Various countries take different approaches. Some protect the innocent
owner whose property was stolen. Others protect the innocent purchaser

Acting on a tip from a confidential informant, the Connecticut State Police obtained a warrant to search the garage of a Sharon, Connecticut, collector. Inside, they found a 1958 Ferrari 250 PF Cabriolet, s/n 0799GT, which had been reported stolen in Spain some 15 years previously. The Ferrari had been smuggled into the United States and registered in New Jersey in 1994 under a false VIN. The Spanish owner was reported to have refused the inadequate insurance settlement, believing that the car was rare and valuable enough that it would turn up someday. (A prudent move, as the Ferrari would belong to the insurance company if he had accepted the settlement.)

Once the story broke, the commentary started flying. Several "people who knew" disputed that the car had ever been stolen. One source, as was reported on the SCM web site, claimed the Ferrari was owned in partnership by two Italians. When the one holding the title sold it and kept the proceeds, the other filed a stolen car report. SCM's Michael Sheehan reported on the rather well-known ownership history of the car in the United States, noting that even he had owned it at one time.

Unraveling the facts is the province of the authorities. But unraveling the potential legal issues falls, as always, to "Legal Files." We'll start with the assumption that the Ferrari was stolen. Then we will consider the outcome if the story of the two feuding Italian partners holds true.

A matter of international style

We start with a seemingly simple question: Which law applies, Spanish or U.S.? After all, the Ferrari was stolen in Spain, but it is now in the United States.

Although there are relatively few cases dealing with stolen cars, we can get a lot of guidance from the legion of international cases dealing with stolen art work and antiquities. In short, various countries take different approaches to the question. Some protect the innocent owner whose property was stolen. Others protect the innocent purchaser, who didn't know it was stolen.

U.S. law tends to protect the original owner. The logic is that a thief cannot pass good title, so the stolen property must be returned to the original owner without reimbursement to the purchaser.

European countries are more protective of the good-faith purchaser. In one classic case, Japanese art works were stolen from England, taken to Italy, and sold to an innocent Italian. The Italian later consigned them to Christie's in London, where the original owner found them and sued. The British court held that, once the art works went to Italy, Italian law applied and made the Italian the rightful owner. The court denied the English collector any recovery.

But choosing which country's law to apply is not always that simple, and it can lead to odd results. In one New York case, a Brooklyn lawyer bought a pair of paintings from an American soldier returning from World War II, which turned out to have been stolen from a German museum. The German museum sued in New York, claiming that, under New York law, it was entitled to get the paintings back. The Brooklyn lawyer argued that German law should apply since both the museum and the scene of the crime were in Germany. Under German law, he could keep the paintings. Location triumphed over the role reversal; the New York court applied New York law and ordered the paintings to be returned to the German museum.

Applying U.S. law

If U.S. law applies, it is likely that the Spanish owner can recover the Ferrari without any obligation to the collector. The collector can recover his loss from his seller, who can recover his loss from his seller, etc., until the thief ends up holding the hot potato.

But we do not have uniform law in the United States. Each state adopts its own laws. Many times their laws are very much the same, but there can be differences. Each of the links in this litigation chain can be controlled by a different state's laws, depending on where the seller and buyer reside and where the sale took place. There can be different abilities to recover, and different statutes of limitations can apply. The key points are that each link is separately analyzed, and once the chain is broken, there is no way to skip to an earlier link.

The UCC doesn't apply

The Uniform Commercial Code generally provides that good title passes to a purchaser if he buys the property from a dealer who customarily sells such items of property. The logic is that one should be free to assume that he owns something when he buys it from a dealer.

But this provision of the UCC has repeatedly been held inapplicable to stolen property. For the rule to apply, the property must be entrusted to the dealer by the owner, and the owner in this case is the fellow in Spain. In other words, only the rightful owner can entrust the property to the dealer. When the rightful owner grants the dealer rightful possession, that enables the dealer to transfer the owner's title to the purchaser, even if the owner has not expressly authorized that. For example, a consignment situation can allow the dealer to transfer good title to the purchaser even when the owner doesn't get paid, except perhaps in states where certificates of title determine ownership.

Auctions less protective

Auctions are not as secure for the purchaser. While an auction house could be licensed as a dealer, the auction house is not acting as a dealer during the auction. Rather, the auction house is acting as the agent of the seller, and it sells the car on behalf of the owner. The sale technically occurs between the seller and the buyer, much the same as when a real estate broker is involved in a real estate sale. Consequently, the UCC dealer rule would not apply.

What's about the statute of limitations?

Much time has passed here, and it would seem that a statute of limitations might apply to cut off the owner's ability to get the car back. However, statutes of limitations generally run from the time of the discovery of the theft, or the discovery of who has the car. And, there is generally no duty of "due diligence" imposed on the owner. That is, the owner doesn't have to look very hard, and can generally just wait until the car pops up.

Very similar to a statute of limitations, a legal doctrine known as laches might apply. Generally stated, this legal theory would require that the owner make reasonable efforts to report the theft and locate the car, and if he sits around too long doing nothing, the court might refuse to order the return of the car.

How long is too long?

In one classic case, the Greek Orthodox Church sued Christie's to force the return of a stolen 10th century manuscript of works by Archimedes. The New York court applied laches and refused to order the return of the manuscript. So we know that 1,000 years is too long to wait to sue, but is the 15-year wait with this Ferrari too long? That question is hard to answer, as this legal doctrine's sweet spot is not very precise. It may matter less how much time passed than what the owner did during that time. As Sheehan points out, it probably wouldn't have been very hard to find the car if the owner had tried.

But if laches is applied, it cuts both ways. The purchaser has to establish his own innocence, and that he made a reasonable investigation to determine the title of the car. In this case, the same rumors and innuendos that should have helped the owner to locate the car might also work to destroy the purchaser's innocence sufficiently to prevent the application of the laches doctrine. And, as Sheehan also points out, there was always some doubt about the legitimacy of this particular Ferrari.

If the owner and the buyer are both shown to have done less than expected of them, laches will not apply, and the law will fall back on the general legal principles already described. If U.S. law applies, that will probably mean that the Ferrari will be going back to Spain.

Back to the partners story

The answer changes completely if the story about the Italian partners turns out to be true. Generally, when two or more people own a car as partners, any one of them has the legal power to sell the car to a third party. He may not have the right to do that based upon the partnership agreement, but that doesn't change the fact that the buyer owns the car. All it means is that the other partners can sue the culprit for violating the partnership agreement. But the opposite may be the answer if the car is titled in the names of all of the partners in a jurisdiction that issues certificates of title. In that case, all partners must sign off on the title to transfer ownership. But here, the title was in the one partner's name alone, so he did have the legal power to transfer good title to the buyer.

In sum, if the car was owned by two partners, the car was not stolen; consequently, valid title was transferred to the first buyer, who then transferred valid title on down the line. Our Connecticut collector then becomes the true owner of the Ferrari, and the Italian partners get to slug it out in the Italian court system.

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