
    Suburban Trust & Savings Bank v. Campbell.
    (No. 128644
    Decided March 28, 1969.)
    Common Pleas Court of Montgomery County.
    
      
      Mr. Robert M. Brown, for plaintiff.
    
      Mr. John T. Shanks and Mr. llarry L. Riggs, Jr., for defendant.
   Martin, J.

Plaintiff brings this action to recover possession from defendant of a 1956 Piper Apache aeroplane, N16642, Serial No. 23319, or in the alternative the balance due ou a note and chattel mortgage thereon in the sum of $7,330.

The original note and chattel mortgage were executed by Graubert Aviation, Inc., of Indiana to the plaintiff on October 20, 1964, and the chattel mortgage was filed with the Federal Aviation Agency in Oklahoma City, Oklahoma on December 24, 1964, as document J11194 (Piaintiff’s exhibit A herein).

The note and mortgage were executed by Graubert to plain tiff in the state of Illinois and the lien, if any, created by the mortgage on the Piper Apache in issue is controlled by the law of Illinois, excepting insofar as the law of Illinois is preempted by the Federal Recording Statutes requiring the recording of bills of sale and liens on areoplanes with the Federal Aviation Agency in Oklahoma City.

Defendant, Eby Campbell, purchased for a valuable consideration the Piper Apache aeroplane in issue from Graubert on October 9, 1965, and the bill of sale therefor was filed with the Federal Aviation Agency on October 22, 1965. The bill of sale executed by Graubert to defendant did not disclose any liens against the aeroplane, the defendant had no actual knowledge of any lions thereon, and the aeroplane was sold according to a floor plan from which a purchaser would bo led to believe that Graubert was in a position to deliver a clear title. Plaintiff was not notified of the transfer of the Piper Apache by Graubert to defendant, although Graubert was required to give notice, and plaintiff did not discover such transfer until on or about October 26, 1965, when he conducted a floor plan check to determine if all of the ’planes upon which the bank had a lien were in the Graubert stock.

The facts further show that after accepting a payment on the $12,000 amount of the original note, plaintiff accepted payments on several renewal notes for lessor amounts without taking any action against Graubert or the defendant. That the last renewal note was executed June 28, 1966, about eight months after plaintiff’s discovery of Graubert’s transfer of said aircraft to defendant. That plaintiff waited for eleven and a half months after its discovery that the ’plane had been sold and was not in stock, to file this action and until after Graubert Aircraft, Inc. was unable to pay any more installments on the remaining balance of $7,330 owing plaintiff, due to the fact that it was either in bankruptcy or receivership.

The question to be determined is whether or not the federal legislation requiring filing and recordation in Oklahoma City has by its language preempted that area of the law of the state of Illinois having to do with the purchase of personal property displayed on a floor plan by a retail dealer and sold by such dealer to an innocent purchaser for value without notice of any lien against the same.

In this connection the Federal Aviation Act, 49 U. S. Code, 1403, defines the nature and type of instruments that are required to be recorded under said act in Oklahoma City, which, of course, includes a chattel mortgage and a bill of sale on an aeroplane.

The Federal District Court in the case of State Securities Co. v. Aviation Enterprises, Inc,., 355 F. 2d 225, which was decided January 7, 1966, and later affirmed by a federal circuit court of appeals, and as a consequence is the controlling case in this field of the law, held with relation to the nature and extent of the preemption of the Federal Aviation Recording Law over state filing and recording laws, as follows:

“By providing a federal system for registration of conveyances and liens affecting the title to aircraft, Congress has preempted that field and state recording statutes are not applicable to such title instruments. However, questions of validity of such title documents, actual notice, good faith purchaser statutes, and the like, must be resolved under state law.”

In the case of Bordman Investment Co. v. People’s Bank of Kansas City (Mo. App.), 320 S. W. 2d 72, 76, the court stated:

“In almost all jurisdictions the recognized rule is that where a mortgagee of an automobile or other chattel knows the mortgagor is a dealer, buying to sell the automobile or other chattel in the regular course of business, and consents to its sale by the mortgagor, the purchaser takes free from the mortgagee’s lien. * * *
< Í * * *
“In such situations, as between an owner or mortgagee who entrusts the chattel to another for purposes other than a complete sale and the one who buys the chattel from the latter without notice of the seller’s lack of authority to sell, the courts have evolved the estoppel theory based on the maxim that, as between two innocent victims of fraud, the one who makes possible the fraud on the other should suffer. It is felt that under such circumstances a purchaser in good faith of a motor vehicle from the stock in trade of a recognized dealer is not bound to investigate the dealer’s title in anticipation of the unknown claims of a mortgagee or seller of such vehicle who should be aware of the danger of the buying public being misled and has made the situation possible by permitting the dealer to have the automobile in his stock in trade.”

