English v. Ralph Williams Ford

Citations: 17 Cal. App. 3d 1038; 95 Cal. Rptr. 501; 9 U.C.C. Rep. Serv. (West) 437; 1971 Cal. App. LEXIS 1551Docket: Civ. 37468

Court: California Court of Appeal; June 1, 1971; California; State Appellate Court

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Cross-appeals were filed by Paul and Betty English against Ralph Williams Ford, with the Englishes awarded $704 in general and punitive damages from the Ford dealership, while recovery from Gateway National Bank and Key Auto Recovery, Inc. was denied. Conversely, the bank was awarded $2,172.77 plus $500 in attorney’s fees from the Englishes. The case stemmed from a fraudulent transaction involving Intercontinental Auto Imports, Inc., which provided a worthless draft to Ralph Williams Ford for a 1967 Country Squire Station Wagon. Ralph Williams Ford falsely identified itself as the legal owner of the vehicle when registering it in the Englishes' names, later repossessing and reselling the vehicle through Key Auto Recovery, Inc. The bank financed the Englishes' purchase from Intercontinental, which involved a secured installment note for $2,700.

On June 24, 1967, the Englishes inquired about purchasing a new Ford Station Wagon but were misled into believing Intercontinental was a new car dealer. They executed a purchase order for $4,080.60. Following a bank loan approval on June 29, the Englishes signed a three-year installment note for $3,064.68 and a vehicle security agreement. On the same day, Intercontinental procured the vehicle from Ralph Williams Ford for $3,973.14 using a draft, with the dealership providing the car without any payment made at that time.

Ralph Williams Ford was informed by a salesman from Intercontinental that the Automobile Club of Southern California would be the lender for a car transaction. Ralph Williams Ford placed a dealer’s report of sale on the car’s windshield and a temporary registration number on it, allowing lawful operation until official license plates could be issued. Mrs. English visited Intercontinental to pay a bank draft for the vehicle and noted the dealer's report listed the Englishes as owners, with the Automobile Club as the legal owner. After consulting with the bank's loan officer, she was assured the issue would be addressed.

Subsequently, an officer from Intercontinental presented the bank draft for payment and provided a document to the bank that incorrectly named the bank as the legal owner. Intercontinental’s draft to Ralph Williams Ford was dishonored, prompting Ralph Williams Ford to change the legal ownership designation in their application for vehicle registration sent to the DMV. The bank never received the vehicle's certificate of ownership as a result of this change.

In July 1967, the bank’s loan officer confirmed that Ralph Williams Ford possessed the certificate of ownership. After a delay, Ralph Williams Ford directed Key Auto Recovery, Inc. to repossess the vehicle from the Englishes due to the worthless draft. The repossession occurred on August 14, 1967, and the vehicle was returned to Ralph Williams Ford. They subsequently filed an affidavit with the DMV citing the Englishes’ default on a conditional sales contract for the vehicle, dated June 29, 1967, and later sold the car to third parties, notifying them of the sale under a conditional contract of sale or security agreement per Civil Code section 2983.2.

On September 11, 1967, a claim and delivery action for conversion and fraud was initiated by the bank against the Englishes, Ralph Williams Ford, Intercontinental, and various fictitious defendants in the Municipal Court of Inglewood. Approximately seven weeks later, the Englishes filed a complaint in the Superior Court of Los Angeles for conversion against similar parties, alleging they purchased a station wagon from Intercontinental on June 24, 1967, paid in full via a $2,700 bank loan, and were wrongfully repossessed by Ralph Williams Ford on August 14, 1967. They sought $14,469.88 in damages, excluding interest and loss of use.

On May 17, 1968, the bank and Ralph Williams Ford agreed to transfer the municipal court case to the superior court for consolidation with the Englishes' action, which was ordered three days later. On March 17, 1969, the Englishes filed a first amended cross-complaint in the consolidated case, consisting of three causes of action: general and punitive damages of $10,000 for unlawful attachment, $1,395.20 for cash paid to Intercontinental for the station wagon, and $595 for payments made to the bank on an installment note. These claims were based on the bank's alleged negligence in securing legal title to the station wagon, leading to a failure of consideration for the Englishes' note.

On November 19, 1968, both parties recovered $296 from Intercontinental's dealer's bond. A writ of attachment was issued in favor of the bank on February 14, 1969, leading to levies on Paul English's salary and the English home. The case proceeded to trial in December 1969, addressing the bank's complaint, the Englishes' complaint, and their cross-complaint.

The repossession by Ralph Williams Ford is characterized as conversion, defined as wrongful dominion over another's property. The court addressed the applicability of the Uniform Commercial Code, specifically arguing that the relevant section does not exempt transactions that, despite appearing as unconditional sales, are intended as security transactions.

