Appendix — Dowell v. Beech Acceptance Corp.

Supreme Court brief1971

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“ vy. = | Supreme Court, U.S.

wuees: ce COURT So ED

NO.

{apr 819m

E. ROBER

- SEAVER, CLERK |

Inthe Supreme Court ofthe tited- Sta

ee ie > ap 6

DONALD A. DOWELL,

Petitioner

- oe ‘ . j 3 Ve

. BEECH ACCEPTANCE: CORPORATION, INC.

| ‘NEVADAIR COMPANY,

NORMAN LARSON COMPANY,

Respondents

. PETITIONER’ Ss’ APPENDIX A

PETITION FOR WRIT OF CERTIORARI TO THE -

SUPREME COURT: OF THE STATE OF, CALIFORNIA |

JOHN S. YODICE .

4606 East-West Highway

Bethesda, Maryland 20014

Attorney for Petitfoner

‘ &

-E.’CHARLES FORDE — | a 4s

4316 East Slauson Avenue |. a e

Maywood, alifornia —

Of Counsel

« .

> °

” P

‘a

"order of the Supreme Court of

—

eae ee

. Pertinent Provisions of the

Pertinent Provisions of the ~° 4

Federal Aviation. Act of 1958...

“ff

California Commercial Code ....

Opinion of the ‘Superior ‘Court for

the County of Los Angeles, State ©

of California, December 6, 1967.-

Opinion of the Court of Appeal,

‘Second District, State of.

California, February 24, hoy, Se

aes

Opinion and Judgment: “of the Supreme .

Court of California, November 16,

1970 . ° e 7 . - . - = . © a

California Denying Rehearing,

filed January p! P 1971 ” <. ° ee

APPENDIX

_ PERTINENT PROVISIONS See

OF THE FEDERAL AVIATION ACT OF 1958

.1 Title 49 of the United States Code

§1301.' Definitions.

| As used in this chapter, unless the

“context: otherwise requires -—

it (17) "Conveyance" means a brll of dais,

contract of conditional. sale, mortgage, as-

_signment of mortgage, or other instrument

afféetting title to, or interest in,. oy:

-§ 1403. Recordation of: aircraft owner ship.

(a) Establishment of recording system,

JV The Administrator shall establish and

maintain a system for the recording of each

‘and.all of the following:

(1) Any conveyance which affects the

title to, or any interest. in, any civil

aircraft: of the United States:

(2) Any lease, and any mortgage, atin

ment trust, contract of conditional’ sale,’

or other instrument executed for security

purposes, which’ lease or other instrument

affects the title to, or any interest in,

‘ any Specifically: ‘identified aircraft en-

_ gine or engines of seven hundred and fif-

ty or more rated takeoff horsepower for

_ each such engine or the. equivalent of such

‘horsepower, or any specifically identified

aircraft propeller capable of absorbing

. seven hundred and fifty or more rated take

. “off shaft horsepower, and also any assign- —

ment or. amendment thereof or. supplement |

thereto: -*

(3) Any. lease, and any mortgage,

equipment trust, contract of condi-

tional sale, or other.instrument ex-

- ecuted for security purposes, which

lease or other instrument affects the

title to, or any interest in, any air-

craft engines, propellers, or 2ppli-

ances ‘maintained by or on behalf of an

air carrier certificated under §1424

(b) .of this title for installation or

use in aircraft, aircraft engines, or

propellers, or any spare parts main-.

tained by or on behalf of such an air |

carrier, which instrument need only de-

scribe generally by types the engines,

propellers, appliances, and spare parts

covered thereby and designate the lo-

cation or locatis

assignment or

ment thereto.

{b): Recording £f releases, cancellations,

discharges) or satisfactions. 7

The. Administrator shall also record un-

der the System provided for in subsection —

(a) of this section any release, cancel=

lation, discharge, or satisfaction relat-

ing to any conveyance or other instrument »

recorded under said system. '

| *

struments; filing.

No conveyarice or instrument the record-

ing of, which is provided for by. subsection ©

(a) of this Section shall be valid in 7e-..

spect of such aircraft, aircraft engine or

engines, propellers, appliances, or spare

s thereof; and also any

person _by whom the

-instrument is made

7 parts against afl person other than the”

conveyance or other

or’given, his’ heir or

devisee,,or any person having actual no-

tice thereof, until such conveyance or oth-

er instrument is_filed for recordation in

‘the office of the,Administrator: Provided,

‘ That previous recording of any conveyance

- or instrument with.

Civil Aeronautics Administration under the

the Administrator of.,the

provisions of thd Civil Aeronautics Acts of

1938 shall. have. the same force, and effect.

as though recorded

as provided herein; and

conveyances, the recording, of which is\ pro-

vided for by subsection (a) (1)! of this ‘sec-

tion made on of before August 21, 1938, and

instruments, the recording ‘of whicH is ‘pro-

vided for by subsections (a) (2) and (a) (3)

of this section made on or before June 19,

1946, shall not be

of this subsection.

subject to the provisions)

(da) Effect of Recording. _

Each conveyance or other instrument re-

- corded by means of

or under the system pro-

vided for in subsection’ (a) or (b) of this

“section shall from

for recordation be

without further. or

that an instrument

~ section (a) (3) of

the time of its filing

valid as to all persons

other recordation, except

recorded pursuant to sub-

this séction. shall be ef-

fective only with respect to those of such

items which may from -time to time be

situated at the designated location or.

locations and only’ while so situated:

Provided, That an instrument recorded under

“subsection: (a) (2)

of this section shall hot

_ be affected ‘as to: ‘the engine or engihes, oF

‘4

propeller or propellers, specifically iden-

tified therein, by any instrument theretofore_

or thereafter recorded pursuant to sub-

ee (a) va of this section.

(e) Form of conveyances or - other! instru-:

ments. .

Except as the Administrator may by regu-

lation. prescribe, no conveyance or other

instrument shall be recorded, unless it shall

have been acknowledged before a notary pub-

»lhic or other officer authorized by the law

of the United States, or of a State, terri-

tory, Or possession thereof, or thé District

of rere to take acknowledgment of deeds.

(f) Index. of ‘conveyandes. and other uae

The ‘saniiasktator shall keep a ‘eaten’ of

the time and date of the filing of convey-

ances and:other instruments with him and of .

the time and date of recordation thereof. He

shall record conveyances <and other instru-

ments filed with him in the order of their .

ve. ption, in files to be kept for that pur-

pose, and indexed according to --~

(1) the identifying description of the air-

craft engine, ropeller, or in the case

of an instrument refexxed to in subsection

(a) (3) of :this section, . > location or

locations specified therein, anad—~

(2) ‘the names of the parties to the convey-

ance or other instrument. ~ |

(g) Regulations. ’

The Administrator is authorized to provide -

by regulation for the endorsement upon cer-

tificates of registration, or aircraft’cer-

tificates, of information with respect to the*

. . gunership of the aircraft for which each

certificate is issued, the recording of

| discharges and satisfactions of recorded —

instruments, and other transactions af-.

fecting title to or interest, in. aircraft,

aircraft engines, propellers, appliances, .

or parts, and for such other records,: pro- -

ceedings,: and details as may be: necessary

to facilitate the determination of the

rights of. parties dealing with civil air-

craft of the United States, aircraft en-

nee, sci caaienebhel Seen, or parts.

(h) Previously unrecorded ownership of

aircraft.

The person applying for the issuance or

renewal of an airworthiness certificate

for an aircraft with respect to which

there has been no recordation of ownership

as provided in this section ‘shall present

- with his application such information with .

respect to the ownership of the aircraft

as the Administrator shall deem ‘necessary

to show the persons who are holders of pro-

perty interests. in such aircraft and -the’ na-

cure and extent of such interests.

6 .

_.. ‘. PERTINENT PROVISIONS —

OF THE CALIFORNIA COMMERCIAL CODE

§2403. Power to Transfer; Good Faith

- Purchase of Goods; "Entrusting".

(1) A purchaser of goods acquires all ti-

tle which his transferor had or had power

to transfer except that a: purchaser of a

Limited interest acquires rights only to

the extent of the interest purchased. A

person with voidable title has power to ‘

transfer a good title to a good faith pur-

‘chaser for value. .- When goods ‘have been

delivered under a transaction of purchase

the purchaser: ‘has’ such power even though

(a) .The transferor was deceived as

to the identity of the purchaser, or

(b) ‘The delivery was in exchange for

a check which is later dishonored, or

tion: was to be a "cash sale," or

‘(d) The delivery was procured through

fread punishable as larcenous under the-

criminal law.. |

i as 2 ;

(2) Any ‘entrusting of possession of goods

to a merchant who deals in goods of. that

kind gives him power to transfer all rights

of the entruster to a buyer in ordinary

urse of: business.

(3) “Entrusting” includes. any delivery and

any acquiescence in retention of possession

for the purpose of sale, obtaining offers

to purchase, locating a buyer, or the like,

regardless of any condition expressed -

between the parties to the delivery or ac-

quiescence and regardless of whether the

procurement of the entrusting or’the poss-

essor's disposition of the goods have been.

‘ such as to be larcenous under the criminal

law.\ \

§9307. Protection of Buyers of Goods. -

(1) A buyer in ordinary course ‘of busi-

ness (subdivision (9) of Section 1201)

other than a person buying farm products

from a person engaged in farming operations

takes free of a security interest created

by his seller even though the security.

interest is perfected and even though the

buyer knows .of its, existence.

§1201(9). shine in ordinary course Of

business" means a person who in good faith ©

and without knowledge. that the sale to him

——is—in-viotation, of the ownership rights or

security interest of a third party in the

goods buys in ordinary course from a per-

son in the business of selling goods of

that kind but does not include a pawn bro- |

ker. "Buying" may be for cash or by ex-

change of other property or on secured or

unsecured credit and includes receiving

goods or documents of title under a pre-

existing contract for sale but does not

include a.transfer in bulk or as security

for or in total or partial satisfaction of

a money debt.. :

A 8

, IN THE |

SUPERIOR COURT’ OF THE STATE OF CALIFORNIA

-FOR THE COUNTY OF LOS ANGELES

- DONALD A. DOWELL

Plaintiff

. oe

- MARION TANGER,

BEECH ACCEPTANCE. CORPORATION, INC.,

-NEVADAIR COMPANY, :

AND THE NORMAN LARSON COMPANY,

Defendants

soc - 14279

(Consolidated with No. 894539)

‘December 6, 1967.

HON. ROBERT H. PATTON, Judge ex

THE COURT: Any case such as this, that?

involves serious questions of statutory

construction and the respective constitu-

; tional powers of the federal government

. and. the state, should really have a formal,

written opinion by the trial judge, I: .

think, explaining to the parties, at least,

and to such of the reviewing courts as

would like to know his reasons for his

aabisians not that they are-governed by it

at all. But it enables them to find the

point at which to level the guns of their

jurisprudence. . rae

However, since .my vacation time for the

year. begins next week, I think it would be

an imposition on the parties to/vhold the

case under submission for such a length of

time as would require me to--permit me, .

rather, to have my vacation and then write

a formal opinion.

€

$0, bearing in mind that I have extreme

difficulty in expressing myself clearly in

sound legal language extemporaneously,

and bearing in mind that if the case is

taken up on review that you will both have

to do a lot of work. in placing an issue of

this importance clearly before the courts

of review, all I can do is to give you an

outline of the general principles on which

I will decide the case here at this trial

court level.

