Potts v. Draper, s. 93-SC-275-T

• Decision Date: 30 September 1993
• Docket Number: Nos. 93-SC-275-T,93-SC-276-TG and 93-SC-277-TG,s. 93-SC-275-T
• Citation: 864 S.W.2d 896
• Parties: Ray POTTS, D/B/A Ray's Auto Sales II; and Empire Fire and Marine Insurance Company, et al., Appellants/Cross-Appellees, v. David W. DRAPER, Appellee/Cross-Appellant, and Capital Enterprise Insurance Group, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 896

864 S.W.2d 896

Ray POTTS, D/B/A Ray's Auto Sales II; and Empire Fire and Marine Insurance Company, et al., Appellants/Cross-Appellees, v. David W. DRAPER, Appellee/Cross-Appellant and Capital Enterprise Insurance Group, Appellee.

Nos. 93-SC-275-TG, 93-SC-276-TG and 93-SC-277-TG.

Supreme Court of Kentucky.

Sept. 30, 1993.

Bradley D. Harville, Landrum and Shouse, Wayne J. Carroll, Edward H. Bartenstein, Mackenzie & Peden, Louisville, for appellants/cross-appellees.

Donald L. Miller, II, Colin H. Lindsay, Brown, Todd & Heyburn, Douglas W. Becker, Roach, Becker & Wheat, John R. Martin, Jr., George P. Parker, Landrum & Shouse, George Bruce Stigger, Scott F. Scheynost, Roach, Becker & Wheat, Kenneth E. Dunn, Gittleman, Bleidt & Barber, David A. Harris, J.D. Raine, Jr., Morris, Garlove, Waterman & Johnson, Louisville, for appellees/cross-appellants.

WINTERSHEIMER, Justice.

This appeal has been transferred from the Court of Appeals in order to consider it in conjunction with Rogers v. Wheeler, 864 S.W.2d 892 (1993) which we have also decided on this day. The appeal is by Ray Potts, a used car dealer, and his insurer, Empire Fire and Marine Insurance Company from a judgment entered by the Jefferson Circuit Court in favor of David W. Draper. Capital Enterprise Insurance Group (CEIG) is in the case only because it provided automobile liability insurance coverage to David W. Draper. CEIG paid benefits on behalf of Draper under the policy of underinsured motorist, no-fault and collision benefits immediately after the accident because no other insurance carrier admitted coverage.

On July 27, 1989, Draper was severely injured when his vehicle was struck head-on by a 1976 Ford van driven by Tammy Glisson. Glisson, who had no insurance of any kind, purchased the van on June 13, 1989, from Ray's Auto Sales II. Empire provided liability insurance for all vehicles owned by Ray's Auto Sales II. Draper sued Glisson, Ray's Auto Sales II and Empire Insurance.

The principal issue is the question of ownership of the vehicle at the time of the accident and the insurance liability.

Additional facts must be recited in order to understand this complex situation. On April 2, 1989, Ray's purchased the 1976 Ford van from J-Town Auto Mart through the Clark County auto auction. On April 22, 1989, the vehicle transaction record was obtained by Ray's from the Clark County auction but could not be filed with the county clerk because the seller's title was not available apparently because of problems relating to lien releases. On May 8, 1989, the title to the van was obtained by J-Town and forwarded to Ray's. At that time the vehicle transaction record and title were filed with the county clerk's office so that it could be listed as "on assignment" to Ray's. On June 13, 1989, the Glissons purchased the van. As part of this transaction, Glisson and her husband signed a purchase order and a contract called a "lease/purchase agreement" and a retail installment contract. The Glissons took possession of the van on June 13, 1989. Ray's filed the vehicle transaction record to effect transfer of title to the Glissons on August 3, 1989, one week after the accident. The trial court determined that the transaction was not a conditional sale based on the fact that title was transferred even though there was still a substantial unpaid balance.

The circuit judge granted the declaratory relief sought by Draper and CEIG and denied motions for summary judgment from Ray's and Empire, ruling that Ray's owned the van and Empire insured the van on the day of the collision.

The circuit court correctly applied Kentucky law on the legal title of motor vehicles in order to determine that Ray's owned the van on the day of the accident, July 27, 1989.

Kentucky is a certificate of title state for the purposes of determining ownership of a motor vehicle and requiring liability insurance coverage. K.R.S. 186A. Cowles v. Rogers, Ky.App., 762 S.W.2d 414 (1988). The owner of a motor vehicle is the title holder unless a motor vehicle is subject to a valid conditional sale for liability insurance purposes. K.R.S. 186.010(7); Cowles, supra. The adoption of K.R.S. Chapter 186A in conjunction with the existing provisions of Chapter 186, had the effect of changing the law of Kentucky from an equitable title state to a certificate of title state for the purposes of determining ownership of a motor vehicle for liability insurance requirements. The general law of sales is no longer applicable to such a situation because of the statute.

A conditional sales contract is one where title is retained by the seller in order to secure payment by the purchaser. Once payment has been made in full, then the title is to be transferred to the purchaser pursuant to the terms of the agreement. The circuit court correctly utilized Black's Law Dictionary, 5th Edition, to reach a similar definition of conditional sale to the effect that a conditional sale is "a form of a contract in which the seller reserves title until the buyer pays for goods at which time the condition having been fulfilled, title passes to the buyer." In this case, there is no question that title was transferred by Ray's to the Glissons on August 3, 1989, one week after the accident, despite the fact that there was a substantial unpaid balance. The record also indicates that Glisson was still making weekly payments after the accident.

Empire's reliance on 36 A.L.R.4th 7 (1985) is misplaced. The statutes of Kentucky are clear and unambiguous that the owner of a motor vehicle is the titleholder in the absence of a valid conditional sale. Although we appreciate the scholarly efforts on behalf of Empire in reciting the statutes and cases of 36 other states and other treatises, it is not persuasive in this matter because the law of Kentucky is abundantly clear.

All of the above described statutes as exhaustively explained by Empire are different in critical ways from the language of the statutes in Kentucky.

The argument by Empire that K.R.S. Chapter 186A is designed to automate the title system and has little to do with determining ownership for insurance purposes is unconvincing. The annotation in 36 A.L.R.4th 7, 12 (1985) itself notes in pertinent part that various state statutes are designed to provide a system of registering titles and prescribing the formalities necessary in order to transfer title to an automobile. These formalities must be followed. K.R.S. 186.010(7) provides that an owner in a conditional sale or lease who is entitled to...