KENNETH FOCARINO v. TRAVELERS PERSONAL INSURANCE COMPANY

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

KENNETH FOCARINO,

Plaintiff-Respondent,

v.

TRAVELERS PERSONAL INSURANCE

COMPANY, (FIDELITY AND GUARANTY

INSURANCE UNDERWRITERS, INC.

IMPROPERLY PLEADED AS TRAVELERS

INSURANCE),

Defendant-Appellant.

____________________________________

April 25, 2017

Argued November 15, 2016 Decided

Before Judges Espinosa and Suter.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-96-15.

Jacqueline S. Pe a argued the cause for appellant (Law Offices of William E. Staehle, attorneys; Jeffrey W. Mazzola, of counsel; Mr. Mazzola and Ms. Pe a, on the briefs).

Jason L. Bittiger argued the cause for respondent (Bittiger Elias & Triolo, P.C., attorneys; Mr. Bittiger, of counsel and on the brief; Michael C. Feinberg, on the brief).

PER CURIAM

Fidelity and Guaranty Insurance Underwriters, Inc. (Fidelity)1 appeals a May 22, 2015 order of the Chancery Division, which required Fidelity to transfer the title of a 2005 Bentley Continental GT (the Bentley) to plaintiff Kenneth Focarino (Focarino). We affirm the order and well-reasoned decision of Judge Robert Contillo.

On July 1, 2014, Focarino purchased the Bentley from Emporio Motor Group, L.L.C. (Emporio) for $74,215 by paying cash and by trading in his Mercedes. He did not receive a certificate of title for the Bentley that day, but filled out an Application for Certificate of Ownership that Emporio was to submit to the Motor Vehicle Commission (the MVC) for the certificate of title. When Focarino did not receive the title or registration, he made repeated inquiry of Emporio, only to be told there were "problems" with the vehicle's title. With the sixty-day temporary registration nearing its expiration date and having not received a title or registration for the Bentley, Focarino asked Emporio to rescind the purchase and return the Mercedes. Emporio refused, advising the Mercedes had been sold at auction.

In September 2014, Focarino filed a Business Licensing Services customer complaint with the MVC and contacted the local police. He also requested an emergency title for the Bentley from the MVC, but was denied because of an outstanding lien on the vehicle held by the Toyota Motor Credit Corporation (Toyota). This was the first Focarino was made aware there was a lien of any kind on the Bentley. Focarino tried negotiating with Toyota to obtain title to the Bentley, but was not successful.

Emporio had obtained the Bentley on June 23, 2014, when James Martin (Martin), who is not a party to this litigation, traded it for an Aston Martin. As a condition of that trade and sale, Emporio agreed to pay off Toyota's lien on the Bentley. However, Martin came to realize Emporio had not paid the lien as promised after he received notice from Toyota that he had defaulted on his loan for the Bentley. When he could not gain clarification from Emporio, Martin filed a report with the police, complaining the Bentley was stolen, and also filed a theft claim with his insurer, Fidelity. Fidelity accepted Martin's theft claim, and on December 18, 2014, paid Toyota $62,802.65 to satisfy the lien and $18,196.35 to Martin. Toyota provided Fidelity the certificate of title for the Bentley.

In April 2015, Focarino filed an order to show cause and verified complaint in the Chancery Division to restrain Fidelity from repossessing the vehicle, and to require Fidelity to transfer the Bentley's title to him based on his "unencumbered interest." Fidelity answered and filed a counterclaim for declaratory judgment, asserting it was "the rightful and legal owner of the Bentley." Pending the return date, the trial court entered temporary restraints that maintained the status quo by prohibiting Fidelity from repossessing the vehicle and by requiring Focarino to secure the vehicle.

On May 22, 2015, the return date of the order to show cause,2 Judge Contillo ordered Fidelity to transfer the Bentley's certificate of title to Focarino. In Judge Contillo's comprehensive written decision, he identified the issue as whether Focarino "has the right to title of the Bentley through his purchase of the Bentley from Emporio, or, [Fidelity] has the right to title of the Bentley through its payment to Martin and Toyota." The court reasoned that the issue "narrows down to the extent of Emporio's interest in the Bentley at the time it sold the Bentley to [Focarino]." Judge Contillo found "Martin was the true owner of the Bentley" because he was "in possession and control of [it]," rejecting Fidelity's notion that Toyota's security interest gave it true ownership. Thus, "Martin was the owner of the Bentley when he delivered it to Emporio." Relying on N.J.S.A. 12A:2-403(1) of the New Jersey Uniform Commercial Code (U.C.C.), N.J.S.A. 12A:1-101 to 12-26, because Martin had "delivered the Bentley to Emporio (the subsequent seller) with the intent that Emporio become the owner of the goods," Emporio "acquired the Bentley though a transaction of purchase with Martin . . . , thus giving Emporio voidable title to the Bentley."

