IAC, Ltd. v. Princeton Porsche-Audi

• Decision Date: 07 February 1977
• Docket Number: D,PROSCHE-AUD
• Citation: 147 N.J.Super. 212,371 A.2d 84
• Parties: , 21 UCC Rep.Serv. 624 IAC, LTD., Plaintiff-Respondent, v. PRINCETONefendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 212

147 N.J.Super. 212

371 A.2d 84, 21 UCC Rep.Serv. 624

IAC, LTD., Plaintiff-Respondent, v. PRINCETON PROSCHE-AUDI, Defendant-Appellant.

Superior Court of New Jersey,

Appellate Division.

Argued Jan. 11, 1977.

Decided Feb. 7, 1977.

Gordon C. Strauss, Princeton, for defendant-appellant.

Dennis J. O'Grady, Newark, for plaintiff-respondent (Riker, Danzig, Scherer & DeBevoise, Newark, attorneys; James S. Rothschild, Jr., Newark, on the brief).

Before Judges MATTHEWS, SEIDMAN and HORN.

The opinion of the court was delivered by

HORN, J.A.D.

The primary question which is presented by this appeal is whether a security interest which was taken on a vehicle sold in Canada and which was valid and enforceable under Canadian law is also enforceable in New Jersey against a purchaser (defendant) for value without notice of the lien after the vehicle was brought to New Jersey and a 'clear' New Jersey certificate of ownership was issued and transferred properly to the New Jersey purchaser. ¹

The trial judge in an action for conversion brought by plaintiff, the Canadian security-interest holder, against the New Jersey purchaser answered the question affirmatively by granting a summary judgment in favor of plaintiff on the limited issue of defendant's liability. ² We granted defendant leave to appeal pursuant to R. 2:2--3(b) and elected to determine the appeal on the motion and after oral argument. R. 2:11--2.

On August 2, 1976 one Charles Ryan, who has since absconded and is not a party to this action, applied to plaintiff IAC, Ltd., to finance his purchase of a 1977 Porsche automobile from Auto Hamer, Inc., a registered Porsche dealer in Quebec, Canada. The automobile cost $15,700, of which $5,700 was a down-payment. Ryan applied to plaintiff to finance the remaining $10,000. Plaintiff approved the application after a credit check, and full payment for the automobile was given to Auto Hamer, Inc., at which time they delivered the Porsche to Ryan.

In connection with the financing Ryan executed a conditional sales agreement with IAC, Ltd., which reserved title to the vehicle thereunder until payment to it of $12,470.76, the sum of the principal loaned and the finance charges. It is not disputed that, as the trial judge appropriately found, the security interest of plaintiff was perfected in Canada and that plaintiff thereby obtained a valid lien on the automobile under the law of Canada.

Four days later Ryan sold the automobile, which had a total mileage of 610 miles, to defendant Princeton Prosche-Audi for $9,000. In the sale of the vehicle from Ryan to defendant, Ryan presented a certificate of ownership issued by the New Jersey State Motor Vehicle Department which did not show any lien held by IAC, Ltd., or any other entity, because Ryan falsely represented that there were no encumbrances.

The following three items from the files of the New Jersey Division of Motor Vehicles were submitted to the trial court. They consist of:

(1) A Canadian motor vehicle document which on its face identifies Ryan as the owner of the subject motor vehicle and which contains no lien information, although on the reverse side of the document a space which provided for the inscription of 'Restrictions' remained without notation therein. ³

(2) Ryan's application for a New Jersey certificate of ownership, on which no security interest is noted.

(3) A copy of the New Jersey certificate of ownership (showing no security interest) which was issued to Ryan in New Jersey and thereafter tendered to defendant in connection with the purchase by the latter.

For the purpose of the motion for summary judgment plaintiff stipulated that defendant acted in good faith. The record is somewhat obscure as to the sale of the vehicle by defendant. However, defendant does not challenge the form of action.

Before the Uniform Commercial Code (Code), N.J.S.A. 12A:1--101 Et seq., became effective in New Jersey on January 1, 1963, the common law of this State recognized valid out-of-state security interests as a matter of comity. Marvin Safe Co. v. Norton, 48 N.J.L. 410, 7 A. 418 (Sup.Ct.1886); Annotation, 'Conflict of laws as to chattel mortgages and conditional sales of chattels,' 13 A.L.R.2d 1312, § 7 at 1318 (1950). This common-law rule was modified by statutes such as the Uniform Conditional Sales Law when enacted in this State in 1919. N.J.S.A. 46:32--1 Et seq., particularly § 20; Thayer Mer. Co. v. First Nat. Bk. of Milltown, 98 N.J.L. 29, 119 A. 94 (Sup.Ct.1922), aff'd o.b. 98 N.J.L. 907, 121 A. 927 (E. & A. 1923). Numerous lien statutes were repealed upon the enactment of the Uniform Commercial Code N.J.S.A. 12A:10--105.

