DOWELL v. BEECH ACCEPTANCE CORPORATION

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Court of Appeal, Second District, Division 5, California.

Donald A. DOWELL, Plaintiff and Respondent, v. BEECH ACCEPTANCE CORPORATION, Inc., Nevadair Company, and the Norman Larson Company, Defendants and Appellants.

Civ. 33634.

Decided: February 24, 1970

Belcher, Henzie & Biegenzahn, and David Bernard, Los Angeles, for appellants. E. Charles Forde, Maywood, and William D. Moore, Los Angeles, for respondent.

The defendant, Beech Acceptance Corporation, Inc., (“Beech”), appeals from a judgment declaring 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 Company (“Larson”) also 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 it distributors. 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  Nevadair assigned its security interest to Beech.   Beech knew that Tanger held himself out to the public as an authorized Beechcraft 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 inquiry of Tanger, “because [Tanger] was an authorized representative 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 previously 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 Association 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 the 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 2 Beech, Nevadair and Larson—Nevadair's parent corporation—removed the aircraft from plaintiff's possession without his knowledge or consent.   They acted on advice 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 provisional remedy (Code Civ.Proc. § 509) plaintiff regained 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.)

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 forward into the Federal Aviation Act of 1958, affects priorities recognized by applicable state law.   The problem is squarely before us, because there can be no question that, absent the federal recording system and its possible impact on stat law, Tanger had the power to defeat Beech's security interest by a sale to a buyer in the ordinary course of business and that plaintiff was such a buyer.1 (Comm.Code, §§ 2403, 9307.)

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 interest 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 Congress has said that recordation with the F.A.A. shall be “valid as to all persons without further or other recordation.”  (49 U.S.C.A. § 1403(d).)

Section 2403 reads in relevant part as follows:  “(1) A purchaser of goods acquires all title which his transferor had or had power to transfer * * *.   (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 course of business.  * * * 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 perfected and even though the buyer knows of its existence.  * * *” Both the Uniform Commercial 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.   Reading the two provisions together, it results that the buyer takes free if he merely knows that there is a security interest which covers the goods but takes subject if he knows, in addition, that the sale is in violation of some term in the security agreement not waived by the words or conduct of the secured party.”   The California Code 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 interest.”  (West's Ann.U.Com.Code, § 9307, p. 501.)

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 States such as the Ship Mortgage Act, 1920, to the extent that such statute governs the right of parties to and third parties affected 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.2

The federal recording provisions were first enacted as part of the Civil Aeronautics Act of 1938.   In 1958 they were 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 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; * * * (c) No conveyance or instrument the recording of which is provided for by subsection (a) of this section shall be valid in respect of such aircraft, * * * against any     person other than the person by whom the conveyance or other instrument 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 * * * (d) Each conveyance or other instrument recorded by means of or instrument recorded by means of or under the system provide for in subsection (a) * * * 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. § 1403(a)(1), (c), (d).)

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 Aeronautics Act was derived from two bills introduced in the third session of the 75th Congress:  H.R. 9738 and S. 3845.   The House bill (H.R. 9738) was submitted by Representative Lea of California on March 4, 1938.   The recording provisions of the bill as introduced were ultimately enacted without modification in any material particular.3  Hearings were held on the Lea bill before the Committee on INterstate and Foreign Commerce of the House.   The reasons for the recording provisions 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's Roosevelt's request.   As related by Mr. Fagg, the objective of providing for federal 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 searching titles, a person holding an interest in a plane could have recorded it in virtually 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 jurisdictions.4  In all of the testimony and letters of twenty-seven witnesses there is no indication that the recording provisions of the bill were intended to establish a set of priorities to supersede those existing under the various state laws.

There was a very short committee hearing on S. 3845, introduced by Senator McCarran, but it was not officially reported.5 The Senate Committee on Commerce  reported the bill out with a recommendation that it be passed passed with certain amendments.6

All the amendments were adopted by the Senate, but only one is important for our purposes:  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 1, 1939, against the aircraft subject thereto.”  (Emphasis added.)   This language, which possibly could have nullified all inconsistent state laws concerning priorities of security interests, was struck out by the amendment adopted by the Senate.7  As amended and as ultimately passed by the Senate 8 and House,9 the recording provisions were the same in substance as the parallel provisions of the 1958 Act.

It is manifest, therefore, that the legislative history of the Civil Aeronautics Act gives no support to the proposition that the recording provisions of the Act were designed to nullify state laws not inconsistent therewith.10  In fact, the circumstantial evidence is to the contrary.

