Fariba v. Dealer Services Corp., 178 Cal. App. 4th 156, 2009 Westlaw 3191538 (Oct. 7, 2009).
A used car dealership sold cars it obtained on consignment from a wholesale automobile purchaser. The dealership was financed by a secured creditor. When the car dealership went under, the secured creditor and the consignor both sent tow trucks to repossess the remaining vehicles. There was a battle of the tow trucks. When the last car was towed off the lot, the consignor had recovered 31 of 45 vehicles, the secured creditor had 14.The consignor sued for the value of the 14 vehicles taken by the secured creditor. The consignor won.
The secured creditor argued that it had a lien in the consignor’s cars under Section 9310(a), since it had filed a UCC-1 financing statement but the consignor had not.
However, under Section 9102(a)(20)(A)(iii), the secured creditor’s lien does not reach a consignor’s goods when the consignee “is generally known to be substantially engaged in selling the goods of others.” The court held that when a secured creditor has actual knowledge that the goods belong to the consignor, the creditor cannot claim the protection otherwise available under Section 9310(a). The consignor should have filed its own UCC-1 financing statement; this would also have protected it.
The case is one of first impression in California, although it cites supporting authorities from other jurisdictions.