The sections of the Code applicable to the factual situation present in this case are N.J.S.A. 12A:9--103(3) and (4). The pertinent portions of these sections are as follows:

(3) If personal property * * * is already subject to a security interest when it is brought into this state, the validity of the security interest in this state is to be determined by the law (including the conflict of laws rules) of the jurisdiction where the property was when the security interest attached. * * * If the security interest was already perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into this state, the security interest continues perfected in this state for four months and also thereafter if within the four month period it is perfected in this state. * * *

(4) * * * (I)f personal property is covered by a certificate of title issued under a statute of this state or any other jurisdiction which requires indication on a certificate of title of any security interest in the property as a condition of perfection, then the perfection is governed by the law of the jurisdiction which issued the certificate.

The Motor Vehicle Certificate of ownership law of this State (motor vehicle law), N.J.S.A. 39:10-1 et seq., was specifically saved from repeal by the terms of the Code, N.J.S.A. 12A:10-104, and remained effective, N.J.S.A 12A:9-203 (see note preceding N.J.S.A. 39:10-1). The motor vehicle law, §§ 9 to 11, provides for the issuance by the Director of the Division of Motor Vehicles (Director) of a certificate of ownership upon application to him, which certificate must be delivered by the registered holder to the transferee in order to validly transfer a vehicle. Security interests covering a vehicle must be noted thereon. ⁴ Cf. Ferrante v. Foley, 49 N.J. 432, 231 A.2d 208 (1967); Eggerding v. Bicknell, 20 N.J. 106, 111, 118 A.2d 820 (1955); National City Bank of New York v. Del Sordo, 16 N.J. 530, 109 A.2d 631 (1954); Sayre & Fisher Brick Co. v. Dearden, 23 N.J.Super. 453, 459, 93 A.2d 52 (Law Div.1952).

As already stated, the trial judge, in substantial reliance upon First Nat'l. Bank of Bay Shore v. Stamper, note 2 Supra, held that the foreign lien was valid and enforceable with respect to the automobile in New Jersey. This result is conceded by defendant if § 9--103(3) of the Code governs. Defendant contends, however, that it does not control in view of § 9--103(4), because the vehicle when sold to it was covered by a certificate of title issued under a statute of this State which required indication on a certificate of title of the security interest.

The court in Stamper, supra, decided the question contrary to defendant's contention on comparable facts--primarily in reliance on Casterline v. General Motors Acceptance Corp., 195 Pa.Super. 344, 171 A.2d 813 (Super.Ct.1961); Churchill Motors, Inc. v. A. C. Lohman, Inc., 16 A.D.2d 560, 229 N.Y.S.2d 570 (App.Div.1962); Al Maroone Ford, Inc. v. Manheim Auto Auction, Inc., 205 Pa.Super. 154, 208 A.2d 290 (Super.Ct.1965), and a comment of the Editorial Board of the Uniform Commercial Code. The Editorial comment as quoted in Stamper reads:

Subsection 4 is new to avoid the possible necessity of duplicating perfection in the case of a vehicle subject to a certificate of title law requiring compliance therewith the perfect security interest. The certificate of title law requirements are adopted as the test for perfection.

It is noteworthy that the quoted statement of purpose does not appear in the Code Comment which follows N.J.S.A. 12A:9--103. Paragraph 7 of the Code Comment which follows § 9--103 is somewhat ambiguous. It says that collateral, with certain exceptions not applicable here, may be brought into this State subject to a security interest which has attached and may have been perfected under the laws of another jurisdiction ⁵ but '(i)f the property is covered by a certificate of title, subsection (4) applies.'

Casterline v. General Motors Acceptance Corp., supra, was not an appropriate precedent. It was concerned with transactions which took place before the enactment in Pennsylvania of subsection 9--103(4). The court did not have occasion to even discuss the effect of that section. Churchill Motors, Inc. v. A. C. Lohman, Inc., supra, erroneously relied on Casterline and the above-quoted Editorial Board statement. The court in Al Maroone Ford, supra, blindly followed Casterline, although noting that the Code had been amended. ⁶

The New Jersey Study Comment which follows N.J.S.A. 12A:9--103 merely states that subsection (4) 'substantially restates the present law of New Jersey. Cf. Van Syckle v. Keats, 125 N.J.L. 319 (15 A.2d 321), * * * (Sup.Ct.1940).' That case supports a view contrary to that of Stamper. It held that where the reservation of title was noted on the records on the then Commissioner of Motor Vehicles it was not necessary for a conditional seller to renew his reservation of title by refiling pursuant to N.J.S.A. 46:32--16 ⁷ after the initial filing. Thus the court recognized that the provisions of the motor vehicle law superseded the requirements of the Uniform Conditional Sales Act before the enactment of the Code in New Jersey.

We are of the view that the plain meaning of the text...