Section 2105(1) defines "goods" within the sales division of the Uniform Commercial Code (UCC) as all movable items except money, investment securities, and things in action, confirming that automobile sales fall under this division unless specified otherwise in section 2102. Transactions involving Ralph Williams Ford's sale of a station wagon to Intercontinental and subsequent sale to the Englishes do not qualify as unconditional or present sales intended merely as security transactions. The final clause of section 2102 does not exclude certain transactions from UCC coverage but ensures that existing statutes regulating sales to specific buyer classes remain effective. 

Ralph Williams Ford claims that because Intercontinental's payment draft was dishonored, it became an unpaid seller, allowing it to reclaim the vehicle. However, this claim is flawed as Vehicle Code section 370 defines a legal owner as one with a security interest under the UCC. Additionally, Vehicle Code section 28 mandates that repossession occurs only under a security agreement, which Ford did not have. While the UCC allows sellers to retain title as a security interest, Ford did not retain any title upon delivering the station wagon, having only a receipt indicating non-payment.

As an unpaid seller, Ford's rights to reclaim the vehicle are subordinate to the rights of the Englishes as good faith purchasers or buyers in the ordinary course of business. UCC section 2403(1) stipulates that a purchaser acquires the title that the transferor had the power to transfer, allowing a person with voidable title to transfer good title to a good faith purchaser for value, even if the delivery was made in exchange for a dishonored check. Furthermore, entrusting possession of goods to a merchant gives them the power to transfer all rights to a buyer in the ordinary course of business.

Entrusting is defined to include any delivery or allowance of possession for sale, regardless of any conditions between parties or potential criminal implications. Under Uniform Commercial Code (UCC) § 9203(1)(b), a security interest from a sales contract is unenforceable against debtors or third parties unless the collateral is in the secured party's possession or a signed security agreement exists. Ralph Williams Ford lacked the legal right to claim ownership or repossess the Englishes' station wagon as it never secured a valid interest in the vehicle. Any claim of security interest by Ralph Williams Ford was invalid against the Englishes, who were either good faith purchasers or buyers in the ordinary course of business. Even if a security interest were assumed to exist, UCC § 9203(1) would render it unenforceable in this case. The repossession by Key Auto Recovery, Inc. and Ralph Williams Ford was deemed wrongful and fraudulent. 

The denial of recovery against Key Auto Recovery, which repossessed the vehicle for Ralph Williams Ford, was erroneous. The damages awarded to the Englishes for the conversion of the station wagon were found to be inadequate. The bank's failure to perfect its security interest and subsequent attachment of other property indicated it abandoned any claim for conversion damages, which should exclusively go to the Englishes in retrial. The trial court's decision to grant the bank a nonsuit was erroneous, as it overlooked testimony from Mrs. English that contradicted the bank's claim of following standard practices regarding the loan disbursal.

The bank issued a cashier's check to Intercontinental based on a hand-printed application rather than the expected carbon copy, raising concerns about due diligence. A prudent lender would have inspected the dealer's report of sale on the vehicle, which indicated Ralph Williams Ford as the dealer, and should have inquired about discrepancies before issuing the check. The judgment awarding the bank $2,172.77 against the Englishes for their unpaid installment note is deemed correct; however, due to the reversal of the remainder of the judgment in favor of the bank, this amount, including attorney's fees, should also be reversed for potential set-off purposes. The court refrains from commenting on the Englishes' first cause of action against the bank for unlawful attachment but notes that their cross-complaint suggests acquiescence to the superior court's jurisdiction. The bank's declaration for a writ of attachment may be defective as it does not claim that the vehicle's value has diminished due to repossession and sale. The judgment is reversed for further proceedings aligned with this opinion, with the Englishes entitled to recover their costs on appeal, while other parties bear their own costs. Petitions for rehearing and for a Supreme Court hearing were denied. Additional notes clarify various points regarding the case, including the status of the sale and agreements involved.

Mrs. English's testimony was accepted without objection during the proceedings. The trial court noted that the Englishes might have seen a report of sale on the station wagon's windshield indicating the Automobile Club of Southern California as the legal owner when they took delivery of the vehicle. Although the bank's loan officer was called as an adverse witness, he was not questioned about two specific phone calls, and the bank did not recall him afterward despite being alerted to this omission. It appears that no bank representative inspected the station wagon. The court refrains from determining whether the bank had a duty to act upon learning that the certificate of ownership was held by Ralph Williams Ford, which named Ford as the legal owner instead of the bank, potentially impacting both the bank's security interest and the Englishes' interest in the vehicle. The court references precedent indicating that contracts from parties with unequal bargaining power may impose additional obligations on the stronger party, suggesting the security agreement could be a contract of adhesion, as defined in Gray v. Zurich Insurance Co., being a standardized contract designed to serve the stronger party's interests.