Rotatori, Robert J.

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Sales--Effect of the Ohio Certificate of Motor Vehicle Title Law on the Bona Fide Purchaser Doctrine

Case Western Reserve University School of Law

Case Western Reserve Law ReviewVolume 12 | Issue 31961Sales--Effect of the Ohio Certificate of MotorVehicle Title Law on the Bona Fide PurchaserDoctrineRobert J. RotatoriFollow this and additional works at: https://scholarlycommons.law.case.edu/caselrevPart of the Law CommonsThis Recent Decisions is brought to you for free and open access by the Student Journals at Case Western Reserve University School of Law ScholarlyCommons. It has been accepted for inclusion in Case Western Reserve Law Review by an authorized administrator of Case Western Reserve UniversitySchool of Law Scholarly Commons.Recommended CitationRobert J. Rotatori, Sales--Effect of the Ohio Certificate of Motor Vehicle Title Law on the Bona Fide Purchaser Doctrine, 12 W. Res. L. Rev.630 (1961)Available at: https://scholarlycommons.law.case.edu/caselrev/vol12/iss3/34[JuneRecent DecisionsSALES - EFFECT OF THE OHIO CERTIFICATE OF MOTOR VEHICLETITLE LAW ON THE BONA FIDE PURCHASER DOCTRINEMutual Finance Company v. Municipal Employees Union LocalNo. 1099, 110 Ohio App. 341, 165 N.E.2d 435 (1960)Plaintiff, Mutual Finance Company, had obtained a "floor plan mort-gage"'1 covering four new Chrysler automobiles from N. J. Popovic, afranchised dealer of the Chrysler Corporation. Under the floor plan ar-rangement, Mutual paid Chrysler Corporation for the four new autos de-livered to Popovic. Mutual retained a note and chattel mortgage alongwith the manufacturer's statements of origin2 covering the four vehicles.Popovic sold the automobiles to the defendants, who had no notice ofthe prior liens on the purchased autos. Defendants had traded in theirused cars as part payment and had financed the remainder of the purchaseprice through Mutual. Mutual retained chattel mortgages as security forits loan to defendants. This transaction gave Mutual a second lien on thesame four automobiles. Mutual then honored a draft drawn upon itselfby Popovic in the amount of the retail loans and sent that amount toPopovic rather than applying this amount toward satisfaction of the floorplan mortgage covering the same autos. Upon default of payment byPopovic under the floor plan mortgage,3 plaintiff instituted an action ofreplevin to regain possession of the four vehicles from the defendants.Plaintiff based its right to possession of the cars on the Certificate ofTitle Law which states that continued possession of a mortgage along withthe certificate of origin of an automobile creates a valid lien as againstsubsequent purchasers.4 Defendant's cross petition sought an order com-pelling Mutual to assign the manufacturer's statements of origin of thevehicles to the defendants, Municipal Employees Union, Local No. 1099.The basis for defendant's demand was that the plaintiff was estoppedfrom denying the dealer's ability to pass good title to a bona fide purchaser1. A "floor plan mortgage" is the buying and mortgaging of automobiles by a finance com-pany which then allows them to be placed on the floor of a dealer so that the dealer may sellthem in the ordinary course of his business.2. Manufacturers' statements of origin are those manufacturers' certificates which accompanythe delivery of any new automobiles to the dealer. They contain certain identification mark-ings of the auto.3. The mortgage agreement provided that the mortgagor was to be in default when afterselling one of the mortgaged autos he failed to pay off the mortgage on that particular autofrom the proceeds of the sale.4. OHIO REV. CODE § 4505.13.RECENT DECISIONSwhen the plaintiff knowingly allowed the dealer to display the vehiclesfor sale in the ordinary course of the dealer's retail business.5The trial court denied plaintiff's request and granted to the defendantsthe relief prayed for in the cross petition.' Its decision was based in thefirst instance on the grounds of "floor plan estoppel" as set forth by thedefendant. Secondly, the court held that Mutual, in financing the retailpurchases of the autos upon which it had prior floor plan mortgages, hadextinguished its floor plan mortgage on the autos. Since Popovic wasobligated to pay off the floor plan mortgage with the proceeds from thesale of the autos which were "floor planned," Mutual, in granting theretail