Our main cpcbion:; as. both the lawyers ©

well recognize here, is to determine the.

extent to which the Congress by the: adop-

tion of the Federal Aircraft Registration:

Act has .occupied' the entire field of law

governing the rights of parties to aircrafy.

Apparently because of the obvious practical,

necessity of having some central place of |

‘registration for aircraft, the courts ap-

parently have not tried to-comb with a |

- fine tooth comb the decisions that might

question the, or put limitations upon the

power of the Congress to entirely supplant

‘state law in any field such as —

I have no doubt“but what‘if cases of this

kind ever go to the Supreme Court of the

United States, that they will find that ._.

under the. general power of Congress under

the Constitution with respect to intersta-

te commerce that a central system of re-

gistration is constitutional, but I have

no doubt at all that our Supreme Court of

the United States will not say that Congress

by occupying the field with respect to-re-..

‘“gistration of aircraft or any other kind

of property will totally oust the states

from their right to govern the personal

4 obligations between parties who happen to

4 have some connection with an airplane which

has been validly registered with the Fe--

deral Aviation Authority back in Oklahoma

4 . * City, because Congress, has supplied no al-

% ternative law to regulate the personal .

conduct of the parties with respect to the

transaction. They merely provided a me-

thod for establishing priority among dif-

ferent claimants, different claimants to

ownership and different ‘claimants to se-

—— interest. That is not enough.

_How do you pay a debt ‘which is secured

by a federally registered mortgage or

conditional sales contract? You have to

pay it to some agent of the corporation.

Well, who is an agent of the corporation?

Suppose that you pay the president of the

corporation. Does Congress mean to say

that because you have a rule in your own

bylaws, that ‘the president of Beech

Acceptance Corporation has no authority to

accept payment, that the customer is bound

by that? Congress would have to supply ~~

some other way of affoyding a means” of “

making sie hnaceanea

What ere the tate “jew of cntumpes?

Suppose that the president of the greatest

- airplane manufacturer in.the world says to

a potential buyer, "There are no liens on

this property except one. That belongs —

to my company. Just pay me the purchase —

price,-and that will be discharged." vo

you mean to say that Congress intends not

to have the old-fashioned common law and

State law of estoppel. apply with respect

to the president of a corporation who as-

sures a customer that he is doing business

in such a manner as will give him good ©

title to the airplane? I think not.

. What about the state law with respect

to payment? It has been the law for

hundreds of-years that if you do owe an

obligation, that you can discharge it by

what in common law was called diipiusnaae:

Now, Congress has a hae to say what is.

| legal tender for payment, but Congress hasn't

_ told us in this act who you make payment to. |

The common law and the statutes say you

make payment to a representative of the

person who owns the obligation. |

Well, do you say, "But this is something

that the customer has to worry about him-

self?" No. The common law and the state

law do not say that and, since Congress has

not clearly at least indicated its intent

~to supplant all of the state law with

respect to estoppel, agency and payment,

-and has. provided no alternative law to

guide the courts of the state in determi-.

ning those questions, I am going to hold

' that the Congress did not intend to sup-

plant the law of California or the law of

any other\ state for that matter wfth res-

‘ pect to the personal obligations that arise

_. / between the parties who may deal with the

/ property that is, nevertheless, subject to

ee _a valid registration back in Oklahoma City.

if = ee : ne”

Now, what do the cases say so far on

this subject? In the Pope case there was

no disregard or overruling or ousting of

the-state law by that decision. Now, the

‘District Court of Appeal in ‘the broadness

of its language did indicate that more.

than simple registration was governed by ©

the Federal Registration Act. And I,want

the record to show that there is no inten-

tion on the part.of this trial court to

disobey the injunction laid on us by the

Supreme Court of this State in the equity

case which held that it is our business

to follow nee yporgeae of the District

Court of Appeal and not to question them

“or to criticize them.

If the decision in the Pope case had

involved the question of estoppel or the

question of agency or the question of pay-_

ment, I would follow it implicitly regard-

less of the fact that I ‘believe that Con-..

gress has no. power to occupy those fields

to the exclusion of a state.

With véepec? to the Atias : Services’ case,

they came closer still to intimating that

in their opinion the registration act of.

Congress should be solely looked to to

govern the respective rights of the par-

ties. But even there there was no ousting

of state law. There was no principle of

state law involved that would be in con-

flict with that ruling. i

_ It has never been the common law or the

State law-of California that someone does

not have to suffer when there are two com-

> toa innocent persons to a third party's

fraud.

: ‘Take, for example, the Pope case. If

either of you lawyers had paid substantial

sums Of money to join,- let us say, ‘the

California Club, and the Galifornia Club

was subject to a mortgage held by the Bank

of America, you couldn't complain under

our state law that when the Bank of Ameri-

ca. foreclosed on its mortgage you had to

get out of your club. [It is just as sim-

ple as that. That has always been the law.

But suppose that the aircraft company

had itself promoted and put in operation

the club and encouraged all these members

to join it. and had assured them that "if

_ you pay your membership to ‘this club, you

will be protected for five years." I ‘

haven't the slightest doubt but what the

State of California and--both the laws ‘of

the State of California and the federal —

laws, too, would estop that aircraft manu-

_facturer from forcing. those men out of, the

airplane because they had themselves en-

couraged them. to join.

I have no doubt in the Atlas case that

if the owner, the true owner, the company

' that owned the lien or the title, if the

title was not encumbered, had told this

mechanic, "Put in this new aircraft engine;

we will pay you," that the law would have

_been that they are estopped then to rely

on their prior mortgage to beat that man

out of the wince of his engine.

’

But there was no such /estoppel in -that .*

case. ‘The. people who had the mortgage or

the basic. title to the airplane didn't - |

order that engine in. It was tough that |

somebody: had to lose. So the law let the

law of priority take its course. So much

for. the decisions of the State of Califor-

nia. *, |

The federal courts have treated our

specific subject only twice. That is, with

respect to-the rights of a purchaser -on

the open market or any other situation in

which the state law of estoppel, agency or

payment would be involved. :

The case that both of you realize is

closer to our picture than any other and

is, in my opinion, precisely identical, in

legal concept, at least, is the case of

Texas National Bank of Houston vs. Aufder-

heide. That's in 235 Fed. Supp. The case

has been completely analyzed by both of you

lawyers. You know precisely what it. held.

15 Sar

A Federal District: Court decision is

not binding, of course, upon this court,

but it is certainly very persuasive as

‘to what the federal law is in. this yee

one field.

It also indicates’ that it didn't ever

occur to..Judge Henley of Texas that Con-

gress oo the common

law of Texas expressed in that Corpus

Juris quotation out the window.

It would have been better for our pur-

poses, of course, if you had an extended

law review treatment on both sides, by.

the fellow who was upholding the lien: and

the fellow who was upholding the rights of

the purchaser, but the basic tenor of the

case is pretty clear. The fact that Judge

Henley refers to the comparability of the

position of the purchaser of an automobile

or television set or any other article of

commerce that is actually displayed for

sale by a merchant in the regular’ course

‘of business must be protected against prior

mortgages. o.

In the second case, the State Securities

case in 355 Fed. 2d, there appears to be

no reason at.all why the court became in-

voived in our problem because there was

no prior mortgage recorded at all. But st,

nevertheless, is an authority in this

sense: That it is a great court of the _

United States, ‘the ‘second highest that

have in our land, the Circuit Court ror\\

the Tenth District, and they expressed

their opinion. - It is ‘not a decision on

this point, but it is-their point that

the state law of estéppel--and they men-

tioned it by name--is not ousted by the

adoption of the Federal. Registration. Act.

I will treat it only as I would treat a

learned law review article appearing in

the Law Review of the University of Cali-

fornia, let us' say, signed by those gen-

tlemen of the. Tenth Circuit Court of Ap-

peal and, as such, it is entitled to a

lot of consideration before I would dream

of “disregarding their opinion, all of

them federal: judgds of the. second highest

rank, and they say that the state law of |

estoppel is not ousted. | ra

It should hi borne in mind when this

case is reviewed, if it is--and it is.

important enough to be reviewed--that the

_ doctrine of estoppel never did attack the

validity of the prior mortgage or the ©

prior. title of someone whose property was

exposed for sale. They say, of course,

the mortgage was legitimate if used in the

normal way.’ But you folks, you particular

mortgagees consented to this particular ©

merchant putting these goods on display.

That is where the consent that Judge Hen-

ley was talking about comes. from,

. There was. no geeetion: that the mortga-

ge company in that case did not say in so

many words that "we consent to you selling

this property, this’ plane free and clear

~- of our mortgage." The consent. is neces-

sarily. implied from, the fact that it put

it on the open market.

Now, that principle is older than the

United States.Constitution. It is older

than our Uniform.Commercial Code. “It is

so old that there is no known record of

'. its origin. In he common law it was _

called the~principle of the market overt.

_ If the true owner of any kind of goods at

all permitted thé goods to-be sold on a

market Overt, the’ purchaser-of those goods

- for value got good title. ‘The common-law

lawyers didn’t even resort to such lega-

lisms as ostensible agency or estoppel.

They just said if you walk up to an open

market and buy a piece of goods, you get

title ipso facto. It was that cold and

that clear. Anda market overt was limi-

ted, but every store in London--they cal-

led them shops--every shop that contained

goods for sale was an open market as to

the, goods that it customarily dealt in.

For example, 424 jeweler would sella

horse, the customer was not protected by

the rule of open market because he had no

right to assume that the jeweler had the

right to sell a horse:: But if We sold a

jewel--and oftentimes in the common law:

days jewels and gold in amounts equal to

the price of our airplane were sold int

fashion, and the. title was confirmed by .

- common rds x .

_ Now, in the United States, and parti-

cularly California, we articulate that

principle in little more detail. In other

words, we defend it. We- defend it on the

ground of estoppel. And that estoppel is, *

I think, best outlined in California in the

case of the Commercial Credit Corporation

- 18

vs. Barney in 10 Cal. 2d 718 where #%t says

that the owner or the lienholder--it doesn't

make any difference which--and for this.

reason I am not distinguishing between

Beech Aircraft Company and Beech Acceptance

Company, because both of. them consentéd to

the placing of the plane on the open market,

in the place of business of an open merchant |

dealing in that particular product--so both

the owner and the lienholder are bound by

that act of putting the indicia dof owner-

ship, and the possession, and all the trap-

pings that go with the ordinary power of

' retail sale, all in the hands of Mr. Tanger.

That is the act which estops them from rely-

ing on their valid mortgage. And I want

the record to show that I treat the mort-

gage as being valid, but they are estopped

to rely upon it. -

But, further than that, they have pla-

ced in’ the-hands of-Mr. Tanger an agency,

an agency to sell, of course, which they

admit, but, more than that, an agency to

accept payment. By placing the title of

‘authorized dealer above the name of Mr.

‘Tanger, above his shop, and in-the adver-

tising, in my opinion, there is no doubt

whatever but that they thereby constituted

him their agent to accept payment of the

very mortgage upon which they rely.

