Metro-Plan, Inc. v. Kotcher-Turner, Inc.

• Citation: 296 Mich. 400,296 N.W. 304
• Decision Date: 07 February 1941
• Docket Number: No. 126.,126.
• Parties: METRO-PLAN, Inc., v. KOTCHER-TURNER, Inc.
• Court: Michigan Supreme Court

296 Mich. 400

296 N.W. 304

METRO-PLAN, Inc.,

v.KOTCHER-TURNER, Inc.

No. 126.

Supreme Court of Michigan.

Feb. 7, 1941.

Action by Metro-Plan, Inc., against Kotcher-Turner, Inc., for conversion of an automobile. From a judgment for plaintiff, defendant appeals.

Affirmed by a divided court.

Appeal from Circuit Court, Wayne County; Theodore J. Richter, judge.

Argued before the Entire Bench.

Bethel B. Kelley, of Detroit, for appellant.

Max Kahn, of Detroit, for appellee.

BUTZEL, Justice.

This is an action for conversion of an automobile. The facts are before us by stipulation of counsel. Plaintiff is a New York corporation engaged in the business of financing automobile sales on chattel mortgage security, with its principal place of business in the city of New York. Defendant is a Delaware corporation engaged in the sale of new automobiles in Detroit. On or about March 18, 1938, one Vincente Maestre, a resident of Toms River, N. J., but regularly employed in the city of New York, purchased a new high grade automobile from a dealer in New York for the list price of $1,385, f.o.b. factory at Detroit, exclusive of taxes or license fees. Payment was made in part from his own funds, and the sum of $960 was borrowed from plaintiff. To secure the loan, he executed a chattel mortgage on the automobile on March 18, 1938, which mortgage provided for payment of the loan in twelve monthly installments of $80 each, beginning April 29, 1938. The mortgage stipulated that the automobile was to be stored in the garage at the rear of the mortgagor's home when not in acqual use. Another clause provided: ‘The mortgagor agrees not to use the property for any illegal purpose, nor to remove or cause or permit the property to be removed from said (New York) county (except in the ordinary use thereof by the mortgagor), nor to sell, convey, assign, hire out or sublet the same to or in any manner whatsoever, without first obtaining the written consent of the mortgagee.’

The mortgagee granted permission to store the automobile in the garage at the mortgagor's residence at Toms River, New Jersey, and to use the car in commuting daily to his place of employment in New York. The mortgage was properly recorded in New York and New Jersey according to the laws of these respective States, but there has never been any attempt to comply with the Michigan statutes providing for the filing of chattel mortgages, 3 Comp.Laws 1929, § 13424, Stat.Ann. § 26.929. The purchaser registered the automobile under the laws of New York and obtained New York license plates; the registration certificate which conformed to New York law did not indicate that there were any liens or encumbrances on the title. Defendant had no actual knowledge of plaintiff's chattel mortgage.

On April 27, 1938, about forty days after the purchase, the mortgagor drove to defendant's place of business in Detroit, and expressed his desire to trade the car for a new 1939 automobile when the new models would be ready for delivery later in the year. He represented to defendant's officer in charge of the business that he owned the automobile and had an unencumbered title thereto. A trade-in deal was made whereby the car was turned over to defendant with a bill of sale and an assignmant of the New York registration certificate for $450 in cash and a credit memorandum for $450 which represented a partial payment on the new model; a few days later defendant sold the car to a used car dealer in Detroit. Defendant presented the bill of sale and assignment of registration certificate to the proper Michigan authorities and obtained a Michigan certificate of title on May 6, 1938, and this certificate was assigned to the dealer who purchased the car from defendant.

The original purchaser made monthly payments on the debt for April, May, June and July, which payments reduced the balance to $640. On July 22, 1938, he wrote defendant that he had sold and assigned the $450 credit memorandum to a resident of New York and requested defendant's consent to the transfer; on August 25, 1938, defendant informed the assignee that it consented to the transfer. The assignee has requested that defendant deliver to him a new automobile with an allowance for the credit memorandum, but, according to the stipulation, as defendant has failed to comply with this request, the credit is still outstanding.

Defendant contended in the court below that plaintiff was not entitled to recover because defendant had no knowledge of any foreign lien or encumbrance on the car traded in, and because plaintiff's chattel mortgage was not recorded in Michigan. The trial court ruled that defendant was not a bona fide purchaser because the circumstances surrounding the transaction led to the ‘irresistible’ conclusion that defendant ‘had notice abundantly sufficient to arouse suspicion of an ordinarily prudent man, and cause him to make inquiry as to the purpose to which such transfer was being made.’ The trial court also observed that defendant possibly relied too much on Michigan law which given no extra-territorial effect to foreign chattel mortgages. Judgment was entered for plaintiff for the balance of the debt owing it from the original purchaser. Defendant contends in this court that the facts set forth in the stipulation do not warrant a finding that defendant was not a good-faith purchaser, and that the mortgage executed in another State, but not recorded in Michigan, could not preserve plaintiff's rights as a chattel mortgagee not in possession, citing Montgomery v. Wight, 8 Mich. 143;Boydson v. Goodrich, 49 Mich. 65, 12 N.W. 913;Corbett v. Little-field, 84 Mich. 30, 47 N.W. 581,11 L.R.A. 95, 22 Am.St.Rep. 681;Allison v. Teeters, 176 Mich. 216, 142 N.W. 340. See, also, Enterprise Optical Mfg. Co. v. Timmer, 6 Cir., 71 F.2d 295.

