Security-First National Bank v. Taylor

Respondent sued to quiet title in itself to two motor vehicles. The judgment declaring respondent to be the legal owner and enjoining appellants from requesting the issuance of certificates of ownership in the name of Ellis R. Taylor or his corporation or of any other person, firm or corporation is here under attack. The subjects of the action are a sedan and a coupe.

Respondent has its principal office in the city of Los Angeles and numerous branches throughout the county of Los Angeles and the state. The Taylor Manufacturing Company, an Illinois corporation, is referred to herein as “Taylor Corn

The Sales of the Two Automobiles

The pertinent facts concerning the manner of the sales of the sedan and the coupé are substantially identical. The buyers were total strangers to each other. They purchased from C.L.A. at different times. Both used the same method of financing. Each was a patron of a different branch bank of respondent. Chronologically, the sedan was sold first.

C.L.A. had the 1950 sedán on its floor. Taylor Company held an interest under the flooring agreement. About October 25 along came customers, Mr. and Mrs. Mizrahi, who immediately determined to acquire the car. They engaged the All State Insurance Company as agent to arrange for a loan with which to make the purchase. It applied to the branch of respondent at 85th Street and Vermont Avenue. After an investigation as to the responsibility of the Mizrahi family, that branch agreed to extend them credit to the extent of $1,251. Such sum, added to other assets of the customers, would pay the $1,879.52 price to C.L.A. The sale was handled by Mr. Dawson on behalf of C.L.A. The court found that neither of the buyers nor respondent had any knowledge of the trust receipt now relied upon by Taylor Company. It may serve to keep clear the evidence of notice by observing at this point that the branch on 85th Street is about 6 miles from the Pico Branch where Taylor Company had its account; that Mr. Weigel, manager of the loan department at the 85th Street Branch, testified that all his negotiations and the final agreement to make the loan to Mizrahi were with an agent of the All State Insurance Company acting for Mizrahi; that he had no contact with C.L.A. and the latter had no financing agreement with respondent at any branch. In consummating the purchase, Mizrahi delivered to C.L.A. his old car at $578.51; paid cash $50; delivered the draft

On receipt of the papers, the Vermont Branch issued its check for $1,251 payable to C.L.A. which promptly cashed it. Aside from the last mentioned transaction and exchange of documents and payment of the draft, the Vermont Branch had no prior or concurrent dealings with C.L.A.; no experience with or knowledge of the Taylor Company; no knowledge of the latter’s dealings with C.L.A. There is an utter lack of proof (1) that the transaction of Mizrahi and the Vermont Branch of respondent was not in good faith, or (2) that either Mr. or Mrs. Mizrahi had actual knowledge of a prior encumbrance on the sedan adverse to the title warranted by C.L.A.

Referring to the “trust receipt” and its function with regard to the sedan sale, it is dated November 1, 1951, exactly 21 days after Taylor Company made its flooring agreement with C.L.A., 14 days after the agreement had been filed with the Secretary of State, and seven days after Mizrahi had made his purchase of the sedan. On the latter date, the ownership certificate on the vehicle was not in the name, or possession of C.L.A. or of Taylor Company. That certificate was then at the Seventh and Grand Branch of respondent as security for a debt of Transportation Lease Company which had sold the sedan to C.L.A.

As further proof of the disassociation of the sale to Mizrahi from the trust receipt, on October 21, 1951, C.L.A. executed a draft on Taylor Company at the Alvarado Branch of respondent payable to Transportation Lease Company for $1,275 for the sedan in question. It was endorsed by the payee and forwarded to the Seventh and Grand Branch with directions to sign the name of such payee to the certificate of

Although it is admitted that Mr. and Mrs. Mizrahi were buyers in the ordinary course of trade, appellants contend that the bank is not in the position of such a buyer, but is rather the purchaser of a conditional sale contract after the goods have been sold. In support of this they argue that there was no loan from the bank to Mizrahi since there is no note or other evidence of such debt, and that the bank did not enter the automobile purchase transaction until it acquired the conditional sale contract as assignee. The evidence and findings do not support appellant’s position.

