Los Angeles Fed. Credit Union v. Brandford CA 2/2 ( 2015 )

Filed 4/2/15 Los Angeles Fed. Credit Union v. Brandford CA 2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
LOS ANGELES FEDERAL CREDIT B251297
UNION,
(Los Angeles County
Cross-complainant and Appellant; Super. Ct. No. LC091707)
HOPETON BRANDFORD et al.,
Cross-complainants and
Respondents,
v.
CARMAX AUTO SUPERSTORES
CALIFORNIA, LLC,
Cross-defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los Angeles County.
Frank Johnson, Judge. Affirmed in part and reversed in part.
Anaya Law Group, Alana B. Anaya and Jonathan A. Malek, for Cross-
complainant and Appellant Los Angeles Federal Credit Union.
Schlichter & Shonack, Kurt A. Schlichter, Steven C. Shonack, and Cynthia Y.
Sun, for Cross-defendant and Appellant CarMax Auto Superstores California, LLC.
No appearance for Cross-complainants and Respondents Hopeton Brandford et al.
* * *
A creditor’s perfected security interest in a Range Rover vehicle is extinguished in
a fraudulent lien sale. The car is then sold to a used car dealer, and then to its current
owner. The original creditor convinces the Department of Motor Vehicles (DMV) to
reinstate its security interest and sues the person who bought the car at the lien sale, the
car’s current owner, and the credit union that loaned the current owner money to buy the
car in exchange for a perfected security interest on what it thought was clear title. These
parties let the original creditor repossess the car, and sue the used car dealer. The trial
court resolved their claims in part on summary adjudication and in part at a bench trial.
The credit union and used car dealer appeal; we affirm the trial court’s rulings as to the
former, but reverse as to the latter.
FACTS AND PROCEDURAL HISTORY
I. Facts
The Range Rover at the center of this case has had many owners. In pertinent part
(and in chronological order), they were Anahit Margaryan (Margaryan), Anahit
Pakhanyan (Pakhanyan), CarMax Auto Superstores California, LLC (CarMax), and
Hopeton and Karyl Brandford (Hopeton or, jointly, the Brandfords).
JP Morgan Chase Bank, NA (Chase) loaned Margaryan $40,000 to buy the car and
secured that loan with a perfected security interest in the car. At some point, Margaryan
fell behind in her payments, and a towing company impounded the car and sold it to
Pakhanyan for $4,000 at a lien sale. The sale was fraudulent: Evidence suggested that
Margaryan and Pakhanyan were the same, and that Margaryan’s son-in-law (who sold
her the car) was still driving the car after it was “sold” to Pakhanyan. Chase received
notice of the tow yard lien sale from the DMV, but did not intervene to halt the sale and
later claimed it was “unaware” of the DMV notices in its own files.
As a result of the lien sale, Chase’s security interest no longer appeared on the
car’s certificate of ownership and Pakhanyan’s resulting title was “clear.” Pakhanyan
then sold the car to CarMax, a used car dealer, for $33,000. CarMax verified the car’s
clear title by conducting several database searches, two of which showed no prior liens
corresponding with the date of Chase’s lien and one of which showed a corresponding
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lien that was followed by a subsequent, lien-free title transaction. CarMax then sold the
car to the Brandfords for $41,481.45. The Brandfords financed the purchase with a loan
from Los Angeles Federal Credit Union (LAFCU), and CarMax perfected LAFCU’s
security interest in the car as collateral.
Chase subsequently realized that the tow yard lien sale was a sham, and somehow
persuaded the DMV to reinstate its security interest in the car and to extinguish
LAFCU’s.
II. Procedural history
Chase sued Margaryan (with “Pargaryan” [sic] as her alias), the Brandfords and
LAFCU. The Brandfords and LAFCU settled with Chase and, as part of that settlement,
surrendered the car. Margaryan was dismissed after filing for bankruptcy.
