There are limits to the powers of a court of equity, as shown by a Michigan decision depriving someone of ownership of a car for which she paid the entire purchase price. The opinion demonstrates the importance of following state law when it comes to ownership of automobiles.
A woman had bad credit and could not finance the purchase of a car on her own, so a cousin purchased a $25,000 a car in her name and financed the car with her own credit. The woman immediately took possession of the car and covered it with her own insurance. The woman made every payment on the auto loan for five years until the loan was paid in full.
Unfortunately for the woman, her cousin filed bankruptcy six months after the car loan was paid off. In the meantime, neither had taken steps to transfer title to the woman who had paid for the car in full.
In bankruptcy, the cousin scheduled the car among her assets but did not claim an exemption in it. In her schedules, the cousin said that she held “bare legal title only” and that the woman was the “true equitable owner.”
Bankruptcy Judge Thomas J. Tucker of Detroit ruled in an opinion on Jan. 25 that the estate was the sole owner of car.
Judge Tucker in substance said that he was hemmed in by Michigan law, which provides the “exclusive means of transferring ownership of vehicles.” Because the woman and the cousin missed several opportunities to transfer title into the woman’s name, he was forced to conclude that the cousin was the exclusive owner of the car, because a transfer of title not in accord with Michigan law is “void.”
The woman argued that giving title to the trustee was “unfair” and “unduly harsh.” Judge Tucker said that the ruling he was forced to issue was “no less harsh” than the outcomes in several other reported cases where the purported owner fully paid for a vehicle, had exclusive possession, but “was held to have no ownership interest in the vehicle.”
Someone in a similar predicament in the future should note that the woman did not argue that the cousin held title for her under theories of express, resulting or constructive trust.