CRESTLINE MOBILE HOMES MANUFACTURING CO v. PACIFIC FINANCE CORPORATION (1960)

Appeal is taken from a judgment for defendant in a claim and delivery action to determine the right to possession of personal property consisting of a mobile house trailer.

The case was tried on a written stipulation of facts with exhibits attached thereto. No additional evidence was offered or received. The pertinent facts as revealed by the stipulation are that Max L. Peterson, hereafter referred to as ‘Peterson,’ is an individual doing business as Max's Auto and Trailer Sales and is a retail trailer dealer in Modesto, California. Defendant, Pacific Finance Corporation, hereafter referred to as ‘PFC,’ a sales finance corporation, entered into an arrangement with Peterson whereby PFC would loan money to Peterson upon the security of trust receipts. On January 15, 1957, plaintiff Crestline Mobile Homes Manufacturing Company, hereafter referred to as ‘Crestline,’ delivered a Crestline Mobile Homes Thunderbird, hereafter referred to as ‘trailer,’ to Peterson in Modesto. No statement of trust receipt financing was filed by Crestline covering its financial arrangements with Peterson.

On January 15, 1957, Peterson mailed his check in the sum of $3,604.99 dated the same day to Crestline. Peterson had advised that he would notify Crestline immediately when he had sufficient funds on deposit to pay the check. No such notice was ever given. On the date the check was drawn and on January 16 and 17 and on February 19, 1957, the check would have been honored had it been presented by Crestline for payment but it was never presented.

On January 16, 1957, Peterson exhibited to PFC the original invoice and the shipping order covering the trailer. At that time Peterson informed PFC that the trailer had been paid for by his check dated January 15, 1957, in the sum of $3,604.99. Set forth upon the invoice was the statement that Crestline retained title to the trailer until the entire purchase price set forth on the invoice had been paid. PFC made no further investigation to ascertain the interest, if any, of Crestline in the trailer. PFC on January 16, 1957, loaned Peterson the sum of $3,312 and a trust receipt was executed on behalf of Peterson, pursuant to a power of attorney dated June 26, 1956, signed by Peterson, covering the trailer as security therefor.

The trailer was exhibited for sale on Peterson's retail lot and was seen there by PFC until April 22, 1957. On April 19, 1957, Peterson paid PFC a reduction of $331 pursuant to their financial arrangements. Following default by Peterson, PFC took possession of the trailer on May 3, 1957. Peterson is no longer in business, and is unable to satisfy his debts. The balance owing from Peterson to PFC secured by its security interest in the trailer is the sum of $2,981, together with interest thereon at the rate of 6 1/2 per cent per annum from and after April 19, 1957.

The trial court found all facts as stipulated to be true and that plaintiff's invoice did not give notice to defendant of any claim by plaintiff to the house trailer. As a conclusion of law the court found that plaintiff is estopped to deny that it received payment in full on January 15, 1957, for the house trailer; that on January 16, 1957, when defendant made its loan to Peterson, defendant had no notice of any claim by plaintiff to the trailer; that the trust receipt executed in favor of defendant on January 16 created a valid security interest in the trailer and entitled it to possession thereof on May 7, 1957, or in lieu thereof to its lien; that plaintiff was not entitled to possession of the trailer on May 7 and defendant is entitled to judgment for return of the trailer or in lieu $2,981 with interest.

The finding by the court that plaintiff's invoice did not give notice to defendant of any claim by plaintiff to the trailer is directly contrary to the evidence as reflected by the agreed facts and exhibits. The original invoice, dated January 14, 1957, and by Peterson's stamp thereon received by him on January 15, 1957, together with the shipping order were shown to PFC before any credit was extended by the latter. Plainly set forth on the invoice was plaintiff's name, address, telephone number, place and person to whom the trailer was shipped, date of shipment, the terms ‘cash,’ date of delivery and its price. Also thereon was the printed statement that plaintiff retained title to the trailer until the entire purchase price set forth on the invoice had been paid.

Knowing that the trailer had been received by Peterson only one day before, nevertheless PFC without any further evidence of ownership accepted Peterson's statement that his check dated January 15, 1957, had been mailed to Crestline at its place of business some three hundred miles distant. Peterson made no representation that the check had been accepted or paid or that title to the trailer had been transferred by plaintiff to him. Nowhere on the invoice was there any evidence that plaintiff had receipted for the purchase price or had received any money therefor. PFC asked for no evidence of ownership in Peterson or evidence of his right to hypothecate the trailer and concededly made no further investigation to ascertain the interest, if any, of Crestline in the trailer. PFC thereupon on January 16, 1957, loaned Peterson the sum of $3,312 and executed a trust receipt on behalf of Peterson, pursuant to a previously dated power of attorney, covering the trailer as security therefor.