For purposes of this opinion, we shall assume that defendant was a bona fide purchaser. The main question for our determination is whether the lien valid in another State is lost by failure to record in Michigan when the property is moved here without the knowledge or consent of the chattel mortgagee. The problem has not been before this court since Allison v. Teeters, 176 Mich. 216, 142 N.W. 340, was decided in 1913. This case involved a horse on which a chattel mortgage was executed and recorded in Indiana, and then the animal was brought to Michigan and sold to a bona fide purchaser, who, it was held, took free of the foreign lien not recorded here. That decision followed the rule laid down in earlier cases herebefore cited, holding that the recording of a chattel mortgage in another jurisdiction had no extra-territorial effect to give notice of the lien in Michigan. ‘If mortgagees desire to be protected where no notice can be made effectual,’ said Justice Campbell in Montgomery v. Wight, 8 Mich. 143, ‘they must take possession, and not allow the mortgagor to take the property where third parties have no means of ascertaining its title.’ The Supreme Court of the United States (Bank of United States v. Lee, 13 Pet. 107, 10 L.Ed. 81;Hervey v. Locomotive Works, 93 U.S. 664, 23 L.Ed. 1003) and the highest courts of the far greater number of the States have taken the view that the local recording statutes are inapplicable to mortgages executed outside of the State on property located abroad at the time of the execution of the mortgage and subsequently removed without the knowledge or consent of the mortgagee. See 2 Beale, Conflict of Laws, §§ 265.1 to 270.1; Beale, ‘Jurisdiction over Title of Absent Owner in a Chattel,’ 40 Harv.Law Rev. 805; Griffin, ‘The Effect of Foreign Chattel Mortgages upon the Rights of Subsequent Purchasers and Creditors,’ 4 Mich.Law Rev. 358; Beall & Beall v. Williamson, 14 Ala. 55;Wray Bros. v. H. A. White Auto Co., 155 Ark. 153, 244 S.W. 18;Creelman Lumber Co. v. Lesh & Co., 73 Ark. 16, 83 S.W. 320,3 Ann.Cas. 108;Davis v. Standard Accident Ins. Co., 35 Ariz. 392, 278 P. 384;Mercantile Acceptance Co. v. Frank, 203 Cal. 483, 265 P. 190, 57 A.L.R. 696;Mosko v. Matthews, 87 Colo. 55, 284 P. 1021;General Credit Corp. v. Rohde, 122 Conn. 100, 187 A. 676;In re Shannahan Hardware Co., 32 Del. 37, 2 W.W.Harr. 37, 118 A. 599;Smith's Transfer & Storage Co. v. Reliable Stores Corp., 61 App.D.C. 106, 58 F.2d 511;Hopkins v. Hemsley, 53 Idaho 120, 22 P.2d 138;Mumford v. Canty, 50 Ill. 370, 99 Am.Dec. 525;National Bond & Inv. Co. v. Larsh, 262 Ill.App. 363;Ames Iron Works v. Warren, 76 Ind. 512, 40 Am.Rep. 258;First National Bank v. Ripley, 204 Iowa 590, 215 N.W. 647;Willys-Overland Co. v. Evans, 104 Kan. 632, 180 P. 235;Perkins v. National Bond & Inv. Co., 224 Ky. 65, 5 S.W.2d 475;General Motors Accept. Corp. v. Nuss, 195 La. 209, 196 So. 323;Langworthy v. Little, 12 Cush. 109,66 Mass. 109;Wilson v. Carson, 12 Md. 54;Silver v. McDonald, 172 Minn. 458, 215 N.W. 844;Mason City Production Cr. Ass'n v. Sig Ellingson & Co., 205 Minn. 537, 286 N.W. 713, certiorari denied 308 U.S. 599, 60 S.Ct. 130, 84 L.Ed. 501;National Bank of Commerce v. Morris, 114 Mo. 255, 21 S.W. 511,35 Am.St.Rep. 754, 19 L.R.A. 463;Farmers' & Merchants' Bank v. Sutherlin, 93 Neb. 707, 141 N.W. 827, 46 L.R.A.,N.S. 95, Ann.Cas.1914B, 1250; Cleveland Machine Works v. Lang, 67 N.H. 348, 31 A. 20,68 Am.St.Rep. 675;Parr v. Brady, 37 N.J.L. 201; Hart v. Oliver Farm Equipment Sales Co., 37 N.M. 267, 21 P.2d 96, 87 A.L.R. 962;Goetschius v. Brightman, 245 N.Y. 186, 156 N.E. 660;Hornthal v. Burwell, 109 N.C. 10, 13 S.E. 721,13 L.R.A. 740, 26 Am.St.Rep. 556;Wilson v. Rustad, 7 N.D. 330, 75 N.W. 260,66 Am.St.Rep. 649;Kanage v. Taylor, 7 Ohio St. 134,70 Am.Dec. 62;Kerfoot v. State Bank, 14 Okl. 104, 77 P. 46;Emerson-Brantingham I. Co. v. Ainslie, 38 S.D. 472, 161 N.W. 1001;Bankers' Finance Corp. v. Locke & Massey Motor Co., 170 Tenn. 28, 91 S.W.2d 297;Taylor v. Boardman, 25 Vt. 581;Craig v. Williams, 90 Va. 500, 18 S.E. 899,44 Am.St.Rep. 934, but see § 5197 Va.Code of 1919 and Smith Motor Sales, Inc., v. Lay, 173 Va. 117, 3...