Associates Discount Corp. v. Rattan Chevrolet, Inc.

• Decision Date: 07 October 1970
• Docket Number: Nos. B--1741,B--1742,s. B--1741
• Citation: 8 UCCRep.Serv. 117,462 S.W.2d 546
• Parties: 8 UCC Rep.Serv. 117 ASSOCIATES DISCOUNT CORPORATION, Petitioner, v. RATTAN CHEVROLET, INC., Respondent. ASSOCIATES DISCOUNT CORPORATION, Petitioner, v. BANNER CHEVROLET, INC., Respondent.
• Court: Texas Supreme Court

Page 546

462 S.W.2d 546

8 UCC Rep.Serv. 117

ASSOCIATES DISCOUNT CORPORATION, Petitioner, v. RATTAN CHEVROLET, INC., Respondent.

ASSOCIATES DISCOUNT CORPORATION, Petitioner, v. BANNER CHEVROLET, INC., Respondent.

Nos. B--1741, B--1742.

Supreme Court of Texas.

Oct. 7, 1970.

Rehearings Denied Dec. 16, 1970.

Brown, Kennedy & Hill, Jack Kennedy, Sherman, McGown, Godfrey, Decker, McMackin, Shipman & McClane, John W. McMackin and Henry Getchell, Fort Worth, for petitioner.

Elliott & Nall, Ralph Elliott, Sherman, Morgan & Nobles, Decator, L. A. Nelson, Jr., Denton, for respondents.

WALKER, Justice.

These are companion cases involving substantially the same facts. The principal question to be decided is whether the purchase by an automobile dealer from another dealer of a new, unregistered motor vehicle that is subject to a security interest created by the seller is governed by the provisions of the Uniform Commercial Code that protect a buyer in ordinary course of business. We hold that it is.

The facts of only one of the cases will be stated in any detail. Associates Discount Corporation is in the business of financing the purchase of automobiles by dealers. On July 26, 1966, it filed with the Secretary of State a financing statement signed by R. A. Parker, a dealer who was engaged in business under the name of R. A. Parker Chevrolet, covering 'New and Used Motor Vehicles. Chattel Paper' and all proceeds of the property. Thereafter during January, 1968, Parker acquired three new motor vehicles. In each instance the purchase money was advanced by Associates, and Parker executed to Associates a note for the amount of the loan and a security agreement specifically describing the vehicle and securing the note. The manufacturer's certificates on the three vehicles were delivered to and held by Associates. The liens were not noted of the certificates, but there is no contention that Associates failed to do anything that was necessary to perfect its security interests.

The three vehicles were purchased from Parker by Rattan Chevrolet, Inc., another automobile dealer, in two transactions that occurred on and shortly after February 8, 1968. None of the manufacturer's certificates was delivered to Rattan. About two weeks later Associates brought suit against Parker and Rattan to recover on the notes and for foreclosure of its security agreements. At least two of the vehicles were seized under writ of sequestration and sold as perishable property by order of the court. Rattan then amended its answer and filed a cross-action to recover actual and exemplary damages for conversion of the vehicles.

The other case involves one new Chevrolet automobile that was subject to a security interest held by Associates when it was sold by Parker to Banner Chevrolet, Inc. In each case the trial court rendered summary judgment for Associates, but the Court of Civil Appeals concluded that Rattan and Banner took free of the security interests. The judgments of the trial court were reversed, and the causes were remanded for the limited purpose of determining the damages, if any, to which Rattan and Banner are entitled. Rattan Chevrolet, Inc. v. Associates Discount Corp., Tex.Civ.App., 443 S.W.2d 360; Banner Chevrolet, Inc. v. Associates Discount Corp., Tex.Civ.App., 443 S.W.2d 370. Although we agree with the Court of Civil Appeals that Rattan and Banner may be entitled to protection as buyers in ordinary course of business, the judgment of the intermediate court will be modified to order a general remand because of deficiencies in the summary judgment proofs concerning the sales.

Section 45 of the Certificate of Title Act, Vernon's Ann.P.C., art. 1436--1, hereinafter referred to as the Act, which was enacted in 1939, provides as follows:

'Sec. 45. Exposure for sale of any motor vehicle by the owner thereof with the knowledge or consent of any mortgagee shall not affect the rights of any mortgagee as against all third parties.'

The definition of 'owner' in Section 4 of the Act expressly excluded manufacturers, importers, distributors and dealers. It is settled, however, that Section 45 applies to every motor vehicle exposed for sale by the one to whom it belongs whether he be a manufacturer, importer, dealer or consumer. Motor Inc. Co. v. City of Hamlin, 142 Tex. 486, 179 S.W.2d 278. Under its provisions the rights of Associates as against Rattan and Banner would not be affected by the fact that the vehicles were exposed for sale by Parker with the knowledge and consent of Associates.

On the other hand Section 9.307 of the Uniform Commercial Code, ¹ which was adopted in 1965, provides that:

'(a) A buyer in ordinary course of business (Subdivision (9) of Section 1.201) other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence.'

Associates insists that these cases are governed by the Act and the decisions thereunder and that the Code has no application. A somewhat similar problem was considered several years after the Act was adopted. Two earlier statutes, neither of which was mentioned in the Act, provided: (1) that every form of lien attempted to be given on merchandise daily exposed for sale should be deemed fraudulent and void, and (2) that while purchase money chattel mortgages on motor vehicles were superior to the claims of other creditors, the mortgage would be void as to bona fide purchasers when the vehicles were daily exposed for sale. Art. 4000, Tex.Rev.Civ.Stat. 1925, as amended by Acts 1935, 44th Leg., p. 302, ch. 115, § 1; Acts 1933, 43rd Leg., p. 305, ch. 117. It was held in Motor Inv. Co. v. City of Hamlin, 142 Tex. 486, 179 S.W.2d 278, that the Act repealed both the earlier statutes in so far as they pertained to motor vehicles. In reaching this conclusion, we pointed out that the Act is a special law dealing with motor vehicles only, that its purpose was to cover the whole field of sale and liens thereon, and that Section 45 was in direct conflict with the earlier statutes.

No part of the Act was expressly repealed when the Code was adopted in 1965, but Section 10--103 provides, with certain exceptions not material here, for the repeal of all acts and parts of acts that are in conflict therewith. One of the declared purposes of the Code is to simplify, clarify and modernize the law governing commercial transactions. Section 1.102. It is a general body of law intended as a unified coverage of its subject matter. Section 1.104. Some transactions in motor vehicles are expressly governed thereby. Section 9.302 provides, in effect, that a lien on a motor vehicle that is not inventory may be perfected only by indicating the security interest on a certificate of title or application therefor, but that a security interest in a motor vehicle that is inventory may be perfected only by complying with the filing provisions of Chapter 9. Section 2.403 provides that any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business, and the broad definition of 'good...