Judge Contillo then found, because Emporio possessed a voidable title, it had the ability to transfer title. Further, despite the interest that Fidelity claimed in the vehicle, a good faith purchaser for value, such as Focarino, could cure a voidable title and prevail against other claims, including those by Martin or Fidelity, thereby "obtain[ing] clear title free from any claims by third parties." The court found there was "no evidence that [Focarino] had any knowledge of the lien on the Bentley at the time he purchased [it]," and "no evidence that he should have known of the lien." The court held that "upon [Focarino's] purchase of the Bentley, [Focarino] received good and clear title." Subsequently, Judge Contillo denied Fidelity's motion for a stay pending appeal, and ordered Fidelity to deliver the Bentley's certificate of title to Focarino, which has been done.

Fidelity appealed, contending the trial court erred because Emporio never possessed legal title to the vehicle and thus could not transfer title to Focarino. Fidelity asserts there was no completed "transaction of purchase" as contemplated in the U.C.C., and that plaintiff has relied on irrelevant case law. Furthermore, Fidelity asserts that as a wrongdoer, Emporio could not convey good title to the Bentley.

Where we are tasked with interpreting a statutory provision, the scope of our review is de novo. Cypress Point Condo. Ass'n v. Adria Towers, L.L.C., 226 N.J. 403, 415 (2016) ("When no issue of fact exists, and only a question of law remains, [an appellate court] affords no special deference to the legal determinations of the trial court." (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995))). We are to construe statutes "sensibly and consistent with the objectives that the Legislature sought to achieve." Nicholas v. Mynster, 213 N.J. 463, 480 (2013) (citing DiProspero v. Penn, 183 N.J. 477, 492 (2005)).

Our analysis is informed first by a review of the relevant section of the U.C.C. and case law. Section 403 provides in relevant part:3

(1) A purchaser of goods acquires all title which the transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has this power even though

(a) the transferor was deceived as to the identity of the purchaser, or

(b) the delivery was in exchange for a check which is later dishonored, or

(c) it was agreed that the transaction was to be a "cash sale", or

(d) the delivery was procured through fraud punishable under the criminal law.

[N.J.S.A. 12A:2-403(1).]

The section is "applicable to a person taking by any form of 'purchase' as defined by this Act." N.J.S.A. 12A:2-403, comment 1. "[S]ubsection (1) provides specifically for the protection of the good faith purchaser for value in a number of specific situations which have been troublesome under prior law." Ibid. N.J.S.A. 12A:2-403(1) "provides that the sale to a good faith purchaser for value cures the defects in the seller's voidable title." Touch of Class Leasing v. Mercedes-Benz Credit of Can., Inc., 248 N.J. Super. 426, 437 (App. Div.), certif. denied, 126 N.J. 390 (1991). That is not the case where title is void. The sale to a good faith purchaser for value "cannot cure void title." Ibid.

In distinguishing a void title from a voidable title, a comparison is drawn "between a thief, who wrongfully takes goods against the will of the owner and has void title, and a swindler, who fraudulently induces the owner to deliver goods voluntarily and has voidable title." NXCESS Motor Cars, Inc. v. JPMorgan Chase Bank, N.A., 317 S.W.3d 462, 468 (Tex. App. 2010) petition for review denied, No. 10-0508 (Tex. Sept. 3, 2010), (citation omitted). Generally,

voidable title passes to those who lie in the middle of the spectrum that runs from best-faith buyer at one end to robber at the other. These are buyers who commit fraud, or are otherwise guilty of naughty acts (bounced checks), but who conform to the appearance of a voluntary transaction . . . .

[1 James J. White, et al., Uniform Commercial Code, 4:33 at 381 (6th ed. 2012).]

In O'Keeffe v. Snyder, 83 N.J. 478 (1980), involving an allegation that artwork had been stolen, the Court recognized the distinction. "[T]he U.C.C. permits a person with voidable title to transfer good title to a good faith purchaser for value in certain circumstances." Id. at 489. However, a "thief acquired no title and could not transfer good title to others regardless of their good faith and ignorance of the theft." Id. at 488.4

For a person with voidable title to goods to transfer good title to a good faith purchaser for value, the goods, even though delivered through fraud, must be delivered under a transaction of purchase. N.J.S.A. 12A:2-403(1)(d); see Touch of Class, supra, 248 N.J. Super. at 438 ("For the seller to acquire even voidable title, he must obtain delivery of the goods through 'a transaction of purchase.'"). We have explained that the phrase transaction of purchase "is generally limited to those situations in which a third party delivers goods to a subsequent seller, intending for the subsequent seller to become the owner of the goods." Ibid. Where the goods have been obtained through a transaction of purchase and thus, the subsequent seller has voidable title, the title defects can be cured "through the sale to a good faith purchaser for value[, which] gives the good faith purchaser clear title, free from any claims of third parties." Ibid.

