For reversal -- Chief Justice Weintraub, and Justices Burling, Jacobs, Francis, Proctor, Hall and Schettino. For affirmance -- None. The opinion of the court was delivered by Jacobs, J.
[33 NJ Page 229] The plaintiff Eastern Acceptance Corporation brought an action for possession of three automobiles which the defendant Camden Trust Company had taken from the premises of J.O. Evaul, Inc., an automobile dealer in Audubon. The plaintiff posted a bond and replevied the automobiles and thereafter the Camden County Court rendered a judgment for the defendant in the sum of $4,598.89 and costs. The plaintiff appealed and the defendant cross-appealed contending that its judgment should have been in the sum of $5,707 plus interest and costs. On our own motion, we certified the appeal and the cross-appeal while they were pending in the Appellate Division.
Evaul financed its purchase of automobiles from Chrysler Motors Corporation through trust receipts to Eastern Acceptance Corporation. On October 9, 1957 Evaul and Eastern executed a formal statement of trust receipt financing which was duly filed with the Secretary of State in accordance with N.J.S.A. 46:35-13. On the same day Evaul and Eastern entered into an agreement which referred to the statement of trust receipt financing, set forth that all financing transactions thereafter conducted between them would be pursuant to said statement and the Trust Receipts Law of New Jersey "unless otherwise specifically stated," and stipulated that "regardless of the form of title documents employed by the several automobile manufacturers, such documents shall be construed as transferring title and interest so as to accomplish a trust receipt transaction." In financing the three automobiles delivered to Evaul the following customary procedure was pursued: Chrysler shipped the automobiles in January and February 1958 to Evaul together with the manufacturer's certificates of origin required by N.J.S.A. 39:10-8. See Miklos v. Liberty Coach Co., 48 N.J. Super. 591, 595 (App. Div. 1958). At the time of shipment Chrysler mailed invoices to Eastern together with sight drafts which Eastern paid. Although the invoices stated that the automobiles were sold to Evaul they embodied security bills of sale to Eastern. At the time the drafts were paid by Eastern, employees of Eastern, acting as agents of Evaul pursuant to a power of attorney theretofore signed by Evaul, executed in the name of Evaul trust receipts, promissory notes, and bills of sale, all to Eastern.
In April and May 1958, Evaul obtained additional financing from the Camden Trust Company on the three automobiles. It executed patently fictitious instruments (see Canandaigua Nat. Bank & Trust Co. v. Commercial Credit Corp., 285 App. Div. 7, 135 N.Y.S. 2 d 66 (1954); 43 Cal. L. Rev. 733 (1955); 30 N.Y.U.L. Rev. 1536 (1955)) which purported to be conditional sales agreements naming itself as both seller and buyer and these instruments, along
with promissory notes and assignments in blank of the manufacturer's certificates of origin, were delivered to the Trust Company. Evaul retained possession of the automobiles and the Trust Company did not attempt to file the purported conditional bills of sale or to obtain certificates of ownership. See N.J.S.A. 39:10-6, 39:10-11. In June 1958, a Trust Company employee who had approved the loans to Evaul on the assumption that the automobiles were "demonstrators," recognized that there was "something unusual" about the transactions, and after several telephone calls were made to local finance companies, the Trust Company ascertained from Eastern that it held trust receipts executed by Evaul. The Trust Company then proceeded, with the consent of Evaul, to take possession of the automobiles from Evaul's premises. In response to an inquiry as to whether it was customary for the Trust Company, when it financed "demonstrators," to determine the prior existence of "floor planning" such as that engaged in by Evaul and Eastern, a Trust Company employee replied that "that would be a normal function" and that "it was an assumption in this case that there wasn't any."
In the course of his determination that judgment should be entered for the defendant, the trial judge expressed the view that in a trust receipts transaction, title must be transferred to the entruster -- "the party who advances the money," and he found that "in this particular matter title was transferred from the manufacturer to the dealer or trustee and never was the original title ever placed in the name of the plaintiff or entruster, as required in such a transaction." It is true that in the orthodox common law trust receipts transaction, title is transferred from the manufacturer or distributor to the financing company (the entruster) rather than to the dealer (the trustee or entrustee). See Vold, Sales §§ 70-75 (2 d ed. 1959); Gilmore, Chattel Security, 57 Yale L.J. 761, 763 (1948); Lusk, "Trust Receipts," 12 Temp. L.Q. 189, 193 (1938). But the Uniform Trust Receipts Act, which was adopted in New Jersey in
1938 (N.J.S.A. 46:35-1 et seq.), was expressly designed to simplify and facilitate trust receipt financing by providing a ready method of filing to serve as constructive notice to creditors including pledgees and mortgagees, and by eliminating the uncertainties and technicalities of the common law including its requirement that title be transferred by the manufacturer or distributor to the entruster rather than the dealer-trustee. Thus in the prefatory note to the Uniform Trust Receipts Act (9C U.L.A. 220 (1957)) the Commissioners stated that the Act regulated not only orthodox trust receipt transactions but also transactions in which the dealer acquired title and they expressly pointed out that it freed the entruster "from the elaborate procedure necessary under the common law to keep title from ever getting into the trustee." See N.J.S.A. 46:35-2; Premium Commercial Corporation v. Kasprzycki, 129 Conn. 446, 29 A. 2 d 610, 613 (Sup. Ct. Err. 1942); Universal Credit Co. v. Citizens State Bank, 224 Ind. 1, 64 N.E. 2 d 28, 30, 168 A.L.R. 352 (Sup. Ct. 1945); Heindl, "Trust Receipt Financing under the Uniform Trust Receipts Act," 26 Chi.-Kent L. Rev. 197 (1948); Hanna, "New Jersey Law of Trust Receipts," 2 Mercer Beasley L. Rev. 1 (1933).
In the Kasprzycki case, supra, the Connecticut Supreme Court discussed the terms of the Uniform Act and noted that they in effect provided that "in a trust receipt transaction, the security interest which the entruster has may be either in the nature of a lien upon the goods or the title to the goods, whenever such title shall be in substance taken or retained for security only." 29 A. 2 d, at p. 614. No useful purpose would be served by endeavoring to determine the precise nature of Eastern's lien or title under the various documents executed by Chrysler and Evaul for in any event it is clear that Eastern was intended to have and did have a "security interest" within the contemplation of the Act. See N.J.S.A. 46:35-1, 46:35-2. That security interest was sufficient to vest in Eastern, upon the trustee's default, a possessory right against
the trustee (N.J.S.A. 46:35-6) and against creditors of the trustee including later pledgees and mortgagees (such as the Trust Company here -- see Canandaigua Nat. Bank & Trust Co. v. Commercial Credit Corp., supra) who had constructive notice of the entruster's security interest by virtue of its filing under N.J.S.A. 46:35-13. See Universal Credit Co. v. Citizens State Bank, supra, where the Indiana Supreme Court had this to say:
"The Act with which we are concerned was the result of the needs of merchants and dealers in handling products and machines which are used and needed by the purchasing public. Although originally it was used exclusively in the importing business, the mass production of automobiles, trucks, and various labor saving devices has created a field for the use of loaning corporation ...