A most relevant expression of congressional intent and administrative interpretation on the issue which concerns us came during a hearing 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 recording 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 delivered, irrespective of the location or the place of delivery of the property which is the subject of such instrument.   Where the place of intended delivery of such instrument is specified herein, it shall constitute presumptive evidence that such instrument was delivered at the place so specified.  * * * ” A similar statute had been proposed by Representative John V. Lindsay of New York in 1962, but failed of enactment.   In 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, equipment 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 instrument for recordation * * * be valid, in respect of the title or interest so transferred or created, as against all creditors, subsequent purchasers, encumbrancers, or other persons * * * ” (Emphasis added.)   At a meeting of the Subcommittee on Transportation and Aeronautics 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 purpose of the bill was to provide a statutory choice of law with respect to the formal validity of instruments tendered for recording by the F.A.A.   During the hearings several representatives expressed concern over the meaning of the emphasized language in the proposed new subsection which, it will be noted, bears striking similarities to the portion of section 1403(d) of 49 U.S.C.A. providing that a recorded instrument “shall from the time of its filing for recordation be valid as to all persons * * *.”   Several representatives posed various hypothetical 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, provided such laws were otherwise applicable under appropriate choice of new rules.   Mr. Hill most emphatically disspelled the notion that the proposed statute was intended to affect priorities enacted or recognized by applicable state laws.   Indeed, in reply to several questions, Mr. Hill stated, in one form or another, that the recording provisions of the Federal Aviation Act did not affect state priorities.   For example, when he was asked about state statutes 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 mortgage 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 Interstate and Foreign Commerce, June 18, 1963, p. 27;  see also Ibid., pp. 25–26, 28.   Emphasis added.)

Another representative, Mr. 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 requested Mr. Hill to ‘supply clarifying language.‘ (Ibid., p. 25.)

Apparently H.R. 2522 died in committee.   Later in 1963 Mr. Lindsay, however, introduced H.R. 8673, which became section 1406, quoted above.   It will be noted that section 1406, as enacted, did not contain the language in the proposed subdivision to section 1403 which had been part of H.R. 2522 and which had worried the subcommittee.

There has been very little scholarly writing on the problem presented in the case at bar.   The only two discussion we have found favor the correctness of the trial courts' ruling.   Professor Scott, in his article “liens in Aircraft:  Priorities” 25 Journal of Air Law and Commerce, 193, criticizes In re Veterans' Air Express Co., D.C., 76 F.Supp. 684, which held that a recorded mortgage of the United States Government was senior to a repair lien which assertedly had priority under common law principles and local statutes.  “While the court is undoubtedly correct that Congress may establish the priority of its liens with respect to liens asserted by private individuals under state statutes or by virtue of common law, one may seriously question whether it intended to do so in this instance.   The purpose of the statute was reportedly to eliminate confusion engendered by a multitude of state recording systems by providing a single basis for constructive notice, [footnote omitted] not to establish the priority of a recorded security interest over all subsequent claims * * *.”  (Ibid., p. 203).

The other academic authority which we find on the trial court's side, is Professor Gilmore.   In the section on aircraft liens in his work “Security Interests in Personal Property,” (1965) he writes:  “Except for the engine and spare parts liens, § 503 [49 U.S.C.A. § 1403] is not in any sense a substantive statute.   Therefore, it is believed, apart from these substantive provisions, the question of formal requisites, and the operation of the recording system, state law should apply to determine any question arising in connection 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 statutes we have so far discussed:  § 503 is much less comprehensive than the Ship Mortgage 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 state law is generally applicable and that § 503 is clearly a ‘interstitial’ statute, which goes as far as it goes but no further.”  (Ibid., p. 426.)11

As far as case law is concerned, it must at once be admitted that we have 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 Encumbrances On Aircraft” (22 A.L.R.2d 1270), indicates that decisional law in the various state and federal courts which have considered 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 Corporation, 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 vendee.   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 paramount outstanding title by checking the records of the Civil Aeronautics Authority.   This being so, his title to the aircraft was inferior to that of the plaintiff, and a verdict for the plaintiff in the trover action was demanded.”  (60 S.E.2d at p. 658.) 12

