Munz v. National Bond & Inv. Co.

• Citation: 47 S.W.2d 1055,243 Ky. 293
• Parties: MUNZ v. NATIONAL BOND & INVESTMENT CO.
• Decision Date: 25 March 1932
• Court: Court of Appeals of Kentucky

47 S.W.2d 1055

243 Ky. 293

MUNZ v. NATIONAL BOND & INVESTMENT CO.

Court of Appeals of Kentucky

March 25, 1932

Appeal from Circuit Court, Jefferson County, Common Pleas Branch First Division.

Action by G. W. Munz against the National Bond & Investment Company. Judgment for defendant, and plaintiff appeals.

Reversed with directions.

Edwin Abraham, of Louisville, for appellant.

Schindler & Adams, of Louisville, for appellee.

Grever Thompson and J. Pelham Johnston, both of Lexington, and Steinfeld & Steinfeld and Morris B. Gifford, all of Louisville, amici curiae.

WILLIS J.

This case involves the rights of an innocent purchaser of personal property as against the holder of a note secured by an unrecorded conditional sales contract covering the same property. The relative rights of such parties, in the final analysis, depend upon whether a conditional sales contract as defined by the Uniform Sales Act adopted in Kentucky on March 26, 1928 (Ky. St. § 2651b-1 et seq.), must be recorded or filed to be effective against a bona fide purchaser without notice. The circuit court held that such contracts were not required to be recorded, and that the rights of a purchaser from the conditional vendee under a conditional sales contract were subordinate to those of the conditional seller. The facts were stipulated and may be briefly stated.

The Stultz Motor Company, on March 10, 1931, sold a Hupmobile to E. W. Colbert for a consideration of $1,386.60, of which $585 was paid in cash. A negotiable note was given for the balance of $801.60, payable at the office of the National Bond &amp Investment Company, in monthly installments of $66.80 each, beginning on April 10, 1931. The note recited that it was given in conformity with the provisions of the conditional sales contract. The parties also executed a document entitled "Kentucky Negotiable Document of Title" which provided, in substance, that the seller had agreed to sell and deliver to the order of the purchaser the Hupmobile described, together with all parts, tires, and equipment thereon, and the buyer had agreed to pay the purchase price above stated in the manner stipulated. The document provided:

"To induce the Seller to deliver possession of said car to the order of the Purchaser, the Purchaser hereby agrees, covenants and warrants as follows; viz:

(1) The title to the above described car shall not pass to the Purchaser until all installments of said note are paid in full, and until such payments shall have been made, said car shall remain the property of the Seller. The negotiable promissory note given by the Purchaser as herein provided shall not be considered as payment of the purchase price of said car or as payment of such indebtedness. Said car shall not be sold by the Purchaser or taken out of the State of Kentucky, without the written consent of the Seller until all of the payments shall have been made and title vested in the Purchaser."

There were many other provisions concerning the use and maintenance of the car, the payment of taxes, liens and incumbrances thereon for repairs or otherwise, and further agreements respecting the relative rights of the parties in various circumstances enumerated. On the day after it was dated, the note and document described were transferred for value to the National Bond & Investment Company. Thus the seller of the car was paid in full, the buyer took the automobile, and the National Bond & Investment Company took the note secured by the conditional sales contract.

On April 9, 1931, Colbert sold the car to G. W. Munz for $1,000, which amount was paid upon the transfer of the title and delivery of the car. It is conceded that Munz was a purchaser for value without notice, and that he was in all respects a bona fide buyer. Colbert then defaulted on the installment of the note due April 10, 1931, and within three days the National Bond & Investment Company instituted the action to recover possession of the car. An order of delivery was executed, and the car was taken from Munz and delivered to the plaintiff. The circuit court decided that Munz had acquired no rights in the car as against the plaintiff, and Munz has prosecuted the present appeal.

