# Appendix — Dowell v. Beech Acceptance Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385605_1235%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1971 - **Citation:** 404 U.S. 823 ## Text fe 7. “ 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 v ‘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 ” 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* a. . . 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. be 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 (c) It was agreed that the transac- 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, a 7 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.. : gt 8 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 — s 10 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 11 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 a: ~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. 13 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 14 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. a 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 oP 16 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. ae fy 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 VA 19 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:- 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 - \ we 27 ~~ 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? ee \ MR. BERND: tie haven't resolved — wy : 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 . 28 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 > @ * . ? . 30 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 31 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- 33 . : : 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 : ee 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 oy 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 36 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 38 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). A Hearing on H.R. 9738, jefore the Comittee on Interstate and Foreign Commerce, 75th Congress,, 3rd Session, pages 405-407. ac 39 ' 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. 6 S. ‘Rept. No. 1661, 75th cong. 3a Sess., April 20, 1938. ; 783 Cong.Rec. 6757 (May 12, 1938). Sx 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. & ° 41 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) — 42 e ’ 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 43 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 a fs 45 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. 46 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 | 47 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._ te 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. e. 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 50 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. ) hy > . 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 a mT 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 . i [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 — in ordinary course of business" in section © 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 55 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." 56 ‘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. . 4 — 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. me ‘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) al aa ¢! * 60 _ 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 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 ) 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 t e- 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 ‘ ‘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; Smith v. Eastern Airmotive Corp. (1968) 99 © _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- 70 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. ty 71 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 - ’ / --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385605_1235%3A1. Public record. Not legal advice.