Philko Aviation, Inc. v. Shacket
462 U.S. 406 (1983)

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U.S. Supreme Court

Philko Aviation, Inc. v. Shacket, 462 U.S. 406 (1983)

Philko Aviation, Inc. v. Shacket

No. 82-342

Argued April 20, 1983

Decided June 15, 1983

462 U.S. 406

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT

Syllabus

A corporation in Illinois, operated by Roger Smith, sold a new airplane to respondents, who paid the sale price in full and took possession of the plane. Smith, however, did not give respondents the original bills of sale reflecting the plane's chain of title, but gave them only photocopies and an assurance that he would "take care of the paperwork." Subsequently, Smith purported to sell the plane to petitioner, giving it the title documents, which petitioner's financing bank later recorded with the Federal Aviation Administration (FAA). Respondents filed an action in Federal District Court to determine title to the plane. Petitioner argued that it had title because respondents never recorded their interest in the plane with the FAA, relying on § 503(c) of the Federal Aviation Act of 1958, which provides that "[n]o conveyance or instrument" affecting title to civil aircraft shall be valid against third parties not having actual notice of the sale, until such conveyance or instrument is recorded with the FAA. But the District Court awarded summary judgment in respondents' favor, and the Court of Appeals affirmed, holding that 503(c) did not preempt Illinois state law under which no documentation for a valid transfer of an aircraft is required and an oral sale is valid against third parties once the buyer takes possession of the aircraft.

Held: State laws, such as the Illinois law, allowing undocumented or unrecorded transfers of interests in aircraft to affect innocent third parties are preempted by the federal Act. Although if § 503(c) were interpreted literally in accordance with the federal Act's definition of "conveyance" -- "a bill of sale, contract of conditional sale, mortgage, assignment of mortgage, or other instrument affecting title to, or interest in, property" -- it would invalidate only unrecorded title instruments, and not unrecorded title transfers, thus enabling a claimant to establish title against an innocent third party without relying on an instrument, it is apparent that Congress did not intend § 503(c) to be interpreted in this manner. Rather, § 503(c) means that every aircraft transfer must be evidenced by an instrument, and every such instrument must be recorded before the rights of innocent third parties can be affected. Because of these requirements, state laws permitting undocumented or unrecorded transfers are preempted, for there is a direct conflict between § 503(c) and such state laws. These conclusions are dictated by the federal

Page 462 U. S. 407

Act's legislative history. Any other construction would defeat Congress' purpose in enacting § 503(c) of creating a "central clearing house" for recordation of title so that a person could have "ready access" to information about an aircraft's title. Pp. 462 U. S. 409-414.

681 F.2d 506, reversed and remanded.

WHITE, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, MARSHALL, BLACKMUN, POWELL, REHNQUIST, and STEVENS, JJ., joined. O'CONNOR, J., filed an opinion concurring in part and concurring in the judgment, post, p. 462 U. S. 414.

JUSTICE WHITE delivered the opinion of the Court.

This case presents the question whether the Federal Aviation Act of 1958 (Act), 72 Stat. 737, as amended, 49 U.S.C. § 1301 et seq. (1976 ed. and Supp. V), prohibits all transfers of title to aircraft from having validity against innocent third parties unless the transfer has been evidenced by a written instrument, and the instrument has been recorded with the Federal Aviation Administration (FAA). We conclude that the Act does have such effect.

On April 19, 1978, at an airport in Illinois, a corporation operated by Roger Smith sold a new airplane to respondents. Respondents, the Shackets, paid the sale price in full and took possession of the aircraft, and they have been in possession ever since. Smith, however, did not give respondents the original bills of sale reflecting the chain of title to the plane. He instead gave them only photocopies and his assurance that he would "take care of the paperwork," which the Shackets understood to include the recordation of the original bills of sale with the FAA. Insofar as the present record

Page 462 U. S. 408

reveals, the Shackets never attempted to record their title with the FAA.

Unfortunately for all, Smith did not keep his word, but instead commenced a fraudulent scheme. Shortly after the sale to the Shackets, Smith purported to sell the same airplane to petitioner, Philko Aviation. According to Philko, Smith said that the plane was in Michigan having electronic equipment installed. Nevertheless, Philko and its financing bank were satisfied that all was in order, for they had examined the original bills of sale and had checked the aircraft's title against FAA records. [Footnote 1] At closing, Smith gave Philko the title documents, but, of course, he did not and could not have given Philko possession of the aircraft. Philko's bank subsequently recorded the title documents with the FAA.

After the fraud became apparent, the Shackets filed the present declaratory judgment action to determine title to the plane. Philko argued that it had title because the Shackets had never recorded their interest in the airplane with the FAA. Philko relied on § 503(c) of the Act, 72 Stat. 773, as amended, 49 U.S.C. § 1403(c), which provides that no conveyance or instrument affecting the title to any civil aircraft shall be valid against third parties not having actual notice of the sale, until such conveyance or other instrument is filed for recordation with the FAA. However, the District Court awarded summary judgment in favor of the Shackets, Shacket v. Roger Smith Aircraft Sales, Inc., 497 F.Supp. 1262 (ND Ill.1980), and the Court of Appeals affirmed, reasoning that § 503(c) did not preempt substantive state law regarding title transfers, and that, under the Illinois Uniform Commercial Code, Ill.Rev.Stat., ch. 26,

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