The case nevertheless went forward on a number of cross-claims. LAFCU cross-
claimed against CarMax for (1) breach of contract, (2) unjust enrichment, (3) negligence,
and (4) negligent misrepresentation. Hopeton cross-claimed against CarMax for
(1) breach of contract, (2) negligence, and (3) negligent misrepresentation. CarMax
counter-sued LAFCU and Hopeton for a declaration that it was a bona fide purchaser,
that it had acquired “good title” to the car, and that it had no liability.
CarMax moved for summary adjudication of its own declaratory relief action, and
of the claims in the two actions against it. The trial court granted summary adjudication
in CarMax’s favor on LAFCU’s claims for breach of contract, negligence and negligent
misrepresentation; and on Hopeton’s negligence claim. The court denied summary
adjudication on all remaining claims. CarMax petitioned this court for a writ to overturn
these denials, but that petition was summarily denied.
Trial was bifurcated. In the first phase, the trial court (1) declared that CarMax
and the Brandfords were both bona fide purchasers for value of the car, (2) declared that
CarMax’s status as a bona fide purchaser defeated Hopeton’s claim for negligent
misrepresentation, but (3) nevertheless ruled that CarMax breached its contract with
Hopeton because it breached the warranty implied in that contract by Commercial Code
section 2312 to transfer good and clear title. The second phase was a bench trial at which
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the trial court heard the remaining claims—namely, LAFCU’s claim for unjust
enrichment and Hopeton’s breach of contract claim. In a ruling without an opinion, the
trial court found CarMax not liable to LAFCU for unjust enrichment, but liable to
Hopeton for $6,397 for breach of contract.
LAFCU and CarMax timely appealed.
DISCUSSION
I. LAFCU’s appeal
A. Breach of contract
When the Brandfords bought the car from CarMax, LAFCU—as the Brandford’s
lender—issued CarMax a check for $41,481.85. The following language was printed on
the back of that check: “Negotiation of this check by the dealer/payee constitutes
acknowledgment of receipt of funds and an express representation by dealer/payee that it
will cause maker’s security interest in the collateral described in the security interest
section of the loan agreement and consumer lending disclosure statement to be perfected
as within the time required by law.” LAFCU alleged that this created a contract, which
CarMax breached. The trial court granted summary adjudication to CarMax on this claim
because (1) CarMax fulfilled its contractual obligation by perfecting LAFCU’s title, and
(2) the contract did not further obligate CarMax “to guarantee the state of title,” so that
LAFCU’s loss traceable to the DMV’s subsequent resurrection of Chase’s security
interest did not breach any contractual duty CarMax owed LAFCU. LAFCU challenges
this ruling, and we independently review whether CarMax is entitled to judgment as a
matter of law due to the absence of any triable issue of material fact. (Code Civ. Proc.,
§ 473c, subd. (c); Garrett v. Howmedica Osteonics Corporation (2013) 214 Cal. App. 4th
173, 180-181.)
The trial court correctly granted summary adjudication to CarMax because the
undisputed facts point ineluctably to the conclusion that CarMax never breached any
contract it may have had with LAFCU. (See Hale v. Sharp Healthcare (2010) 183
Cal. App. 4th 1373, 1387 [breach of a contractual term is an essential element of a breach
of contract claim].) The sum total of CarMax’s contractual obligations comes from the
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back of LAFCU’s check, but that language only obligated CarMax to “cause [LAFCU’s]
security interest in the [car] . . . to be perfected as within the time required by law.” It is
undisputed that CarMax did precisely that: It perfected LAFCU’s security interest.
LAFCU argues that (1) CarMax’s title to the car was not “good” because of the
earlier fraudulent tow yard lien sale, and (2) the trial court erred in reading the contract as
merely requiring CarMax to “do [its] best” to perfect title. Both of these claims rest on
the same premise: CarMax was contractually obligated to guarantee the good title of the
car in perpetuity. But CarMax never agreed to that obligation. It is nowhere in the
written contract that was the sole interaction between CarMax and LAFCU. There is
accordingly no basis for the contractual liability LAFCU seeks to impose.
