Welebir v. Gilbert

Hammond, J., delivered the opinion of the Court. This appeal requires us to decide whether the appellant, a physician of Arlington, Va., who, in exchange for what proved to be a worthless check, sold his Cadillac automobile to a used car dealer in that City without delivering the certificate of title, or the appellee, who bought the Cadillac from the insolvent dealer without receiving the title certificate, must suffer the loss that the transaction necessarily inflicts on one or the other. The doctor brought suit in the Circuit Court for Dorchester County in replevin to recover the car from the buyer, a Maryland ¹⁸³ resident, and the court, sitting without a jury, applied the familiar axiom that “where one of two equally innocent persons must suffer, he should bear the burden whose conduct has induced the loss”, and found that the doctor must bear the burden. All of the transactions in the case took place in Virginia.

It is plain that the law of that State must control, and the parties so agree. Appellant contends that under the Virginia law, assignment of the title certificate is an essential prerequisite to passage of title and that transfer of possession only, without assignment of the certificate, cannot enable the transferee to pass title to another. He makes the further contention that, in any event, one who purchases an automobile from a used car dealer cannot be a bona fide purchaser if he fails to demand and receive the title certificate before he pays the purchase price. The appellee, on the other hand, relies on estoppel saying that the doctor may not be heard to claim that the dealer could not pass title to a bona fide purchaser without notice because, with knowledge, he allowed the car to be offered for sale for a week as part of the stock in trade of a licensed automobile dealer.

He says too that one who purchases a car from the stock of a licensed dealer, pays for it in full, receives a detailed receipted invoice and a temporary certificate for transfer of dealer tags, and is assured that the title certificate will be mailed to him as soon as it can be gotten from a place of safekeeping, a bank then closed, may be a bona fide purchaser, and that this is a matter for the trier of the facts. Appellant counters that the Virginia decisions have applied the principle of estoppel in sales of automobiles by licensed dealers only in the case of finance companies who have permitted dealers to keep mortgaged vehicles on the floor for sale as a regular course of conduct, and that the principle has not been applied and may not apply where there is a sale of an automobile owned by an individual or securing a loan due an individual. We have examined the Virginia decisions and think that the appellant construes them too narrowly. They estab ¹⁸⁴ lish a broad principle of estoppel, and not that the conduct of an individual may not bind him as tightly as does that of a finance company.

A leading case is Boice v. Finance and Guaranty Corp., 127 Va. 563 , 102 S. E. 591 , decided in 1920. There Boice purchased a car from a licensed automobile dealer in Richmond, paid him the purchase price and took delivery. The dealer had previously given a mortgage on the automobile which was duly recorded. The loan was not paid, and the lender brought action to recover possession of the car and prevailed in the trial court.

The Supreme Court of Appeals of Virginia reversed. The Court pointed out that the lender knew that the dealer was exposing and offering for sale to the general public the automobile on which it held a mortgage, and directed that judgment be entered below in favor of Boice, the purchaser. It said: “It is true that, as a rule, the seller of personal chattels cannot confer upon a purchaser any better title than he himself has, but if the owner stands by and permits a seller, who is a licensed dealer in such goods, to hold himself out to the world as owner, to treat the goods as his own, place them with other similar goods of his own in a public showroom, and offer the same indiscriminately with his own to the public, he will be estopped by his conduct from asserting his ownership against a purchaser for value without notice of his title. The constructive notice furnished by a recorded mortgage or deed of trust in such cases is not sufficient.” The Court then cited a number of cases from other states and, after quoting the statement in Levi v. Booth, 58 Md. 305 , that the bare possession of goods even by a dealer in that class of goods, does not clothe him with power to dispose of them as if he were the owner, continued the quotation from that case as follows: “ ‘There must * * * be some act or conduct on the part of the real owner whereby the party selling is clothed with the apparent ownership, or authority to sell, and which the real owner will not be heard to deny or question to the prejudice of an innocent third party dealing on the faith of such appearance.’ ” Immediately after this quotation, the Virginia Court said: ¹⁸⁵ “It is unnecessary for us to pass upon the effect of bare possession, as the instant case, in our judgment, comes within the latter proposition stated in the above quotation.” In O’Neil v. Cheatwood, decided at the same time as the Boice case, and reported in 127 Va. 96 , 102 S. E. 596 , an automobile dealer lacked funds to take delivery of an automobile which was shipped him from the factory and, to do so, borrowed $800.00 from an individual.

