Guy Martin Buick, Inc. v. Colorado Springs Nat. Bank
| Decision Date | 19 February 1974 |
| Docket Number | No. C--396,C--396 |
| Parties | , 14 UCC Rep.Serv. 40 GUY MARTIN BUICK, INC., Petitioner, v. The COLORADO SPRINGS NATIONAL BANK, Respondent. |
| Court | Colorado Supreme Court |
Kane, Donley & Wills, Lee R. Wills, Colorado Springs, for petitioner.
Spurgeon, Aman & Hanes, Richard W. Hanes, Gregory R. Piche, Colorado Springs, for respondent.
This appeal requires us to determine whether certain provisions of the Colorado Uniform Commercial Code (C.R.S.1963, 155--1--101 et seq.) and the Colorado Certificate of Title Act (C.R.S.1963, 13--6--1 et seq.) are inconsistent or can be reconciled. Resolution of this case centers on a determination of whether an automobile dealer or a bank has a superior interest in three automobiles. The automobiles were purchased from the dealer by another automobile dealer who had a financing agreement, together with a floor plan, with the bank. Creditors' rights came into conflict when the purchasing dealer's check, which was tendered as payment for the automobiles, was dishonored and a default occurred on the bank's loan to the purchasing dealer. At the time the check was dishonored, the purchasing dealer had possession of the automobiles and the bank had possession of the titles to the automobiles. The trial court ruled that the selling dealer's interest in the property prevailed over the bank's interest. The Court of Appeals, with one judge dissenting, reversed and held that the bank's interest had priority. Guy Martin Buick, Inc. v. Colorado Springs National Bank, Colo.App., 511 P.2d 912 (1973). We affirm the Court of Appeals.
No dispute exists regarding the facts which brought about this litigation. On or about May 15, 1970, Guy Martin Buick contracted to sell, and Mark III agreed to purchase, three used automobiles for $2500 in cash. On the same day, Guy Martin Buick delivered the automobiles to Mark III and received Mark III's check for $2700, drawn on the Colorado Springs National Bank, which was payable on demand. 1 As part of the sale agreement, the certificates of title to the automobiles were not to be delivered until Guy Martin Buick could obtain a certificate of title covering one of the three automobiles from Maryland, where the automobile was originally registered. On May 18, 1970, three days after the sale, Mark III contacted the Colorado Springs National Bank and requested a loan of $2500 to cover the purchase price of the automobiles. The bank, while processing Mark III's loan application, contacted Guy Martin Buick to confirm that the sale had taken place and to notify Guy Martin Buick of the bank's intention to take a security interest in the automobiles, if the bank made a loan to Mark III.
After further negotiations between Mark III and the bank, Guy Martin Buick agreed to deliver the title certificates directly to the bank as soon as the Maryland certificate of title was received. On this assurance, the bank approved the loan and deposited $2500 in Mark III's account. On the same day, Mark III executed a security agreement in favor of the bank, which identified and included the three cars which Mark III purchased from Guy Martin Buick to secure the $2500 loan.
On May 25, 1970, Guy Martin Buick delivered the three certificates of title to the bank, and at about the same time presented Mark III's $2700 check for collection. Mark III's check was dishonored because of insufficient funds. Guy Martin Buick immediately took possession of the automobiles at Mark III's display lot and asked the bank to return the certificates of title to the three automobiles. The bank refused and demanded that Guy Martin Buick deliver the aubomobiles to the bank.
Guy Martin, Buick brought suit to obtain a mandatory injunction to force the Colorado Springs National Bank to surrender the title certificates. The bank counter-claimed and sought a mandatory injunction to compel Guy Martin Buick to deliver the automobiles. Thereafter, Guy Martin Buick applied for a preliminary injunction to obtain the title certificates from the bank, so that the automobiles could be sold to mitigate damages. The trial court issued the preliminary injunction, and the automobiles were sold on a wholesale basis for $1850.
We must determine the priorities which each of the creditors have as a result of the transactions set forth above. Does Guy Martin Buick's interest in the automobiles or the conflicting interest of the bank in the same automobiles have priority under the provisions of the Colorado Certificate of Title Act and Articles 2 and 9 of the Colorado Uniform Commercial Code? The legal issues turn upon the nature of the interest conveyed to Mark III by Guy Martin Bucik and Mark III's ability to convey the interest which it acquired to the bank, or a third party, before Guy Martin Buick presented Mark III's check for collection.
