Philko Aviation, Inc v. Shacket

• Decision Date: 15 June 1983
• Docket Number: No. 82-342,82-342
• Citation: 103 S.Ct. 2476,36 U.C.C.Rep.Serv. 1,462 U.S. 406,76 L.Ed.2d 678
• Parties: PHILKO AVIATION, INC., Petitioner v. Maurice SHACKET et ux
• Court: U.S. Supreme Court

462 U.S. 406

103 S.Ct. 2476

76 L.Ed.2d 678

PHILKO AVIATION, INC., Petitioner

v Maurice SHACKET et ux.

No. 82-342.

Argued April 20, 1983.

Decided June 15, 1983.

Syllabus

A corporation in Illinois, operated by Roger Smith, sold a new airplane to respondents, who paid the sale price in full and took possession of the plane. Smith, however, did not give respondents the original bills of sale reflecting the plane's chain of title, but gave them only photocopies and an assurance that he would "take care of the paperwork." Subsequently, Smith purported to sell the plane to petitioner, giving it the title documents, which petitioner's financing bank later recorded with the Federal Aviation Administration (FAA). Respondents filed an action in Federal District Court to determine title to the plane. Petitioner argued that it had title because respondents never recorded their interest in the plane with the FAA, relying on § 503(c) of the Federal Aviation Act of 1958, which provides that "no conveyance or instrument" affecting title to civil aircraft shall be valid against third parties not having actual notice of the sale, until such conveyance or instrument is recorded with the FAA. But the District Court awarded summary judgment in respondents' favor, and the Court of Appeals affirmed, holding that § 503(c) did not pre-empt Illinois state law under which no documentation for a valid transfer of an aircraft is required and an oral sale is valid against third parties once the buyer takes possession of the aircraft.

Held: State laws, such as the Illinois law, allowing undocumented or unrecorded transfers of interests in aircraft to affect innocent third parties are pre-empted by the federal Act. Although if § 503(c) were interpreted literally in accordance with the federal Act's definition of "conveyance"—"a bill of sale, contract of conditional sale, mortgage, assignment of mortgage, or other instrument affecting title to, or interest in, property"—it would invalidate only unrecorded title instruments and not unrecorded title transfers, thus enabling a claimant to establish title against an innocent third party without relying on an instrument, it is apparent that Congress did not intend § 503(c) to be interpreted in this manner. Rather, § 503(c) means that every aircraft transfer must be evidenced by an instrument, and every such instrument must be recorded before the rights of innocent third parties can be affected. Because of these requirements, state laws permitting undocumented or unrecorded transfers are pre-empted, for there is a direct conflict between § 503(c) and such state laws. These conclusions are dictated by the fed- eral Act's legislative history. Any other construction would defeat Congress' purpose in enacting § 503(c) of creating a "central clearing house" for recordatio of title so that a person could have "ready access" to information about an aircraft's title. Pp. 409-414.

681 F.2d 506 (7th Cir.1982), reversed and remanded.

Leslie R. Bishop, Ann Arbor, Mich., for petitioner.

James C. Murray, Jr., Chicago, Ill., for respondents.

Justice WHITE delivered the opinion of the Court.

This case presents the question whether the Federal Aviation Act of 1958 (Act), 49 U.S.C. §§ 1301 et seq., prohibits all transfers of title to aircraft from having validity against innocent third parties unless the transfer has been evidenced by a written instrument, and the instrument has been recorded with the Federal Aviation Administration (FAA). We conclude that the Act does have such effect.

On April 19, 1978, at an airport in Illinois, a corporation operated by Roger Smith sold a new airplane to respondents. Respondents, the Shackets, paid the sale price in full and took possession of the aircraft, and they have been in possession ever since. Smith, however, did not give respondents the original bills of sale reflecting the chain of title to the plane. He instead gave them only photocopies and his assurance that he would "take care of the paperwork," which the Shackets understood to include the recordation of the original bills of sale with the FAA. Insofar as the present record reveals, the Shackets never attempted to record their title with the FAA.

Unfortunately for all, Smith did not keep his word but instead commenced a fraudulent scheme. Shortly after the sale to the Shackets, Smith purported to sell the same airplane to petitioner, Philko Aviation. According to Philko, Smith said that the plane was in Michigan having electronic equipment installed. Nevertheless, Philko and its financing bank were satisfied that all was in order, for they had examined the original bills of sale and had checked the aircraft's title against FAA records.¹ At closing, Smith gave Philko the title documents, but, of course, he did not and could not have given Philko possession of the aircraft. Philko's bank subsequently recorded the title documents with the FAA.