loans to the defendants, should have applied the amounts of thoseloans in satisfaction of the floor plan mortgage.7 From this ruling theplaintiff appealed, claiming that the trial court had erred in not recog-nizing that the Act had abolished the equitable defense of "floor planestoppel." It was argued that according to the terms of the Act owner-ship was made to depend solely on the certificate of tide.To understand plaintiff's position some discussion of the mechanicsof the Act must be given. The Certificate of Motor Vehicle Title Lawrepresents a radical change in the registration of liens on new vehicles.8The new Act provides for the registration of liens directly on the auto-mobile certificate of title, in lieu of the filing of mortgages in the office ofthe county recorder.9  A chattel mortgage covering a new motor vehicleis effective if such mortgageis accompanied by delivery of a manufacturer's or importer's certificateand followed by actual and continued possession of such certificate bythe holder of said instrument.'0Such a mortgage is valid against subsequent purchasers." The Act inthis respect places the burden upon one acquiring a chattel mortgage onan automobile, prior to its initial sale to a retail purchaser, to obtain themanufacturer's certificate of origin of said vehicle and maintain continuedpossession of such certificate. It must also be kept in mind that a pur-chaser obtains a title certificate to a new automobile indirectly in thatthe dealer is required to obtain it in the name of the purchaser upon5. This is an application of the "floor plan estoppel doctrine." See National Guar. & Fin.Co. v. Ptaff Motor Car Co., 124 Ohio St. 34, 176 N.E. 678 (1931); 9 OHio Ju. 2d ChattelMortgages § 112 (1954).6. Mutual Fin. Co. v. Meade, 161 N.E.2d 561 (Ohio C.P. 1959). This opinion representsthe decision in seven separate actions involving the same legal issue.7. Id. at 565.8. Mutual Fin. Co. v. Municipal Employees Union Local No. 1099, 110 Ohio App. 341,350, 165 N.E2d 435, 442 (1960). See also, Union Commercial Corp. v. R. J. Schmunk Co.,30 Ohio LAbs. 116 (Ct. App. 1939).9. OHno Rnv. CODE § 4505.14.10. Ibid.11. Ibid.1961]WESTERN RESERVE LAW REVIEWpresentment of the manufacturer's certificate of origin.'2 This places theburden upon the purchaser to make certain that the dealer has the manu-facturer's statement of origin to the vehicle he has purchased. This prac-tice becomes extremely important because the Certificate of Motor Ve-hiclde Title Law does not allow one to obtain any "right, title or interest"in a vehicle without possession of the certificate of tide. 3  It forbids anycourt in law or equity to recognize title in one who does not possess thecertificate of title. 4 Nor can any waiver or estoppel operate in favor ofone not possessing the certificate of title or manufacturer's statement oforigin.'5 This provision indicates that the legislature anticipated a situa-tion in which a vehicle would get ahead of its title. Prior Ohio court de-cisions have given a literal interpretation to the Act, especially the pro-vision which recognizes the validity of a prior lien as against subsequentpurchasers.' 6The court of appeals agreed with plaintiff's contention that the Cer-tificate of Motor Vehicle Title Law did away with the "floor plan estoppel"doctrine.'" But the court then went on to affirm the trial court's decisionon the equitable grounds that, as between two innocent parties, the firstto trust the wrongdoer and give the means for committing fraud mustbear the loss. Accordingly, Mutual, which was the first to trust Popovicand give him the means to commit fraud on the defendants, was madeto bear the loss. Mutual's floor plan mortgage was, in effect, nullifiedby the court.'" In attempting to further support this decision the courtobserved that Mutual's method of policing the automobiles had beenfaulty, and that with due diligence it could have averted the entire situa-tion. The court in thus nullifying the lien on equitable grounds failed togive a literal interpretation to the Act.The propriety of the court's application of the equitable doctrine isdoubtful for two reasons. First, the cases cited by the court to upholdits application of the equity theory are cases in which the two innocentparties concerned had equal legal rights.'9 In the case under considera-12. OHIo REV. CODE § 4505.06. Under this section a dealer is required to obtain a certifi-cate of title