COMMERCIAL CREDIT CO v. BARNEY MOTOR CO

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District Court of Appeal, Third District, California.

COMMERCIAL CREDIT CO. v. BARNEY MOTOR CO. et al.†

Civ. 5574.

Decided: July 21, 1937

R. G. Partridge and Ralph E. Bancroft, both of San Francisco, for appellant. Gregory P. Maushart, of Los Banos, for respondents. D. O. Germino, of Los Banos, for respondent American Trust Co.

This litigation concerns the right to the possession of a Plymouth automobile.

An action in claim and delivery was brought by the Commercial Credit Company against Barney Motor Company and certain others, wherein it was alleged that the Credit Company was the owner of the automobile and entitled to the possession thereof, which was wrongfully withheld by the Motor Company. The car was seized by the sheriff, whereupon American Trust Company filed a third party claim, demanding the delivery of the automobile, under the terms of a conditional sales contract entered into between itself and Barney Motor Company and Bernard A. Negra.

As a result of this demand a hearing was had, and the following facts adduced:

In April, 1935, the Chrysler distributor for Northern California sold to appellant, Commercial Credit Company, the automobile in question. The same day, and after the execution of the bill of sale, the automobile was delivered to defendant Bernard A. Negra, and a trust receipt was executed by defendant Negra, the Chrysler–Plymouth dealer in Los Banos, in favor of the Commercial Credit Company. In this trust agreement the dealer Negra acknowledged receipt of the automobile from the Credit Company and agreed to hold the same in trust for the Credit Company as its property, and agreed not to lend, mortgage, pledge, encumber, operate, or use said automobile. Negra, the dealer, was granted the right to sell for cash only and to deliver the proceeds of said sale forthwith to the Credit Company. From time to time the Credit Company checked the presence of the car at the dealer's establishment, and although upon one or two occasions the car was found in the possession of Mr. Tonolla, a salesman of the Motor Company, it still carried dealer's license plates and no white slip was found in the car. Possession of the car by Tonolla aroused no suspicion in the minds of the investigators for the Credit Company, as sometimes cars under trust receipts were permitted to be used for demonstration purposes by the dealer or his salesmen.

However, while the car was still in the possession of Negra, he purported to sell this automobile to his employee, Mr. Tonolla. Negra and Tonolla went to the office of the American Trust Company, respondent herein, and executed a conditional sales contract from Negra, as the seller, to Tonolla, as the purchaser. Attached to this conditional sales contract was an assignment by the seller of all of his right, title, and interest to respondent American Trust Company, in consideration of which the Trust Company advanced to the seller the purchase price of the car. Immediately after this transaction with the American Trust Company, the car was registered with the division of motor vehicles showing the American Trust Company as legal owner and Tonolla as registered owner thereof. Upon the discovery by the Credit Company of the contract to Mr. Tonolla and the taking of the title in the car by the bank, this action in claim and delivery was commenced by the Credit Company.

It is stipulated that the Credit Company had not been paid for the automobile and that demand for its return had been made.

From these facts the court found that respondent Trust Company was a bona fide subvendee for value and that appellant Credit Company was estopped from asserting its title and adjudicated the respondent Trust Company was entitled to the possession of the automobile.

There seems to be no contention but that as between the Credit Company and the Motor Company the trust agreement was binding and enforceable. It is as to the rights of the intervening third party, the Trust Company, that we are here concerned.

Conditional sales contracts are fully recognized in this state, but it is clearly settled that if personal property is delivered under a conditional sales contract to a buyer who is engaged in the business of selling property of the same kind, and with the knowledge of the seller the property is placed on display for sale with such other articles, the holder of the reserved title is estopped to assert it against a bona fide subvendee for value. Civ.Code, § 1142; California Standard Finance Corporation v. Riverside Finance Company, 111 Cal.App. 151, 295 P. 555.

The test for the application of this principle is set forth in Pacific Finance Corporation v. Hendley, 119 Cal.App. 697, 7 P.(2d) 391, and is that: First, a true owner of the property must have delivered its possession to a seller of similar property with knowledge that it will be sold; secondly, the purchaser must be, in effect, innocent and without knowledge either actual or constructive of the true nature of the title of the property; and, third, must have relied upon the apparent indicia of title in the seller coupled with its possession.

