First Nat. Bank of Arizona v. Carbajal
| Citation | 645 P.2d 830,132 Ariz. 315 |
| Decision Date | 29 September 1981 |
| Docket Number | CA-CIV,No. 1,1 |
| Parties | , 32 UCC Rep.Serv. 817 FIRST NATIONAL BANK OF ARIZONA, a national banking association, Plaintiff- Appellee, v. Richard CARBAJAL, dba Baja Vans and Fidelity and Deposit Company of Maryland, a Maryland insurance corporation, Defendants-Appellants. 4723. |
| Court | Court of Appeals of Arizona |
The issues presented in this appeal have resulted from a conflict between a cash seller's reclamation rights under Article 2 of the Uniform Commercial Code and the rights of a holder of an unperfected security interest under Article 9 of the Uniform Commercial Code.
The appellee First National Bank of Arizona (First National) filed its complaint for conversion in the Maricopa County Superior Court seeking to recover from appellant Richard Carbajal, doing business as Baja Vans (Carbajal), the fair market value of a certain customized van. 1 After exercising discovery procedures, both parties filed motions for summary judgment. The trial court granted First National's motion, in effect finding that the bank's security interest was superior to any reclamation rights which Carbajal might have had as a cash seller.
The factual background is essentially uncontroverted. At the inception of the events in question, Carbajal was engaged in the business of customizing vans and selling them at wholesale to various motor vehicle dealers doing business in Arizona. He had sold approximately twelve of these vehicles to Arizona Imports in the year prior to the transaction involved in this litigation. He testified that he expected payment on delivery and that on about one-half of the vans previously delivered, payment had been made on the same day. The remaining vans were paid for shortly thereafter. On all transactions, Carbajal retained the certificates of title and registration slips in his possession until he was paid, in his own mind treating the transactions as cash sales. 2
Carbajal was unable to state the exact date that he delivered the van in question to Arizona Imports. However, the record is clear that he expected, but did not receive, payment of the purchase price upon delivery. Even though Arizona Imports did not pay at the time of delivery, Carbajal left the van at Arizona Import's place of business, retaining in his possession the unendorsed certificate of title and registration slip.
Thereafter, on June 13, 1977, Arthur and Mary Renner purchased the van in question from Arizona Imports. As a part of the transaction, the Renners executed and delivered to Arizona Imports a purchase money security agreement pursuant to which Arizona Imports retained a security interest in the vehicle. On the same day, the purchase money security agreement was assigned, without recourse, by Arizona Imports to First National for a good and valuable consideration paid by First National to Arizona Imports.
The general financing arrangements between First National and Arizona Imports were set forth in a written "Dealer Agreement". In that agreement, Arizona Imports warranted that on all automobile sales financed for Arizona Imports by First National, Arizona Imports would cause the issuance of certificates of title by the Motor Vehicle Division of the Arizona Department of Transportation evidencing the retail purchaser's ownership and showing the bank's security interest as a first lien. Since Arizona Imports had not received the certificate of title for the van from Carbajal, it did not comply with this contractual provision. Therefore, First National's security interest in the van was never perfected. See A.R.S. § 44-3123 C (U.C.C. § 9-302(3)); A.R.S. § 28-325. At all times pertinent to the legal issues involved in this litigation, First National was unaware that Carbajal had retained the van's certificate of title or that the bank's security interest had not been perfected by Arizona Imports in accordance with the provisions of the dealer agreement.
After the purchase money security agreement had been assigned to First National, the Renners returned to Arizona Imports with the van, seeking to obtain a rescission or cancellation of their purchase. Although the record does not contain any evidence as to why the Renners were dissatisfied, or any justification for rescission, Arizona Imports apparently acquiesced in the proposed rescission and re-took possession of the van from the Renners. First National was not advised of this return of the van, and the purchase money security agreement held by First National was neither cancelled nor returned to the Renners.
Throughout this period Carbajal had repeatedly demanded payment for the van from Arizona Imports, but payment had not been received. However, there is nothing in the record to show that during this time Carbajal ever demanded that the van be returned to him. Finally, Carbajal received a telephone call from an employee of Arizona Imports telling him to come and pick up the van, that the deal was off and that "everything was falling apart". 3 Carbajal immediately did so. Although the record does not show with preciseness either the date that Carbajal initially delivered the van to Arizona Imports or the date that he finally re-took possession, it is clear that the elapsed time between Carbajal's delivery and repossession of the van was substantially in excess of ten days. At the time Carbajal reclaimed possession of the van, he had no knowledge of First National's claimed security interest in the van.
When First National did not receive the monthly payments called for in the purchase money security agreement from the Renners, its resulting investigation revealed the foregoing facts. First National then made demand on Carbajal for return of the van, or, in the alternative, for payment of its value. Upon Carbajal's refusal, this litigation ensued. Since Carbajal had sold the van to a third party, the resulting judgment in favor of First National was for the fair market value of the van.
As we have previously stated, on this appeal Carbajal does not attempt to assert rights based upon his retention of the title certificate or as a holder of an Article 9 security interest. Rather, his entire claim is based upon the reclamation rights impliedly granted to an unpaid cash seller pursuant to the provisions of Article 2 of Arizona's Uniform Commercial Code. In presenting their arguments to this court the parties recognize certain legal principles enunciated by our Supreme Court in General Electric Credit Corp. v. Tidwell Industries, Inc., 115 Ariz. 362, 565 P.2d 868 (1977). The first is that A.R.S. § 44-2355 B (U.C.C. § 2-507(2)) by implication gives a cash seller the right to reclaim goods from a non-paying buyer. However, one important limitation on the seller's right to reclaim is that, prior to reclamation by the unpaid cash seller, the defaulting buyer has the power to transfer a good and valid title to a good faith purchaser for value, thereby defeating the unpaid cash seller's reclamation rights. In addition, it is clear that under the appropriate code definitions an Article 9 secured party can qualify as such a good faith purchaser for value. See General Electric Credit Corp. v. Tidwell Industries, Inc., supra ; A.R.S. § 44-2348 (U.C.C. § 2-403); A.R.S. § 44-2208(19), (32) and (33) (U.C.C. § 1-201(19), (32) and (33)).
Carbajal concedes that under the facts of this case First National was a good faith purchaser for value at the time it took an assignment from Arizona Imports of the purchase money security agreement involved in this litigation. It follows from this concession that at that point Carbajal could not assert its reclamation rights against First National. Therefore the trial court correctly granted judgment in favor of First National unless events occurring subsequent to the time First National became a good faith purchaser for value have diminished its rights as against Carbajal. In that regard, Carbajal contends that First National's security interest in the van ceased to exist when Arizona Imports allowed the Renners to return the van, with Arizona Imports and the Renners thereafter treating the purchase contract as cancelled or rescinded. Carbajal admits that this cancellation and return of the van occurred after Arizona Imports had assigned, without recourse, all its interest in the Renner purchase money security agreement to First National, and that First National did not consent to, or have knowledge of that cancellation. The assignment left Arizona Imports without any residual interest in the van, but nevertheless Carbajal urges that the dealer agreement between Arizona Imports and First National gave Arizona Imports the authority to rescind the contract, even after assignment. The pertinent paragraph of the dealer agreement provides:
In response to this contention, First National points out that paragraph 6 of the dealer agreement does not purport to give Arizona Imports any authority to gratuitously rescind or cancel a contract sold to the bank, but, rather, its provisions come into play only when a purchaser from Arizona Imports exercises a lawful right to cancel or rescind. First National urges that there is nothing in the record to indicate that the Renners were exercising a "lawful right" to cancel or...
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