Bank North v. Soule, C1-87-0144

• Decision Date: 18 March 1988
• Docket Number: No. C1-87-0144,C1-87-0144
• Citation: 420 N.W.2d 598
• Parties: The BANK NORTH, f.k.a. North Star Bank Minnesota, f.k.a. Crystal State Bank, Petitioner, Appellant, v. Greg Gerald SOULE, et al., Respondents.
• Court: Minnesota Supreme Court

Page 598

420 N.W.2d 598

The BANK NORTH, f.k.a. North Star Bank Minnesota, f.k.a.

Crystal State Bank, Petitioner, Appellant, v. Greg Gerald SOULE, et al., Respondents.

No. C1-87-0144.

Supreme Court of Minnesota.

March 18, 1988.

Syllabus by the Court

The holder of a security interest in a motor vehicle who has relied upon the certificate of title in extending credit, has priority to possession of the vehicle for the purpose of foreclosing the security interest over the claim of the transferee.

Lawrence P. Marofsky, Minneapolis, for appellant.

George E. Antrim, Minneapolis, for respondents.

Heard, considered and decided by the court en banc.

KELLEY, Justice.

When a lender, as security for repayment of a loan, accepts a motor vehicle certificate of title which on its face names the borrower as the vehicle's owner, does such lender have priority to the possession of the vehicle for the purpose of foreclosing on its security as against one, who prior to the time of the pledge, had purchased the vehicle, but who neither acquired the certificate of title nor had his interest memorialized on the certificate? The trial court denied the lender that claimed priority. A divided court of appeals affirmed. Bank North v. Soule, 409 N.W.2d 556 (Minn.App.1987). We reverse.

Sometime in 1980 Greg Soule acquired title to a 1978 Chevrolet Corvette (Corvette). Its purchase was financed by the General Motors Acceptance Corporation (GMAC), which thereafter had a security interest in the Corvette and held the title certificate.

Soule had been a friend of respondent Bryan Tabata since high school days. Tabata claims that approximately six months after Soule had acquired the Corvette, Soule sold it to him, at which time he, Tabata, acquired the GMAC payment book, and thereafter made approximately 30 installments on the GMAC loan. Tabata, however, never advised GMAC that he had purchased the automobile nor that he was taking over the obligation to make the payment installments. He never checked the vehicle registration, never secured the certificate of title from Soule, never paid a sales tax on the sale, never received any kind of a receipt from Soule, nor did he ever pay directly any money to Soule.

Nevertheless, from that time onward, the Corvette was principally garaged at Auto-Truck Service & Supply Company. This business, a Minnesota corporation, is a family owned business, principally operated by Tabata's father, engaged in the repair of automobiles and trucks and the occasional purchase and sale of automotive vehicles. Tabata's duties with the company included running the shop and coordinating the day to day activities of body men, mechanics and painters. After the Corvette initially became garaged at the business site, the company's logo was affixed to it; the vehicle was insured by the company; and, by using dealer plates on the infrequent occasions that the vehicle was operated, the vehicle was licensed by the company. ¹

In 1983 Soule told Tabata that to facilitate his securing another GMAC loan, the Corvette loan had to be "cleared up." Auto-Truck Service & Supply Company then issued a check, the proceeds of which paid off GMAC's remaining security interest. Thereafter, Tabata repeatedly asked Soule for the certificate of title. Tabata knew he was entitled to it, and he knew that he had to have the certificate to effectuate legal transfer of title. In response to Tabata's requests, Soule repeatedly claimed the certificate had been misplaced. Notwithstanding that claim, Tabata never insisted that Soule secure a duplicate replacement certificate of title nor did Tabata personally take action to acquire a certificate. See, e.g., Minn.Stat. Sec. 168A.09 (1986).

Approximately six months after GMAC's security interest in the Corvette had been paid off and satisfied, Soule pledged the Corvette as collateral for a $6,000 loan he secured from appellant bank by delivering to the bank the vehicle's certificate of title. At that time the certificate showed Soule to be the owner and disclosed that the prior GMAC security interest had been released. Because Soule had a previous acceptable credit and checking history with the bank, it made the loan without formally checking either Soule's employment or references. It did, however, take the necessary legal steps to have itself listed as the holder of a security interest on the certificate of title which thereafter it retained in its possession.