' Také an analogy. In a very recent case

our District Court of Appeal, or the

Supreme Court of this State, has held that

an insurance company that writes a policy

of group insurance for an employee and

tells the employer, "You collect the pre-

-miums’ and pay them to us," thereby’ makes

the employer their agent for the collec-

tion of the premiums; and if he should

default in paying the premium, then, to

the company, the tustomer's, nevertheless,

protected because they have made him their

ostensible agent for. ee

I think that is weitine far, far more to.

the left, let us say, of our particular

principle than the idea that authorized

agent dealing in automobiles, locomotives -

or aircraft is authorized to accept pay-

ment on behalf of whom? ° On behalf of not

only the owner who constitutes him the

agent but also on the part of the mortga-

gee who let him also have possession of

the automobile or the aircraft for pur-

_poses of sale. Remember that: all payment

has to go through the hands of ,some agent.

Even the president of the corporation is

at law an agent of the corporation for

some purposes. The treasurer is-agent for

some purposes, The authorized agent is

“agent,for some purposes.

eeteecea:- <6 will be my ruling that .

the payment by the ultimate purchaser to

Mr. Tanger did constitute payment of the

purchase price in full. And that is an

_additional ground for the judgment over

and above my finding that both the air-

craft manufacturing company and the air-

craft financing company are estopped to

rely upon their valid prior mortgage.

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| And, again--and. this will be in conclu-

‘ sion. I don't want to drag this out un-

nécessarily--if the case is reviewed, I

think“the reviewing courts should have it

_called to their attention that the mere

knowledge of the existing lien is no

solution to the problem at all..

Suppose the purchaser does call the

federal. registry authorities and ‘does.

find out that there is a lien; what in

the normal course of American: trade will

happen? The dealer will. say,."Well, of

course there is. That is our flooring

plan." ee

"Well, what do I do’ about that?", says -

the customer. ~

The dealer says, "Well, just pay it.

here. It will be discharged, and you will

. get your title papers through. the mail in

_due course." ‘

There is no way that the customer can

conceivably protect himself. Knowing

that there is a lien and paying it he

would still not have protection if the

theory of the aircraft financing company

is to be maintained in this case.

Sometimes on review, while the review-

ing courts may have no inclination what-

soever to defer to our opinions as to the

basic law, they often are very considerate

_ of our practical knqwledge of the .way

‘business is done. ‘So I hope that ‘that is

called to. their attention if this case

goes up: . That there is no practical way °*

for the customer to protect himself. . In

' fact, in the. absence: of title insurance

companies or’escrow companies located ex-

actly in Oklahoma cit¥ so, that they wili

-be able to provide: simultaneous release

and re-recordation of the new instruments,

the Bank of America would not be able to

protect itself by merely calling Oklahoma

City.’ It would find out that at the par-

ticular time of that call there is no lien.

The lien could be filed 15 minutes: later.

They could take their lien and attempt to

get it on record that same afternoon, . and’.

they would be. helpless.

So, there are very practical | reasons,

I think, for holding, first, that Congress

had no intention to oust the state courts ©

of all of their jurisdiction | over those

“multiplicity of. personal. problems that go

after recorddtion and that are not solved

by recordation. And you will find that

even though the federal courts have recog-

nized that the Congress . did attempt: to ¢

occupy the entire field of labor-management .

- relations, for example, a long time before

they tried to occupy this particular, field,

they found there were some ‘things that /

Congress must be assumed to have left to

the states, such as a. battery or an assault

or a murder committed on the picket line.

I am no speech maker for the doctrine of

states' rights, . generally. The doctrine

of states’ rights has fallen into some

Sener aaeee disrepute jail recent yeene

—

22 | oy

because of its abuse by states who wanted -

freedom to.do acts which the general con-’

sensus of legal opinion was to the effect

that they should not ‘be permitted te do

them. :

es Here, however, we have the- noblest .pur- _

_ pose that a state can fulfill--the pro-

tection of its own customers in the or-

dinary course of business. And I’ don't

think that the courts of the United States

are ever going to say, in the first place,

that it was Congress' intention-.to oust

that. If they did, then they will have to

seriously consider whether or not Congress

had the power.

Very well, gentlemen. You tried a

beautiful case. You presented all of the

evidence that could possibly be presented **~

on the point as far as I can see. And .

the issue is clear, and you both under-.

stand it well. So I think there is no-

thing I can add except to give judgment

for the plaintiff or decreeing that the |

title to the aircraft does belong to Mr.

Dowell, and that the defendant will be |

ordered to execute the necessary papers

to clear title in his behalf.. |

THE CLERK: Judge, there are plaintiffs.

“and cross-complainants and ---

THE COURT: Plaintiff Dowell ---_

THE CLERK: Against ---

rn i?

‘THE COURT: -- against the defendant

Beech Acceptance Corporation. Is there

any other defendant involved here ——

we need to" cover? .

MR. BERNARD: . don't believe so inso-

_far as title to the aircraft is concerned.

There were other defendants on the fraud-

conspiracy claim that: I represent. ake

MR. FORDE: Plaintiff Dowell! s sekid

was against Beech, Tanger and Nevadair

and Larson Company. |

THE COURT: Well, I will have to find

that you are not damaged by Mr. Tanger...

So the judgment will have to be in favor

of Mr. Tanger on the complaint ‘of Mr.

Dowell against Mr. Tanger because of the

lack of damage.

There will also be a judgment for loss

of use in favor of Mr. Dowell as against

_ Beech Acceptance Corporation and the dis-.

tributor--is the distributor a named

defendant here?

~MR. FORDE: Yes. In the Nevadiar ---

THE COURT:. The people involved ---

MR. FORDE: We named the Norman Larson

. Company, too. — or

ta ‘THE COURT: Well, Norman Larson Company

appear? Are they represented?

MR. FORDE: — Yes.

THE COURT: I'd inves to give a Salida

for loss of use as against the people

WG. =:

THE CLERK: Mr. Bernard repcessnted

all ihairea on that subject.

THE COURT: The loss. of use problem is

a difficult one. These parties acted in

good faith ‘to this extent: That they be-

lieved they: were within their legal rights,

and they had the advice of counsel. But

there was, in the manner of it, complete

disregard for the potential rights. of the

customer. I don't feel that this calls for

a serious punitive damage, but there must

be some penalty attached to an act which,

-I think, is as oppressive as this. It is

“not fraudulent, but-it is oppressive.

‘They meant well, but they were in the

—- wrong.

The actual damage for- loss of use r

can find only to be in the amount of $175,

which ‘happens to be the monthly interest ‘on

$30,000, but that is totally inadequate,

‘obviously, to make up for the actual loss

that the customer sustained. And the only

| theory ‘upon which I can make up to-Mr.

Dowell that terrible burden that has been

put on him by this is to allow some amount

of punitive damages. I am going to allow

Pamir damages in the amount of $l, 000.

25 Riana”

THE CLERK: Is that still against the.

same party? Who is to pay the $1,000?

THE COURT: ‘These are the three corpo-

rations who participated in the reposses-

sion. Now, let me be sure who they are.

Beech Acceptance Corporation, Nevadair and

Norman Larson ‘Company. Was there a re-

—_. presentative? I don't .rely upon my memory

on, these things, gentlemen. I know there

were representatives of Nevadair and of

Beech Acceptance. Was there a representa-

tive of Norman Larson? /

’ . | ‘

MR. BERNARD: ‘Well, Mr. Cote was ae.

. and he was an officer of both companies.

ee “But q7-=

cee: : THE ‘COURT: Norman Larson shoyla be ---

THE CLERK: Is that divided oquasly

among the three?

‘THE COURT: It is sae a general judg—_

ment against the three, jointly and sever-

ally against the three.

THE CLERK: ‘Dia you give an amount for

the use --- ~ ee 3

', THE COURT: . Actual damaged $175. That

is against these three. Punitive damages

in the amount of $1,000. |

I think that covers it, . gentlemen.

' ME. BERNARD: Your Honor, Curtis K.

‘ Ward was a defendant in the case. He is

: an employee of Beech Acceptance Corporation.

oe . +

Are you finding in favor of Curtis K.- Ward? -

THE COURT: Yes. He was an agent who

was obviously acting. on.behalf of his

corporation at all times. There was no-

thing that he did that was a personal .

eae’ So anybody that I can see. Do you >

have any ----: peaniee

MR. FORDE: No. I didn't join him.in

my action, He was in the other action.

MR. BERNARD: I thought ---

MR. FORDE: No. I didn't join him.

THE CLERK: Who was the plaintiff

against Ward? 3 ie |

MR. -BERNARD: I was mistaken. I thought

the was a defendant. He is a cross-defendant

in the Rose action, which has been settled.

~ THE COURT: Will you folks cooperate.

I don't expect you to be agreeing with

- YnE CLERK: Who is going to prepare.

the judgment?

THE COURT: Mr. Forde will have to do

THE CLERK: \ Mr. Forde. Prepare the

findings. of fact and conclusions of: law

and judgment . \ Naa -

MR. FORDE: I. assume you want findings,

counsel? a ate ;

MR. BERNARD: \ Yes, sir.

* FORDE: Allright. Then this will |

, just ‘ on this, case. The othér case

\ ee

THE CLERK: It is\consolidated.

MR. FORDE: This will be on this case,

and then what abéut /the. findings in the

other matter with Mr. Tanger?

\ MR. BERND: tie haven't resolved —

: 7 : ee ° ” i

THE CLERK: Mr. Bernard is preparing

that. That-is what was said in chambers.

THE COURT: You will nave ‘to prepare

‘the — as ——— Tanger.:

MR. BERNARD: How does Your Honor wish

me to prepare. that? I suppose it will all

be sm . : tx

THE COURT: Ii thought that was assumed

when you and Mr. Cowan left. The judgment .

was in your ---

MR. BERNARD: wil it be a finding --- |

THE COURT: But first we haven' ‘eo

“judgment in that case because it is under |

- submission. . You are going to give me. the »

amount that you want.

R .

MR.” FORDE: So then I would prepare, ”

Your Honor, this ‘judgment. separately hased

on your sheet NOW. °°

THE . ‘cCouR?: Yes. That' s right. This

rule about there only being one judgment in

a case only applies. between the same par-

ties. Your judgment will: go as soon as

‘ you can get it prepared, and Mr. Bernard --

“MR. FORDE: Right.

THE COURT: | -~ can have his cracks .at

he findings of fact and conclusions of

co and all that.

MR, BERNARD: | Only one matter, Your

Honor, that ‘I. would like to point out

just for, tHe record. I think Your ‘Honor

stated that: both counsel rely on“the ‘*

Texas case. I merely wanted to’ ceuiais out ---

THE COURT: I dian' ‘=: mean that. b

meant both parties had analyzed the Texas

*.Case.and understand it. I realize that.

If -we have any reliance in there, I will

take it out of the record. ‘You didn't

rely upon’ it. You distinguished it.

-MR. FORDE: Thank you very much, Your

Honor. ” Beas | 3

MR. BRRNARD: Thank you, Your Honor.

(Court adjourned at 3:59 P.M.)

. 2

| 8 cmp. o3\

COURT OF APPEAL, SECOND DISTRICT

STATE OF CALIFORNIA .

CIV. 33634

' DONALD A. DOWELL, |

Plaintiff & Respondent

Ve.

