Miles Law Firm Wins Important Appellate Decision

In Brashers Cascade Auto Auction vs. Valley Auto Sales, et. al.,  119 Cal. App. 4th 1038, 15 Cal. Rptr. 3d 70 (5th dist. 2004),  the Appellate Court held that a used car dealer who purchased 32 vehicles from a wholesaler without obtaining the titles had to show adherence to commercial reasonableness to be considered a buyer in the ordinary course of business, reversing the trial court judge.   Mr. Miles argued the significant commercial law case before the Fifth District Court of Appeals involving the good-faith standard required of auto dealers in certain types of commercial law cases.

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 ” … a used car dealer who purchased 32 vehicles from a wholesaler without obtaining the titles had to show adherence to commercial reasonableness to be considered a buyer in the ordinary course of business.”

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Wholesaler Fails To Pay

The wholesaler purchased the vehicles from Brashers Cascade Auto Auction, accepted payment from the used car dealer, but failed to pay the auction.

The case involved two relatively innocent parties: the used car dealer who paid once for the vehicles (albeit without demanding titles at the time he paid), and the auto auction who complied with all laws necessary to perfects its security interest in the wholesaler’s vehicle inventory.

The Miles Law Firm, on behalf of its client Brashers Sacramento Auto Auction, sued the wholesaler and the used car dealer. The wholesaler went out of business. In the case against the used car dealer, Miles argued that the Auction’s perfected security interest in the wholesaler’s inventory permitted the Auction to recover the vehicles from the used car dealer. However, the Trial Court ruled that the used car dealer was a buyer in the ordinary course of business, and thus took free and clear of the auction’s perfected security interest in the wholesaler’s vehicle inventory.

“We thought the Trial Court used the wrong legal standard,” attorney Larry Miles observed. “The Court used the same standard for the used car dealer as it would have used for an ordinary consumer, despite the fact that the used car dealer knew the risk he was taking in failing to obtain the titles and, in our view, failed to adhere to reasonable industry standards.”

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“The Brashers case will become one of the leading cases in the country on establishing the proper standard for considering the good-faith of a merchant …”

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“The Brashers case will become one of the leading cases in the country on establishing the proper standard for considering the good-faith of a merchant who buys vehicles or other inventory that is the subject of a lien by a secured party,” Miles said. “Merchants should be held to standards of commercial reasonableness in assessing whether they acted in good-faith, and are thus buyers in the ordinary course of business.”

“We commend Brashers Auto Auctions for appealing this case and establishing this important precedent.” Miles concluded.  The Appeals Court returned the case to Fresno for further proceedings.

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Miles McLeod, A Professional Law Corporation, practices civil and business law, including extensive work in the auto and aviation industries. For more information, please email the Firm at mileslaw@milesfirm.com or review the Firm's website.

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