1977, March, Pg. 440. Perfecting Title to Aircraft.

• Author: by © J. Jeffrey Mojcher, 1977

6 Colo.Law. 440

Colorado Lawyer

1977.

1977, March, Pg. 440.

Perfecting Title to Aircraft

440Vol. 6, No. 3, Pg. 440Perfecting Title to Aircraftby © J. Jeffrey Mojcher, 1977J. Jeffrey Mojcher, Denver, is a partner in the firm of Mojcher & Johnson. Mr. Mojcher is also a pilot and flight instructor.441The Federal Aviation Act of 1958, as amended (49 USC § 1301, et seq., hereinafter the "Act") is the basic law of the United States treating aviation matters. The legislation is comprehensive. In some of its aspects it preempts or partially preempts the field and takes precedence over state laws. This statute, as it relates to aircraft titles, the case law evolving out of it, and the corresponding Federal Aviation Regulations (FAR) constitute the subject matter of this article. The discussion primarily concerns 49 USC § 1403, "Recordation of aircraft ownership," and § 1406, "Law governing validity of certain instruments."

Section 1403(a)(1) provides for the establishment of a national system for recording conveyances and instruments affecting title to any civil aircraft(fn1) of the United States. Leases, mortgages, conditional sales contracts, or other instruments affecting title to aircraft components, engines, propellers, appliances, and so forth are dealt with in § 1403(a)(2) and (3). This statute also provides for recordation of releases, discharges, etc., of conveyances or encumbrances previously recorded.(fn2) It provides that a conveyance or instrument affecting title to an aircraft shall have no effect on persons without actual notice thereof until it is filed for recordation with the Secretary of Transportation.(fn3) Once recorded, each conveyance or other instrument is, from the time of filing, valid as to all persons without further requirement.(fn4)

Section 1406 provides that the validity of any instrument, the recording of which is provided for by § 1403, is governed by the law of the jurisdiction in which the instrument is delivered.

Interrelation of State and Federal LawIt has been stated often in the cases that § 1403 of the Act partially preempts the field governing title to aircraft.(fn5) The Act controls recordation and its effect and provides for the format of documents to be filed.(fn6) The validity as to third persons of conveyances or instruments affecting title are matters governed by federal law, to the extent such rights are dependent on the fact or time of filing or recordation.(fn7) But state law governs the underlying validity of the conveyance,(fn8) or instrument,(fn9) and the priority among claimants,(fn10) as is indicated by § 1406. State law also affects title when a conveyance or instrument has not been filed with the Federal Aviation Administration (FAA). Thus, where two transactions occurred before

442either was filed, priority was given to the first to file.(fn11)

As will be seen, these factors have importance in matters of aircraft sales, financing and refinancing, leasing, maintenance, and insurance.

Filing: Effect, Failure, Notice RequirementsTitle to or interest in an aircraft is generally perfected by filing a bill of sale or other instrument indicating an interest in the aircraft with the FAA. Exceptions and special cases are discussed below. As an initial suggestion, however, a purchaser should not rely on what is said in the cases to be a common industry practice---that the seller will file the bill of sale for the buyer. This will allow for a subsequent sale by the seller to a third party which may terminate the original buyer's interest in the aircraft.(fn12)

Where two purchasers are without notice of the other, the first to file will acquire title, assuming there is no state law invalidating one of the sales.(fn13) By the same token, a buyer may also convey good title to a third person even though his own bill of sale has not been recorded.(fn14) Also, a creditor who seeks to attach his debtor's interest in an aircraft which the debtor has sold to a good faith third party purchaser has no better claim or title than his debtor.(fn15) Additionally, there may be an implied contract to deliver a bill of sale or good title to the purchaser, which contract will act to protect the interest of the purchaser.(fn16)

It should be pointed out that federal recording per se does not create priority among claimants, nor does it validate documents lacking in initial or inherent validity, as determined by state law.(fn17)

In a suit to have claim of ownership declared superior, the following facts were involved: Coastal purchased an aircraft from Bank on a personal note without a written security agreement. Coastal sold the aircraft to International, which, in turn, gave Coastal a mortgage with the aircraft as security. Coastal had informed International of the note to the Bank, and a bill of sale was filed with the FAA which bore a notation concerning the Coastal note. These facts were held sufficient to put a subsequent buyer on implied notice of the encumbrance of the debt owed Bank. It was further held that the purchaser had a duty to search the known records to check on encumbrances. [McCausland v. Davis, 204 So. 2d. 334 (Fla. App., 1967).]

In another case, "A" sold an airplane to "B" who failed to record the bill of sale. The sheriff later attached the aircraft on behalf of "B"s judgment creditor. Meanwhile, "A" sold the same aircraft to "C," who in turn sold to "P." Both "C" and "P" filed their bills of sale for recording. The court found "P" to be a bona fide purchaser without notice. It held that "B" s failure to record left "A" with the power to transfer title to a bona fide purchaser, and, thus, "P" s title was good against"B"s creditor. [Marrs v. Barbeau, 336 Mass. 416, 146 N.E. 2d. 353 (1957).]

In Blalock v. Brown, 51 S.E. 2d. 610 (Ga. App., 1949), a subsequent purchaser, without notice of a prior sale which was not of record, filed his bill of sale with CAA (now FAA), and it was held that he had superior title. In another case, an insurance company bought a damaged plane from its insured and then sold it for salvage to another, the company not having recorded the bill of sale, and the buyer took possession through another who was buying from the company's buyer. The court found the company had conveyed title to the salvager, who could then convey title to his buyer. The company's retention of the bill of sale was held to be an attempt to create a security interest in the airplane without filing, and a good faith subsequent purchaser without notice of the interest of the company took free of it. [American

443Aviation, Inc., v....