South-Western Legal Studies in Business

Good Faith Buyer of Vehicle Obtained by Swindle Gets Good Title
Description Colorado high court held that when a seller accepts a bad check for a vehicle, which is then sold to an innocent buyer, the innocent buyer can keep the vehicle. One of the two injured parties must suffer a loss. It falls on the one best able to prevent the loss.
Topic Negotiable Instruments/Commercial Paper
Key Words Bad Check; Good Faith Purchaser; Stolen Property; Recovery
C A S E   S U M M A R Y
Facts SW Legal turned his car over to a buyer who presented what appeared to be a valid cashier's check but, ten days later, turned out to be counterfeit. The police could not locate the car, but SW Legal located it two years later. The car had been resold to Roberts by the passer of the bad check. SW Legal sued Roberts to recover the car under UCC 4-405. The trial court held that 4-405 does not apply to situations like this. Instead the court applied UCC 2-403. Roberts, as a good faith purchaser for value, could retain ownership of the car. SW Legal appealed.
Decision

Affirmed. Roberts, as a good faith purchaser for value, obtained good title to the car under 2-403. A good faith purchase from a dishonest non-merchant seller can occur. SW Legal voluntarily parted with the car as a result of a criminal act. But Roberts was a bona fide purchaser who obtained good title. One of two innocent parties must suffer because of the wrongdoing of a third person. The loss must fall on the party who by his conduct created the circumstances which enabled the third party to perpetuate the wrong. SW Legal failed to confirm the validity of the check before releasing the car and title to the fraudulent buyer.

Citation SW Legal v. Roberts, 143 P.3d 1037 (Sup. Ct., Colo., 2006)

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