In light of this conclusion, we need not address CarMax’s arguments that the
language on back of a check can never form a valid contract.
B. Unjust enrichment
The trial court ruled that LAFCU did not prove unjust enrichment at trial. LAFCU
contends that this ruling was erroneous.
To prevail on an unjust enrichment claim, a plaintiff must establish (1) the
defendant received a benefit, and (2) it is “unjust for the [defendant] to retain” that
benefit. (First Nationwide Savings v. Perry (1992) 11 Cal. App. 4th 1657, 1663 (Perry),
italics omitted.) In this case, it is undisputed that CarMax obtained a benefit from
LAFCU when it kept the purchase money LAFCU supplied for the car. The propriety of
the trial court’s ruling accordingly turns on whether CarMax’s retention of that money is
unjust. The trial court issued no statement of decision, so we presume the trial court
made this finding, and review the record to determine whether substantial evidence
supports a finding that it would not be unjust for CarMax to keep the purchase money.
(Shaw v. County of Santa Cruz (2008) 170 Cal. App. 4th 229, 267.) We conclude that it
does for two reasons.
First, CarMax qualifies as a bona fide purchaser for value under our state’s “full
title” doctrine, and it is generally not unjust to allow such a bona fide purchaser to retain
the benefit of its purchase (Merrill v. Department of Motor Vehicles (1969) 71 Cal. 2d
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907, 920; see Melendrez v. D & I Investment, Inc. (2005) 127 Cal. App. 4th 1238, 1254]).
The Vehicle Code sets forth the exclusive procedure by which security interests in
vehicles are to be perfected (Veh. Code, §§ 6300-6303), and requires all perfected
security interests to be listed on the DMV-issued certificate of ownership for a vehicle
(id., §§ 4451, 4453). “Because this ‘full title’ system requires all security interests to be
listed on the statutory certificate of ownership [citation], a purchaser may rely on the
certificate and is not expected to check a centralized set of records to determine whether a
security interest has been recorded.” (T&O Mobile Homes v. United Calif. Bank (1985)
40 Cal. 3d 441, 448-449 (T&O).) The necessary corollary of this doctrine is that a person
is a bona fide purchaser who takes and passes clear title to a vehicle (and thereby
extinguishes all prior security interests) if (1) the certificate of ownership reflects no
security interest, and (2) the purchaser otherwise has no actual knowledge of any security
interests or liens. (Ibid.; Ferraro v. Pacific Finance Corp. (1970) 8 Cal. App. 3d 339, 346,
fn. 1; Louis & Diederich v. Cambridge European Imports (1987) 189 Cal. App. 3d 1574,
1587 (Louis).)
CarMax took clear title under the full title doctrine. The DMV’s certificate of
ownership for the Range Rover did not reflect Chase’s (or any other) prior security
interest. Moreover, substantial evidence supports the finding that CarMax had no actual
knowledge of that security interest. At most, CarMax knew from its database searches
that Chase had at one time had a lien on the car that was removed in a subsequent
transaction; this was not enough to confer constructive notice of an still-existing lien, let
alone actual knowledge of one.
Second, and alternatively, CarMax qualifies as a good faith purchaser for value
under California’s codification of the Uniform Commercial Code (UCC) and, as noted
above, this status generally precludes a finding that its retention of LAFCU’s purchase
money is unjust. Our analysis of this issue turns on how Chase’s perfected security
interest in the car was affected by subsequent “transaction[s]” involving that car, so this
case lies at the intersection of the “sales” and “secured transactions” divisions of the
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UCC. (Compare Cal. U. Com. Code §§ 2101 et seq. [sales under division 2] with 9101
1
et seq. [secured transactions under division 9].)
