Dealer Deemed 'Owner' of Vehicle It Sold to Buyer Involved in Accident
By Thomas B. Hudson
Why is it important to dot your i's and cross your t's when transferring title to automobiles you sell? Because stuff can and will happen. If your buyer is involved in an accident while driving the vehicle you just sold him or her, then your dealership could be deemed the "owner" of that vehicle for liability purposes. This is a state law issue – so each state will have its own procedure. Let's take a look at a case out of Kentucky.
H&H Auto, located in Kentucky, bought a 1996 Dodge pickup truck from an Alabama dealer. H&H did not have the truck's title certificate when the truck came to Kentucky because the Alabama dealer had bought the truck two weeks earlier from a Texas dealer. Within a week of H&H's purchase, Joe Allen Booth and his son, Jonathan Booth, expressed an interest in buying the truck.
On April 15, 2000, Joe agreed to buy the truck and signed various documents, including an application for certificate of title. Because H&H did not possess the title at the time of the sale, it could not transfer title on that date. Joe's son, Jonathan, drove the truck home the same day.
On April 20, Jonathan was in an accident while driving the truck. Four young men were injured in the accident; one of them was permanently disabled. On the date of the accident, H&H received the truck's certificate of title from the Alabama dealer. H&H transferred title to Joe on April 24, and filed proper documentation of the transfer with the county clerk's office on April 29.
An accident victim's father sued H&H, the president of H&H, H&H's insurer, Gainsco Companies, and Joe and his insurer. The plaintiff moved for summary judgment, arguing that H&H was the truck's owner on the date of the accident because it failed to follow Kentucky law governing the transfer of vehicles from dealers to buyers. The trial court granted the motion, finding that H&H was the "owner" of the truck for liability purposes. The defendants appealed. The proceedings were held in abeyance pending the outcome of the Kentucky Supreme Court decision in Auto Acceptance Corp. v. T.I.G. Insurance Co. , 89 S.W.3d 398 (Ky. November 21, 2002). That decision governed this case.
Dealer Considered 'Owner'
The Kentucky Court of Appeals affirmed the trial court's decision. Although Kentucky statutory law allows a dealer to transfer "ownership" of a vehicle at the time of sale without transferring the certificate of title at the same time, the dealer must carefully follow the statutory requirements to avoid being deemed owner of the vehicle after the sale. The dealer can deliver the certificate of title and other appropriate documents for transfer directly to the county clerk on behalf of the buyer, with the buyer's consent, so long as the dealer makes proper application for title and requires proof of insurance from the buyer prior to delivering possession of the vehicle.
In this case, Jonathan took possession of the truck on April 15. In his deposition testimony, the president of H&H stated that he did not call to verify that Joe had insurance on the truck until April 17, the Monday following the sale, which occurred on a Saturday. The appellate court concluded that H&H was properly deemed "owner" of the truck at the time of the accident.
The defendants appealed, and the Supreme Court of Kentucky affirmed the two lower courts, finding against the dealer. The Kentucky high court concluded that H&H failed to obtain proper proof of insurance necessary to validly transfer ownership of the truck to the buyer and, therefore, H&H's insurance was primary. Gainsco Companies v. Gentry , 2006 WL 734002 (Ky. March 23, 2006)
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For more information about Thomas Hudson and Spot Delivery® go to www.spotdelivery.com
or contact: tbhudson@hudco.com
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