It is the contention of the appellant that the Uniform Sales Act, adopted in this state on March 26, 1928, worked no change in the recording acts, or the legal rights thereby protected, whilst the appellee insists that the conditional sales contract is not a recordable instrument and is valid against an innocent purchaser as well as between the parties thereto. The litigants agree substantially as to the state of the law in this jurisdiction when the Uniform Sales Act was adopted. Conditional sales contracts were not wholly invalid, but were given effect as instruments to secure debts. The rule established by a long line of decisions was that, regardless of the name or form of a transaction, if it was designed to hold personal property as a security for debt, it was equivalent in law to a chattel mortgage and was required to be recorded in order to be valid against innocent purchasers. Baldwin v. Crow, 86 Ky. 679, 7 S.W. 146, 9 Ky. Law Rep. 836; Wicks Bros. v. McConnell, 102 Ky. 435, 43 S.W. 205, 20 Ky. Law Rep. 84; Welch v. National Cash Register Co., 103 Ky. 30, 44 S.W. 124, 19 Ky. Law Rep. 1664; Clift v. Williams, 105 Ky. 567, 49 S.W. 328, 20 Ky. Law Rep. 1261, 51 S.W. 821, 21 Ky. Law Rep. 551; Cincinnati Leaf Tobacco Warehouse v. Combs, 109 Ky. 28, 58 S.W. 420, 22 Ky. Law Rep. 523; Rankin v. McFarlane Carriage Co., 75 S.W. 221, 25 Ky. Law Rep. 258; Montenegro-Riehm Music Co. v. Beuris, 160 Ky. 557, 169 S.W. 986, L. R. A. 1916C, 557; General Motors Acceptance Corp. v. Sharp Motor Sales Co., 233 Ky. 290, 25 S.W.2d 405; Morris & Co. v. Heaton, 235 Ky. 66, 29 S.W.2d 617.

Such contracts were not deemed invalid, but were construed according to the real purpose and effect of the instrument. As between the parties however, if the rights conferred could be exercised without violence, trespass, or a breach of peace, such contracts were permitted to be enforced according to their terms. White Sewing Machine Co. v. Conner, 111 Ky. 827, 64 S.W. 841, 23 Ky. Law Rep. 1125; Montenegro-Riehm Music Co. v. Beuris, supra; Hawkins Furniture Co. v. Morris, 143 Ky. 738, 137 S.W. 527. But when the seller under a conditional sales contract regained possession of the property it was necessary for him to give the purchaser an opportunity to redeem, and, if not redeemed within a reasonable time, the property had to be disposed of at a fair sale on adequate notice, and the proceeds applied first, to satisfy the debt, and expense, and, second, to reimburse the purchaser to the extent of the surplus remaining. Such contracts, when properly executed and proven, were recordable instruments, and, when properly recorded, constituted constructive notice to all the world. Cable Piano Co. v. Lewis, 195 Ky. 666, 243 S.W. 924; Barney & Smith Mfg. Co. v. Hart, 1 S. W. 414, 8 Ky. Law Rep. 223; Wender Blue Gem Coal Co. v. Louisville Property Co., 137 Ky. 339, 125 S.W. 732; Welch v. National Cash Register Co., 103 Ky. 30, 44 S.W. 124, 19 Ky. Law Rep. 1664; Starr Piano Co. v. Petrey, 168 Ky. 530, 182 S.W. 624; Hauseman Motor Co. v. Napierella, 223 Ky. 433, 3 S.W.2d 1084.

The public policy of Kentucky with reference to requiring recordation of instruments creating liens or incumbrances on personal property has been manifested by numerous statutes. Section 496, Kentucky Statutes, provides: "No deed or deed of trust or mortgage conveying a legal or equitable title to real or personal estate shall be valid against a purchaser for a valuable consideration, without notice thereof, or against creditors, until such deed or mortgage shall be acknowledged or proved according to law and lodged for record. The word 'creditors' as used herein shall include all creditors irrespective of whether or not they may have acquired a lien by legal or equitable proceedings or by voluntary conveyance."

Section 1908 is as follows: "Every voluntary alienation of or charge upon personal property, unless the actual possession, in good faith, accompanies the same, shall be voided as to a purchaser without notice, or any creditor, prior to the lodging for record of such transfer or charge in the office of the county court for the county where the alienor or person creating the charge resides."

In 1928 a new act was passed which is now section 523a-2, Kentucky Statutes, as follows: "It shall not be necessary to record chattel mortgages, deeds of trust or other instruments intended to operate as pledges, mortgages or liens upon personal property, and such instruments shall not be recorded at length, but, upon filing such instruments and indexing and entering an abstract of the facts in the minute book as herein below directed, in the office of the clerk of the county court, all persons shall thereby be charged with notice thereof and of the rights of the mortgagee, trustee, his or its assignee or representative thereunder."

Further sections of the act regulate the duties of the clerks and the method of releasing rights thus secured. It is also provided by still another statute that a gift, transfer, or assignment of personal property between husband and wife shall not be valid unless such transfer be in writing, and acknowledged and recorded as chattel mortgages are required by law to be acknowledged and recorded. Ky. Stats. § 2128. It will be observed that the recording acts are not confined to chattel mortgages, but cover all instruments conveying a legal or equitable interest in personal property. Although we need not pause to determine its exact character or extent, it is not disputed anywhere that a conditional sales contract does convey some...