Once a security interest in a good is perfected (as Chase’s was under the Vehicle
Code (see § 9311, subd. (a)(2)(A) [deferring to Vehicle Code’s procedures for perfecting
security interests in vehicles]; Veh. Code, § 6303 [declaring Vehicle Code’s perfection
procedures to be “exclusive” for vehicles])), that interest is generally not extinguished by
a subsequent sale of that good. (§ 9315, subd. (a)(1).) This reflects the longstanding
common law rule that a “seller of property can transfer to the buyer no better title than he
has himself . . .” (Siebenhauer v. Bank of California National Assn. (1930) 211 Cal. 239,
241.) However, there are three exceptions to this general rule. First, a secured creditor’s
own security interest (but no others) is extinguished if that creditor “authorize[s] the
[sale] free of the security interest.” (§ 9315, subd. (a)(1).) Second, a seller’s own
security interest (but no others) is extinguished if the seller is “in the business of selling
goods of that kind.” (§§ 9320, subd. (a), 1201, subd. (b)(9); In re Sunrise R.V. (Bankr.
E.D.Cal. 1989) 105 B.R. 587, 591-592.) Third, all prior security interests are
extinguished if (1) the seller has “voidable title,” (2) the buyer is a “good faith purchaser
for value,” and (3) the good was “delivered under a transaction of purchase,” even if that
“delivery was procured through fraud punishable as larcenous under the criminal law.”
(§ 2403, subd. (1) [“A person with voidable title has power to transfer a good title to a
good faith purchaser for value.”]; Suburban Motors v. State Farm Mutual Auto. Ins. Co.
(1990) 218 Cal. App. 3d 1354, 1360 (Suburban Motors).) Because Chase did not
authorize the extinguishment of its security interest and because Pakhanyan is not in the
business of selling cars (and could not extinguish Chase’s security interest even if she
had been), only the third exception is at issue.
We conclude that this third exception is legally available. Notwithstanding its
placement in the division of the UCC dealing with sale of goods and not in the division
1 All further statutory references are to the California Uniform Commercial Code
unless otherwise indicated.
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dealing with secured transactions, the plain language of section 2403 addresses what
happens to a security interest during certain sales transactions. (§ 2403, subd. (1); accord,
In re Sunrise R.V., supra, 105 B.R. at p. 591, fn. 12 [examining section 2403 and division
9 in assessing viability of a perfected security interest].) What is more, section 2403
explicitly contemplates that division 9 will apply when its provisions do not. (§ 2403,
subd. (4) [“The rights of other purchasers of goods and of lien creditors are governed by
the divisions on secured transaction[s] . . .”].) Further, our job is to “‘harmonize [the]
statutes, reconcile seeming inconsistencies in them, and construe them to give force and
effect to all of their provisions. [Citations.]’” (Pacific Palisades Bowl Mobile Estates,
LLC v. City of Los Angeles (2012) 55 Cal. 4th 783, 805.) Because section 2403 is not
inconsistent with section 9315 or its other two exceptions, it is appropriate to construe
section 2403 as a third exception to section 9315’s general rule. We are mindful that the
Vehicle Code sets forth the mechanism by which ownership of vehicles is to be
transferred (Veh. Code, § 5600, subd. (a); Cal U. Com. Code § 2102 [providing that
division 2 does not “impair . . . any statute regulating sales to . . . other specified classes
of buyers”]; Quartz of Southern California, Inc. v. Mullen Bros., Inc. (2007) 151
Cal. App. 4th 901, 907-08 [applying Vehicle Code section 5600 rather than division 2]),
but section 2403 does not address that mechanism and instead deals with the effect of a
“transaction of purchase” on security interests; section 2403 is accordingly not
superseded by the Vehicle Code.
Section 2403’s exception is also factually applicable because all three of its
prerequisites are present. To begin, Pakhanyan had “voidable” title. Title is voidable
when procured through fraud, mistake, or undue influence. (Regent Alliance Ltd. v.
Rabizadeh (2014) 231 Cal. App. 4th 1177, 1183 [same]; Fish v. Benson (1886) 71 Cal.
