Outcome: Ohio high court says dealerships retained title and ownership.
The decision means the leasing company that later bought the cars from a now-bankrupt used-car dealership never acquired ownership and forfeits the $47,000 it paid for them.
The case involved a conflict between Ohio's Certificate of Motor Vehicle Title Law and the Uniform Commercial Code.
In November 1998, Gallatin Auto Sales, the used-car dealership, bought a 1996 and a 1995 Honda Accord from Saturn of Kings Automall for $26,600 and took possession of them, the court said. The same month, Gallatin bought a 1998 Dodge Durango from Cronin Motor Co. for $25,500 and took possession.
Both Saturn of Kings Automall and Cronin retained the title certificates pending payment. Meanwhile, Mike Albert Leasing Inc. paid Gallatin $47,000 for the three cars. But Gallatin failed to pay the Saturn dealership for the Hondas or Cronin for the Dodge.
The Saturn dealership and Cronin sued Gallatin and Albert Leasing to recover the vehicles and to collect damages. Albert Leasing counterclaimed and accused Gallatin of breach of contract and fraud. Meanwhile, the two dealerships and Albert Leasing agreed to sell the vehicles with the proceeds to be placed in escrow pending ultimate resolution of the matter. While the case was pending, Gallatin filed for bankruptcy protection, according to Albert Leasing's lawyer, Michael Barron of Cincinnati.
He said his client returned the cars to the two dealerships and now has "a meaningless claim against a bankrupt entity."
The two new-vehicle dealerships won in Hamilton County Common Pleas Court but lost in the state Court of Appeals.
The Supreme Court ruled in their favor, saying nobody can acquire legal ownership of a motor vehicle without transfer or delivery of the title.
"The dealerships retained possession of the certificates of title to the motor vehicles in this dispute," Justice Andrew Douglas said in the majority opinion. "Because the certificates were never assigned and delivered to Gallatin, Gallatin was never the lawful owner of the vehicles and, therefore, could not lawfully pass title to Albert Leasing.
"The dealerships, by retaining possession of the certificates of title, are the rightful owners and are entitled to the proceeds of sale placed in escrow," he said.
Dissenting Justice Deborah Cook said that result thwarts the intent of the title law and fails to protect Albert Leasing as an "innocent purchaser" of the vehicles.
Robert Reichert, president of Kenwood Dealer Group Inc., which owns Saturn of King's Automall Inc., said: "Dealers needed to know whether the title means what we thought it did. The fact you hold the title still has some meaning."
A contrary ruling would have required dealers to change the way they sell used vehicles to other dealers, to wholesalers and at auction and would have turned a title certificate into "a meaningless piece of paper," Reichert said.
Tim Doran, executive vice president of the Ohio Automobile Dealers Association, said the decision is important because "it reaffirmed the value of a title as opposed to possession." The association filed a friend-of-the-court brief.
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