BEECH ACCEPTANCE CORPORATION, INC.,,

Cane NEVADATR COMPANY,

AND THE NORMAN LARSON COMPANY, .~

‘ Defendants & Appellants

February 24, 1970.

KAUS, Presiding Justice,

The defendant, Beech Acceptance Corpo-

ration, Inc., ("Beech"), appeals from a |

judgment detlaring the plaintiff, Donald.

A. Dowell, to be the-owner and entitled to

possession of a certain Beechcraft Bonanza. .

aircraft, Federal Aviation No. N-2041W.

The same defendant.and defendants. Nevadair —

Company ("Nevadair") and Norman Larson Co-

‘Mpany ("Larson") ai8o appeal from the —

portion of the judgment against them which

. awards plaintiff $175.00 compensatory and

$1,000.00 punitive damages.

The relevant facts are not in dispute.

The plane in question was sold by the >

@ *

? .

manufacturer to Nevadair, one of its dis-

tributors. On October 26, 1965, Nevadair

made a conditional sale of the plane to

one Tanger, a duly authorized Beechcraft

dealer. Under the terms of the sale

Tanger was not to sell the plane without

Nevadair's consent. At the same time

Nevadiar assigned its security interest to

Beech. Beech knew that Tanger held himself

out to the public as an authorized Beech-

craft dealer and that the plane would be

offered for sale to the public. On

October 27, 1965, Beech filed the contract

and the assignment to it with the Federal

Aviation Agency ("F.A.A."). (49 U.S.C.

§1403.) On November 4; 1965, the F.A.A.

recorded the instruments. In July 1966

plaintiff purchased the plane from Tanger

for $30,000.00 which he paid in full. . He

took delivery on July 19. Plaintiff had

no knowledge or notice of Beech's security

interest. He made no inguiry of Tanger,

“because [Tanger] was an authorized repre-_

sentative of the Beech Corporation and I

knew that they would back him if he didn't

make good, so I gave him a check for thirty

thousand dollars." Plaintiff had previous- -

‘ly bought a plane from an individual, on

which occasion he had checked on the title

with the F.A.A. He knew that as’ a member

of the Aircraft Owners and Pilots Associa-

tion he could, for the cost of three dollars

and fifty cents, obtain a telephonic report

on the title of an aircraft from the-F.A.A.

‘-His stated reason for* failing to do so was:

"In my lifetime I have purchased 25 cars

from General Motors, from authorized

franchised dealers, and never questioned ;

their ability to, or legal right to sell :

me that automobile or worry about General

Motors coming and stealing. it out of my

garage." Tanger, promised that he would .

file plaintiff's bill of sale with the

F.A.A. Aircraft Registry in Oklahoma . City,

but failed to keep his- promise.

“At the time of ao sale to plaintiff,

Tanger owed Beech more than $20,000.00 .on

the plane. On ,September 22, 1965, -he

confessed to Beech that it had. been sold

to plaintiff. On September 23 Beech,

Nevadair and Larson--Nevadair's. parent

corporation--removed the aircraft from

plaintiff's possession without his know-

ledge or, consent. - They acted on advise of

‘counsel. Plaintiff then brought this claim

‘and delivery action for the return of the .

plane or, alternatively, its value. He

also sought damages for loss of use and

punitive damages. By use of the provisiondl ©

remedy (Code Civ.Proc. §509) eee wet orig re-

gained possession on October 22, 1966.: It

will be noted that all relevant transactions

took place after the effective date of ‘the

Commercial Code, January 1, 1965. (Comm.

.Code, §10101.) ° = ek 59 » 3

The principal issue on this appeal is

whether .the system of recording interests

in aircraft first established in the Civil

Aeronautics Act of 1938, and carried for-

ward into the Federal Aviation Act of 1958,

affects, priorities recognized by applicable

state law. The problem is squarely before

ey oe

. us, because there can be no question that,

absent the federal recording system and

its possible impact on state law, Tanger had

the power ‘to defeat Beech's security inter-

est by a sale to a buyer in the ordinary

course of business and that plaintiff w7s

such a buyer. 1! (Comm.Code, §§ 2403, 9

Put differently, the question is whether

a buyer in the ordinary course of business,

who would receive an unencumbered title

even though the holder of a security inte-

rest has perfected his interest by a proper

filing in:accordance with section 9401 et

seq. of the Commercial Code, takes subject

to such security interest simply because

C@ngress has said that recordation with

the F.A.A. shall be "valid as to all. per-

sons without further or other recordation."

(49 U.S.C.A. §1403(d).)

Section 2403 reads in relevant part as

follows:. "(1) A payee of goods acqui-

‘res all title which his transferor had or

_- Lgection 1201(9) of the Commercial Code

‘reads, in.relevant part, as follows: "'Bu-|

yer in ordinary course of business’. means

a person who in good faith and without

knowledge that the sale to him is in vio-

lation-of the ownership rights or security

interest of.a third party in the goods buys

in ordinary course from a person in the

business of selling goods of that kind...."

(Henceforth, unless otherwise noted, all

code references. are -to the Commercial Code.) _-

_ power to transfer all rights of the entrus-

. : : eo

had power to transfer coe (2) Any entru-

sting of possession of goods to a merchant

who deals in goods of that kind gives him,

ter toa buyer in ordinary course of busi-

ness....". More specifically, a pertinent

part of section 9307 says: "(1) A buyer _

in ordinary course of business (subdivision

(9) of Section 1201) ... takes free of a

security interest created by his seller

_ even though the security interest is per-

fected and even though the buyer knows of

its existence...." Both the Uniform Com-

mercial Code ‘Comment’ and the California

Code Comment indicate that section 9307

means precisely what it says. The former

says: "... This Section provides that such

a buyer takes free of a security interest,

even though perfected, and although he.

knows the security interest exists. Rea-.

ding the two provisions together, it resu-

lt's that the buyer takes free if he merely

knows -that there is a security interest

which covers the goods but takes subject

.1f he knows, in addition, that the sale is

in violation of some term in the security -

agreement not waived by the words or con-

duct: of the secured party." The Califor-

nis Cade Comment contains the following: :

"Subdivision (1) continues the rule under

prior California law to the effect that a

person who buys goods in the ordinary

course of business in good faith and

without knowledge of a security interest

' takes the goods free of the security in-

terest. " (West's Ann.U.Com.Code, §9307,

p. 501.) ; ia :

Before discussing the possible effect

of the Federal Aviation Act, one false

issue should be disposed of. Section 9104

‘provides as follows: ©"... This division

does not apply (a) To a security interest

subject to any statute of the United Sta-

tes such as the Ship Mortgage Act, 1920,

to the extent that such statute governs the

rights of parties to and third parties af-

fected by transactions in particular types

of property;......" This section does not

make the Commercial Code irrelevant, since

the very question under consideration is

the extent to which federal statutory. law

governs the rights of the parties who have

created the security interest and a third

party. ? | i

2with respect to section 9104(a) the Uni-

form Commercial Code Comment reads, in |

part, as follows: "Where a: federal statu-

te regulates the incidents of security

interests in particular types of property,

those security interests are of course:

governed by the federal statute and exclu-

ded from’\this Article. The Ship Mortgage

Act, 1920, is an example-of such.a federal

act. Legislation covering aircraft finan-

cing has been proposed to the Congress, and

if enacted, would displace this Article in .

that field. The present provisions of the

Civil Aeronautics Act (49 .U.S.C.A. §523)

[sic] all for registration of title to and

liens upon aircraft with the Civil Aeronau-‘

tics Administrator and such registration

is recognized as equivalent to filing under

this Article (Section 9--302(3)); but to

The federal recording provisions were :

“ first enacted as part of the Civil Aero-

nautics Act: of 1936. . in 1958 they were

the extent that the Civil Aeronautics Act

does not regulate the right of parties to

- and third parties affected by such trans-.

actions, security interests in aircraft re-

main subject to this Article, pending pas-

sage of federal legislation." (Emphasis

added.) The California Code Comment reads,

in part, as follows: "With reference to

security interests subject to federal sta-—

tute, see Official Comment 1. Other secu-

rity interests which are to some extent

covered by federal statutes include those

created in aircraft (49 U.S.C.A. §1403),

railroads (49 U.S.C.A. §20), patents

(35 U.S.C.A. §261), and copyrights (17 U.

S.C.A. §§ 18,20). . It is not clear whether |

they would require an exclusion of security

interests from coverage by the Commercial:

Code. The language of Official Comment 1

by analogy would not appear to require an

exclusion...." (West's Ann.U.Com.Code,

§9104, p. 347.) In Project, California

Chattel Security And Article Nine Of. The |

Uniform Commercial Code, 8 U.C.L.A. L.Rev,

806, 830-831, the authors state: "Where ;

a security interest is subject to a federal

statute which regulates the rights of par-

ties. thereto, it is excluded from the scope

of the Code .... The exclusion, hawever,

is limited in that it applies only 'to the

extent' to which federal law governs, there-

. by permitting reference to the Code when

. federal law, renee due to the statute’ s

reenacted, without substantial change as.

' part of the Federal Aviation Act of that

year. Insofar as they are relevant to:

this litigation, they read as follows:

“(a). The Administrator shall establish

and maintain a system for the recording

lack of comprehenSiveness, fails to pro-

vide a solution to a given problem....

The Code refers to the Ship Mortgage Act of

1920, ... which regulates security inte-

rests in maritime equipment, as an example

.of the type of federal statute which would

require an exclusion. Other forms of secu-

rity interests which are to some extent go-

verned by federal statutes include those.

created in aircraft, ... railroads, ...

patents ~.- and copyrights.... . These sta-

tutes,—however, are primarily directed at

providing adequate means of recording such

security interests and provide little in

the way. of regulations with respect to ;

rights pt F the parties to, and-third parties

affected by, the security agreements. It :

is therefore not clear whether these sta-_

tutes would require an exclusion of such |

security interests from the coverage of.

the Code...." Of course, as far as the

recording of security interests is concer-

ned-~as distinguished from the’ question

of priorities--section 9302(3) (a) specifi-

cally exempts from the filing provisions .

of the Commercial Code all security inte-

rests "in property subject to a statute of

the United States which provides for a

national registration or filing of all

security: interests in such » ae >

% r

ei E

of each and all of the innicheitiins: (1)

Any. conveyance which affects the title to,

- or any interest in, any civil aircraft of

the United States; ... (c) No conveyance or

instrument the recording of which is pro-

\ vided for by subsection (a) of this section |

shall be valid in. respect of such aircraft,

+2. against.any person other than the per- |

son by whom the conveyance or ‘other instru-

-ment\is made or given, his heir or devisee,

or any. person having actual notice thereof,

until such conveyance or other instrument

‘is: filed for. recordation in the office of

the Administrator eon (d)' Each conveyance

or other instrument recorded by means of

or under the system provided for in sub-

section (a) .s. of this section shall from

~ the time of its filing for recordation be

valid as to all persons without further or

other recordation\...." (49 U.S.C.A. §14-

‘03 (a) (1), (c), (d) 3) ?