In spite of the broad language in Dawson, 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 federal cases, at least one of which is quite indistinguishable from ours, which prefer the innocent purchaser in the ordinary course 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 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 purchased and taken delivery of the plane. A motion for summary judgment by plaintiff was denied on the basis of defendant's affidavit that it had no notice of the plaintiff's mortgage until it was recorded. The case is obviously distinguishable 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 interest in aircraft.   This view is erroneous, 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 convey an interest in an aircraft is recorded, in accordance with the Act, it is void as to third parties without notice.   Upon federal recordation, it is valid without further recording.   In providing for the recordation of various instruments pertaining to transactions affecting title or interest in aircraft, Congress has not impaired the existence and effectiveness of state laws creating and defining such instruments.   Excepting the recording section of the Federal Aviation Act, the validity of the chattel mortgage here in question must be measured by the appropriate state law.   Thus, if the purported chattel mortgage is void as to defendant under the appropriate 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. at p. 82.   Emphasis added.)

Closer to the facts of our case is Texas National Bank of Houston v. Aufderheide, 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 written consent.   The mortgagee had known of and acquiesced in the dealer's practice of selling mortgaged planes in the ordinary course of business and settling 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 aircraft, 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 instruments, are matters which are governed by the federal statute rather than by local 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 purchaser takes free of the mortgagee lien and his rights are are superior to those of the mortgagee. Citations omitted. And a provision in a chattel mortgage prohibiting a sale of the mortgaged chattel without the mortgagee's consent is waived if the mortgagee knowingly permits the violation of such provision.   15 Am.Jr.2d, p. 324.”  (235 F.Supp. at p. 603.)

Although section 9307 cuts a broader exception than the principle found dispositive in Aufderheide, no sound reason appears 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 business, other than a person buying farm products from a farmer, 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. * * *”  (235 F.Supp. at p. 604.)

Finally and, we believe, indistinguishable from the case at bar, there is the decision in Northern Illinois Corp. v. Bishop Distributing Co., D.C., 284 F.Supp. 121, decided just 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 dealer5 was duly filed and recorded with the F.A.A.   Between the filing and the recording of the agreement the defendant purchased the aircraft from the dealer in the ordinary course of business.13  The court acknowledge that:  “* * * federal law rather than state law governs the rights of claimants to aircraft to the extent that these rights are dependent upon the fact or time of recordation 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 Enterprises Inc., 10 Cir., 355 F.2d 225, 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 conveyances and liens affecting the title to aircraft, Congress has preempted that field and state recording statutes are not applicable to such title instruments. Footnote omitted. However, questions of the validity of such title documents, actual notice, good faith purchaser status, and the like, must be resolved under state law.  [Footnote omitted.].”  (355 F.2d at p. 229.   Emphasis added.)

In its discussion the Northern Illinois court also disposes of the point that aircraft are not to be treated in the same way as other goods:  “Plaintiff argues that because aircraft are much more costly than household goods or cars, a buyer of an aircraft should be required to conduct an aircraft title search.   In this respect, plaintiff contends that all that would have been required of the defendants would have been for them to check with the Federal Aviation Agency in Oklahoma City, Oklahoma.

“We question whether the price of goods should determine the duties and obligations of the buying public.   Plaintiff was aware that Mich–Air Mooney, Inc., purchased the aircraft in order to sell it.”  (284 F.Supp. at p. 125.)

 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 deny the power of Congress, under the Interstate Commerce clause, so to provide.   We merely hold that it has not done so.14  It would indeed be anomalous if by saying nothing whatever about priorities, Congress 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.

Defendants make much of plaintiff's familiarity with the recording provisions of the Federal Aviation Act and his knowledge 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 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 argument assumes that the definition of “buyer in ordinary course of business” in section 1201(9) contains an implied exception relating 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 statements on file.   Finally, there is nothing in the record before us which suggests that an inquiry with the F.A.A. would have revealed that the sale to plaintiff was “in violation of some term in the security agreement not waived by the words or conduct of the secured party.”  (U.C.C. Comment to § 9–307.) 15

The judgment must therefore be affirmed as far as the principal issue, the ownership of the aircraft, is concerned.   No separate contention is made with respect to the modest award for loss of use.   The court, however, also awarded plaintiff $1,000.00 in punitive damages, finding that the repossession of the plane without plaintiff's knowledge or consent and without investigation, but in full awareness that Dowell had paid Tanger $30,000.00, was oppressive.

 The right of a conditional seller to ‘'proceed without judicial process if this can be done without breach of the peace” was established by statute.   (Comm.Code, § 9503.)   The legal question involved was and is an extremely close one.   Defendants acted on advice of counsel.   Time was, presumably, thought to be of the essence, for airplanes are mobile and easily spirited away.   Practical success of lawsuits 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 damages is concerned. In all other respects it is affirmed. Plaintiff is to recover his costs on appeal.