Mere possession, as was stated in Carter v. Rowley, 59 Cal.App. 486, 211 P. 267, is not sufficient evidence of authority to sell to protect one who purchases from the possessor, but in addition to the possession by the vendor the owner must have given some evidence of authority to sell according to the custom of the trade, and if, here, the sale had been made to an innocent purchaser for value, he would have secured good title to the automobile. He is protected against any claim by the real owner upon the element of estoppel. The existence of an estoppel, however, is a question of fact. Parke v. Franciscus, 194 Cal. 284, 228 P. 435. The question here is to determine if there was sufficient evidence to establish such an estoppel. This court has held in Mohr v. First National Bank, 69 Cal.App. 756, 232 P. 748, a trust receipt executed under circumstances similar to the present situation is sufficient to support a finding that title was in the Credit Company. Was the bank here an innocent purchaser for value? In the first place, the distinction between the purchase of the personal property and the acquisition of a conditional sales contract resulting from the sale of such property must be recognized. In Henderson v. General Acceptance Corporation (Cal.App.) 280 P. 1013, the court used this language: “The other authorities cited by appellants relate to an automobile itself and not to the contract of sale of an automobile. They would each be good authorities in support of the title of Jewatt (the innocent purchaser in this case) even though he bought on credit when Hunter's real authority was to sell for cash; but they are of no assistance to appellant which did not buy the automobile that Hunter was authorized to sell, but the Jewatt contract which Hunter was not authorized either to make or sell.”

To the same effect was the holding of the Supreme Court in denying a hearing in the case of Pacific Finance Corporation v. Hendley, 103 Cal.App. 335, at page 340, 284 P. 736, 285 P. 1048, where the court said: “The Court.––The petition for a hearing herein is denied. In denying said petition, we withhold our approval of that portion of said opinion which purports to hold that a mortgagee is protected by the provisions of section 1142 of the Civil Code in the same way and to the same extent that a buyer under an executed sale of personal property from a person having possession thereof with power to dispose of the same, is afforded protection by said section. While in some cases the words ‘buyer’ and ‘purchaser’ are used synonymously, and in others a ‘purchaser’ has been held to include a ‘mortgagee,’ we know of no authority, and none has been cited by the respondent, which goes so far as to hold that a mortgagee is ever ‘a buyer at an executed sale.”’

Aside from this distinction, however, we believe the bank was put upon inquiry as to the right of the Motor Company to sell the particular car in question.

It appeared Mr. Enos, the branch manager of respondent bank at Los Banos, was familiar with the method of “flooring” used by the Commercial Credit Company. It appears that this is a plan often used by finance companies and automobile dealers whereby a finance company buys from the wholesaler or distributor new cars and places them with a dealer, and the dealer, with the consent of the finance company and under the terms of the trust receipt, then sells to customers as they appear, and remits the net amount previously paid by the finance company to such company, retaining the difference received from the purchaser as profit. These cars “floored” for the dealer and unsold are not registered under the Vehicle Code until so sold.

Mr. Enos knew of this method of financing the automobiles locally. Mr. Negra had called upon him to ascertain if his bank would operate in that manner. Mr. Enos made no inquiries, however, of Mr. Negra or Mr. Tonolla as to whether or not this particular car had been previously floored.

In California Standard Finance Corporation v. Riverside Finance Co., supra, the rights of an innocent purchaser of a floored car are discussed. Mr. Enos, the branch manager of respondent Trust Company, testified as follows:

“Q. You do know that Negra may or may not have had the right to sell that car, didn't you? A. Naturally.

“Q. And you didn't inquire whether he did or not, did you? A. No.”

He testified further:

“Q. Do you know the practice among automobile dealers to floor their new cars? A. Yes. * * *

“Q. You know, for instance, on the date this contract was brought in to you for you to lend money on, that on that date many of the dealers in Los Banos were flooring their new cars, don't you? A. Yes. * * *

“Q. Now let me ask you there, had Mr. Negra prior to the date the contract was taken up by you, had he asked you to floor his new cars? A. He hadn't asked us, he asked if the bank was entering into the plan of flooring. * * *

“Q. At the time the contract was brought over to your establishment on this particular car, did you inquire of Mr. Negra whether it was floored in fact? A. I did not. * * *

“Q. Did you make any effort whatever to ask anyone or inquire of anyone whether Mr. Negra had title to it, had the right to sell it, and whether or not it was floored? A. I did not.

“Q. You knew it may or may not be floored? A. Right. * * *

“Q. You did not take any steps to find out whether it was floored or not? A. No.”

These facts were sufficient to put the bank upon inquiry and definite information obtained from the distributor and others. Section 19, Civ.Code.

The admissions by the witness and the surrounding circumstances, we believe, bring this case within the rule found in the following cases: Henderson v. General Acceptance Corporation (Cal.App.) 280 P. 1013; Henderson v. General Acceptance Corporation, 209 Cal. 268, 286 P. 1014 (hearing granted in the Supreme Court on certain points not here involved); California Finance Corporation v. Riverside Finance Company, supra.

Without discussing the many cases bearing upon the principles here involved, we believe that sufficient has been set forth to justify a reversal of the judgment appealed from, and it is so ordered.

PER CURIAM.

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