Automobile Acceptance Corp. v. Universal C.I.T. Credit Corp., 124

• Decision Date: 13 March 1958
• Docket Number: No. 124,124
• Citation: 139 A.2d 683,216 Md. 344
• Parties: AUTOMOBILE ACCEPTANCE CORPORATION v. UNIVERSAL C. I. T. CREDIT CORPORATION.
• Court: Maryland Court of Appeals

Page 344

216 Md. 344

139 A.2d 683

AUTOMOBILE ACCEPTANCE CORPORATION v. UNIVERSAL C. I. T. CREDIT CORPORATION.

No. 124.

Court of Appeals of Maryland.

March 13, 1958.

Dissenting Opinion March 21, 1958.

James A. Ostendorf, Baltimore (Arold H. Ripperger, Baltimore, on the brief), for appellant.

Eli Baer, Baltimore (Malcolm J. Coan, Baltimore, on the brief), for appellee.

Before BRUNE, C. J., and HENDERSON, HAMMOND, PRESCOTT and HORNEY, JJ.

BRUNE, Chief Judge.

An automobile dealer, Suburban Nash, Inc., on July 5, 1955, sold a used car to a customer, F. L. Thomas, under a contract of conditional sale which the customer duly executed, and Suburban Nash assigned the contract to the appellee, Universal C. I. T. Credit Corporation ('C.I.T.'). On the next day, in some manner not disclosed by the evidence, Suburban Nash induced the customer to sign another contract of conditional sale, and Suburban Nash assigned the second contract to the appellant Automobile Acceptance Corporation ('Auto Acceptance'). Neither contract was recorded until Suburban Nash was in serious financial difficulties and either had gone out of business or was about to do so. Auto Acceptance then recorded its contract on February 1, 1956, and C. I. T. did likewise three days later.

This suit was brought in the Circuit Court of Baltimore City by C. I. T. for a declaratory judgment or decree to establish the superiority of its claim over that of Auto Acceptance and for appropriate relief, in accordance with such a declaration, by injunction and by impressing a trust in favor of C. I. T. upon funds received by Auto Acceptance under its claim. Thomas, the customer, was joined as a party. He filed no formal answer, but wrote a letter to the Clerk of the Court denying 'knowledge of the crooked deals that were being pulled.' His good faith was not challenged, no claim against him is presses by either of the other parties on this appeal and the controversy both here and in the Circuit Court is, by stipulation, solely between the two finance companies. The Chancellor entered a decree upholding the claim of C. I. T. and Auto Acceptance appeals.

Each of the transactions was handled between the dealer and the finance companies in the same manner. The dealer inquired by telephone whether or not the finance company would purchase the dealer's interest in the contract and take an assignment thereof, each finance company investigated the credit of the customer, each notified the dealer on the day of the inquiry that it would purchase the contract, each contract was assigned by the dealer to the finance company therein named, and each finance company sent its check for the agreed purchase price of the contract ($1,995 in each instance) to the dealer. The Chancellor found that the assignment to C. I. T. was made on July 5th and the assignment to Auto Acceptance was made on July 6, 1955. His findings also included the following: 'I find as a fact that the conditional contract of sale from Suburban Nash to Thomas was made and that Suburban Nash assigned the contract to C. I. T. before the second contract of July 6th was executed and assigned to A. A. C. I further find that possession of the automobile was given to and taken by Thomas at the time of the first contract and before the second alleged contract was assigned and that Thomas had notice of the assignment to C. I. T.'

There were some differences between the two contracts, but they do not appear to be of great significance. The C. I. T. contract was on that company's form and expressly stated that the contract was assigned by the dealer; the Auto Acceptance contract was on a general, printed form. This form, as filled in, stated that the contract would be assigned to Auto Acceptance. The name of the assignee was left blank on the printed form and was filled in apparently by a rubber stamp. Whether this name was inserted before or after the second contract was signed does not appear. Other differences were in: the collision coverage and total cost of insurance, which was considerably higher under the Auto Acceptance contract; the finance charges, C. I. T.'s being slightly higher; recording charges--$2 under the Auto Acceptance contract, none under C. I. T.'s; total charges and monthly instalments (30 in each instance)--$2,587.50 and $86.25 for Auto Acceptance, and $2,475 and $82.50 for C. I. T.; and signatures, there being an additional signature of one Grace Thomas on the Auto Acceptance contract, the reason for which is not explained.