FOOTNOTES

1.   Section 1201(9) of the Commercial Code reads, in relevant part, as follows:  “ ‘Buyer in ordinary course of business' means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the 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.)

2.   With respect to section 9104(a) the Uniform Commercial Code Comment reads, in part, as follows:  “Where a federal statute regulates the incidents of security interests in particular types of property, those security interests are of course governed by the federal statute and excluded from this Article.   The Ship Mortgage Act, 1920, is an example of such a federal act.   Legislation covering aircraft financing 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 Aeronautics Administrator and such registration is recognized as equivalent to filing under this Article (Section 9–302(3));  but to the extent that the Civil Aeronautics Act does not regulate the right of parties to and third parties affected by such transactions, security interests in aircraft remain subject to this Article, pending passage of federal legislation.”  (Emphasis added.)   The California Code Comment reads, in part, as follows:  “With reference to security interests which are to some extent covered by federal statutes include those created in aircraft (49 USCA § 1403), railroads (49 USCA § 20), patents (35 USCA § 261), and copyrights (17 USCA §§ 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 stated:  “Where a security interest is subject to a federal statute which regulates the rights of parties thereto, it is excluded from the scope of the Code * * *.   the exclusion, however, is limited in that it applies only ‘to the extent’ to which federal law governs, thereby permitting reference to the Code when federal law, possibly due to the statute's lack of comprehensiveness, fails to provide a solution to a given problem.  * * * The Code refers to the Ship Mortgage Act of 1920, * * * which regulates security interests in maritime equipment, as an example of the type of federal statute which would require an exclusion.   Other forms of security interests which are to some extent governed by federal statute which would require an exclusion.   Other forms of security interests which are to some extent governed by federal statutes include those created in aircraft, * * * railroads, * * * patents * * * and copyrights * * *.   These statutes, 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 of the parties to, and third parties affected by, the security agreements.   It is therefore not clear whether these statutes 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 concerned—as distinguished from the question of priorities—section 9302(3)(a) specifically exempts from the filing provisions of the Commercial Code all security interests “in property subject to a statute of the United States which provides for a national registration or filing of all security interests in such property.”

3.   Compare 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).

4.   Hearing on H.R. 9738, before the Committee on Interstate and Foreign Commerce, 75th Congress, 3rd Session, pages 405–407.

5.   Charles S. Rhyne, The Civil Aeronautics Act Annotated (1939, National Law Book Co., Washington, D.C.) page 60, footnote 215.

6.   S.Rept. No. 1661, 75th Cong. 3d Sess., April 20, 1938.

7.   83 Cong.Rec. 6757 (May 12, 1938).

8.   83 Cong.Rec. 6879 (May 16, 1938).

9.   83 Cong.Rec. 7104 (May 18, 1938).

10.   See footnote 11 post.

11.   The first sentence of this quote indicates that section 1403 of 49 U.S.C.A. does contain certain substantive provisions.   The reference is to section 1403(a)(2) and (3) of 49 U.S.C.A. which permit the recording of certain interests in specific engines and further provide for the recording of a “basket lien” on engines, propellors, appliances and spare parts maintained by air carriers.   The statute also establishes priority of recorded liens on specific engines over engines included in the “basket lien.”   The 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 i the fact that the International Atlas case deals with conflicting claims to the ownership of engines.

12.   The court talks of the provision in section 1403(d) of 49 U.S.C.A. that an instrument recorded with the F.A.A. shall be “valid as to all persons without further or other recordation * * *” as if the sentence 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 intention:  that recordation by the F.A.A. has the same effect as compliance with state recordation requirements otherwise applicable to a particular transaction.

13.   The fact that the purchase took place before the actual recording of the security 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.)

14.   Professor Gilmore puts the point as follows:  “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 coverage of security interests in aircraft:  they 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 United 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 comprehensive security statute for aircraft—or indeed a statute covering security interests 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 likelihood that such a federal preemption of the field will take place in the near future * * *.  [Footnote omitted.]”  (Gilmore, op. cit. p. 423.)

15.   The trial court adverted to the fact that even a “clean” report on a particular aircraft's title by the F.A.A. furnishes no assurance.   “[T]here is no practical way for the customer to protect himself.   In fact, in the absence of title insurance companies or escrow companies 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 American 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 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 recordation and that are not solved by recordation.”

KAUS, Presiding Justice.

STEPHENS and AISO, JJ., concur.