428, 440 [same].) That is what we have here: A fraudulent lien sale from Margaryan to
Pakhanyan. (See Suburban Motors, supra, 218 Cal.App.3d at p. 1360.) LAFCU argues
that title should be considered “void” (rather than voidable) because Margaryan and
Pakhanyan’s sham sale is functionally indistinguishable from an outright theft of the car,
and it is well settled that theft of a good does not extinguish prior security interests or
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liens in that good. (Ibid; Naftzger v. American Numismatic Society (1996) 42
Cal. App. 4th 421, 432-433.) But the longstanding distinction between void and voidable
title turns on the means by which the good is transferred, and this case involves a
fraudulent transaction that falls on the voidable side of the line.
CarMax is also a “good faith purchaser for value.” This definition is met if the
purchaser buys the vehicle when the pertinent “registration and ownership doctrines”
reveal no defect in title; when no other terms of the transaction are suspicious; and when
the purchaser otherwise has no actual knowledge of any title defect. (§§ 2103, subd. (4)
[pointing to generalized definitions], 1201, subd. (b)(20) [generally defining “good faith”
as “honesty in fact and the observance of reasonable commercial standards of fair
dealing”]; Kelley Kar Co. v. Maryland Casualty Co.(1956) 142 Cal. App. 2d 263, 264-265
[unusually low price may give rise to suspicion]; Louis, supra, 189 Cal.App.3d at p. 1587
[imputing knowledge from pertinent documents].) Here, as noted above, substantial
evidence supports a finding that the “registration and ownership documents” revealed no
defect in title; that the terms of the transaction (including the $33,000 price tag) appeared
legitimate; and that CarMax otherwise had no actual knowledge of any title defect.
CarMax obtained delivery of the car through a “transaction of purchase” because,
as noted above, it paid Pahkanyan $33,000 for the Range Rover.
LAFCU levels three attacks. First, it argues that the full title doctrine does not
apply because that doctrine is inapplicable when a car is stolen (Suburban Motors, supra,
218 Cal.App.3d at pp. 1362-1363), and the sham lien sale between Margaryan and
Pakhanyan effectively stole the car. But, as noted above, they did not actually steal the
car. The full title doctrine has been found to confer clear title on bona fide purchasers
when earlier lien holders did not perfect their security interests (ibid.; Louis, supra, 189
Cal.App.3d at pp. 1578, 1589), and when the DMV mistakenly did not perfect a security
interest properly presented to it (T&O, supra, 40 Cal.3d at p. 451). The doctrine is
equally applicable when the certificate of ownership reflects no security interests due to
fraud. “A rule which allowed reliance on the absence of lien notations on a certificate of
[ownership] if such absence resulted from an innocent mistake or clerical error but not if
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such absence resulted from fraud would negate any ability to rely on the certificate of
[ownership],” thereby undermining the chief purpose of the full title doctrine. (Toyota
Motor Credit Corp. v. C.L. Hyman Auto Wholesales, Inc. (Va. 1998) 256 Va. 243, 247.)
LAFCU’s argument would not in any event affect the result of this case because, as we
conclude above, CarMax also qualifies as a good faith purchaser for value under the
UCC.
Second, LAFCU argues that allowing CarMax to retain the loan proceeds is
“unjust”—notwithstanding CarMax’s status as a bona fide and good faith purchaser—
because, as between two victims of Margaryan’s and Pakhanyan’s fraud (itself and
CarMax), CarMax was the more negligent because it could have conducted a more
thorough investigation of title by obtaining copies of the vehicle’s history from the DMV.
(See Civ. Code, § 3543 [“Where one of two innocent persons must suffer by the act of a
third, he, by whose negligence it happened, must be the sufferer.”].) Like the trial court,
we agree that CarMax and LAFCU are both victims of a sham transaction effected by
Margaryan and Pakahnyan, and by Chases’s unexplained success in persuading the DMV
to simultaneously resurrect Chase’s security interest and void LACFU’s. But substantial
evidence supports a finding that CarMax was not the more negligent party. CarMax
made substantial efforts to verify the clear title of the car. Moreover, LAFCU elected to
settle with Chase and to surrender the car despite the fact that Chase had notice of the tow
yard lien sale and did not intervene; LAFCU’s tactical litigation decision removed from
the table one of the key players who might have shared in the loss.