The legislative history of the 1958 Act

sheds little light’ on the purpose of the

recording provisions embodied in section

(1403 of 49 U.S.C.A. More illuminating is

the legislative history of the 1938 Act. |

The Civil Aerghautics Act was derived

from two bills introduced in the third ses-

sion of the 75th Congress: H.R.9738 and,

S.3845. The House bill (H.R.9738) was

submitted by Representative. Lea of Cali-

fornia on March 4, 1938. The recording

provisions of the bill as introduced were

ultimately — without modification in

any eaterial ‘particular<> Hearifgs were

7 held on the Lea bill before the Committee

on Interstate and Foreign Commerce of the

House. The reasons for the recording pro-

visions were stated in the testimony of |

Fred D. Fagg, Jr., who was Director of the

Bureau of Air Commerce and Secretary of an |

Interdepartmental’ Committee, organized by

the Secretary of Commerce at President —

Roosevelt's request. As related by Mr.

Fagg, the ohjective of providing for fede

ral recording of interests’ in aircraft was

to simplify the task of ascertaining what

claims, if any, exist with respect to a

particular airplane. Because of the great

mobility of aircraft and the burden of sear-

ching titles, a person holding an interest

in a plane could have recorded it in virtua-

lly any jurisdiction in the country, while

the plane was located temporarily there, so

_ that a prospective purchaser or lienor would

be forced to search .the records of every.

jurisdiction in order to ascertain the state

of the title; the situation was further

complicated by the peculiarities of the |

recording acts of the ‘individual jurisdic- |

tions.4 In all of the testimony and letters

‘3Compare H.R.9738 as originally introduced

(9. J.Air.Law 296, 323) with section 503 (b)

of the Civil Aeronautics Act of 1938 (52 |

‘Stat. 973, 1006).

Hearing on H.R. 9738, jefore the Comittee

on Interstate and Foreign Commerce, 75th

Congress,, 3rd Session, pages 405-407.

' of twenty-seve. witnesses there is no in-

dication that the recording provisions of

the bill were intended. to establish a set

‘of priorities to supersede those existing

under the various ‘state. taws .

There was a very short committee hearing |

‘on S. 3845, introduced by ‘Senator McCarran,

but it was not officially reported. > The

Senate Committee on Commerce reported the

bill out.with a recommendation that it be —

paaes with certain amendments.

All the amendments were adopted ee the

Senate, but only one is important for our -

purposés: As originally proposed, section

502(d) of the McCarran bill provided, in

part, that "Every instrument so recorded

[with the C.A.A.] shall have: priority over.

all other claims arising after July l,

1939, against the aircraft subject Shaenue. ™

(Emphasis ° added.) This language, which.

' possibly could-have nullified all inconsis—

tert state laws concerning priorities a

security interests, was struck out by the ©

amendment adopted bythe Senate.” As

oe S. Rhyne, The Civil Aeronautics

Act Annotated: (1939, National Law Book mes

Washington, - -D. C. ) page 60, footnete 215.

S. ‘Rept. No. 1661, 75th cong. 3a Sess.,

April 20, 1938. ;

783 Cong.Rec. 6757 (May 12, 1938).

240, ay

amended and as ultimately passed by the

Senate’ and House, the recording provi-'

sions were the same in substance as the

parallel provisions of the 1958 Act.

‘It is manifest, therefore, that the le-

gislative history of the Civil Aeronautics

Act gives no ‘support to the proposition.

. that the recording provisions of the Act were

Pad

designed to nullify state laws not incon-

sistent therewith.19 In fact, the’ circum-

stantial evidence.is to the contrary. -

A most relevant expression of congres-

sional. intent and administrative interpre-

-tation.on- the issue which concerns us came

during a hearing w which eventually led to-

the enactment of “section 1406 of 49.U.S.C.

A. .in 1964. That section reads as follows:

"The validity of any instrument the recor-

ding of which is’ provided for by. section

1403 of this title shall be -.governed by the

_laws of the. State, District of Columbia,

or territory or. possession of the United

States in which such instrument is deliver-

ed, irrespective of the location or the

. place. of delivery of the property which is,

the subject of such instrument. | Where the

placé of intended delivery of such instru-

ment’ is specified herein, it shall consti-

tute presumptive evidence that such instru-

ment was delivered at the place so: specified..

“eee” A similar statute had been proposed

by Representative John V. Lindsay of New .

York in 1962, but failed of’ enactment. In

83 “Cong. Rec. 6879 (May 16, 1938).

- .

83 Cong.Rec. 7104 (May 18, 1938).

10see footnote 11 post.

1963 Mr. Lindsay introduced H.R. 2522. It |

contained a proposed new subsection to

section 1403 reading in part, as follows:.

"Any conveyance, lease, mortgage, equip-

ment trust, contract of conditional sale,

or other instrument executed for security

purposes, or’ assignment ... thereof, ....

which affects the title to, or any interest

in, any aircraft, ... which is valid as

-against the parties thereto ... under the

laws of that State,’-District of Columbia,

territory, or possession of the United:

States in which such conveyance or other

instrument is delivered, shall, upon the ©

filing of such conveyance or other instru-

ment for recordation ... be valid, in

respect of the title. or interest so tran

ferred or created, as against all aiadieney,

’ subsequent. purchasers, encumbrancers, or

. other persons ..." (Emphasis added.) At

\ @meeting of the Subcommittee*on Transpor-

tation and Aéronautics of the Committee of

Interstate and Foreign Commerce of the

House of Representatives on June 18, 1963,

- Mr. Lindsay made it clear that the sole pur-

pose of the bill.was to provide a statutory

choice of law with respect’ to the formal

validity of instruments tendered for re-

cording by the F.A. :? During the hearings

several representatives expressed concern

over the meaning of the emphasized langua-

ge in the’ proposed-new subsection which,

_ it will be noted, bears striking similari-

ties to the portion of section 1403(d) of

49 U.S.C.A. providing that a recorded in-

strument "shall from the time of its filing |

for recordation be valid as to all persons... \

SS . °

er)

—

’ Several representatives posed Vari hy-

pothetical questions to Mr. James D. }/Hill,

Deputy General Counsel of the F.A.A In

the main, the subcommittee members were

worried about the application of lien laws

and statutes giving priority to subsequent

creditors in states other than the state

of the delivery of the instrument, provi-

ded such laws were otherwise applicable

under appropriate choice of law rules.

Mr. Hill most emphatically disspelled the’

notion that the proposed statute was inten-

ded to affect priorities enacted or recog-

mized by applicable state laws. Indeed,

in reply to several questions, Mr. Hill

stated, in one form or another, that the

recording provisions of the Féderal Avia-

tion Act did not affect state priorities.-

“For example, when he was asked about state

‘ statutés which, in the case of automobiles,

permit the attachment of a vehicle which

causes damage, followed by satisfaction of

‘ any judgment out of the proceeds of a forced

sale, thereby reducing -the priorities of

mortgage creditors, the following colloquy

-ensued:. "Mr. Hill. I say again that the

validity of the mortaqage does not affect

its priority .... If the airplane becomes

' involved in some State law which gives

rights to subsequent people who are prior

to the recorded mortgagee, that that would

be so. Mr. Hemphill. You mean you say

that. would be so, that the state law would

. apply?. Mr. Hill. Yes. Mr. Hemphill.

And would determine the priority at the

location of the accident or collision or

whatever offense might take place? Mr. Hill

Yes....". (Hearing on Aircraft Titles.

before the Subcommittee on Transportation

and Aeronautics of the Committee on Inter-

state and Foreign Commerce, June 18; 1963, ~

p. 27;:see also Ibid., pp. 25-26, 28.

Emphasis added. ) é ; ‘a

| Another representative, Mr. S Springer of.

Illinois, pointed. to the fact that to him

the emphasized language in the proposed

statute clearly intended to set up a’ set

of priorities based on the law of the

state of delivery, which law he. did not

believe should be applicable. He request-

ed Mr. ‘Hill to "supply clanteying language."

(Ibid., p. ies ) Py,

é é. ;

- Apparently H.R. 2522 died in committee.

Later in 1963 Mr. Lindsay, however, intro-

duced H.R. 8673, which became section 1406,

quoted above. It will,be noted that section

1406, as enacted, did not contain the lan-

guage in the proposed subdivision to section

1403 which had been part of H.R. 2522 and

which had worried the subcommittee.

3 °

pe : ; -

i PRESEN I A BRIE AMELIE PIONS ai “apapepantgt agmeeagen Hanes ata FM Tes caety INE ss

" 3 ny . g . ee EE ROT Fe eee ray ME re

“ P ‘ . $ .

There has been very little scholarly

writing on the problem presented in the _. -

case at bar. The only. two discussions we ~~

have found favor the correctness of the

trial court's ruling. Professor Scott, in _

‘his article "Liens in Aircraft: Priorities"

25 Journal of Air Law and ‘Commerce, 193,

criticizes In re Veterans' Air’ Expyess Co.,

D.C., 76 F.Supp. 684, which held thpt a

recorded mortgage of the United States

_ Government was senior to a repair lien

, :. Faas,

_ which assertedly had priority unde’ com-

man law principles and local statutes.

"While the court is- undoubtedly- correct

that Congress may establish the priority of

its liéns with respect to liens asserted

by private individuals under state statutes

or by virtue of common law, one may seri-

ously question whether it intended ta do so

in this instance. The purpose of the sta-

tute was reportedly to eliminate confusion

engendered by a multitude of state record-

ing systems by providing a single basis

for constructive notice, [footnote omitted]

not to establish the priority of a recorded

- security interest over all subsequent

aN claims ...." (Ibid., p. 203).

' The .other academic authority which we

_ g£ind on the trial court's side, is Profes-

sor Gilmore.. In the section on aircraft

liens in his work "Security Interests in

Personal Property," (1965) he writes: "Ex-

cept for the engine and spare parts liens,

§503 [49 U.S.C.A. §1403] jis not in any

‘sense a substantive statyte. Therefore,

_ .it is believed, apart ffom these substanti-_

ve. provisions, the question of formal re- |

quisites, and the operation of cr nada

ing system, state law should appl

determine any question arising in connect-

ion with a security interest in aircraft.

[Footnote omitted.] The argument for a

federal law solution is even weaker here ©

than under any of the other federal statu-

tes we have so far discussed: §503 is

much less comprehensive than the Ship Mort-

gage-Act and there is not the same federal

source of power that could be alleged in

favor of a federal solution in the fields

of copyright, patent and admiralty law.

The cases decided under §503 all seem to.

assume that the state law is-generally ap-

plicable and that §503 is clearly-an a

'dnterstitial' statute, which goes as ‘far

as it goes but no further." (Ibid.,

p. 426. yi :

As far as case law’is concerned, it . ¢

“must at once be admitted that we have

‘llvhe first ‘sentence of this quote indi-

cates that section 1403 of 49 U.S.C.A.

does contain certain substantive provi-

sions. The reference is to section 1403

(a) (2) and (3) of 49 U.S.C.A. which per-

mits the recording of certain interests in

specific engines and further provides for

' the recording of a "basket lien" on engines,

propellors, appliances and spare parts .

maintained by air. ¢arriers. The statute

also establishes priority of recorded liens

on specific engines over engines included :

in the "basket lien". to the extent that

these provisions allow the recording of

security interests not recordable under

‘state laws or establish priorities not

recognized by such laws, they do, indeed,

effectively nullify otherwise applicable

- state laws. If the result we reach in this

-case appears inconsistent with. International

Atlas Services, inc. V.-: Twentieth Century

Aircraft Co., 251 Cal.App.2d 434, 59 Cal.

