Landshire Food Service, Inc. v. Coghill
709 S.W.2d 509, 1986 Mo. App. LEXIS 3961, 1 U.C.C. Rep. Serv. 2d (West) 729 (1986)
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Rule of Law:
A subsequent purchaser of property obtained by the seller through fraud does not qualify as a bona fide purchaser, and thus does not acquire good title, if the totality of circumstances surrounding the transaction would place a reasonably prudent person on inquiry as to potential defects in the seller's title.
Facts:
- On August 25, 1984, J.A. Coghill sold his Rolls Royce to a man who paid with a forged cashier's check.
- Coghill signed the Illinois Certificate of Title, dated it, and wrote "Executive Jet Leasing" as the transferee before delivering the car and title.
- Upon learning the check was fraudulent, Coghill reported the vehicle as stolen.
- In early September, the fraudster, now using Coghill's name, offered to sell the car to Barry Hyken for $62,000, a price Hyken's appraiser confirmed was on the low side of fair market value.
- During the sale, the seller presented the title showing the prior assignment to "Executive Jet Leasing," which he claimed was a mistake.
- The seller also produced identification with contradictory addresses in New Hampshire and Illinois.
- Without investigating the discrepancies, Hyken completed the purchase by having "Executive Jet Leasing" crossed out and his own name written on the title.
- On October 2, police seized the vehicle from Hyken at the request of Illinois authorities.
Procedural Posture:
- Plaintiffs, Barry Hyken and Landshire Food Service, Inc., filed a lawsuit against defendant, J.A. Coghill, in a Missouri trial court.
- The lawsuit sought a declaratory judgment to establish ownership of a Rolls Royce and a judgment in replevin for its return.
- The trial court found in favor of the defendant, Coghill, ruling that Hyken did not qualify as a bona fide purchaser.
- Hyken, as the appellant, appealed the trial court's adverse judgment to the Missouri Court of Appeals.
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Issue:
Does a buyer of a motor vehicle qualify as a bona fide purchaser, and thus acquire good title from a seller who obtained the vehicle by fraud, when there are multiple irregularities in the title document and surrounding circumstances that would cause a reasonably prudent person to inquire further into the seller's ownership?
Opinions:
Majority - Crandall, J.
No. A buyer does not qualify as a bona fide purchaser if the circumstances of the sale would put a reasonably prudent person on inquiry notice of potential title defects. While a seller who obtains title by fraud has voidable title and can pass good title to a bona fide purchaser, the subsequent buyer bears the burden of proving they are, in fact, a bona fide purchaser. Here, Hyken was not a bona fide purchaser because he had constructive notice of problems with the title. The court found that the combination of factors—the low price, the prior assignment on the title to another entity, the seller's conflicting identification, and the failure to question these red flags—was substantial evidence that Hyken should have inquired further. Because he failed to do so, he did not act in good faith and could not claim the protection afforded to a bona fide purchaser.
Analysis:
This case reinforces the critical distinction between void and voidable title, confirming that a fraudster can pass good title to a bona fide purchaser (BFP), whereas a thief cannot. However, it significantly shapes the BFP doctrine by emphasizing the concept of 'inquiry notice.' The decision establishes that a purchaser's duty to act in good faith is not met if they consciously disregard suspicious circumstances. It places a burden on buyers to be reasonably diligent, especially in transactions with 'red flags,' and clarifies that a court will look at the totality of the circumstances to determine if a buyer's willful ignorance disqualifies them from BFP status.