For the following eleven months, until July 20, 1984, Soule timely made the installment payments on the bank loan. On July 20, 1984, at Soule's request, the bank revamped the loan by increasing it to $10,800. Thereafter, Soule made no further payments, and the bank's efforts to secure resumption of installment payments were unsuccessful. However, Soule and the bank agreed Soule would make interest payments until spring when the Corvette would be sold to pay off the unpaid principal of the bank loan. When ultimately this plan too failed, the bank sought to possess the vehicle. For the first time the appellant bank learned of Tabata's claim of ownership. The bank then commenced this replevin action against both Soule and Tabata. ²

The disputed issue in the case is whether the rebuttable presumption that the holder of an automobile certificate of title, on which he is named as owner, is the owner of the vehicle, absent evidence to the contrary, is to be extended to commercial transactions so as to permit a claimant to defeat the security interest of a lender who has relied upon the information contained on the certificate. Or, to state the issue as it arose in this case, may one who has purchased ownership of a vehicle from the owner named on the vehicle certificate of title establish the fact of his purchase and thereby defeat a claim of a lender possessing a security interest in the vehicle by virtue of reliance upon a certificate of title showing the transferor as the owner? Resolution of the issue involves the interpretation of Minn.Stat. Sec. 168A.10, subds. 1, 2 and 5 (1986).

Tabata claims, and the trial court found, that the evidence establishes the transfer of the vehicle's ownership to him before Soule attempted to pledge it to the bank, and, therefore, the presumption that Soule, the possessor of the certificate of title to the vehicle, was the true owner was rebutted, and accordingly Tabata claims that his right to physical possession of the vehicle enjoys priority over the claim of the bank. In essence, he urges that the statute--Minn. Stat. ch. 168A--be so interpreted in a commercial transaction as to allow for a rebuttal of the facts that appear upon the face of the certificate. His rebuttal claim has its genesis in cases that arose prior to enactment of Minn.Stat. ch. 168A in 1971. Before the effective date of that statute, the law considered that possession of a certificate of title showing the possessor to be the owner constituted prima facie evidence of true ownership. However, the presumption of ownership was rebuttable. Thus, when ownership of a vehicle became an issue in a case, extrinsic evidence was admissible to overcome the statutory presumption and to establish, in fact, that title rested with a person other than the certificate holder or the person named in the certificate of title. See generally, Gross v. Powell, 288 Minn. 386, 181 N.W.2d 113 (1970) (title passes upon physical delivery notwithstanding subsequent dishonored check); Frye v. Anderson, 248 Minn. 478, 487, 80 N.W.2d 593, 599 (1957) (jury may consider facts beyond title to determine ownership). Rebuttal of the statutory presumption was frequently permitted in cases involving attempts to impose vicarious liability pursuant to Minn.Stat. Sec. 170.54 (1986) (the Safety Responsibility Act). See, e.g., Gibeau v. Mayo, 280 Minn. 170, 158 N.W.2d 589 (1968); Arneson v. Integrity Mut. Ins. Co., 344 N.W.2d 617 (1984). Following enactment of Minn.Stat. ch. 168A in 1971, the ability to rebut ownership of the vehicle was greatly circumscribed. Thereafter, compliance by the owner with the transfer provisions of Minn.Stat. Sec. 168A.10, subds. 1 and 2 (1986), ³ establishes an absolute defense to any claim attempting to impose vicarious liability on him under Minn.Stat. Sec. 170.54 (1986). However, even after enactment of chapter 168A, noncompliance by a transferor with the statute provisions does not preclude the transferor from presenting extrinsic evidence relative to the true facts of the transaction to avoid the imposition to him of vicarious tort liability. See, e.g., Welle v. Prozinski, 258 N.W.2d 912 (Minn.1977).

In all our cases in which a rebuttable presumption has been applied or considered, both before and after 1971, the issue has surfaced and been addressed in the context of an inquiry to establish whether a particular person acquired ownership or title to an automobile either for the assessment of vicarious liability under Minn.Stat. Sec. 170.54 (the Safety Responsibility Act) or under Minn.Stat. Sec. 65B.48 (1986) (the Minnesota No Fault Act.) ⁴ In each of those situations the inquiry has been focused upon the ascertainment of automobile ownership for the ultimate purpose of establishing the proper party against whom a tort claimant should address his or her tort-like claim for recovery of personal injury damages. ⁵ In neither has the claimant relied upon the certificate of title to change his or her position vis-a-vis the automobile or its owner. In contrast, in a commercial setting, a transferee of the vehicle, or, as in this case, one lending money, repayment of which is secured by the vehicle, does rely upon the certificate of title at the time to purchase or to loan money on security of the vehicle. Indeed, that right to rely seems to be the specific purpose underlying the 1971 statutory enactment. Notwithstanding this difference, Tabata now urges the court to write into the statute this rebuttable presumption analysis when considering...