Lastly, LAFCU argues that the trial court was wrong to be concerned that CarMax
might have to pay for the car multiple times—once to Pakhanyan when it bought the car,
and again to LAFCU and the Brandfords if they prevailed on their claims. This concern
could validly be considered as part of the equities, but is ultimately irrelevant in this case
in light of CarMax’s status as a bond fide and good faith purchaser. This argument
consequently provides no basis for reversal.
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II. CarMax’s cross-appeal
CarMax purports to appeal (1) the trial court’s denials of summary adjudication of
its declaratory relief action and of all the claims brought by LAFCU and Hopeton, and
(2) the trial court’s express finding, following trial, that CarMax breached its contract
with Hopeton (and its implicit rejection of the portion of CarMax’s declaratory relief
claim seeking absolution of liability). We reject CarMax’s first argument because an
order denying summary adjudication is not separately appealable (Federal Deposit Ins.
Corp. v. Dintino (2008) 167 Cal. App. 4th 333, 343), and is generally not a basis for relief
on appeal from a judgment when, as here, the “same question[s]” were later decided on
the merits at trial (ibid.).
In its ruling on Hopeton’s breach of contract claim, the trial court (1) found that
CarMax was a bona fide or good faith purchaser but (2) concluded that section 2312
implied into CarMax’s sales contract an implied warranty of good title that CarMax
breached. (Although Hopeton initially pled a breach of contract claim, CarMax did not
object when Hopeton shifted to a breach of implied warranty claim prior to trial. (Knapp
v. Doherty (2004) 123 Cal. App. 4th 76, 90 [absence of objection constitutes waiver to
shift in legal theory].)) We review the trial court’s first ruling for substantial evidence,
and review the second ruling de novo because it turns on the application of section 2312
to undisputed facts (Haworth v. Superior Court (2010) 50 Cal. 4th 372, 384-385;
Professional Engineers in California Government v. Kempton (2007) 40 Cal. 4th 1016,
1032.) For the reasons described above, substantial evidence supports a finding that
CarMax was a bona fide and good faith purchaser.
However, we agree with CarMax that the trial court erred in concluding that
CarMax breached the implied warranty term of its sales contract. Section 2312 implies in
every “contract for sale” “a warranty by the seller that [1] the title conveyed shall be
good, and its transfer rightful; and [2] the goods shall be delivered free from any security
interest or other lien or encumbrance of which the buyer at the time of contracting [in this
case, the Brandfords] has no knowledge.” (§ 2312, subd. (1).) The trial court’s explicit
finding that CarMax is a bona fide or good faith purchaser is, under the law, an implicit
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finding that CarMax’s title was “good” and that it delivered the car “free from any
security interest or other lien or encumbrance” at the time it transferred the car to the
Brandfords. To be sure, Chase later convinced the DMV to swap its previously perfected
(and later extinguished) security interest for LAFCU’s perfected security interest. But
section 2312’s warranty of good title is not an insurance policy against any and all
subsequent acts by the DMV in acceding to the demands of creditors whose rights have
been extinguished by the Vehicle and/or Commercial Codes. No cases interpreting
section 2312 have so held, and its plain language does not so provide. The breach of
contract and declaratory relief rulings are consequently reversed, with judgment to be
entered for CarMax.
DISPOSITION
The judgment in favor of CarMax against LAFCU is affirmed. The judgment in
favor of Hopeton against CarMax is reversed, with instructions to enter judgment for
CarMax. Each party to bear its own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
_______________________, J.
HOFFSTADT
We concur:
____________________________, P. J.
BOREN
____________________________, J.
CHAVEZ
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