Rptr. 495, -the reason for the. inconsistency

may lie.in the fact that the International

Atlas case deals with conflicting claims to

. the Ownership of engines.

found no decision from any court binding

on us, which is squarely in point. An

annotation in 22 American Law Reports,

Third Series; "Construction And Effect Of

49.U.S. Code §1403, Governing -Recordation

Of Ownership, Conveyances; And Encumbran-

ces On’Aircraft" (22 /A.L.R.3d 1270), indi-

cates that decisional law in the various

state and federal courts which have consi-

dered the ‘impact of section 1403 on state

laws, contains something for everybody. _

Thus defendants here find great comfort in

the language of a Georgia Court of Appeals

in Dawson v. General Discount he ibang

82 Ga.App. 29, 60 S.E.2d 653.° In that case

a conditional seller who had recorded his

interest with ‘the F.A.A. was held.to have

.a title superior to that of the innocent ..

buyer from the seller's véndee. In the |

course of its opinion the court said. that:

"... constructive notice was given by the

recording of.the instrument with the Civil ..

Aeronautics Authority under the provisions

- of Title 49 U.S.C.A., which provides that

every. conveyance so recorded shall be valid

as to all persons. No further act was

required of the plaintiff to protect his

rights. The defendant, before purchasing,

- had the opportunity to ascertain the para-

' mount. outstanding title by checking the

records of the Civil Aeronautics Authori-

_ty. This being so, his title to the air-

craft.was inferior to that of the plaintiff,

and a verdict for the plaintiff in the tro--

ver action was demanded. "(60 S.E.2d at: i

p. 658. yi2 : ‘ae F

T2the court talks of the provision in.sec-

tion 1403(d) of 49 U.S.C.A. that an |

In spite of the broad language in Daw-

son, it is of little significance to our

problem because it does not appear that, as.

here, applicable state law would have led

to a. different result.

. On ‘the other hand, there are three fed-

eral cases, at least one of which is quite

indistinguishable from.ours, which prefer

the innocent purchaser in the ordinary: cour-

se of business over the holder of a security

interest who has recorded with the F.A.A.

The oldest is Aircraft Investment Corp. v._

Pezzani & Reid Equipment Co.,.D.C., 205 F.

Supp.. 80.° There a retailer of airplanes

had mortgaged a new plane to the plaintiff's

assignor. ' The mortgage provided that the

~rights of the parties. were to be governed

by the law of Texas. It was duly filed for

recordation with the F.A.A., but one day

_ before such filing the defendant had pur-

. chased and taken delivery of the plane. A

motion for summary judgment by plaintiff

instrument recorded with the F. A. A. shall

be "valid as to all persons without further

or ther recordation..." as if the sen- .

- ‘tence ended at the word "persons," so that

recordation establishes validity against

all persons under all circumstances. The

concluding ‘phrase, "without further or other

recordation.” | ‘suggests a more modest inten-

tion: that recordation by the F.A.A, has.

the same effect as compliance with state

recordation requirements otherwise applica-.

ble toa particular transaction.

48°

was deniéd on the basis of. defendant's aes”

fidavit that it had no notice of the plain-

'tiff's mortgage until it was recorded.

The case is obviously AAAS Se

because of the mortgagee's late recordation,

but the following dictum is noteworthy:

"Plaintiff suggests that Congress has pre-

empted the entire field of conveyancing of —

interests in aircraft. This view is erro-

neous, notwithstanding In re Veterans’

Air Express Company, 76 F. Supp. 684 (D.N..

‘J. 1948), which contains dicta on which

plaintiff relies.. Congress has said only

that until an instrument purporting to: con-

vey an interest in. an aircraft is recorded,

in accordance with the. Act, it,is void as

to. third parties without notice. Upon fe-

-deral recordation, ,it is valid without

further recording.* In providing for the

recordation, of various instruments. pertai-

ning to transactions affecting title or

interest in aircraft, Congress has not im-

paired the existence and effectiveness of

state laws creating and defining such in-

struments. Excepting the recording section

of the Federal Aviation Agt, the validity |

of the chattel mortgage bere in question

must be measured by the appropriate state

law.) Thus, if the purported chattel mort-.

gage is void as to defendant under the. ap-

propriate state law, federal recording will

not save it. Even if defendant had notice

of plaintiff's mortgage, it may still be.

_able to show reliance on conduct by the-

plaintiff amounting to a waiver of the

mortgage lien, as both Texas and Michigan

recognize such waiver...." (205 F.Supp. .

4 9 f

Q- ;

at p. 82. Emphasis added.)

Closer to the facts of our case is ~

Texas National Bank of Houston:-v. Aufder-.

heide, D.C., 235 F.Supp. 599. There the

mortgagee bank did record its mortgage

with the F.A.A. before a dealer sold the

plane in question to-a bona- fide purchaser

for value, in spite of a clause in the

mortgage prohibiting the Sale or removal

of aircraft without the mortgagee's writ-

ten consent. The mortgagee had known of

and acquiesced in the) dealer's practice

of selling mortgaged planes in the ordina-

ry course of business and séttling with —

the mortgagee after the sale. The court

held for the purchaser saying: "The right

of Congress to legislate in the field of

registration of aircraft and to provide for ~

_the recordation of liens upon or conveyances

"of such craft is not questioned; and the

validity as to third persons of conveyances

or-instruments affecting the title to air-

craft, and the relative rights of claimants —

to such aircraft, to the extent that such ~~

_ rights are dependent upon the fact or time

. of recordation of conveyances or other in-

. struments, are matters which are governed —

‘by the federal statute rather than by lo-_.

cal law. [Citations omitted.] It does not

‘follow, however, that section, 1403 has

repealed.or abolished the general rule of

chattel. mortgage. law that when a mortgagee

_consents to the sale of a mortgaged chattel

free of .lien by the mortgagor, the purcha» >

ser takes free of the mortgage lien and

his rights are superior to those of the

mortgagee. ‘(Citations omitted.] Anda

provision in a chattel ‘mortgage prohibiting

a sale of the mortgaged, chattel without

the mortgagee"s consent is waived if the .

_ mortgagee knowingly permit’s.the violation ‘.

‘of such provision. 15 Am. Jur, 24, pe aa6.* ~

ae F. Supp. at p. 603. )

Although section 9307 cuts a broader

exception than the principle found dispo-

sitive in Aufderheide, no sound reason _ap-

_ pears why federal law should ‘nullify that

code section if it does not nullify the.

doctrine relied on in Aufderheide. _ Indeed,

the court in Aufderheide later states: "In

this connection the Court calls attention

to the fact that the view here. taken is *

consistent with that expressed in Section .

-- 9-307 of the Uniform Commercial Code which

provides that a buyer“in the ordinary. course

of businéss, other than a person buying

_ farm products frem:a farmer, takes free of a

security interest-created by his seller even

though the secyrity interest is perfected

. and even though the buyer knows of its

‘\ existence...." (235 F:Supp. at p. 604.)

Finally and, we believe, indistinguish-

able from the ‘case at bar, there is the

decision in Northern Illinois Corp, v.

Bishop Distributing Co., D.C., 284 F.Supp:

121, decided bust two weeks after the

judgment in ‘the case-at bar was entered.

There’ the plaintiff financed the purchase

of a new aircraft. by a retail dealer. Its

security agreement with the dealer was duly

filed and recorded with the F.A.A. Between

the filing and the recording of the agree-

ment the.defendant purchased the aircraft

from the dealer in the ordinaty course |

of business.13 The court acknowledged

that: ."... federal law rather than state

law governs the rights of claimants to air-

craft to the extent that these rights are

dependent upon the fact or time of recorda-

- tion of conveyances...." . (284 F.Supp. at

p. 124.) Nevertheless, relying on section

9-307 of the Uniform Commercial Code in

. force in the relevant state jurisdictions, ~

the Court held for the. purchaser. In doing

‘sO it was much encouraged by a dictum in’

State Securities Co. v. Aviation Enterpri-

ses Inc., 10 Cir., 355 F.2d 255, 22 A.L.

R.3d 1263. In that case the holder of a

security interest in an ‘airplane had not

recorded and the court was, therefore, able

to hold for the purchaser from a dealer

without having to meet the problem. which

confronts us. Nevertheless, after quoting

relevant portions of section 1403 of 49 U.

S.C.A., the court.said: "By providing a

federal system for registration of convey- |

ances and liens affecting the title to air-

craft, Congress has preempted that field

and state recording statutes are not ap-

plicable to such title instruments.

l3The fact that the purchase took place .

before the actyal recording of the securi-

.ty interest by the F.A.A. is immaterial. —

Section 1403(d) of 49 U,S.C.A. states that

an instrument is valid as to all persons

without further or other recordation "from

the time of its filing for recordation."

(See Kerley Chemical Corp. v. Colboch,

145 Cal.App.2d.509, 302 P.2d 621.).

SRE PIE APN Rt GN eR

[Footnote omitted.] However, questions of

the validity of such title documents, ac-

tual notice, good faith purchaser. status,

and the like, must be resolved under state”

‘law. s[Footnote omitted.]." (355 F.2d at

p. 229%. Emphasis added.) . a ‘

In its discussion the Northern Illinois

court also. disposes of the point that air-

craft are not to be treated in the same.

way as other goods: "Plaintiff argues

_ that because aircraft are. much more cost-

ly than household,goods or cars, a. buyer

of an aircraft should be required to

conduct an aircraft title search. In

this reapest; Piaintits contends that all

that would have ‘been required of the de-

fendants would have been for them to ,

check with the Federal Aviation Agency

in Oklahoma City, Oklahoma.

"We question whether the price of goods

should detérmine’ the duties'and obligations

of the buying public. Plaintiff was

aware that Mich-Air Mooney, Inc., purcha-

sed the aircraft in order to sell it."

(284 F.Supp. at p. 125.)

[l]. We think that Northern Illinois

is correct and that there is nothing in

section 1403 of 49 U.S.C.A. which intends

to.override a state law providing that a

buyer in’the ordinary course of business

takes free of a-security interest created

by his seller. In so holding we do not

‘. rage. of security interests in aircraft; they.

a 53

deny the power of Congress, under the In+

terstate Commerce clause, so to provide. »«

We merely hold that it has not done so.14

csiesese Gilmore: puts the point as fol-

lows: "The several provisions summarized

above obviously amount to a good deal more

than a recording system (like the patent .

and copyright. provisions) but are still a.

good deal less than a comprehensive cove-

are much less comprehensive than the Ship

Mortgage Act, which. goes into great detail

on the formal requisites and. priorities of

ship mortgages and includes sections on

foreclosure and on the status of mortgages

on foreign flag ships. [Footnote-omitted. ]

There is of course no plenary federal power

over air transportation comparable to the .

patent and copyright powers or even to the

extention of the ‘judicial power .of ‘the ,Uni-

ted States' to admiralty and maritime. cases.

Here Congress acts under the interstate

commerce and. the bankruptcy powers--which >

have, however, become so extensive that

there is not likely to be any constitutional

challenge to anything Congress has done or

may do in the future. A truly comprhen-.

sive security statute for aircraft--or ahi

indeed a statute covering -security inter-

ests in transportation equipment of any

kind, by air, rail, road and water--would

“undoubtedly be within the power of Congress

to enact; there is’, however, little like-.

lihood_that such a federal preemption of the

field wil ake place in the near future....

