CHATTEL MORTGAGE--VALIDITY OF RECORDED CHATTEL MORTGAGE AS AGAINST ORDINARY PURCHASER--POSSESSION ENTRUSTED TO MORTGAGOR-DEALER REGULARLY ENGAGED IN SALE OF SIMILAR ARTICLES

Plaintiffs purchased from a retail dealer, in the ordinary course of trade, automobiles which were subject to properly recorded mortgages given by the dealer to defendant finance company. The certificates of title which the mortgage-dealer had been permitted to retain indicated that the vehicles were free from lien. Claiming default in payments by the dealer, the defendant seized the automobiles. Plaintiffs brought actions seeking repossession and damages.

As the evidence clearly disclosed, defendant anticipated that the dealer would make no disclosure of the encumbrance at the time of sale, but rather expected that the lien would subsequently be discharged with the proceeds of sale. Defendant contemplated that the chattel mortgage recording act would protect his security and that loss occurring through default by a dishonest dealer could be recovered from the purchaser. In addition, the evidence failed to explain satisfactorily why a part of the $100,000 paid over to the defendant during the two and a half month period following these sale transactions had not been applied to the discharge of these particular mortgagees. The trial court, on the theory that loss should fall on the party making the perpetration of the fraud possible, granted relief to the plaintiffs.

On appeal, held, affirmed. By the course of its previous transactions with the dealer and its methods of doing business, the defendant waived its right to enforce the lien against purchasers having no actual notice. Dass v. Contract Purchase Corporation, 318 Mich. 348, 28 N.W. (2d).226 (1947).