Texas National Bank of Houston v. Aufderheide

• Decision Date: 19 November 1964
• Docket Number: No. PB-63-C-34.,PB-63-C-34.
• Citation: 235 F. Supp. 599
• Parties: TEXAS NATIONAL BANK OF HOUSTON, Plaintiff, v. Calvin AUFDERHEIDE and John McCauley, dba A & M Flying Service, and De Witt Bank & Trust Company, Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

235 F. Supp. 599

TEXAS NATIONAL BANK OF HOUSTON, Plaintiff, v. Calvin AUFDERHEIDE and John McCauley, dba A & M Flying Service, and De Witt Bank & Trust Company, Defendants.

No. PB-63-C-34.

United States District Court E. D. Arkansas, Pine Bluff Division.

November 19, 1964.

Guy Amsler, Jr., of Barber, Henry, Thurman & McCaskill, Little Rock, Ark., for plaintiff.

Griffin Smith, Little Rock, Ark., and Wilbur Botts, De Witt, Ark., for defendants.

HENLEY, Chief Judge.

This controversy arises out of a 1963 sale by a Texas retail aircraft dealer to the individual defendants, citizens of Arkansas, of a certain Piper PA 25-235 airplane which at the time of the sale was subject to a floor plan mortgage in favor of plaintiff, Texas National Bank of Houston, which mortgage had been duly recorded with the office of the Federal Aviation Agency in Oklahoma City, pursuant to the provisions of section 503 of the Federal Aviation Act of 1958, 49 U.S.C.A. § 1403. On February 20, 1963, the plane was sold at Houston to the individual defendants by Cummings & Groves, Inc., hereinafter sometimes called Groves, a franchised retail dealer in Piper Aircraft. The purchasers of the plane paid the dealer the purchase price thereof, but the dealer failed to discharge the lien of the Bank. This suit was filed when the Bank was unable to collect its debt from the dealer and was unable to get the plane back from the purchasers. The cause has been submitted to the Court upon the pleadings, a stipulation of facts, the discovery deposition of one of plaintiff's vice presidents, and briefs of counsel in the form of letters to the Court.

Plaintiff is a national banking institution domiciled in Texas, and having its principal place of business in the City of Houston in that State. As indicated, the individual defendants, who are partners doing business as A & M Flying Service, and who are hereinafter referred to as A & M, are citizens of Arkansas. The corporate defendant, De Witt Bank & Trust Company, is an Arkansas state bank having its principal place of business in De Witt, Arkansas County, Arkansas. This defendant holds a mortgage on the aircraft in question which was executed by A & M contemporaneously or practically contemporaneously with its original acquisition of the plane and which was recorded with the Federal Aviation Agency in May 1963, apparently after the controversy arose. Measured by the relief demanded by plaintiff, the Court is able to find and does find that the amount in controversy is in excess of $10,000, exclusive of interest and costs.

The record discloses that Groves did business in Houston between 1959 and 1963 and during that period was floor planning with plaintiff Bank aircraft purchased by Groves from the manufacturer. The arrangement between Groves and the Bank was that the latter would advance to the former 90 percent of the manufacturer's sales price of each aircraft acquired by Groves for the purpose of resale; the remaining 10 percent of such price was supplied by Groves itself. When the Bank would make a loan to Groves in order to permit it to acquire a new airplane, Groves would execute in favor of the Bank a 60-day note for the amount of the advance and would also execute and deliver to the Bank a chattel mortgage covering the plane. That mortgage would be recorded by the Bank with the County Clerk of Harris County, Texas, and would also be recorded with the office of the Federal Aviation Agency at Oklahoma City, Oklahoma, as required by the federal statute which has been mentioned, as implemented by regulations appearing in 14 C.F.R., Part 503, §§ 503.1 et seq.

Normally, when Groves would sell a plane to a customer such as A & M, it would satisfy the claim of the Bank against the plane, the Bank would give Groves a release of the mortgage, and Groves would mail that release to the purchaser.

