoner v. Wilson, 31 Colo. App. 518, 507 P.2d 482. When Guy Martin Buick presented Mark III's check, it was dishonored. At that point, Mark III no longer had the right to retain or dispose of the vehicles. C.R.S. 1963, 155-2-507. Guy Martin Buick, therefore, had the right to reclaim the vehicles, unless the bank had in the interim gained a security interest in the automobiles superior to such right.
[4] The "trust receipt" agreement executed between the bank and Mark III constituted an enforceable security agreement, C.R.S. 1963, 155-9-203, by which the bank gained a security interest in the automobiles which attached at the time of execution of the agreement and the advancement of funds. The automobiles were motor vehicles held for sale as inventory. C.R.S. 1963, 155-9-109. Therefore the provisions of the Certificate of Title Act concerning encumbrances on motor vehicles, 1967 Perm. Supp., C.R.S. 1963, 13-6-19, and C.R.S. 1963, 13-6-20, do not apply to the security interest of the bank, and the provisions of Article 9, Chapter 155, C.R.S. 1963, do apply. 1967 Perm. Supp., C.R.S. 1963, 13-6-19. At the time the bank gave value to Mark III and the agreement was executed, Mark III had encumberable rights in the automobiles; hence, a security interest in favor of the bank attached to the automobiles, albeit unperfected by filing or otherwise. C.R.S. 1963, 155-9-204.
[5] It is the policy of the Uniform Commercial Code that a security agreement shall be effective between the parties and against other parties except as specifically provided otherwise in the Code. C.R.S. 1963, 155-9-201. The Code, C.R.S. 1963, 155-9-301, specifies which interests take priority over an unperfected security interest, and since Guy Martin Buick's interest or right in the automobile does not fall within any of those specified interests, its right to reclaim the goods does not take priority over the bank's unperfected security interest. The bank therefore was entitled to recover as against Guy Martin Buick on its counterclaim.
Guy Martin Buick's remedy is an action against Mark III for the price of the delivered goods. C.R.S. 1963, 155-2-709.
We reverse and remand with directions to reinstate the bank's counterclaim, to determine damages thereunder, and to enter judgment in accordance herewith.
JUDGE PIERCE concurs.
JUDGE COYTE dissents.