[Footnote omitted.]" (Gilmore, op. cit.

=, 623,37 ~ |

54 -

It would indeed be anaqmalous if by saying

nothing whatever about priorities, Con-

gress had intended to wipe out all state

laws which on considerations.of equity

and public policy have created exceptions

to the "first in time, first in right"

rule. ig fata a: i . sey

Defendants make much of plaintifé’ S Ag i

familiarity with the recording provisions

of the Federal Aviation Act andvhis know-.

ledge of his ability to obtain a report.

on the state of the title of the aircraft

by making a. telephone call. If defendants'

argument in that respect means that this

particular buyer in the. ordinary course of

Ps business is estopped to rely on section

9307, it may be pointed out that estoppel

was never put in issue by the pleadings or

the pre-trial order. . Further, the argum-

ent assumes thatthe definition of "buyer —

1201. (9) centains an implied exception rela-

ting to buyers who are familiar with the

provisions of section 9407(2), concerning |

the duties of.a filing officer to furnish

requested information on financing state-

ments on file. Finally, there is. nothing

in the record before ws which suggests that

an inquiry with the F.A.A. would have re-

vealed that the sale to plaintiff was "in

violation of some term in the security

agreement not’ waived by the words or

conduct of .the eeexree party.? -(U.C.C. ,

Comment to §9-307.)1 | eo

is The trial court adverted to the fact that

even a "clean" report on a particular

The judgment pore ‘therefore -be affirmed

as far as ‘the principal issue, the owner- -

ship of the aircraft, is concerned. No —

separate contention is made with respect

to the modest. rd for loss of use. The.

court, however, also awarded plaintiff

$1,000.00 in punitive damages, finding that

. the repossession of the plane without plain-

tiff's knowledge or consent and without

_ tnvestigation, but in full awareness that

Dowell’ had paid Tanger $30,000.00, was

oppressive,

{2]. The right of a conditional seller

to "proceed ee ee process if

aircraft's title by the F. A.A. furnishes no-v

assurance. “(T]here is no practical way

for the customer to protect himself. In

fact, -in the absence of title insurance —

companies or escrow Cémpanies located ;

exactly in Oklahoma City so that they will —

be able to provide Simultaneous release

and ‘re-recordation of the new. instruments,

[even] the Bank. of America would not be

able to protect itself by merely calling

Oklahoma. City. It would -find out that at

the particular time of that call there is

no lien. The lien could be filed 15 minu-

tes later. They could take their 136n and

attempt to get it on record that same,af~®

'ternoon, and they would be helpless.— So,

there are very practical reasons,. I think;

for: holding, first, that Congress had no

intention to oust the state.courts of all

of their jurisdiction over those multipli- |

city of personal problems that go after

recordation and that are not solved by

recordation."

‘this can be done without breach of the

peace" was established by statute. (Comm.

Code.,§9503.) |The legal question snvolved

was and is an extremely close one. Defen-

dants acted on advice of counsel. Time

was, presumably, thought to be of:the es-

sence, for airplanes are mobile and easily

spirited away. Practical success of law-

suits for damages depends entirely on the

plaintiff's ability to locate assets. - Under

‘the circumstances we cannot agree that

defendants' conduct was oppressive within

the. meaning of section 3294 of the Civil

Code.

The ‘judgment is reversed as far as the

_ imposition of ,$1,000.00 in punitive dama- .

_ges_is. concerned. . In all other respects ~— a

it is affirmed.~ Plaintiff is to recover

his costs on: appeal.

; %y

STEPHENS and AISO, JJ.; concur.

| 2.

SUPREME COURT OF CALIFORNIA

IN BANK

ro. L.A. 29751 _

" DONALD A. DOWELL

\,- Plaintiff & Respondent

Ve : - ear at an .

eee

BEECH ACCEPTANCE CORPORATION Inc., et al.,

Defendants. & maneliante :

- &

Novenber 16, 1970

MOSK, Justice. , ee at yee ae

We eninaidos whether the riba of re- -

- cordation of title to aircraft under the f"

_ Federal Aviation Act (49 U.S.C.A § 403) ae

~ affects the priorities under- ae law be-.

tween prior security holders and’. subsequent

- buyers in the ordinary course of business.

Specifically, we must decide whether the

holder of a prior, recorded security ‘inter-

est in a new airplane prevails over. A sub-

sequent buyer in the ordinary. course of

business who neither recorded his’ own. ti-

tle nor searched the Federal Aviation Agen-

cy (F.A.A.) records- to discover the security

holder's prior claim. We conclude that the -

federal statute requires judgment in favor

of the holder of ‘the prior recorded security

interest. .

—

The facts are.not in dispute: The’ air-

plane in question, a Beechcraft Bonanza -

aircraft, was ‘sold by the manufacturer to

Nevadair, one of its distributors. | On Oc-

_ tober 26, 1965, Nevadair delivered the .

plane to Marion Tanger, a duly authorized - ~

Beechcraft dealer, pursuant to a condition- .

al sales contract. The contract provided

that Tanger was not to sell the plane with-'

out Nevadair's- consent and that Nevadair °

retained a security intérest in the plane

to the extent of the unpaid balance of the

purchase price. Nevadair assigned its se-

curity interest to defendant Beech Accept-—

ance Corporation, a company in the business

of aircraft financing. On October 27, 1965,

Beech filed the conditional sales contract

and the ‘assignment with the Federal Aviation

. Agency, pursuant to 49.United States Code.

Annotated section 1403, and the instruments ae

were recorded as of N er 4, 1965.° 3

In July of 1966, plaintiff purchased the

Plane from Tanger for $30,000, the sum being

paid in full. He made no inquiry as to the

state of the title ostensibly because the’ ~

plane was new and Tanger was an authorized

dealer. However, . plaintiff .was not inex-

* perienced in the field of aviation. He was

-a member of the Aircraft Owners and Pilots :

. Association, was familiar with F.A.A. rules .

and was aware that he could have checked the »

title with the F.A.A. for a $3.50 fee. Appar-'

ently Tanger promised plaintiff that he would

file plaintiff's bill of sale ‘with the F.A.A.

‘Aircraft Registry but failed to do so. At

the time of the.sale to. plaintiff, Tanger —

owed Beech $21,366.03 plus interest, but ..

not. until: September 22, 1966, did ‘he con-

fess to Beech that he had-sold-the plane. —

The following day, Beech, Nevadair, and

-Larson (Nevadair's parent corporation) ,. on

the advice of counsel, removed the plane

from plaintiff's possession without his

knowledge and consent. : es

‘aie y | :

‘Plaintiff thereupon, brought this action

to-establish his title to the plane and to.

recover compensatory and punitive damages . :

“against defendants. Through a claim’and —

. delivery. proceeding at the outset of his

action, plaintiff recovered possession of

the airplane on October:22, 1966, pending

trial. After trial, the: court awarded the

plane to plaintiff along with $175 compen-

satory damages, representing the value of

‘the use of the plane between September 23 _

and October 22, 1966. Plaintiff was also.

‘awarded $1,000 punitive damages, on the —

theory that defendants' seizing possession

of the airplane without plaintiff's consent

on September 23 constituted neptensses con-

oneh

Section 503 of the '1958 Federal Aviation

fy Pe United State Code Annotated section

‘1403, phovides in relevant part: "(a) The

~ Administbator shall establish and maintain

"a system for the recording of each and ali .

of the following: (1). Any conveyance which

affects the title to, or any interest in,

‘any civil aircraft of the United’ States; (2)

aa ¢!

_ Any lease, and any mortgage, equipment.

trust, contract of conditional sale, or

other instrument executed for security |

purposes, which lease or other instrument

affects the title to, or any interest in,

any specifically identified aircraft en-

gine...or arly specifically identified air-

craft propeller...and also any assignment

Or amendment thereof-.or supplement thereto...

(b) The Administrator shall also record un-

der the system provided for in subsection

(a) of this section any release, cancella-

tion, discharge, or satisfaction relating

to any conveyance or other instrument re-

corded under said system. (c) No convey-

ance or instrument S recording of which

is provided for subsection <g) of this

section shall b¢ valid in resp¢ct of such

aircraft, aircfaft engine or egines,{or]

propellers...against any person other than >

the per by whom the conveyance or other

iaacenina is made or given, his heir or

devisee, or any person having actual notice

thereof, uritil stich conveyance or other in-

strument is filed for recordation. in the of--

fice of the Administrator... (d) Each con-

veyance or other instrument recorded by *

means of or under the system provided for:

in subsection (a) or (b) of this section

shall from the time of its: filing for re-

cordation be valid as to all persons with-

out further or other recordation, ... (f)

The Administrator shall keep a record of

the time and date of the filing of convey-

ances and other. instruments with him and

of the time and date of recordation there-

of. He shail record conveyances and-other

61°.

instruments filed with him in the order of

their reception, in files to be kept for: |

.that- purpose, and indexed according to....

’ the. identifying description of the aircraft,

_) aireraft engifie, or propeller...and....the

names of the parties to hat conveyance ‘or

other instrument. . | ; § : ster

section 506 of the Act, 49-United “gig

. Code Annotated section 1406, was-add

1964 and provides: "The validity of a y in-

strument,. the recording of which is provided

for by section 1403 of this title shall be.

-governed by the laws of the State.’..in which -

such instrument -is delivered, irrespective

of the location:-or the place of delivery of °

the property which is the — of —, bd

instrument. at | 7

our taak is. to determine whether thé for

going federal system of recording interests

.in aircraft affects priorities recognized by

applicable state law. . The issue is squarely

' before us because, absent the federal: re-

cording, system and its possible impact on

state law, there can be’ no doubt that Tanger .

had the power to defeat Beech's security .in-.

terest by a sale to a buyer in-the ordinary

course of business and that plaintiff was

such a buyer. Section 9307 of the California

Commericial Code provides that, "A buyer in

- ordinary course ¢ business (subdivision (9)

of Section 1201) 4 tae takes free of a security

Tsection 1201, subdivision (9), Gatinne a

“buyer in ordinary course of business" as

“a -person who in good faith and without

‘<noy Ledge that the sale to jhim is in

interest created by his seller even though

the ‘security interest is perfected and even

though the buyer knows of its existence."

would prevail over defendant Béech Accep-_

tance Corporation regardless of whether de-

fendant recorded its security interest and

even if plaintiff knew of the existence of

the security interest, so long as he was |

not aware of any terms of the security agre-

ement that, were violated by the sale to him.

“(See Uniform Commercial Code Comment 2, Com.

Code, §9307.)

| e Ley

Although this matter is of first impress

sion in our court, we are cognizant 2

helpful authority-in the: Cour Appeal ™

on the question of the re tionship between —

the federal recording system and state prior-

ities. In Pope v. National Aero Finance Co.

(1965) 236 Cal.App.2d 722, 46 Cal. Rptr.233

(hearing denied), Justice Sullivan consider-

ed thg assertion of plaintiffs that they

hela an interest. in an aircraft superior to

that of the prior ~xecorded security interest <

of a mortgagee. Although there was doubt as

to whether plaintiffs had any interest in

the plane, the Court of Appeal assumed ar-

guendo that they had acquired ownership.

