Philko Aviation, Inc. v. Shacket et ux.

Supreme Court of United States
462 U.S. 406 (1983)

ELI5:

Rule of Law:

The Federal Aviation Act requires every transfer of an interest in a civil aircraft to be evidenced by a written instrument and recorded with the Federal Aviation Administration (FAA) to be valid against innocent third parties, preempting any conflicting state laws that would recognize unrecorded transfers.

Facts:

On April 19, 1978, a corporation operated by Roger Smith sold a new airplane to the Shackets.
The Shackets paid the full price and took immediate physical possession of the aircraft.
Smith gave the Shackets only photocopies of the bills of sale, assuring them he would handle the official recordation of the original documents with the FAA.
The Shackets never recorded their purchase with the FAA.
Shortly after the sale to the Shackets, Smith fraudulently purported to sell the same airplane to Philko Aviation.
Smith showed Philko the original title documents for the aircraft.
Philko examined the FAA records, which showed no prior sale, and completed the purchase from Smith without taking possession of the plane.
Philko's financing bank subsequently recorded the title documents from Smith with the FAA.

Procedural Posture:

The Shackets filed a declaratory judgment action in the U.S. District Court for the Northern District of Illinois to determine who had title to the plane.
The District Court granted summary judgment in favor of the Shackets.
Philko Aviation, the defendant, appealed to the U.S. Court of Appeals for the Seventh Circuit.
The Court of Appeals affirmed the trial court's judgment for the Shackets.
The U.S. Supreme Court granted certiorari to review the decision of the Court of Appeals.

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Issue:

Does the Federal Aviation Act of 1958 preempt contrary state laws and require that any transfer of an aircraft title be recorded with the Federal Aviation Administration to be valid against an innocent third party who has no actual notice of the transfer?

Opinions:

Majority - Justice White

Yes. The Federal Aviation Act requires that every aircraft transfer must be evidenced by an instrument, and that instrument must be recorded with the FAA, before the rights of innocent third parties can be affected. The court reasoned that the primary congressional purpose behind the Act was to create a 'central clearing house' for aircraft titles, ensuring that a person could find all claims against an aircraft in one place. Allowing unrecorded transfers, even if valid under state law (e.g., an oral sale where the buyer takes possession), to defeat the claims of innocent third parties would undermine this entire federal system. Therefore, state laws that permit undocumented or unrecorded transfers to be valid against innocent third parties are in direct conflict with the federal statute and are preempted.

Concurring - Justice O'Connor

Agrees with the judgment but writes separately to express no opinion on the majority's suggestion in a footnote that a transferee who uses 'reasonable diligence' to file might be protected even if the documents are not yet officially recorded. Justice O'Connor stated that this specific question was not presented by the case and had not been argued by the parties.

Analysis:

This decision establishes the absolute primacy of the federal FAA recording system in aircraft title disputes involving third parties. It clarifies that the Federal Aviation Act preempts state commercial laws, like the Uniform Commercial Code, which might otherwise validate a transfer based on possession or other non-documentary acts. The ruling forces all parties acquiring an interest in an aircraft—whether as a buyer or a lender—to prioritize prompt federal recordation as the essential step for protecting their interest against subsequent good-faith purchasers. This strengthens the reliability of the national aircraft registry as the definitive source for title information.

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