A few days later a bill of sale was prepared, executed and recorded. The dealer retained possession of the automobile, which several days later he sold to one who had no actual knowledge of the bill of sale. The lower court instructed the jury that if the bill of sale was duly recorded before the purchase, then the lender must prevail. The appellate court reversed, saying: “The case is not essentially different in principle from Boice v. Finance & Guaranty Corporation, 102 S. E. 591 , which opinion was handed down to-day, and hence the views there expressed need not be here repeated.” In Garrett v. Rahily, et al. (Va.), 111 S. E. 110 , the general agents of an automobile company in Petersburg appointed Crawford, an automobile dealer in Norfolk, as their subagent.

They sold and delivered to Crawford the car involved, knowing that he would take it to Norfolk to use as a demonstration car. Title was' reserved by a duly recorded contract of sale. Crawford, who had a regular place of business for the sale of automobiles, sold the car to Garrett as a result of an advertisement, and was fully paid. Again, the appellate court reversed a decision for the lien holder and said: “Under the evidence in this case, the jury should have been instructed that, if the vendee was an innocent purchaser of the car for value and without notice, they should find in his favor, for the very elect might have been deceived into believing that Crawford, the dealer, owned it, while the wayfaring man, whether wise or unwise, would have been his easy mark.” The Court then cited O’Neil v. Cheatwood and Boice v. Finance & Guaranty Corporation, both supra.

See also Gump Inv. Co. v. Jackson (Va.), 128 ¹⁸⁶ S. E. 506; and cf. Rudolph v. Farmers’ Supply Co. (Va.), 108 S. E. 638 . Any thought that the Virginia motor vehicle registration and title statutes forbid passage of title unless their provisions are explicitly and literally complied with, or that their passage erased the effect of the prior decisions, has been dispelled by the decision in General Credit v. Winchester, Inc., 196 Va. 711 , 85 S. E. 2d 201 , decided in 1955. The Court divided four to three on the very question of whether those statutes did or did not require absolute compliance to effect transfer of title and as to whether they had or had not made the earlier decisions out of date.

The minority stated flatly in the opinion expressing their views, that the motor vehicle statutes provided “* * * the only method by which title to a motor vehicle shall be transferred to a purchaser.” They then cited cases, some of which are relied on by the appellant, which contain phrases, impressive when removed from context or dicta,' such as “In Virginia today, a man would not buy an automobile on the strength of possession, for the sole evidence of ownership of a motor vehicle is the registered title”, which was said in Staunton Industrial Loan v. Wilson, 190 F. 2d 706, 709 . The majority took the opposite view. The facts of the case were that General Credit had financed Winchester, Inc., an authorized Packard dealer in Alexandria, by advancing the purchase price of, and taking liens on, cars. Winchester applied to and received from the Division of Motor Vehicles a dealer’s certificate of title for each car issued in its name, showing the lien.

The certificate of title was held by General Credit until the lien was paid off. Winchester placed its cars on display in its showrooms for sale to the public. The car involved in the case was purchased from Winchester and paid for by cash and a trade-in. The Court said: “The purchasers received a receipted invoice showing the details of the transaction.

They were not told that the title to the car was in the name of Winchester subject to the recorded lien thereon in favor of General Credit, nor did they have actual knowledge of this. The pur ¹⁸⁷ chasers were told that in a few days they would receive from the Division of Motor Vehicles a certificate of title for the car and that in the meantime the receipted invoice would serve as evidence of their title.” Winchester failed to pay off the recorded lien held by General Credit. The Court said: “We agree with the trial court that under the principles laid down in Boice v. Finance & Guaranty Corp., 127 Va. 563 , 102 S. E. 591 , 10 A. L. R. 654, the lien of General Credit was null and void as against the rights of Baker and Bermudez who were purchasers for value and without actual notice of the existing lien”. The Court discussed in detail the Virginia provisions for the registration of motor vehicles and the issuance of certificates of title thereto and the recordation of liens thereon, saying that they were designed to supersede the former provisions for the recording of a bill of sale for an automobile or a chattel mortgage thereon in the local clerk’s office, by requiring that such documents be registered with a central state agency, namely, the Division of Motor Vehicles, and added: “There is no suggestion in section 46-71, or elsewhere in the statutes, that they were intended to validate a lien on a dealer’s stock of cars, as against an innocent purchaser, or otherwise nullify the principles laid down in the Boice case.

The decision in that case did not turn upon the adequacy or inadequacy of constructive notice resulting from the recordation of the chattel mortgage on the car. It was based upon the principle of equitable estoppel despite the adequacy of the constructive notice to purchasers resulting from a proper recordation of the lien. The present case turns upon the