Plaintiffs had obtained their interest sub-

“%sequent to the de fendant-mortgagee' s. ac-

quisition of its security interest, but ‘two

eiolation of the rship rights jx éo-

curity interest of afeniza party in the

‘goods buys in érdinafy course from a per-

son in the business of selling goods of

i that kind... ."

63.

days before the latter's interest was re-

corded. Said the court, "The federal

statute requiring recordation and provid-

ing for the effect tobe given to instru~

ments: not recorded pursuant thereto, pre-

-empts any state laws which might other-

wise apply.... Even if, as we here assume

for the sake of argument, plaintiffs act-

ually acquired some interest in the [air-

craft] by virtue of their agreements,

we are of the opinion that under the

abovementioned federal statute-and the...

cases interpreting it, it was. incumbent.

upon them to record the documents under

which they claimed ownership and having

failed to do so at any time are not entitled

to priority over NAFCO, the chattel mort-

'gagee who in addition to acquiring its in-

- terest under a prior chattel mortgage filed

the same for record in good faith and with-

. [I]t wotld be violative of the purpose’

of the federal act to permit plaintiffs, &

who did nothing ‘to comply with its regis- :

® tration and recordation provisions, to ne Hy

prevail over NAFCO which lent money on the

strength of. the record title in [the seller

mortgagor] and recorded its mortgage with

the federal agency." (Fn. omitted.) (Pope

v. National Aero Finance Co. (1965) supra,

236 Cal. App2d 722,. 733, 734- 735, 46 Cal.

Rptr. 233, 240-241.)

TP Ar anne aa ee eS Tee ee kee eee

miggarermcenge cera

Although the facts are dishidiet sain 4

from those in the casé at bar, the reason- :

\ Ing of the Pope court has clear application

/ here. In deciding the priorities between a

mortgagee with a recorded interest and a

subsequent purchaser who acquired his in-

terest before the mortgagee's interest was

recorded but who failed to record his own

interest, the court looked to the federal

law and determined that the policy under-

lying the recordation system precluded

judgment for plaintiffs who had failed to

comply with the recordation provisions.

In the instant act it was conceded that

defendant Beech's int®rest was recorded .

months before plaintiff's purchase, and

plaintiff was aware he could have checked

title with the F.A.A. by telephone for a

“mere $3.50. As in_Pope, defendant-mort-

gagee did all it could to protect its sec-

urity interest by giving notice in the form

of recordation to potential third-party

‘ purchasers. We would undermine any fed-

eral policy requiring recordation to pro-

. tect préviously acquired aircraft titles:

if we held that state law governed the _

rights of the pereee irrespective of re-

cordation.

Py *

Further persuasive precedent is provided

by International Atlas Services, Inc. v.

Twentieth Century Aircraft Co. (1967) 251

Cal.App. 2d. 434,59 Cal. Rptr. 495 (hearing

denied). In that case defendant sold an

airplane to a retailer pursuant to a con-"

ditional sales contract by which defendant

retained a security interest in the plane.

The security interest was recorded with the

F.A.A. Subsequently, the retailer hired

plaintiff Atlas to repair the engines of

the plane and become indebted to plaintiff

for the repairs. The retailer eventually

‘ eS

defaulted on all of his obligations, and

defendant repossessed the airplane. Atlas

claimed ownership of the engines by virtue

ef ite mechanic’! 8s lien, / -’ :

At the outset, the Court of Appeal re-

viewed the California law on priorities in

both the Civil Code and. the new Commercial

Code and concluded "that under California

law Atlas at a minimum should recover the

value of its engines and at a maximum should |

recover the engines themselves, Nevertheless,

we have .concluded that California-law does not

apply to this case, that the. controversy is

governed by the laws of the United States, and

that under federal law Twentieth Century must

prevail. As we see it, General California ‘|

law on.the subject of title and.liens to per-

sonal-property in relation. to component parts

has been superseded by specific federal law —

with respect to aircraft." (Id. at p. 438,

59 Cal.Rptr. at p. 497).

After quoting from the relevant subsec-

tions of section 1403, the Court of Appeal

continued: "To bring order into the field

of aircraft ownership and finance, the fed-

eral government in a manner within ‘its: sphere

set up a comprehensive scheme of centralized

recordation, which, if properly used, provides

adequate protection for all substantial pro-

perty interests in large aircraft,...A con-

veyance, lease, ‘Or security instrument re- |

corded under section 1403(a) is fully valid

against all persons from the time of its fil-

ling without further or other recordation.

: ¥

Under section 1403(c) a conveyance or in-

strument which could have been recorded

but was not, is, until so recorded, inva-

lid against a person without actual notice

of the conveyance or instrument.... ——

“Here we have a complete and compre-.

hensive.system of recordation which neces-

sarily supersedes inconsistent state law.

- Constitutionally, the federal goverment may

be said to have fully occupied the field of

interests in aircraft and of rights derived

from. recordation, and:‘to have established

‘paramount law in this area. Atlas could have.

fully protected its rights in these engines

and preserved a-good title throughtout the

world by...recording its ‘interest in speci= —

fically. numbered aircraft engines ‘with the

Federal Aviation Agency." (Id. at p.440,

a Cal. Rptr. at p.. 498.)

Despite the factual distinctions between.

Atlas: and the case at bar, the above-quoted

_ passages would seeem to be a compelling ratio-

“nale for the proposition that the. federal sys-

tem of recordation affects the priorities

under state law between prior security holders

and subsequent. lienholders and purchasers. As

construed by the Court of Appeal, section 1403

provides a comprehensive system of recordation

the purpose of which is to bring order to the

field of aircraft titles and to protect the —

holders of substantial property interests in~

-aircraft.. Neither of those purposes is served

if we apply state law in a manner virtually

ignoring the existence of the federal system.

i= prior recorded interests are not protected

against subsequent buyers who fail to search

Cprvestigate title so as to avoid "actual no-.

v ; Si, eines

title, the federal policy in favor of the

recordation of aircraft titles will be

frustrated and sybséquent purchasers in

California will-cavalierly decline to in-

tice" under Compercial Code section 9307.

The California Courts of Appeal have

not been alone in suggesting that prior

recorded security. interests under Federal

law should take precedénce over subse-

quent .purchasers.’ Although decisions in

other jurisdictions have varied widely (see

generally Annot. (1968) 22 A.L:R.3d 1270),

most courts have taken a view consistent

with that espoused in Pope. and Atlas. px

The case of In re veterahs' Air Express Co.

(D.N.J.1948) 76 F. Supp. 684, contains \ |

some particularly appropriate. language: -—

"It is clear that the Congress has pre-

scribed the only way in which aircraft may.

be transferred and in which liens upon air-

craft may be auly recorded. In this man-

ner, all persons dealing with aircraft are

upon full leg&él notice concerning possible

liens and are charged with the duty of in-

quiry at the central récording office of

the Civil Aeronautics Administration [pre-

decessor. to the Federal Aviation ‘Agency] .

with respect ‘to any aircraft in which they

might be: concerned." (Id. at p. 688.)

ee added).

In Dawson v.° General Discount Corporation

(1950) 82 Ga.App. 29, 60 S.E.2d 653, a

Georgia appellate court considered facts al-.

most identical to those before us. ‘There,.

the plaintiff-mortgagee, who had acquired

and recorded his security interest while |

the subject aircraft was in the possession

possession of the plane against a subsequent

purchaser who had failed to search title

before:his purchase. In affirming a. judg-

ment for the plaintiff-mortgagee, the. court

concluded: "“(C]onstructive notice was.

‘given by the recording of the instrument >

‘with the Civil Aeronautics Authority under

the provisions of Title 49, U.S.C.A., which

provides that every conveyance so. recorded.

‘shall be valid as to all persons. No fur-

ther act was required of the plaintiff to

protect his rights. The defendant, be-

. fore purchasing, had the opportunity to as-

certain the paramount outstanding title by.

checking the records of the Civil. Aeronau-.

tics Authority." (Id. at ai 658)

Other. cases adopting : a view as to priori-_

ties based upon the federal recordation pro-

visions include Marsden v. Southern Flight

- Service, Inc. (M.D.N.C.1964) 227 F.Supp.41l,

415,418-419; United States.v..United Air-

craft Corporation (D.Conn.1948) 80 F.Supp.52;

_N.J.Super. 340, 240-A.2d 17; Crescent City

Aviation, Inc. v. Beverly Bank (1966), 139

Ind.App. 669, 219 N.E.2d 446; Continental

Radio Co. v. Continental Bank & Trust Co.”

(1963), Tex.Civ.App., 369 S.W.2d 359, 362;

and James Talcott, Inc. v. Bank of Miami

Beach (Fia.App.1962) 143 So.2d 657,659.

In deciding that defendant's prior re-

corded security interest must prevail over

6'9

a buyer in the ordinary course of business

in order to further the policies expressed |

-.in section 503 of the Féderal Aviation Act,

we do not overlook those few cases reaching

a contrary conclusion. Rather we do not

_ £ind them persuasive and simply decline to

follow them. In Northern Illinois Corp. v.

Bishop Distributing Co. (W.D:.Mich.1968) 284

F.Supp. 121 and Texas National Bank of

Houston’ v. Aufderheide (E.D.Ark.1964) 235 F.

Supp. 599, the courts looked to state law

and held that a buyer in the ordinary course .

of business should prevail over a prior mort-

gagee with a recorded security interest.

Both courts concluded that state law govern-

_ ed priorities to aircraft and that persons

buying new. aircraft from authorized dealers

without’ actual notice of prior claims (buy-

ers in ordinary course of business) should

not have to search title to protect their.-

claims. While the view espoused in those

cases has some appeal from a policy per- |

spective, it ignores the impact of the over-

riding federal policy in section.1403. The

federal policy to foster recordation arid to

.-protect recorded interests is eviscerated

by a rule — relies on state laws to

protect the’ buyer in the ordinary course of

business even though hé fails to undertake

a simple title search which would have read-—

ily revealed all encumbrances.

For the foregoing ‘reasons, we conclude

that the judgment granting possession of the

_disputed airplane to plaintiff must be re-

versed. Because we have decided that the

mortgagee hoJfds a superior right to the air-

craft, to the extent of his investment in.

it, the award of compensatory damages to

' plaintiff for his loss of use of the plane

must..be. reversed; and it also follows that

the award of punitive damages may fot be su-"

‘stained. ; eee | :

7 -The judgment is reversed and remanded to (

the trial court with directions to amend :.

Via its findings of fact and conclusions of

| law in accord with the views. expressed .

herein and to enter judgment. for Beech es-

tablishing the priority of Beech's secur-

ity interest in the airplane. ;

WRIGHT, C. J., and McCOMB, PETERS,

TOBRINGER, BURKE, and SULLIVAN,JJ., concur.

Order Due

January 15, 197}.

‘ORDER DENYING REHEARING’ >

L.A. No. 29751

IN THE SUPREME COURT OF THE STATE OF CALIFORNIA

IN BANK

Filed January 14, 1971

DOWELL:

@. : Vv. % v

BEECH ACCEPTANCE CORPORATION, INC., ET AL.

. Respondent's petition for rehearing

DENIED. . 4:

{[S/_.. Wright

Chief Justice

’

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