The foregoing facts and circumstances are such as would put defendant on an inquiry which, if followed, would lead to knowledge of Crestline's continued ownership of the trailer. ‘Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact.’ § 19, Civ.Code.

The rule is established that means of knowledge are equivalent to knowledge if it appears the party had notice or information of circumstances which would put him on an inquiry which, if followed, would lead to knowledge or where facts were presumptively within his knowledge, he will be deemed to have actual knowledge of these facts. Lady Washington C. Co. v. Wood, 113 Cal. 482, 487, 45 P. 809; Edgar Rice Burroughs, Inc. v. Commodore Productions & Artists, Inc., 167 Cal.App.2d 463, 477, 334 P.2d 922; Wool v. Scott, 140 Cal.App.2d 835, 844, 296 P.2d 17. With such knowledge the loan by defendant to Peterson, and the trust receipt issued on behalf of the latter of the trailer as security, were made subject to the prior and rightful claim to the trailer by plaintiff as its owner.

The foregoing facts and evidence likewise fail to support the conclusion of the trial court that plaintiff is estopped to deny that it received payment in full on January 15, 1957, for the trailer, or that when PFC made its loan to Peterson it had no notice of any claim by plaintiff to the trailer. Plaintiff is not estopped to assert its title to the trailer in question. The evidence shows that PFC did not rely upon any act of Crestline but relied solely upon Peterson's representation. Plaintiff nor Peterson represented the latter had funds in his bank sufficient to cover any check or that any understanding existed between them as to such check. Defendant took no steps or precaution to verify the representations made by Peterson or to ascertain existing conditions relating to title of the trailer. As said in the factually similar case of Metropolitan Finance Corp. of California v. Morf, 42 Cal.App.2d 756, 760, 109 P.2d 969, 971; ‘In the first place, the evidence shows that appellant did not rely upon any act of respondents but relied solely upon Woods' representation that he had the cars in his possession and did not take any precaution to verify Woods statement. In the second place, respondents had merely given Woods possession of the cars, and entrusting a third person with mere possession does not constitute holding him out as owner. [Citations.] Respondents had done nothing to mislead appellant as to the conditions under which Woods held possession and ‘nothing is better settled than that possession of personal property is prima facie, not conclusive, evidence of title and that the maxim caveat emptor applies.’'

Likewise the conclusion that the trust receipt executed in favor of defendant on January 16 created a valid security interest in the trailer and entitled it to possession thereof on May 7, 1957, or in lieu thereof to its lien in the amount of $2,981, with interest, is not supported by either the facts herein or the law. The trust receipt here in question depends for its validity upon a compliance with section 3014, subdivision (1) (a) and (b), Civil Code. Subdivision (a) requires that the entruster (PFC) or some third person deliver to the trustee (Peterson) goods, documents or instruments in which the entruster, prior to the transaction had any security interest. There is no such evidence in this case.

Subdivision (b) covers a transaction wherein the entruster gives new value in reliance upon the transfer by the trustee to such entruster of a security interest in instruments or documents which are actually exhibited to such entruster but possession of which is retained by the trustee. Under this subdivision the proposed trustee in possession of personal property is required to exhibit the documents of title, although he thereafter retains such documents. Here Peterson at no time held any instrument or document of title and the undisputed facts show that none was ever exhibited or demanded by defendant. It is apparent therefore, that the purported trust receipt in evidence in this case is invalid and cannot comply with either subdivision (1) (a) or (b) of section 3014, Civil Code.

PFC here advanced money to the dealer Peterson upon receiving a so-called trust receipt but did not purchase the trailer on behalf of the dealer, or take title as security, or receive any bill of lading or ownership certificate as agent for the plaintiff seller. There had been no registration of the trailer in Peterson's name nor delivery to him of any endorsed certificate of ownership. Under these circumstances the so-called trust receipt was inoperative insofar as depriving Crestline of its right, title and interest in the trailer. The transaction as between Peterson and PFC was not a trust receipt transaction that is covered by the Uniform Trust Receipts Law.Civ.Code, §§ 3012 to 3016.16; Metropolitan Finance Corp. of California v. morf, supra, 42 Cal.App.2d 756, 759, 109 P.2d 969; In re San Clemente Electric Supply, D.C., 101 F.Supp. 252; Ford Motor Co. v. National Bond & Investment Co., 294 Ill.App. 585, 14 N.E.2d 306; 168 A.L.R. 366, 368.

The judgment is reversed and remanded with instructions to the trial court to enter judgment consistent with the views expressed herein.

KINCAID, Justice pro tem.

FOX, P. J., and ASHBURN, J., concur.