Catlin Aviation Co. v. Equilease Corp.
| Decision Date | 10 February 1981 |
| Docket Number | No. 52417,52417 |
| Citation | 1981 OK 13,626 P.2d 857 |
| Parties | 31 UCC Rep.Serv. 1581, 1981 OK 13 CATLIN AVIATION COMPANY, an Oklahoma Corporation, Appellee, v. EQUILEASE CORPORATION, a Corporation, Appellant. |
| Court | Oklahoma Supreme Court |
Appeal from District Court of Oklahoma County; David Cook, Trial Judge.
This appeal holds the seller, not the buyer, of an airplane has the initial obligation to remove a cloud on title: a lien of questionable validity; also that the buyer has a duty to mitigate his potential loss under the facts of this case.
AFFIRMED.
Billy Jack Hendrix, Oklahoma City, for appellee.
William J. Robinson and Richard B. Bates, of Shirk, Work, Robinson & Williams, Oklahoma City, for appellant.
Equilease (seller) sold to Catlin (buyer) an aircraft for $130,000.00. The bill of sale, dated June 19, 1974 contained a warranty of title. Seller also gave buyer a "hold harmless" letter which stated, "we will agree to hold you harmless to any claim in the event any suit is instituted with respect to any claim which may challenge the legality of our title and which is based on any occurance prior to your taking possession of the aircraft." This appeal challenges the depth of meaning of that letter and warranty of title.
On October 7, 1974, Stewart Aviation Services of Arkansas (Stewart) filed an airplane repairman's lien against the aircraft with the Federal Aeronautics Administration registry in Oklahoma City, alleging work done, and unpaid, in the amount of $1,167.00. The work was completed on February 22, 1974.
Buyer immediately notified seller of the lien, asking it to clear title under its "hold harmless" letter, and contends it lost a sale of the aircraft within the next few days because seller did nothing to remove the lien. Buyer paid the lien on April 23, 1975 and sold the plane shortly thereafter. Seller notified the FAA that the lien was invalid, and at no time was action brought by Stewart to foreclose the lien.
Buyer sued for the amount of the lien, plus "incidential and consequential damages" amounting to nearly $17,000.00 (interest, insurance, hangar rental, lost profits) and attorney fees. The trial court found for buyer in the amount of $1,167.00 but disallowed the other damages ruling buyer had not sought to mitigate damages by paying off the lien immediately. The trial court allowed attorney fees of $600.00 which buyer also appeals, alleging 106 hours of attorneys' time.
Both parties appeal.
Was the trial court correct in ruling seller breached its warranty of title by failing to remove the cloud (lien) on buyer's title? We answer in the affirmative.
The argument reduces to two questions. Which party had the duty to initiate steps to clear title, (a) by paying off the lien immediately and litigating its validity later, (b) by litigating immediately (c) or posting bond (42 O.S.Supp.1978 § 147)? Is a lien of questionable validity a cloud on title?
Buyer informed seller of the lien, but made no effort to pay off the lien for six months. Seller maintained the lien was invalid and therefore not a cloud on title, and thus did not attempt to pay it off. It also urges no suit was brought to challenge title, and thus it had no obligation to clear the cloud arguing its "hold harmless" letter specified a "suit" must be filed with respect to any claim. Buyer counters that validity of the lien is inconsequential to the issue, that simply the filing of the lien with the FAA represented a cloud on title which seller was obligated to clear.
The issue of validity of the lien stems from filing requirements. Arkansas statute grants an airplane repairman a lien, apparently as long as he has possession of the property. 1 If he voluntarily gives up possession of the property the statute allows him 120 days after completion of work to file a written statement of lien in the Arkansas County of the in-state debtor or the out-of-state county where the property is located. 2 There is no evidence either was done in this case; the only filing evidenced is with the FAA 3 in Oklahoma City, in October 1974, more than the 120 days allowed after work was completed. 4 Thus the lien may have been facially invalid.
If an instrument is void under state law, federal recordation will not save it. See Aircraft Investment Corporation v. Pezzani and Reid Equipment Co., 205 F.Supp. 80 (E.D.Mich.1962). Further, any lien affecting aircraft will not be effective against third persons without knowledge unless and until the lien is recorded with the FAA. See Crescent City Aviation, Inc. v. Beverly Bank, 219 N.E.2d 446 (Ind.1966); State Securities Company v. Aviation Enterprises, Inc., 355 F.2d 225 (10th Cir. 1966).
The trial court anchored its decision on the New Jersey case of American Container Corp. v. Hanley Trucking Corp., 111 N.J.Super. 322, 268 A.2d 313 (1970), with facts involving sale of a semi-trailer to American which used the truck for 18 months until the state police confiscated it as allegedly stolen. American informed Hanley of its wish to rescind the sales contract and sued for breach of title warranty when Hanley refused to rescind. Hanley argued the truck was improperly seized. The case turned, not on the validity of the seizure by police, but "on whom the burden of contesting the police action should have rested." The New Jersey Court said, It quoted an 1880 case which said, "The purchaser should have a title which shall enable him not only to hold his land but to hold it in peace." Tillotson v. Gesner, 33 N.J.Eq. 313 (E. & A. 1880). The Court ruled it was seller's duty to challenge police confiscation of the truck.
We find this logic convincing. It meshes with the Oklahoma Commercial Code, 12A O.S.1971 § 2-312 which specifies, "(T)here is in a contract for sale a warranty by the seller that the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge."
Clearly, a lien represents a cloud on title and it is not for a party to arbitrarily dismiss it as "invalid." Such action is a legal conclusion and should be applied only by a court after hearing proper evidence. A similar conclusion was reached in Mundy v. Casualty Claims Service, Inc., footnote 3, supra, wherein the Oklahoma Court of Appeals said:
"... the lien filed in compliance with 49 U.S.C. § 1403, whether a valid lien or otherwise, constituted an encumbrance on the airplane purchased by the plaintiff and continued as such until released as provided for in 49 U.S.C. § 1403(b)." (Our emphasis).
The facts in Mundy are startlingly similar to the case at bar. In 1969, plaintiff purchased an airplane from defendant, with defendant warranting it to be "free of encumbrances." Third party Catlin, in 1967, had filed a mechanics and materialmen's lien for $2,892.47 against the plane with the FAA. In 1970, plaintiff notified defendant of the lien and shortly thereafter attempted to sell the plane; however, the buyer stopped payment on his check when he discovered the lien. Catlin released the lien in 1972, when paid a negotiated $2,000.00 by plaintiff. Plaintiff subsequently brought suit to recover the $2,000.00 from defendant who argued that the lien was invalid because he did not owe the money. The court found for plaintiff holding the lien was an encumbrance because it had been filed in compliance with 49 U.S.C. § 1403, whether or not the lien was a valid lien.
Although Mundy is distinguishable from the case at bar because in Mundy the lien was filed before the sale, not after, we nonetheless believe the existence of a lien, questioned or not, is the gravamen of the action, not the date of filing.
Therefore we find that the lien, filed under 49 U.S.C. § 1403, was an encumbrance on the title warranted by seller regardless of its questionable validity. A mere shadow of a cloud is enough to darken title sufficiently to demand remedy by the party who warranted said title.
We further hold that the obligation to clear title rests with the party who warranted title to be free of encumbrances because "the purchaser should have a title which shall enable him not only to hold his property but to hold it in peace." 5 That obligation was seller's and it breached that duty by refusing to take action to clear title upon demand.
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