The case of Texas National Bank of Houston v. Aufderheide (1964), 235 F. Supp. 599, holds that a provision in a chattel mortgage prohibiting sale of a mortgaged chattel without the mortgagee’s consent is waived if the mortgagee knowingly permits violation of such provision. Otherwise stated, it holds that a bank which knowingly permitted the violation of a provision of a üoor plan chattel mortgage prohibiting removal of mortgaged aircraft by an authorized dealer without the bank’s written consent waived its lien as against the purchasers without notice.

That decision held (233 F. Supp. 604):

“Ordinarily, when a person goes into a merchant’s place of business to make a purchase, whether it be of an automobile, a television set, a washing machine, or a pound of nails, the purchaser ought to have the right to assume that the merchant has a right to sell the commodity in question and should not be required to make a record search before purchasing or to see to it that the merchant obtains a valid release of the items from a bank floor plan before delivering it to the purchaser and receiving his money or obligation. The court sees no reason why that right should not extend to the purchaser of an airplane who buys it from a recognized dealer from a regular inventory or display and in the ordinary course of business.
“In this connection the court calls attention to the fact that the view here taken is consistent with that expressed in section 9-307 of the Uniform Commercial Code which provides that a buyer in the ordinary course of the business, other than a person buying farm products from a farmer, takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence. * * *”

Section 9-307 of Chapter 26. titled “Security interests,” of the Illinois Annotated Statutes, commonly known as the Commercial Code, which is the same as Section 1309.26, Revised Code, provides as follows:

“A buyer in the ordinary course of business (Subsection (9) of Section 1-201) other than a person buying farm products from a person engaging in farming operations takes free of a security interest created by the seller even though the security interest is perfected and even though the buyer knows of its existence.”

Section 9-302 of Chapter 26, Commercial Code, Illinois Annotated Statutes, recognizes in paragraphs 3(a) and 4(a) that the filing provisions of the federal registration or filing act takes precedence over the statutory laws of Illinois and that the federal procedure in snch cases must be followed. On the other hand Section 140(1 of Volume 49 U. S. Code recognizes that the validity of any instrument, the recording of which is provided for by Section 1403 of this title, shall be governed by the laws of the state, the District of Columbia or territory or possession of the United States in which snch instrument is delivered, irrespective of the location or place of delivery of the property which is the subject of such instrument.

From the foregoing we are of the opinion that the defendant purchaser of the Piper Apache for value was not required to make a title search of the filing and registration records of the United States located in Oklahoma City prior to or at the time of making the purchase of such ’plane. Further, that the law of Illinois, which is the same as the law of Ohio, both having adopted the uniform commercial code, control the questions of waiver and estoppel in this case raised by the facts.

After thorough consideration of the case law herein-before referred to or quoted, the federal filing statutes and the applicable provisions of the Uniform Commercial Codes of Illinois and Ohio, we do not believe that the case of Marsden v. Southern Flight Service. Inc. (1961), 227 Fed. Supp. 411, relied upon by counsel for the plaintiff, is applicable to or controlling of the facts of this case. Even had the defendant known of the plaintiff’s lien filed with the Federal Aviation Agency, he still had the right under the Uniform Commercial Code of Ulinois to assume that Oraubert Aviation, Inc. would pav the obligation owing to plaintiff, obtain a release of plaintiff’s lien so that defendant would have a clear title to the ’plane.

In conclusion we are of the opinion that plaintiff, after receiving notice that the Piper Apache was no longer in the stock of Graubert Aviation, Tnc. and had been sold, by renewing the original note several times for smaller balances executed over a period of about eight months, waived the provision of the mortgage reom'ring Graubert Aviation, Inc. to give notice to plaintiff before making the sale of the Piper Apache ’plane mortgaged to the plaintiff, and that by waiting eleven and a half months before filing suit against the defendant herein, is estopped to assert its lien as against the ’plane, for the balance of $7,330, the amount remaining due and owing the plaintiff from Graubert.

Under the provisions of the Illinois Uniform Commercial Code hereinbefore recited, and pursuant to the principle as between two innocent victims of fraud the one who makes possible the fraud on the other should suffer, not only did plaintiff waive the provision in the mortgage requiring notice to and the consent of plaintiff to a sale of mortgaged property in the regular course of business, but a novation took place between plaintiff and Graubert Aviation, Inc. upon the execution of the renewal notes as a result of which the plaintiff lost its right to look to the security of the original mortgage, particularly in view of the passage of time before taking any action against defendant, the purchaser.

The court finds for the defendant and against the plaintiff on the issues made up by the pleadings, the evidence and the law applicable thereto. Plaintiff’s petition is therefore dismissed at plaintiff’s costs.

Petition dismissed.  