Dealer services corporation – conversion verdict upheld by appellate court (fariba v. Dealer Services Corporation Cal. App. 4th D053162)
Appellate Court rules DSC argument “absurd”. DSC asserts that as a matter of law it held a perfected security interest in the vehicles that had priority over Fariba's because it filed a UCC-1 financing statement and Fariba did not. This contention is unavailing. It would be absurd to hold a creditor responsible for imputed knowledge but not hold the same creditor responsible for actual knowledge.
There is no merit to DSC's contention that Fariba could only have priority if it had filed a UCC financing statement prior to DSC. “A consignor has priority over creditors' claims against a consignee if (1) the consignor has filed a UCC financing statement or (2) the creditors have knowledge a substantial amount of the consignee's business is in selling consigned goods”.
DSC had actual knowledge that CASL was substantially engaged in selling vehicles that belonged to others. "f a creditor knows that goods in a debtor's place of business are on consignment, the creditor is not misled by the presence of the consigned goods and its lien should not extend to them." (Matter of High-Line Aviation, Inc, supra, 149 B.R. At p. 737.)
Moreover, based upon DSC manager Colli's inventory audits, a jury could infer DSC had actual knowledge not only of CASL's business model, but also its arrangement with Fariba.
According to Fariba, he also spoke with John Wick, DSC's corporate counsel, who told him DSC "conned" and "tricked" Fariba in order to get the vehicles from him.
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