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Heritage Bank, N.A. v. Vilsmeier Auction Co.

Decided: December 18, 1986.

HERITAGE BANK, N.A., N/K/A, MIDLANTIC NATIONAL BANK/SOUTH, PLAINTIFF,
v.
VILSMEIER AUCTION CO., DEFENDANT



Superior Court of New Jersey, Camden County.

Hyland, J.s.c.

Hyland

OPINION

This summary judgment motion raises an issue of first impression in New Jersey as to whether or not an auctioneer who, in good faith, sells personal property in which a third party has a perfected security interest without authorization from the secured party, renders himself liable to the secured party for conversion, even though the auctioneer had no actual knowledge of the secured party's interest.

On September 21, 1983 the defendant Vilsmeier Auction Co. conducted an auction in Moorestown, N.J., and sold two (2) Great Dane Refrigerator Trailers to the highest bidder, Evans Delivery Co., for a total of $9,000. It auctioned the vehicles at the behest of J.K. Enterprises, Inc. (J.K.) and received a commission for its services.

Prior to the auction, Joseph Koenig, president of J.K., had provided to the auctioneer certificates of unencumbered title from the New Jersey Division of Motor Vehicles (DMV) for each trailer. However, at the time of the auction the two trailers were actually subject to a perfected security agreement in favor of plaintiff Heritage Bank.

The bank had previously loaned $20,000 on October 1, 1981 after Koenig had presented a duplicate set of clear title certificates

to it as collateral for the loan. The bank sent the titles, with appropriate notice of its lien, to the DMV pursuant to N.J.S.A. 39:10-9. J.K. subsequently defaulted on the loan and the bank has instituted this action against the auctioneer to recoup its loss on the loan.

In support of its motion, the plaintiff relies upon a line of authority from a majority of other jurisdictions, including the Federal courts, which hold an auctioneer liable for conversion when property is sold subject to a perfected security interest. 96 A.L.R. 2d 208, 210 (1964); 7 Am.Jur. 2d, Auctions and Auctioneers ยง 69 (1980).

Liability for conversion is imposed regardless of the fact that the auctioneer acted in good faith and without actual or constructive knowledge of the security interest. Commercial Credit Corp. v. Joplin Automobile Auction Co., 430 S.W. 2d 440, 444 (Mo.App.1968). Even where actual or constructive knowledge is required to establish conversion, it has been held that the existence of a perfected security interest is constructive knowledge. Top Line Equipment Co. v. National Auction Service, 32 Wash.App. 685, 649 P. 2d, 165, 167 (1982).

In response, the defendant has cited only two cases, both of which predate the Uniform Commercial Code, requiring constructive notice on the part of the auctioneer before liability for conversion may be found. In addition, a California appellate court failed to find liability against an auctioneer in the case of Jessup v. Cattle Center, Inc., 259 Cal.App. 2d 434, 438, 66 Cal.Rptr. 361 (App.1968). However, even these cases acknowledge that where an auctioneer has ...


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