Opinion
February 11, 1999
Appeal from the Supreme Court (Hughes, J.).
On January 29, 1998 and February 5, 1998, defendant Willis E. Dufrane, doing business as Peanuts Sales Service, purchased 13 vehicles at an auction conducted by plaintiff Northway Exchange, Inc., doing business as Northway Exchange Auto Auction. Dufrane borrowed the total sum of $134,175 from plaintiffs Manheim Auctions, Inc. and Manheim Automotive Financial Services, Inc. (hereinafter collectively referred to as the Manheim plaintiffs) and used these funds to pay each of the various sellers for the vehicles. The security agreement under which Dufrane borrowed the money refers to the transaction as a "bridge line of credit"; pursuant to the agreement, the borrower uses the funds borrowed to purchase and take actual possession of the vehicles and pays off the indebtedness in accordance with the terms of the agreement and a promissory note.
Although not provided in the security agreement, it is the custom and practice for Northway to require a borrower of the Manheim plaintiffs, such as Dufrane, to submit checks to Northway in the amount borrowed for each car and those checks are held by Northway and deposited against the indebtedness to the Manheim plaintiffs within the timetable provided in the agreement and note. Northway retains all of the original title documents until the borrower's checks have been deposited and cleared, at which time the original documents are forwarded to the borrower. According to Northway, in order to ensure that no third party accepts copies of the title documents in lieu of the originals, it is its custom and practice to stamp the buyer's copies with a bold notice stating, "COPY ONLY — DO NOT ISSUE NEW TITLE. CALL NORTHWAY EXCHANGE (518) 371-7500." Significantly, the buyer's copies of the title documents in this case were not so stamped.
The record also contains 13 separate purchase and sale agreements between Dufrane, as the buyer, and the individual sellers of the 13 vehicles in question; these forms bear the legend of "Northway Exchange Auto Auction" and set forth, inter alia, the names and signatures of Dufrane as the buyer and the individual seller, a description of the vehicle, an odometer certification and the purchase price. On the back of each purchase and sale agreement form is a list of terms, warranties and disclaimers relating to the transaction and at the bottom of the list is a statement in bold print as follows: "AUCTION MANAGEMENT RESERVES THE RIGHT TO VOID A TRANSACTION." Notably, although there is a reference to terms on the "reverse side", there are no initials or signatures on the back of any of these forms. Thereafter, Dufrane left the auction with possession of the vehicles and the unstamped copies of the title documents.
For upwards of 8 to 12 years prior to the purchase of the aforementioned 13 vehicles, defendant Key Bank of New York, N. A. had been financing the acquisition of used vehicles by Dufrane under a "Dealer Floor Plan Agreement". Pursuant to this arrangement, Dufrane granted Key Bank a security interest in, among other things, all of his used car inventory. Key Bank filed a blanket UCC financing statement with the Secretary of State and the Franklin County Clerk. After taking possession of the 13 vehicles, Dufrane sought and obtained financing from Key Bank for each of the vehicles, submitting to Key Bank copies of the title documents.
In February 1998, Dufrane informed Key Bank that, due to financial problems, he was going to cease operation of his used car business. As a result, on February 20, 1998, Key Bank repossessed Dufrane's inventory. The 13 vehicles bought at Northway's auction, on which Dufrane still had not paid the Manheim plaintiffs, were included within the seized inventory. Once Northway learned of this, it contacted Key Bank and requested the return of the 13 vehicles. Key Bank refused to turn over the vehicles; in response, Northway notified Dufrane, Key Bank and each of the original sellers that it was exercising the rescission powers set forth on back of the purchase agreement forms.
There is nothing in the record to indicate that any of the plaintiffs did anything to give notice under the UCC of a security interest in the 13 vehicles as of the time of the seizure by Key Bank.
On March 11, 1998, plaintiffs commenced this action claiming a contractual right to rescind the 13 vehicle transactions and have the vehicles returned. By way of an order to show cause, plaintiffs obtained an order preliminarily enjoining Key Bank from selling the vehicles while this action was pending. Thereafter, Key Bank moved to dismiss the complaint against it on the ground that, pursuant to Business Corporation Law § 1312 Bus. Corp., plaintiffs were not authorized to do business in this State and, therefore, lacked the capacity to sue. In response to Key Bank's motion, plaintiffs cross-moved for leave to amend their complaint so as to reflect the proper name of the lead plaintiff as New York Auto Auction Services, Inc., doing business as Northway Exchange, and then served a second cross motion seeking partial summary judgment ordering Key Bank to return the 13 vehicles. Supreme Court granted both of plaintiffs' cross motions and directed Key Bank to turn over possession of the vehicles to Northway. Key Bank now appeals.
Initially, we find merit in Key Bank's contention that the Manheim plaintiffs are necessary parties who lack the legal capacity to maintain this action in the courts of this State (see, Business Corporation Law § 1312 Bus. Corp. [a]). Plaintiffs have affirmatively pleaded that both Manheim plaintiffs are foreign corporations "doing business" in New York. Notably, neither Manheim plaintiff is authorized to do business in New York. The Manheim plaintiffs are the only plaintiffs which loaned money to Dufrane and Dufrane owes no monetary obligation to Northway. Therefore, the Manheim plaintiffs, not Northway, are the only parties that can claim they were defrauded; they are indeed necessary parties and cannot assert their claim through Northway. Accordingly, Supreme Court should have dismissed the Manheim plaintiffs' complaint (see, Matter of United Envtl. Techniques v. State of New York Dept. of Health, 88 N.Y.2d 824).
We also conclude that Dufrane was the owner of the vehicles at the time he sought financing from Key Bank. Having paid the sellers, ownership passed to Dufrane at the time he took possession of the vehicles (see, UCC 2-401 U.C.C. [2]; Pugh v. Hartford Ins. Group, 68 Misc.2d 1014, 1016). Accordingly, Northway's retention of the original title documents did not affect the passing of title to Dufrane nor the validity or priority of any lien Key Bank may have obtained against the vehicles pursuant to UCC article 9. Notably, there is no evidence in the record that Key Bank had any notice of the transaction between Dufrane and the Manheim plaintiffs. Finally, as Northway has no debt or security interest to enforce against Dufrane or the vehicles in question, Northway has failed to demonstrate a prima facie entitlement to rescission as a matter of law. Therefore, Supreme Court erred in granting summary judgment.
Cardona, P. J., Peters, Carpinello and Graffeo, JJ., concur.
Ordered that the order is modified, on the law, without costs, by reversing so much thereof as awarded summary judgment to plaintiff Northway Exchange, Inc. and which denied the motion by defendant Key Bank of New York, N. A. to dismiss the complaint of plaintiffs Manheim Auctions, Inc. and Manheim Automotive Financial Services, Inc.; plaintiffs' cross motion for summary judgment is denied, Key Bank's motion to dismiss the complaint of the Manheim plaintiffs is granted; and, as so modified, affirmed.