in behalf of the purchaser within three days after the sale of the automobile.13. OHIO REV. CODE § 4505.04. This section repealed the Bill of Sale Law, Ohio Gen. Code§§ 6310-3 to -14, which provided that a receipt of bill of sale from a dealer was evidence oftitle to an automobile.14. OHIO REV. CODE § 4505.04.15. Ibid. Associates Inv. Co. v. Le Boutillier, 69 Ohio App. 62, 42 N.E.2d 1011 (1941).16. Associates Inv. Co. v. Le Boutillier, 69 Ohio App. 62, 42 N.E.2d 1011 (1941); Craw-ford Fin. Co. v. Derby, 63 Ohio App. 50, 25 N.E.2d 306 (1939).17. Mutual Fin. Co. v. Municipal Employees Union Local No. 1099, 110 Ohio App. 341,353, 165 N.E.2d 435, 442 (1960).18. Ibid.19. A number of cases were cited by the court in support of this proposition. Among themwere: McHenry v. Old Citizens' Nat'l Bank, 85 Ohio St. 203, 97 N.E. 395 (1911); Wilsonv. Hicks, 40 Ohio St. 418 (1884); Selser v. Brock, 3 Ohio St. 302 (1854).[JuneRECENT DECISIONStion Mutual Finance Company had a chattel mortgage created in accord-ance with the provisions of the applicable statute. On the other hand, thedefendants had no legal right to the automobiles since the statute pre-dudes any party from gaining any "right, title or interest" in a vehicleunless he has obtained a certificate of title.2" Secondly, the equity theoryis in the nature of an estoppel which the statute specifically forbids beingapplied in favor of one who does not possess the certificate of title.2' Thecourt of appeal's decision thus goes counter to the express mandate of theOhio legislature.It is possible that the same result could have been achieved withoutsuch conflict. The trial court found that Mutual extinguished its floorplan or wholesale mortgage lien when it financed the purchase of thesame autos which were the subject of its floor plan mortgage m Popovicwas to pay off the floor plan mortgages with the proceeds from the saleof the autos. When the purchasers borrowed money from Mutual topurchase these same autos, Mutual had in its possession the necessaryamount of money to satisfy its prior lien. Having been in possession ofthe necessary amount of money from the source which was to supply suchmoney to extinguish the lien, Mutual must be deemed to have extin-guished its floor plan mortgage (even though, in fact, Mutual had giventhe amount of the retail loan to Popovic expecting Popovic to pay it backto Mutual).The court of appeals in arriving at an equitable result set itself againstthe plain meaning of the Ohio Certificate of Motor Vehicle Title Law.Difficult as such cases are, it should be left to the legislature to amendthe act to prevent inequitable results such as would have occurred herehad the court given a literal reading to the statute. Other states haveaverted this problem by enacting special statutes which protect the bonafide purchaser from unknown liens on vehicles in a dealer's possession.'20. Omo Rnv. CoDE § 4505.13. For example in Milke v. Leeberson, 150 Oio St. 528,83 N.E.2d 209 (1948), the Ohio Supreme Court said it was upon the plaintiff to prove hehad the title certificate to the vehicle he was driving in order for him to establish ownershipand recover for damages to the vehicle. In Gailich v. McFarland, 159 Ohio St. 539, 113N.E.2d 92 (1953), the Ohio Supreme Court again gave a literal interpretation to the Certifi-cate of Motor Vehicle Title Law by decidiog that although defendant had sold his auto andno longer retained possession of it, the fact that he retained the certificate of title to the autowas conclusive as to whether defendant's insurance policy on said auto was still in effect.Through possession of the title certificate, defendant, in the eyes of the law, was the ownerof the vehicle. See also, In re Estate of Case, 161 Ohio St. 288, 118 N.F.2d 836 (1954);Kelley Kar Co. v. Finkler, 155 Ohio St. 541, 99 N.E.2d 665 (1951); Fredericks v. Birkett L.Williams Co., 68 Ohio App. 217, 40 N.E.2d 162 (1940).21. OHIo REv. CODE § 4505.04.22. Mutual Fin. Co. v. Meade, 161 N.E.2d 561, 565 (Ohio C.P. 1959).23. See, e.g., N.Y. LIEN LAW § 230-2 (1922); Mo. REv. STAT. § 443.480 (1949).See also, Note, The Effect of Motor Registration Statutes on Security Transactions and Recor-dations, [1951] WAsH. U.LQ. 539, 540.1961]

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Sales--Effect of the Ohio Certificate of Motor Vehicle Title Law on the Bona Fide Purchaser Doctrine

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