Neither Mohr, a salesman for Suburban Nash who sold the car to Thomas, nor Thomas was called as a witness; but a printed form of document, entitled 'Purchase Agreement', dated July 5, 1955, signed only by Mohr was put in evidence as a joint exhibit by the two finance companies. Its terms are in accord with those shown on both conditional contracts of sale as to the purchaser, seller and balance due. This form also contains a provision on its face stating that the customer was to pay Suburban Nash $55 per month and that Suburban Nash was to advance the difference in monthly payments to C. I. T., 'free of any interest in purchaser.' On the reverse of this form, there is a further statement, dated July 18, 1955, and signed only by Mohr, to the effect that Thomas was to have the option to pay Suburban Nash $55 a month for 36 months and that a clear title would then be delivered to the purchaser.

Suburban Nash is the same dealer whose fraud was involved in Mohr v. Sands, 213 Md. 206, 131 A.2d 732; and the present case is the second to reach this Court involving the consequences of Suburban Nash's fraudulent actions as between Auto Acceptance and C. I. T., each of which dealt with Suburban Nash on the basis of trust in the dealer's honesty. In this case as in Mohr v. Sands, an original title and a duplicate title to the car in question were obtained from the Department of Motor Vehicles. The duplicate was obtained upon an application apparently signed and acknowledged by Thomas which stated that the original had been lost. Neither title, according to the records of the Department, showed any lien. The original title was delivered to Auto Acceptance; the duplicate was delivered to C. I. T. Each document when so delivered showed a lien in favor of the finance company involved, in exactly the correct amount in the case of C. I. T. and with an error of a few cents in the case of Auto Acceptance. Each of these documents showed the date of the lien erroneously as August 6, 1955. The lien notations were put on by a pinpoint typewriter, but were not put on by the Department of Motor Vehicles.

There is no doubt, we think, that Thomas was aware of the fact that C. I. T. was the holder of a contract of conditional sale on his car. C. I. T. sent him its usual forms, including a certificate of insurance and a book of coupons to be used in making payments. Thomas presented and collected a small claim under the insurance policy effected by C. I. T. and payments to C. I. T. on account of his contract were accompanied by coupons issued to him. It also appears that Thomas made his payments to Suburban Nash. Despite the scanty testimony, it also seems probable that Suburban Nash made payments to both finance companies under the Thomas contracts until about the time of its collapse.

The Chancellor held that Section 2 of Article 8 relating to assignments of accounts receivable or contracts with or without notification to the debtor of the assignment, was controlling and that Section 74 of Article 21 of the Code (1951) relating to the recording of contracts of conditional sale was not applicable. He also referred to Section 43 of Article 83 of the Code (1951) and to Mohr v. Sands, supra, in which that Section was held controlling where there had been no actual transfer of possession from the automobile dealer to the ostensible purchaser under a conditional contract of sale, and Section 74 of Article 21 was consequently held not applicable. However, in the instant case, there was an actual transfer of possession to the purchaser.

We do not agree with the view that Section 2 of Article 8 is controlling. That statute was passed in 1943, and was apparently inspired by the decision of the Supreme Court on March 8, 1943, in Corn Exchange National Bk. & Tr. Co. v. Klauder, 318 U.S. 434, 63 S.Ct. 679, 87 L.Ed. 884 (generally referred to as 'the Klauder case'). See Maryland Coop. Milk Producers, Inc. v. Bell, 206 Md. 168, 176-177, 110 A.2d 661; Arnold, The 1950 Amendment to the Preference Section of the Bankruptcy Act and Maryland Law, 14 Md.Law Rev. 311 (1954). ¹ The Klauder case dealt with accounts receivable financing under the non-notification plan and Section 60 of the Bankruptcy Act, 11 U.S.C.A. § 96; as amended in 1938. That statute made it possible for the trustee in bankruptcy to attack successfully certain transfers as preferential which were made within four months of bankruptcy. Under the 1938 amendment the time of transfer was deemed to be at the moment when no bona fide purchaser could acquire rights superior to those of the transferee. Where, as in Maryland, ² notification to the debtor of the assignment of the account was necessary in order of perfect the assignee's title, an assignee of accounts receivable operating upon and adhering to the nonnotification plan would never perfect his claim prior to the bankruptcy of the assignor. The test under the 1938 amendment was that of a hypothetical bona fide purchaser, and it made no difference with regard to the trustee's right to attack the assignment whether there was or was not an actual bona fide purchaser. ³

So far as here material, Section 2 of Article 8 provides as follows:

'2. All written assignments, and all written assignments in the nature of a pledge, of accounts receivable and amounts due or to become due on open accounts or contracts, except in cases where notice to the debtor of such assignment is specifically...