Appeal, No. 101, April T., 1959, from order of Court of Common Pleas of Somerset County, No. 3 Equity Docket, 1958, in case of Charles A. Weisel, Jr. v. James McBride et al., trading as McBride Motor Sales et al. Order reversed.
Leland W. Walker, with him Walker & Kimmel, for appellant.
Charles H. Coffroth, for appellees.
Before Hirt, Gunther, Wright, Woodside, Ervin, and Watkins, JJ. (rhodes, P.j., absent).
[ 191 Pa. Super. Page 412]
The plaintiff on June 6, 1957 bought a Studebaker Station Wagon from the defendant, James McBride trading as McBride Motor Sales, who at the time was an authorized distributor or dealer for Studebaker cars. He paid this defendant the sale price in full, including the Pennsylvania Sales Tax and the fee for registration of title in his name. Thereupon, on the above date, possession of the automobile was given to the plaintiff and he then signed an application for title to the car in his name and delivered the application to McBride for forwarding to the proper authorities. Notwithstanding he had been paid the full consideration for the sale, McBride subsequently, on June 12, 1957, executed a collateral mortgage in favor of The County Trust Company under an existing floor plan agreement which McBride had with that bank. The mortgage covered the identical car sold and delivered to the plaintiff. Accompanying the mortgage McBride
[ 191 Pa. Super. Page 413]
gave his note to the bank for $2,411.66, the amount of his debt as stated in the collateral mortgage. McBride then sent in his own application for title to the car, instead of the plaintiff's and a certificate of title was issued by the Commonwealth of Pennsylvania in the name of McBride Motor Sales with an encumbrance of $2,411.66 in favor of County Trust Company noted thereon. The Trust Company, subsequently, on May 1, 1958 assigned the above note and the collateral mortgage to the defendant John P. McNelly. Title to the car with the encumbrance noted thereon was also assigned to McNelly by McBride. In this action in equity the plaintiff sought a mandatory injunction directing McNelly to deliver to him, Charles A. Weisel, Jr., a certificate of title in his name for the Studebaker Station Wagon, free and clear of all encumbrances, and without further cost to him. The court after hearing, refused relief and dismissed the complaint; hence this, the plaintiff's appeal.
On August 16, 1956 a financing statement had been filed by McBride Motor Sales in the Prothonotary's office of Somerset County under § 9-302 of the Uniform Commercial Code of April 6, 1953, P.L. 3, 12A PS § 9-302, for the wholesale "floor planning" of Studebaker and Packard automobiles not to exceed four cars at any one time, at factory delivered prices. Plaintiff has recently traded the Studebaker in on a new automobile in one of the western states and it is important that he assign to the new owner his title to the station wagon here involved.
The Uniform Commercial Code in § 9-307, 12A PS § 9-307, provides: "(1) In the case of inventory, and in the case of other goods as to which the secured party files a financing statement in which he claims a security interest in proceeds, a buyer in ordinary course of business takes free of a security interest even though perfected and even though the buyer knows of the terms
[ 191 Pa. Super. Page 414]
of the security agreement." And under the heading: "Power to Transfer; Good Faith Purchase of Goods; 'Entrusting'" the Code in § 2-403, 12A PS § 2-403, provides: "(1) A purchaser of goods acquires all title which his transferor has or has power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. (2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business. (3) 'Entrusting' includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law." In the Comment on this section it is said in 12A PS § 2-403: "The many particular situations in which a buyer in ordinary course of business from a dealer has been protected against reservation of property or other hidden interest are gathered by subsections (2)-(4) into a single principle protecting persons who buy in ordinary course out of inventory. Consignors have no reason to complain, nor have lenders who hold a security interest in the inventory, since the very purpose of goods in inventory is to be turned into cash by sale." The instant case presents one of ...