As part of the sale agreement, which is subject to the provision of Article 2 of the Colorado Uniform Commercial Code, Guy Martin Buick demanded payment upon delivery of the automobiles. Normally, such a provision in a cash sale transaction would allow a purchaser of goods, such as Mark III, to retain or dispose of the goods as he saw fit once the agreed-to purchase price was tendered. C.R.S.1963, 155--2--507(2). However, under the factual chronology of this case, Mark III, by tendering its check in payment of the purchase price, was not free to encumber or dispose of the automobiles. Mark III's inability to immediately encumber or dispose of the automobiles stems from the nature of the goods transferred and the requirements embodied in the Colorado Certificate of Title Act and differs from most cash sale transactions under the Code. See C.R.S.1963, 13--6--8; C.R.S.1963, 155--2--403.
Under the Uniform Commercial Code, the purchaser of goods in a cash sale transaction normally acquires full title to the goods which he purchases after payment is made, but the purchaser is limited to receiving a voidable title when the purchase price is conveyed in the form of a check. C.R.S.1963, 155--2--511(3). However, the voidable title which a purchaser receives when payment is made by check is dependent upon the seller's 'power to transfer' an interest in the goods conveyed. C.R.S.1963, 155--2--403(1). With respect to the sale and transfer of automobiles, the Colorado Certificate of Title Act sets forth specific requirements which limit a seller's power to transfer any interest in a motor vehicle and, thereby, affects the legal status of the title which a purchaser receives. The pertinent provisions of C.R.S.1963, 13--6--8, provide:
'(N)o purchaser or transferee shall acquire any right, title or interest in and to a motor vehicle purchased by him unless and until he shall obtain from the transferor the certificate of title thereto, duly transferred to him in accordance with the provisions of this article.'
The purpose of this provision is to insure that purchasers of automobiles, whether individual citizens or dealers, as well as lenders who finance automobile purchases, can readily and reliably ascertain the status of the seller's title to the automobile without recourse to other official state records. 1967 Perm.Supp., C.R.S.1963, 13--6--19. The provision is intended to hold in abeyance both the seller's power to transfer and the purchaser's right to receive any right, title or interest in the automobile to be sold until such time as the certificate of title is delivered to the purchaser.
In this case, the seller, Guy Martin Buick, did not deliver the certificates of title to the purchaser, Mark III, at the time Mark III tendered its check as payment for the automobiles. Until the certificates of title were delivered, Mark III acquired no right, title or interest, voidable or otherwise, in the automobiles which he could convey to a third party. C.R.S.1963, 13--6--8; United Fire and Casualty Co. v. Perez, 161 Colo. 31, 419 P.2d 663 (1966). See Waggoner v. Wilson, 31 Colo.App. 518, 507 P.2d 482 (1972).
However, before Guy Martin Buick presented Mark III's check for collection, the certificates of title were delivered to the Colorado Springs National Bank as security for the bank's loan to Mark III, in accordance with the security agreement between Mark III and the bank. From the record, it may be implied that the bank took possession of the certificates of title as Mark III's agent. Granite State Fire Ins. Co. v. Mitton, 98 F.Supp. 706 (D.Colo. 1951), aff'd, 196 F.2d 988 (10th Cir.1952); Rhodes v. Industrial Commission, 99 Colo. 271, 61 P.2d 1035 (1936); Globe Express Co. v. Taylor, 61 Colo. 430, 158 P. 717 (1916). See C.R.S.1963, 155--1--103. At the moment Guy Martin Buick delivered the motor vehicle title certificates to Mark III, through the bank as its agent, the requirements of C.R.S.1963, 13--6--8 were satisfied. Moreover, once the certificates of title were properly transferred, Mark III was clothed with viodable title and could legally encumber the automobiles. C.R.S.1963, 155--2--403(1); C.R.S.1963, 155--2--511(3).
After Mark III delivered its check to Guy Martin Buick, but before the certificates of title were transferred to the bank, as Mark III's agent, Mark III executed a security agreement with the Colorado Springs National Bank. The security agreement was intended to create a security interest in the automobiles to secure repayment of the bank's financing loan. 2 C.R.S.1963, 155--9--102. However, as has been stated above, until the certificates of title were properly transferred to Mark III's agent, no right, title or interest was created in Mark III which would enable Mark III to legally convey or encumber the automobiles. Therefore, although the bank and Mark III fully intended that the security interest attach to the automobiles at the time the loan funds were deposited in Mark III's account, the absence of any legal right, title or interest by Mark III in...
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