Franklin Investment Co. v. Homburg, 4364.
| Decision Date | 03 April 1969 |
| Docket Number | No. 4364.,4364. |
| Citation | 252 A.2d 95 |
| Parties | FRANKLIN INVESTMENT CO., Inc., a corporation, Appellant, v. Edwin P. HOMBURG, Appellee. |
| Court | D.C. Court of Appeals |
James D. Newton, with whom William F. Hickey, Silver Spring, Md., was on the brief, for appellee.
Before HOOD, Chief Judge, and MYERS and FICKLING, Associate Judges.
In March, 1966, appellant Franklin Investment made a loan to Agar Motors, an automobile dealer, and took as security a chattel mortgage covering, among others, a 1961 Chevrolet, the automobile in question. A financing statement outlining the transaction was duly recorded.
One month later, appellee Homburg bought the car from Agar Motors for cash, which issued a check to Franklin Investment for its release, and received in exchange the title certificate. It bore no indication of the prior encumbrance. The title was reassigned to Homburg who thereafter secured a new title in his own name from the Department of Motor Vehicles of Maryland. Upon receipt of notice that the check from Agar Motors had been dishonored, Franklin Investment caused the automobile to be repossessed from Homburg and then sold.
At trial, evidence disclosed that prior, to repossession, Franklin Investment had notified Agar Motors, but not Homburg, that the car would be repossessed. Homburg's first notice of this action was the absence of his car and the result of his call to the police about its being missing. After its public sale, Franklin Investment applied for and received a transfer of title from the Maryland Department of Motor Vehicles. Despite knowledge of the sale to Homburg and the title he possessed, Franklin Investment in its application for a new title to the car stated that the whereabouts of the certificate of title to the car was unknown and further that the automobile had been repossessed from Agar Motors, although it was fully aware that the car had been in fact repossessed from Homburg.
After finding that Homburg had bought the car in good faith, that he had no notice of a prior lien, and that Franklin Investment had voluntarily surrendered its lien in favor of the proceeds of its sale when it exchanged the certificate of title for Agar Motors' check, the trial judge ruled that Franklin Investment was, by its conduct, estopped from asserting its lien and awarded Homburg $750 for compensatory damages for conversion of the automobile and $2500 for punitive damages.
In its appeal, Franklin Investment contends that the trial judge erred in applying general principles of estoppel rather than the provisions of the Uniform Commercial Code, as adopted in Maryland, An. Code Maryland, 1957, Art. 95B, and that there were insufficient grounds for an award of exemplary damages.
Although the determination of the trial judge upon the theory of estoppel was in error since the issues herein are governed by the Uniform Commercial Code, we find no requirement to reverse as the same result was necessarily achieved under the Code. We have had occasion to hold previously that where the judgment of the trial judge is based upon an erroneous theory, but is correct in law, it is our obligation to affirm that judgment. Paton v. District of Columbia, D.C.Mun.App., 180 A.2d 844 (1962); Eastern Aquatics, Inc. v. Washington, D.C.App., 213 A.2d 293 (1965).
Both parties concede the issues of the case are controlled by the provisions of the Uniform Commercial Code, more specifically § 9-307 which reads:
§ 9-307. Protection of buyers of goods.
(1) A buyer in ordinary course of business (subsection (9) of § 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.
(2) In the case of consumer goods having an original purchase price not in excess of $500 * * *, a buyer takes free of a security interest even though perfected if he buys without knowledge of the security interest * * * unless prior to the purchase the secured party has filed a financing statement covering such goods.
If § 9-307(2) were applicable to the present case, Franklin Investment would prevail since it would be in the position of a secured party which had filed a financing statement prior to purchase. However, it would first have to establish that the car in question fell within the category of "consumer goods" as defined in the Code.
"Goods" under the Uniform Commercial Code are classified according to use. Under Art. 95B, An.Code Maryland, 1957, § 9-109, goods are
(1) "Consumer goods" if they are used or bought for use primarily for personal, family, or household purposes; * * *
(4) "Inventory" if they are held by a person who holds them for sale * * *.
It is clear that if the car were classified as "inventory," Homburg as purchaser in good faith takes the title clear of any lien of Franklin Investment even though a financing statement was filed.
The Code classification of goods, however, is mutually exclusive. Thus, as between the same parties and at the same point in time, a product cannot be classified as both "inventory" and "consumer goods." For our purposes, the manner in which a product is classified is determined at the time of agreement between the parties giving rise to the security interest, and, as to them, the categorization remains unaffected by a later transfer of the product in question.1
At the time of the execution of the contract of purchase, the parties to the present action were not the parties to the security agreement which is sought to be enforced. However, it is the contract establishing the security interest which is controlling here. If Franklin Investment had any rights in the car, such rights arise from the security agreement executed with Agar Motors upon which its right to repossess was based. The type of goods covered thereby was "inventory," the car being held by Agar Motors for purpose of resale. As far as Franklin Investment was concerned, this classification was not altered by the subsequent disposition of the car.
Therefore, in this case, as the...
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