Dowell v. Beech Acceptance Corp., Inc.

• Decision Date: 16 November 1970
• Citation: Dowell v. Beech Acceptance Corp., Inc., 3 Cal.3d 544, 91 Cal.Rptr. 1, 476 P.2d 401 (Cal. 1970)
• Parties: , 476 P.2d 401, 8 UCC Rep.Serv. 274 Donald A. DOWELL, Plaintiff and Respondent, v. BEECH ACCEPTANCE CORPORATION, INC., et al., Defendants and Appellants. L.A. 29751.
• Court: California Supreme Court

Page 1

91 Cal.Rptr. 1

3 Cal.3d 544, 476 P.2d 401, 8 UCC Rep.Serv. 274

Donald A. DOWELL, Plaintiff and Respondent, v. BEECH ACCEPTANCE CORPORATION, INC., et al., Defendants and Appellants.

L.A. 29751.

Supreme Court of California In Bank.

Nov. 16, 1970.

Rehearing Denied Jan. 14, 1971.

Belcher, Henzie & Beigenzahn, and David Bernard, Los Angeles, for defendants and appellants.

E. Charles Forde, Maywood and William D. Moore, Los Angeles, for plaintiff and respondent.

MOSK, Justice.

We consider whether the system of recordation of title to aircraft under the Federal Aviation Act (49 U.S.C.A. § 1403) affects the priorities under state law between prior security holders and subsequent buyers in the ordinary course of business. Specifically, we must decide whether the holder of a prior, recorded security interest in a new airplane prevails over a subsequent buyer in the ordinary course of business who neither recorded his own title nor searched the Federal Aviation Agency (F.A.A.) records to discover the security holder's prior claim. We conclude that the federal statute requires judgment in favor of the holder of the prior recorded security interest.

The facts are not in dispute: The airplane in question, a Beechcraft Bonanza aircraft, was sold by the manufacturer to Nevadair, one of its distributors. On October 26, 1965, Nevadair delivered the plane to Marion Tanger, a duly authorized Beechcraft dealer, pursuant to a conditional sales contract. The contract provided that Tanger was not to sell the plane without Nevadair's consent and that Nevadair retained a security interest in the plane to the extent of the unpaid balance of the purchase price. Nevadair assigned its security interest to defendant Beech Acceptance Corporation, a company in the business of aircraft financing. On October 27, 1965, Beech filed the conditional sales contract and the assignment with the Federal Aviation Agency, pursuant to 49 United States Code Annotated section 1403, and the instruments were recorded as of November 4, 1965.

In July of 1966, plaintiff purchased the plane from Tanger for $30,000, the sum being paid in full. He made no inquiry as to the state of the title ostensibly because the plane was new and Tanger was an authorized dealer. However, plaintiff was not inexperienced in the field of aviation. He was a member of the Aircraft Owners and Pilots Association, was familiar with F.A.A. rules and was aware that he could have checked the title with the F.A.A. for a $3.50 fee. Apparently Tanger promised plaintiff that he would file plaintiff's bill of sale with the F.A.A. Aircraft Registry but failed to do so. At the time of the sale to plaintiff, Tanger owed Beech $21,366.03 plus interest, but not until September 22, 1966, did he confess to Beech that he had sold the plane. The following day, Beech, Nevadair, and Larson (Nevadair's parent corporation), on the advice of counsel, removed the plane from plaintiff's possession without his knowledge or consent.

Plaintiff thereupon brought this action to establish his title to the plane and to recover compensatory and punitive damages against defendants. Through a claim and delivery proceeding at the outset of his action, plaintiff recovered possession of the airplane on October 22, 1966, pending trial. After trial, the court awarded the plane to plaintiff along with $175 compensatory damages, representing the value of the use of the plane between September 23 and October 22, 1966. Plaintiff was also awarded $1,000 punitive damages, on the theory that defendants' seizing possession of the airplane without plaintiff's consent on September 23 constituted oppressive conduct.

