McDonald v. Peoples Auto. Loan & Finance Corp. of Athens, Inc., 42207

• Court: Georgia Court of Appeals
• Writing for the Court: FRANKUM; PANNELL; FELTON
• Citation: McDonald v. Peoples Auto. Loan & Finance Corp. of Athens, Inc., 154 S.E.2d 886, 115 Ga.App. 483 (Ga. App. 1967)
• Decision Date: 13 March 1967
• Docket Number: No. 1,No. 42207,42207,1
• Parties: , 4 UCC Rep.Serv. 49 Homer McDONALD v. PEOPLES AUTOMOBILE LOAN & FINANCE CORPORATION OF ATHENS, INC

Page 886

154 S.E.2d 886

115 Ga.App. 483, 4 UCC Rep.Serv. 49

Homer McDONALD v. PEOPLES AUTOMOBILE LOAN & FINANCE CORPORATION OF ATHENS, INC.

No. 42207.

Court of Appeals of Georgia, Division No. 1.

March 13, 1967.

Rehearing Denied March 29, 1967.

Certiorari Denied May 18, 1967.

Syllabus by the Court

For the reasons set forth in the opinion the trial court did not err in directing a verdict in favor of the plaintiff in fi. fa. and against the claimant.

Guy B. Scott, Jr., Athens, Jack Gunter, Cornelia, for appellant.

Kilpatrick, Cody, Rogers, McClatchey & Regenstein, Emmet J. Bondurant, Atlanta, Joseph J. Gaines, Athens, for appellee.

FRANKUM, Judge.

Warren C. Thurmond & Sons, Inc., hereinafter referred to as Thurmond, held the Lincoln-Mercury dealership at Athens, and, in addition to selling that line of new automobiles, purchased at wholesale from other dealers various kinds of automobiles and retailed them. Homer McDonald, Jr. operated a used car business at Cornelia under the trade name of McDonald's Used Cars and also under the trade name of Hi Point Motors. Thurmond was duly registered with the State Revenue Commissioner, as required by law, as a new and used car dealer, and McDonald was registered as a used car dealer under the trade name of McDonald's Used Cars. Peoples Automobile Loan & Finance Corporation of Athens, Inc. (also trading under the names Peoples Incorporated or Peoples, Inc.) was engaged in the financing, among other things, of automobile dealers. Under its financing plan it obtained from the dealer a security agreement covering all of its inventory of motor vehicles, new or used, then in stock or thereafter acquired, on the basis of which a financing statement complying with the provisions of the Uniform Commercial Code § 190A-9-402, was filed with the Clerk of Clarke Superior Court as required by § 109A-9-302. Under this arrangement the finance company, hereinafter referred to as Peoples, floor planned the vehicles of Thurmond which were held in inventory for resale and additionally purchased from it the conditional sale contracts on vehicles as they were sold. As vehicles were brought into its inventory by Thurmond money was advanced by Peoples, under the security agreement and financing statement, to pay for them. On each vehicle so acquired Thurmond executed to Peoples a collateral note for the amount advanced in connection with its acquisition, in which the vehicle was fully described, with a recital that the transaction was under the security agreement and financing statement.

McDonald, who testified that he was strictly a wholesaler of used automobiles, sold vehicles to Thurmond over a period of three or four years under an arrangement whereby he delivered possession to Thurmond who took the vehicle into his inventory, while he retained possession of the title registration certificate, to be delivered to Thurmond upon payment of the purchase price, usually out of the proceeds when the vehicle was sold at retail.

McDonald also testified that at the time of and prior to the transactions here involved he was under investigation by the state in connection with his business under the trade name of McDonald's Used Cars, making it difficult for a dealer to whom he might sell to obtain financing on the vehicles, and to avoid bringing his transactions under question and facilitate the financing and obtaining of titles by his purchasers he adopted and used the trade name of Hi Point Motors.

In the latter part of 1965 McDonald, trading as Hi Point Motors, sold to Thurmond a 1965 Oldsmobile for $2,500 and a 1965 Ford Mustang for $2,450. He held a title certificate to the Oldsmobile which had been issued to McDonald's Used Cars by the State Revenue Commissioner, and a certificate of title to the Mustang issued by the Revenue Commissioner to Julian W. and Julian E. Strickland, assigned in blank. These McDonald retained with the understanding that they would be delivered upon payment of the purchase price. However, within a week after the sales were made bills of sale were executed to Thurmond by Hi Point Motors, with the descriptions of the vehicles left blank but, as McDonald testified, with authority to fill them in.

These bills of sale, completed by filling in the descriptions of the vehicles, with motor and serial numbers, were taken by Thurmond to Peoples and used in procuring advances of $2,550 on the Oldsmobile and $2,425 on the Mustang, for which Thurmond executed collateral promissory notes in the manner above described.

At the time of making these advances Peoples did not require production of title registration certificates. The manager of Peoples testified that advances were generally made to dealers on bills of sale because of the delay incident to procuring title certificates from the Revenue Department.

In January, 1966, Peoples learned that Thurmond had sold some nine vehicles out of trust; that is to say, had sold the vehicles and failed to pay to Peoples the amounts which it had advanced against them, and had procured the retail financing for the customer at other places. Because of that Peoples accelerated all of the indebtedness owing on Thurmond's inventory, as it was authorized to do under the security agreement, and foreclosed, obtained the issuance of a chattel mortgage fi. fa. and caused the inventory to be levied on. The Oldsmobile and Mustang which Thurmond had acquired from McDonald were included in the levy, and he filed claim and bond for them.

The issue thus made came on for trial and at the conclusion of the evidence a verdict was directed by which the cars were found subject to the levy.

It is McDonald's contention that title to these cars could pass only by a transfer of the title certificates, and that since he had retained them, his security interest is superior to that of Peoples.

This contention is not sound. In the first place the transaction between him and Thurmond, as well as that between Thurmond and Peoples, is exempt from the provisions of the Motor Vehicle Certificate of Title Act by its own provisions. 'This Chapter does not apply to or (a)ffect a security interest in a vehicle created by a manufacturer or dealer who holds the vehicle for sale, but a buyer in the ordinary course of trade from the manufacturer or dealer takes free of the security interest.' Code Ann. § 68-405a. It is only the security interests created by purchasers at retail, or in the ordinary course of business, which come under the provisions of this Act and which are affected by it.

McDonald admits that he sold the two cars to Thurmond for specified prices, on credit-to be paid when they were resold. He admits that he executed and delivered to Thurmond bills of sale covering the vehicles, and that the transactions (including the bills of sale) were in the name of Hi Point Motors to facilitate financing by Thurmond. What he attempted to do was to create, by oral agreement (there was no written security agreement or retention of title between him and Thurmond) a security interest in the cars running from Thurmond to him.

Clearly, the transactions here are subject to the provisions of the Uniform Commercial Code, and the matter of whether they are valid and, if so, which has priority must be determined under it.

Was the security interest claimed by McDonald valid? Certainly as to third parties it is unenforceable under the statute of frauds as contained in § 109A-9-203, since he had surrendered possession of the vehicles and had not obtained a signed security agreement. This is an absolute requisite to the enforceability of the security interest.

The official comment to the Code states that 'The formal...