After the fraud became apparent, the Shackets filed the present declaratory judgment action to determine title to the plane. Philko argued that it had title because the Shackets had never recorded their interest in the airplane with the FAA. Philko relied on § 503(c) of the Act, 49 U.S.C. § 1403(c), which provides that no conveyance or instrument affecting the title to any civil aircraft shall be valid against third parties not having actual notice of the sale, until such conveyance or other instrument is filed for recordation with the FAA. However, the District Court awarded summary judgment in favor of the Shackets, 497 F.Supp. 1262 (N.D.Ill.1980), and the Court of Appeals affirmed, reasoning that § 503(c) did not preempt substantive state law regarding title transfers, and that, under the Illinois Uniform Commercial Code, Ill.Rev.Stat., ch. 26, §§ 1-101 et seq., the Shackets had title but Philko did not. 681 F.2d 506 (CA7 1982). We granted certiorari, --- U.S. ----, 103 S.Ct. 487, 74 L.Ed.2d 630 (1982), and we now reverse and remand for further proceedings.

Section 503(a)(1) of the Act, 49 U.S.C. § 1403(a)(1), directs the Secretary of Transportation to establish and maintain a system for the recording of any "conveyance which affects the title to, or any interest in, any civil aircraft of the United States." Section 503(c), 49 U.S.C. § 1403(c), states:

"No conveyance or instrument the recording of which is provided for by [§ 503(a)(1) ] shall be valid in respect of such aircraft . . . against any person other than the person by whom the conveyance or other instrument is made or given, his heir or devisee, or any person having actual notice hereof, until such conveyance or other instrument is filed for recordation in the office of the Secretary of Transportation."

The statutory definition of "conveyance" defines the term as "a bill of sale, contract of conditional sale, mortgage, assignment of mortgage, or other instrument affecting title to, or interest in, property." 49 U.S.C. § 1301(20) (Supp. V, 1981). If § 503(c) were to be interpreted literally in accordance with the statutory definition, that section would not require every transfer to be documented and recorded; it would only invalidate unrecorded title instruments, rather than unrecorded title transfers. Under this interpretation, a claimant might be able to prevail against an innocent third party by establishing his title without relying on an instrument. In the present case, for example, the Shackets could not prove their title on the basis of an unrecorded bill of sale or other writing purporting to evidence a transfer of title to them, even if state law did not require recordation of such instruments, but they might still prevail, since Illinois law does not require written evidence of a sale "with respect to goods for which payment has been made and accepted or which have been received and accepted." Ill.Rev.Stat., ch. 26, § 2-201(3)(c).

We are convinced, however, that Congress did not intend § 503(c) to be interpreted in this manner. Rather, § 503(c) means that every aircraft transfer must be evidenced by an instrument, and every such instrument must be recorded, before the rights of innocent third parties can be affected. Furthermore, because of these federal requirements, state laws permitting undocumented or unrecorded transfers are preempted, for there is a direct conflict between § 503(c) and such state laws, and the federal law must prevail.²

These conclusions are dictated by the legislative history. The Senate, House, and Conference committee reports, and the section-by-section analysis of one of the bill's drafters, all expressly declare that the federal statute "requires" the recordation of "every transfer . . . of any interest in a civil aircraft." ³ The Senate report explains: "This section requires the recordation with the Authority of every transfer made after the effective date of the section, of any interest in a civil aircraft of the United States. The conveyance evidencing each such transfer is to be recorded with an index in a recording system to be established by the Authority." ⁴ Thus, since Congress intended to require the recordation of a conveyance evidencing each transfer of an interest in aircraft, Congress must have intended to preempt any state law under which a transfer without a recordable conveyance would be valid against innocent transferees or lienholders who have recorded.

Any other construction would defeat the primary congressional purpose for the enactment of § 503(c), which was to create "a central clearing house for recordation of titles so that a person, wherever he may be, will know where he can find ready access to the claims against, or liens, or other legal interests in an aircraft." Hearings before the House Comm. on Interstate and Foreign Commerce, 75 Cong., 3d Sess., p. 407 (April 1, 1938) (testimony of F. Fagg, Director of Air Commerce, Dept. of Commerce). Here, state law does not require any documentation whatsoever for a valid transfer of an...