Philko Aviation, Inc. v. Shacket

1983-06-15

Headline: Federal law requires written, recorded bills of sale for aircraft transfers, and the Court blocks oral or unrecorded transfers from defeating later buyers or lenders, making FAA recording necessary to protect third parties.

Holding: The Court held that the Federal Aviation Act requires every aircraft transfer be evidenced by a written instrument and recorded with the FAA before it is valid against innocent third parties, pre-empting conflicting state law.

Real World Impact:

Makes FAA recording required to protect buyers and lenders from later innocent purchasers.
Invalidates oral or unrecorded aircraft transfers against innocent third parties.
Leaves priority rules to state law but only after federal recording is made.

Topics: aircraft ownership, recording rules, federal vs state law, buyer and lender protection

Summary

Background

A small Illinois sale led to this dispute. A seller ran a business and sold a new airplane to a couple who paid in full and took possession. The seller promised to record the original bills of sale with the Federal Aviation Administration (FAA) but gave the couple only photocopies and later sold the same plane to another buyer, who obtained the original title papers and had them recorded. The buyers who possessed the plane sued to quiet title after the fraud surfaced. Lower courts sided with the first buyers under Illinois law because possession and payment often suffice for a sale.

Reasoning

The central question was whether the Federal Aviation Act requires every aircraft transfer to be shown by a written instrument and recorded with the FAA before it can defeat an innocent third party. The Court read the Act to require that transfers be evidenced by instruments and that those instruments be filed for recordation; laws that let oral or unrecorded transfers bind later innocent parties are pre-empted. The Court reversed the lower courts and sent the case back for further fact-finding about issues the summary judgment did not resolve, such as actual notice or whether a party made a reasonably diligent effort to record.

Real world impact

Buyers, lenders, sellers, and title searchers must rely on FAA records: an unrecorded transfer cannot generally defeat a later innocent purchaser who records. Priority among recorded interests is still decided by state law, but federal recording is a necessary preliminary step. The Court left open narrow questions about reasonable diligence and other defenses.

Dissents or concurrances

Justice O’Connor agreed with the result but declined to decide whether a reasonably diligent effort to record should get protection, saying that issue was not before the Court.