Before the sale was consummated, a loan from the bank was applied for, the credit standing of the prospective purchasers was checked, the bank made a commitment to the purchasers for the amount desired and an automobile purchase draft for this amount was issued to the purchasers. Instead of taking the promissory note of the purchasers at that time, the bank utilized the conditional sale contract and made assignment of same to itself a condition of payment of the draft. C.L.A. never envisioned itself as the party carrying the financing transaction and there is no indication that it would have sold the car without the. prior commitment by the bank to the purchasers. The contract was, itself, evidence of the purchaser’s debt to the bank. Such a transaction does not prevent respondent from being in the position of a purchaser in the ordinary course of business. (Commercial Credit Co. v. Barney Motor Co., 10 Cal.2d 718 , 719, 721 [ 76 P.2d 1181 ] ; Bank of America v. National Funding Corp., 45 Cal.App.2d 320 , 322, 330, 333 [ 114 P.2d 49 ].) In Bank of America v. National Funding Corp., supra, the purchase transaction was identical with those involved in the instant action. There, a Mr. Knights examined a coupé in the salesroom of the merchant and was pleased with the car,

Appellants present the argument that respondent had actual notice of the flooring arrangement between the Taylor Company and C.L.A. and therefore the company’s prior interest in the automobiles must prevail. This contention that respondent had actual notice of the Taylor-C.L.A. flooring contract is based on the facts (1) that the manager and assistant manager of the branch wherein both the Taylor

In Commercial Credit Co. v. Barney Motor Co., 10 Cal.2d 718 [ 76 P.2d 1181 ], the sale of an automobile was involved in circumstances not unlike those of the case at bar. It was contended that the lender bank had notice of the prior interest of the entruster by reason of the facts that the bank was familiar with trust receipt financing and that the dealer had previously indicated to the bank that he planned to floor automobiles with some financier and had inquired whether the bank were interested in participating. The court rejected this argument and held that this information was not sufficient to put the bank on inquiry as to the title of the automobile in question. (Ibid, at 721.)

In support of their contention that respondent did not acquire title to the sedan and the coupé free of Taylor Company’s security interest by its purchase of the conditional

Appellant relies upon C.I.T. Corp. v. Commercial Bank, 64 Cal.App.2d 722 [ 149 P.2d 439 ], and National Funding Corp. v. Stump, 57 Cal.App.2d 29 [ 133 P.2d 855 ]. Neither is applicable to the present action. In the C.I.T. Corporation case, the contest was between two parties who claimed to be entitled to the protection afforded entrusters under the Uniform Trust Receipts Law. C.I.T. had sold cars to the dealer and held his trust receipts for security. The bank had advanced money to the dealer on the same cars while on the sales floor, taking an instrument which the court construed as a trust receipt. There was never a sale to a buyer in the ordinary course of trade. In the National Funding Corporation case, the plaintiff had loaned money to the dealer and taken a chattel mortgage on the automobile in question as security. The defendant's prior interest in the vehicle was secured by a trust receipt. The court held that plaintiff was negligent in not discovering the prior interest in that it relied upon an invoice which on its face showed that the dealer was not the owner, and, that the® dealer made out

Appellants assert that findings XI and XXII fail to support the judgment. Not only do they misread these findings, but they ignore findings IV, V, VI, VII, IX, XV, XVI, XVII, XVIII and XX, which also support the judgment. By the latter findings it was determined that by virtue of the loan, the preparation and execution of the conditional sale contract, the delivery of the automobile purchase draft, the assignment of such contract to respondent, and the warranty of a clear title by C.L.A., respondent’s ownership was established. If the officers of C.L.A. could not remember Taylor Company’s claim to a lien on the automobiles in question while issuing its warranty of title, how could the scattered officers of respondent’s branches have knowledge of conversations of its branch managers with patrons concerning the deposits of the latter and their plans for business ?

Appellants present additional arguments in their briefs, including one that some 20 findings “are not supported by any competent sufficient evidence and are insufficient to support the judgment herein.” Underlying all these assignments of error is their divergent view of the status of the bank as a buyer in the ordinary course of trade without actual knowledge of a prior interest held by appellants. Since the status of respondent has been determined, these arguments are no longer pertinent.

The judgment is affirmed.

McComb, J., and Fox, J., concurred.

A petition for a rehearing was denied March 15, 1954, and appellants’ petition for a hearing by the Supreme Court was denied April 14, 1954.