Who Gets the Car – or Boat?

Holding onto the certificate of title until you get paid is no legal protection. Once the buyer pays the broker, that certificate of title is worthless

The Oregon Court of Appeals recently decided a case of interest to car collectors. The case involved a 29-foot Sea Ray boat, but the legal principles apply equally to collector cars.

The boat's owner, a supervisor at a title and escrow company, kept the boat moored at a Portland marina. The marina was also the home of a yacht brokerage that used several rows of berths to moor its consigned inventory. The owner's son told the broker that his mother wanted to sell the boat, and he consigned it to the broker by signing a consignment agreement. The broker then moved the boat to one of its slips.

A buyer paid $65,000 cash to the broker for the boat. He then moved it to his private slip behind his home in another part of the Columbia Slough.

Where's my money?

Shortly thereafter, the broker filed bankruptcy without having paid the owner for the boat. The owner enlisted the help of the Multnomah County Sheriff's Department River Patrol. The officers found the boat, and the original owner took it back. But the buyer sued, claiming that he was the rightful owner of the boat because he had paid the full purchase price to the broker.

The owner's position was threefold:

• She had never authorized her son to list the boat for sale.


• She had never authorized the broker to sell the boat.


• And, as she still held the valid certificate of title in her name, legal title had not transferred to the buyer, and she was still the owner of the boat.

When this case was first heard, the judge ordered that the boat be returned to the original owner. However, the case was appealed, and after examining the evidence, the Court of Appeals reversed the earlier verdict and ordered that the boat be given back to the buyer.

Why

Oregon has adopted the Uniform Commercial Code (UCC), as have all the 50 states. As the states adopt the UCC, they typically delete or make various modifications to some of its specific provisions, and others are adopted without change. The UCC provisions that are pertinent to this decision have been adopted without substantial change in most or all states.

Under the UCC, the entrusting of goods to a merchant who ordinarily deals in such goods gives the merchant the power to transfer all of the ownership rights in the goods to a purchaser in the ordinary course of business. In this case, the broker was a merchant who ordinarily sold boats, and the boat was sold in the ordinary course of its business. Consequently, the only issue in this case was whether or not the boat had been "entrusted" to the broker.

"Entrusted" is defined very simply in the UCC. All that is required is that possession of the goods be delivered to the merchant, and that the owner agrees to the retained possession of the goods by the merchant. In simpler words, the goods are voluntarily given to the merchant without any demand that they be given back.

Further, it makes no difference what conditions are agreed to between the parties. For example, an agreement that the goods will not be sold for less than a specified amount, or will not be sold without the specific consent of the owner, does not eliminate the entrustment.

Slippery characters

In summary, at the first trial, the son testified that his mother did not authorize him to sell the boat, and he was evasive about whether it was his signature on the contract. The owner testified that she never wanted to sell the boat, that she never authorized the consignment or sale, and she reprimanded her son for his actions.

The buyer testified that he liked the boat, paid for it, and didn't know anything more about it. The bankrupt broker's former employees testified and did not impress the judge.

As mentioned above, the trial judge ruled in favor of the boat's original owner, and declared the boat should be returned to her. On appeal, the Court of Appeals reversed the decision, and ruled that the buyer was the rightful owner of the boat.

Watch the email trail

In reversing the original verdict, the Court of Appeals focused on two critical pieces of evidence that had come to light during the trial.

One was the owner's occupation. The Court thought the original owner should have known better, as she was a 32-year veteran of the title industry - and she was a supervisor at a title and escrow company.

The other piece of evidence was a string of emails between her and the broker. Once the buyer paid for the boat, the broker sent an email to the original owner asking her to confirm the net price of $57,500 and to provide a copy of both sides of the boat title.

Within 30 minutes, she responded by stating that she had previously sent them a copy of the title - but would resend it that evening. She also declined to confirm the net price unless the broker confirmed that she would not be charged for moorage and incidentals. The broker confirmed that all charges would be waived. The owner then confirmed the net price, but she stated that she wanted to receive payment before the boat was given to the buyer.

These emails killed the owner's case. In the Court's view, every element of the emails supported the conclusion that the owner had entrusted the boat to the broker, and that she was well aware that it was being offered for sale.

Why else would she fax the title to the broker? And her statement that a copy of the title had been previously sent indicated she had known about the consignment for some time.

Her request that moorage fees be waived indicated she was aware that the boat was moored in one of the broker's slips, not hers. If the broker did not have possession, how could there be any obligation to pay moorage fees to them?

Title certificate insignificant

The Court of Appeals ruled that the buyer was the rightful owner of the boat, and the owner's recourse was limited to claims against the broker. The fact that the owner still held the valid certificate of title in her name was of no significance whatsoever.

That is because a certificate of title does not, by itself, establish legal ownership. It serves only as evidence of ownership, and it can be outweighed by contrary evidence. Once the buyer paid the broker for the boat, the UCC made it his boat, and the owner could simply be compelled to sign over the title.

A relationship to cars

This case serves as a clear example of what can happen when a collector consigns a car to a broker. Given the state of the law, there is really nothing the collector can do to protect the car.

Keeping the certificate of title won't accomplish anything. Clear provisions in the consignment agreement won't either. Signs on the car establishing the owner's ownership won't work if they are removed by the broker. Lien filings or the like won't work either, as buyers are not obligated to search the lien records.

The logic of the law is that the innocent purchaser should be protected because our system of commerce depends on the consumer's confidence that once he or she walks into a retail store and pays for goods, the merchant's creditors aren't going to show up later and take the goods back.

The law applies equally to $60 running shoes, $100,000 diamond necklaces, and $5 million Ferraris. The fact that some states require cars to be titled means nothing - that is just a little detail to be handled later. Once you entrust your car to a broker, you are taking the risk that, if the broker does anything wrong, your claims run against the broker and not against the buyer.

What to do

If you are going to consign your car to a broker, your safest protection is the broker's integrity and financial stability. Investigate the broker's reputation through references and your own contacts. If the car is valuable enough, ask the broker to provide some evidence of fiscal standing, such as financial statements or bonds. Don't be complacent just because of the broker's size and track record. After all, we've seen articles in SCM about bankrupt Lamborghini dealers and failed auction companies.

Another approach could be to consign the car to the broker but to retain possession. This approach protects you because there can be no entrustment if the merchant does not have possession of the car. The broker can advertise the car, negotiate a sale, and so on. But you would not relinquish possession to the buyer until the money is in your bank account.

Of course, this makes matters more difficult for everyone. It's harder for the broker to find a buyer when the car isn't sitting in the broker's showroom. Also, you have to be involved when buyers need access to the car for inspection and test drives. And the funds transfer becomes more cumbersome. But that may be the price you have to pay for the protection.

But above all else, the most important lesson for readers to take away from this case is that holding onto the certificate of title until you get paid is absolutely no legal protection at all. Once the buyer pays the broker, that certificate of title is no longer worth the paper it's printed on.