Groves acquired the plane in question from the manufacturer on or prior to December 28, 1962, and in accordance with the floor planning arrangement the Bank advanced Groves the sum of $10,000. On the date just mentioned Groves executed and delivered to the Bank a note for $10,000, payable 60 days from date and bearing six percent interest, together with the chattel morgage in suit, which mortgage the Bank, according to its custom, filed for record in Harris County and with the Federal Aviation Agency at Oklahoma City. The filing date of the mortgage in Oklahoma City was January 4, 1963.

When A & M bought the plane, it paid therefor with a check for $12,500 drawn on the De Witt Bank & Trust Company. The face of the check indicated that it had been drawn in payment of the purchase price of the particular aircraft involved in this case. Groves endorsed this check for deposit and deposited it with the Bank. Groves did not direct that the proceeds of the check be applied so as to extinguish the obligation to the Bank with respect to such plane, and no such application was made. The proceeds of the check were simply credited to the general checking account of Groves. Upon completion of the purchase A & M assumed possession of the plane, caused it to be flown to Arkansas and put it into service in connection with the business of A & M, which is that of operating a commercial agricultural aviation service.

It has been stipulated that none of the defendants made any search of the records of the Federal Aviation Agency at Oklahoma City or of the records of Harris County, Texas, in connection with the purchase of the plane, but it has been stipulated also that none of the defendants had any actual knowledge or notice of the lien of the Bank.

Although the Bank's mortgage in terms prohibited a sale or removal of the plane by Groves without the written consent of the Bank, the Court finds from the materials before it that the transaction which gave rise to this lawsuit was handled by Groves in its usual and customary manner, the only difference being that in this instance Groves did not pay off the Bank after selling the plane. The plane was permitted to remain in the possession of Groves as part of its stock in trade and was exposed and advertised for sale in the regular course of business. It is clear that the Bank knew that Groves was selling aircraft covered by floor plan mortgages in favor of the Bank and was settling with the Bank after sales were made. According to the deposition which has been mentioned the Bank had financed Groves in connection with the acquisition of from 50 to 75 aircraft prior to making Groves an advance in connection with the instant plane.

The evidence reflects that it was the custom of the Bank to make more or less periodic checks of the inventory of Groves. In the course of one of those inspections, which was made in March 1963, representatives of the Bank discovered that this particular plane was missing and investigation revealed that Groves had sold the plane to A & M and had not satisfied the Bank's claim.

It is the position of the Bank that since its mortgage was duly recorded with the Federal Aviation Agency prior to the time when A & M purchased the plane from Groves, the lien of the Bank, by virtue of 49 U.S.C.A. § 1403, is a valid lien and is superior to the claims and interests of the defendants, including the De Witt Bank & Trust Co.

In opposition to the Bank's claim the defendants advance two contentions. They contend, first, that the validity of the mortgages against them is not governed by the federal statute, but by article 4000 of Vernon's Annotated Civil Statutes of Texas,¹ and that as to them the mortgage is void since the aircraft was left in the possession of Groves as part of its stock in trade for the purpose of sale, and that it was sold at retail by Groves in the regular course of business and was purchased in good faith by A & M. Defendants contend, alternatively, that in any event the Bank waived its lien on the plane when it accepted Groves's deposit of A & M's check and credited it to the former's account without taking steps to satisfy its own security interest.

In countering the contentions advanced by defendants the Bank argues in its letter briefs that even if the rights of the parties are not governed by the federal statute on which it relies, nevertheless the mortgage in suit does not fall within the terms of Article 4000 of the Texas Statutes, and the Bank denies that its conduct with respect to the handling of A & M's check constituted any waiver of its mortgage lien.

I.

As stated, 49 U.S.C.A. § 1403, upon which plaintiff relies primarily, is section 503 of the Federal Aviation Act of 1958; corresponding provisions appeared in the earlier Civil Aeronautics Act of 1938. Section 1403 and the regulations just mentioned set up a system for the recording at a central point, Oklahoma City, of all conveyances and other instruments, including mortgages, affecting title to commercial aircraft in this country. They also prescribe in general the form which such instruments are to take and the formality with which they are to be executed.

Section 1403(c) provides in general that in the absence of a proper recording, as prescribed by the Act and regulations, no conveyance or mortgage affecting the title to an airplane is valid, except as between the original parties or with respect to third persons having actual notice of the conveyance or lien. And section 1403(d), insofar as here pertinent, provides that when such conveyance or instrument...