Here, the trial court found, and no one has disputed, that Focarino was not aware of the lien held by Toyota when he purchased the Bentley from Emporio. At oral argument on the return date, counsel for Fidelity referred to Focarino as an "innocent purchaser." Fidelity has not disputed on appeal that Focarino is a good faith purchaser for value under the U.C.C.5

We agree with Judge Contillo that Emporio obtained voidable title to the Bentley through its transaction with Martin because that was a transaction of purchase. As we said in Touch of Class, supra, 248 N.J. Super. at 438, it is the intent of the original seller, Martin, to enter into a valid transaction that determines whether a "transaction of purchase" has occurred and not the intention of the subsequent seller, in this case Emporio. Martin intended Emporio to own the Bentley in exchange for his new vehicle, conditioned on the payment of the lien held by Toyota.

The security interest held by Toyota in the Bentley did not change the transaction of purchase. There can be "more than one 'owner' of a vehicle." Verriest v. INA Underwriters Ins. Co., 142 N.J. 401, 408 (1995). "[T]he true owner is the person who maintains 'possession and control of the automobile.'" Id. at 409 (citations omitted). When Martin, who indisputably possessed and controlled the Bentley, delivered it to Emporio, he intended Emporio to become the owner subject to paying the lien. He was not prohibited from transferring his ownership because of Toyota's lien.

Fidelity focuses on the fraud committed by Emporio, contending that the Bentley was stolen, but the U.C.C. expressly contemplated the situation where "delivery was procured through fraud punishable under the criminal law." N.J.S.A. 12A:2-403(1)(d). This is not a situation such as O'Keeffe where paintings were purloined. In that case, the thief had no title to pass even to innocent buyers. Here, Emporio did not forcibly coerce Martin into transferring possession of the Bentley, but rather fraudulently induced the transfer by falsely promising that it would pay off the lien on the Bentley and provide Martin with good title on his new vehicle.

Nor is this a case factually similar to Touch of Class where a lessee, who subsequently tried to sell the vehicle he leased, did not obtain the vehicle by a transaction of purchase. We held that this lease was a "true" lease and not a lease for security. Touch of Class, supra, 248 N.J. Super. at 435. Because the lease was not a transaction of purchase, the lessee "did not even possess voidable title at the time of the sale to [the good faith purchaser]." Id. at 438.

We are satisfied that a "transaction of purchase" occurred when Martin entered into what was believed to be a valid transaction with Emporio. Fidelity has referred to this as a "good faith sale from [Martin]." Although Martin had the right to rescind the transaction with Emporio, that right expired upon the sale of the vehicle to Focarino, who was a good faith purchaser for value.

Therefore, we agree with Judge Contillo that Emporio acquired the Bentley from Martin through a "transaction of purchase" because Martin wanted Emporio to own the vehicle subject to paying off the lien. The transaction of purchase gave Emporio a voidable title. The voidable title allowed Emporio, despite its alleged fraud, to sell the vehicle to a good faith purchaser for value, Focarino. Focarino then took the vehicle free and clear of any claims by third parties, including Fidelity, which had paid Toyota's lien under its policy of insurance with Martin. Thus, Focarino is the "rightful and legal owner" of the Bentley.

Affirmed.

1 Fidelity was improperly named in the complaint as Travelers Personal Insurance Company.

2 The parties agreed, because the facts were not disputed, that the court could summarily decide Fidelity's declaratory judgment action, thereby resolving which party owned the Bentley and was entitled to its title. The parties also agreed that Focarino was not aware of the lien on the Bentley at any time before being advised about it by Toyota, and Fidelity was not aware of Focarino's purchase of the Bentley at any time before it paid Toyota and received the title.

3 The corresponding section of the Model Uniform Commercial Code describes the situation as one in which "delivery was procured through fraud punishable as larcenous under the criminal law." U.C.C. 2-403(1)(d) (Am. Law Inst. & Unif. Law Comm'n 1988). The words "as larcenous" were removed from our version of the statute in 1994 because larceny is not recognized as a criminal offense in New Jersey. L. 1994, c. 114, 5.

4 The rule that a thief cannot provide good title has ancient origins as noted by Justice Handler in his dissent in O'Keeffe, having been recognized by Lord Blackstone. Id. at 513 (Handler, J., dissenting).

5 While the phrase "good faith purchaser for value" is not defined under the U.C.C., the U.C.C. defines "good faith" generally as "honesty in fact and the observance of reasonable commercial standards of fair dealing." N.J.S.A. 12A:1-201(b)(20).