Section 503 of the 1958 Federal Aviation Act, 49 United State Code Annotated section 1403, provides in relevant part: '(a) The Administrator shall establish and maintain a system for the recording of each and all of the following: (1) Any conveyance which affects the title to, or any interest in, any civil aircraft of the United States; (2) Any lease, and any mortgage, equipment trust, contract of conditional sale, or other instrument executed for security purposes, which lease or other instrument affects the title to, or any interest in, any specifically identified aircraft engine * * * or any specifically identified aircraft propeller * * * and also any assignment or amendment thereof or supplement thereto. * * * (b) The Administrator shall also record under the system provided for in subsection (a) of this section any release, cancellation, discharge, or satisfaction relating to any conveyance or other instrument recorded under said system. (c) No conveyance or instrument the recording of which is provided for by subsection (a) of this section shall be valid in respect of such aircraft, aircraft engine or engines, (or) propellers * * * against any person other than the person by whom the conveyance or other instrument is made or given, his heir or devisee, or any person having actual notice thereof, until such conveyance or other instrument is filed for recordation in the office of the Administrator * * *. (d) Each conveyance or other instrument recorded by means of or under the system provided for in subsection (a) or (b) of this section shall from the time of its filing for recordation be valid as to all persons without further or other recordation, * * * (f) The Administrator shall keep a record of the time and date of the filing of conveyances and other instruments with him and of the time and date of recordation thereof. He shall record conveyances and other instruments filed with him in the order of their reception, in files to be kept for that purpose, and indexed according to * * * the identifying description of the aircraft, aircraft engine, or propeller * * * and * * * the names of the parties to the conveyance or other instrument.'

Section 506 of the Act, 49 United States Code Annotated section 1406, was added in 1964 and provides: 'The validity of any instrument, the recording of which is provided for by section 1403 of this title shall be governed by the laws of the State * * * in which such instrument is delivered, irrespective of the location or the place of delivery of the property which is the subject of such instrument.'

Our task is to determine whether the foregoing federal system of recording interests in aircraft affects priorities recognized by applicable state law. The issue is squarely before us because, absent the federal recording system and its possible impact on state law, there can be no doubt that Tanger had the power to defeat Beech's security interest by a sale to a buyer in the ordinary course of business and that plaintiff was such a buyer. Section 9307 of the California Commercial Code provides that, 'A buyer in ordinary course of business (subdivision (9) of Section 1201) ¹ * * * 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.' Hence, under California law, plaintiff would prevail over defendant Beech Acceptance Corporation regardless of whether defendant recorded its security interest and even if plaintiff knew of the existence of the security interest, so long as he was not aware of any terms of the security agreement that were violated by the sale to him. (See Uniform Commercial Code Comment 2, Com.Code, § 9307.)

Although this matter is of first impression in our court, we are cognizant of helpful authority in the Courts of Appeal on the question of the relationship between the federal recording system and state priorities. In Pope v. National Aero Finance Co. (1965) 236 Cal.App.2d 722, 46 Cal.Rptr. 233 (hearing denied), Justice Sullivan considered the assertion of plaintiffs that they held an interest in an aircraft superior to that of the prior recorded security interest of a mortgagee. Although there was doubt as to whether plaintiffs had any interest in the plane, the Court of Appeal assumed arguendo that they had acquired ownership. Plaintiffs had obtained their interest subsequent to the defendant-mortgagee's acquisition of its security interest, but two days before the latter's interest was recorded. Said the court, 'The federal statute requiring recordation and providing for the effect to be given to instruments not recorded pursuant thereto, preempts any state laws which might otherwise apply. * * * Even if, as we here assume for the sake of argument, plaintiffs actually acquired some interest in the (aircraft) by virtue of their agreements, we are of the opinion that under the abovementioned federal statute and the * * * cases interpreting it, it was incumbent upon them to record the documents under which they claimed ownership and having failed to do so at any time are not entitled to priority over NAFCO, the chattel mortgagee who in addition to acquiring its interest under a prior chattel mortgage filed the same for record in good faith and without any notice of plaintiffs' claims. * * * (I)t would be violative of the purpose of the federal act to permit plaintiffs, who did nothing to comply with its registration and recordation provisions, to prevail over NAFCO which lent money on the strength of the record title in (the seller-mortgagor) and recorded its mortgage with the federal agency.' (Fn. omitted.) (Pope v. National Aero Finance Co. (1965) supra, 236 Cal.App.2d 722, 733, 734--735, 46 Cal.Rptr. 233, 240--241.)

Although the facts are distinguishable from those in the case at bar, the reasoning of the Pope court has clear application here. In deciding the priorities between a mortgagee with a recorded interest and a subsequent purchaser who acquired his interest before the mortgagee's interest was recorded but who failed to record his own interest, the court looked to the federal law and determined that the policy underlying the recordation system precluded judgment for plaintiffs who had failed to comply with the recordation...