In this case, we must decide if a person named as a co-owner on a certifícate of title to a motor vehicle after purchasing the vehicle with another person solely to assist the cobuyer in obtaining financing for the purchase is exempt from the imposition of consent-owner liability under Iowa’s owner responsibility law. The district court determined the person was liable as a matter of law, and the court of appeals affirmed. On further review, we affirm the decisions of the district court and the court of appeals.
I. Background Facts and Proceedings.
Lonnie Muxfeldt is a certified public accountant. He owns and operates an accounting firm in Harlan called Muxfeldt Associates CPA, P.C. Lonnie and the corporation were co-owners of a 2001 Dodge Dakota pickup. The pickup was purchased in 2001 for approximately $25,000 and was completely depreciated for tax purposes in the year of the purchase.
In 2004, Lonnie decided to purchase a 2004 Dodge Durango from Harlan Auto Mart. In doing so, he wanted to structure the transaction in a way to minimize the income-tax consequences of the purchase to himself and his corporation and allow his son, Joshua, to purchase the 2001 Dakota with minimal sales tax consequences. Lonnie, however, knew this goal could not be accomplished if he sold the 2001 Dakota to Joshua and purchased the 2004 Duran-go from Harlan Auto Mart. Instead, Lonnie believed his goal could best be achieved if he first purchased the 2004 Durango from Harlan Auto Mart by trading in the 2001 Dakota, and if Joshua then purchased the 2001 Dakota from Harlan Auto Mart. Lonnie set out to accomplish his plan through a prearranged transaction that occurred on October 1, 2004.
On that date, Lonnie purchased the 2004 Durango from Harlan Auto Mart for an agreed price of $36,325. He paid for the vehicle by making a down payment, trading in the 2001 Dakota, and financing the balance. Lonnie assigned the certificate of title to the 2001 Dakota to Harlan Auto Mart. Even though the 2001 Dakota had a market value of approximately $20,000, Lonnie agreed to a trade-in allowance of $9487. 1 Lonnie and Harlan Auto Mart apparently agreed to pass the undeclared equity in the 2001 Dakota to Joshua by reducing the price Harlan Auto Mart would sell the 2001 Dakota to Joshua to $9180. This plan allowed Joshua to pay state sales tax on the purchase price instead of the true market value, and resulted in a savings to Joshua of approximately $500.
First, Lonnie understood he would be permitted under the Internal Revenue Code and associated Treasury regulations to treat the purchase of the 2004 Durango as a like-kind exchange of a business asset by trading in the 2001 Dakota. As a like-kind exchange, Lonnie and his corporation could avoid recapturing depreciation they had previously declared for tax purposes on the 2001 Dakota. If Lonnie had sold the 2001 Dakota directly to Joshua, the purchase of the 2004 Durango from Harlan Auto Mart would not have qualified as a like-kind exchange, and Lonnie would have been required to recapture that portion of the depreciation he took in 2001 on his 2004 tax return in an amount equal to the value of the 2001 Dakota at the time of the sale. The sale would have resulted in a taxable gain of approximately $20,000 (because Lonnie had fully depreciated the 2001 Dakota), and the gain would have increased the amount of taxable income for the tax year by $20,000. Under applicable tax rates, Lonnie and his corporation would have been required to pay state and federal taxes on the gain of approximately $8000. Thus, Lonnie and his corporation avoided paying this tax by selling the 2001 Dakota to Harlan Auto Mart.
Second, the transaction would allow Lonnie and his corporation to establish a new tax basis in the 2004 Durango based on the depreciated 2001 Dakota (zero) plus the amount of the cash paid (and amount financed) to purchase the Durango, commonly called “cash boot.” Based on this new basis, Lonnie and his corporation were permitted to fully depreciate the Du-rango for tax purposes in an amount equal to the new basis in the year of purchase. Under the applicable tax rates, Lonnie calculated the depreciation deduction would decrease his tax liability on his 2004 tax return by approximately $12,000. 2 Therefore, the total savings to Lonnie and his corporation under the transaction was estimated to be $20,000.
The transaction took place as planned, with one wrinkle. Joshua intended to purchase the 2001 Dakota from Harlan Auto Mart by trading in his 2000 Dodge Intrepid and financing the balance of the purchase price. The trade-in allowance for the Intrepid was $9180. Joshua, however, still owed $9969 on existing financing for the Intrepid. Thus, the net trade-in allowance was a negative $489, and the transaction required Joshua to obtain financing of $9694 to purchase the 2001 Dakota.
Lonnie wanted the most favorable financing terms available for Joshua to purchase the 2001 Dakota. Joshua, however, did not have an established credit history to obtain the best financing terms on his own. Consequently, Lonnie and Joshua jointly applied for a loan with Chrysler Financial to finance the purchase. This arrangement permitted Lonnie to use his credit history to obtain financing for Joshua. Chrysler Financial agreed to finance
As a result, the transaction on October 1, 2004, concluded by Lonnie and Joshua jointly purchasing the 2001 Dakota from Harlan Auto Mart. Lonnie and Joshua were both named as cobuyers on the purchase agreement, and Harlan Auto Mart reassigned the certificate of title to Lonnie and Joshua. Lonnie and Joshua also applied for a new title and registration as co-owners of the vehicle. The county treasurer issued a new certificate of title on October 15, 2004. The title named Joshua and Lonnie as co-owners of the 2001 Dakota.
Joshua took possession of the 2001 Dakota following the sale. He acquired automobile insurance for the vehicle and began making monthly payments on the loan. He was the exclusive operator of the vehicle. Lonnie exercised no control over the vehicle.
On December 25, 2004, Joshua was involved in an accident while driving the 2001 Dakota. His vehicle collided with a vehicle driven by Mirsad Beganovie. Mir-sad’s wife, Minka, was a passenger. The accident resulted in serious personal injuries, and the Beganovics brought a negligence lawsuit against Joshua and Lonnie. Lonnie was sued as a consenting co-owner of the 2001 Dakota driven by Joshua.
The case was tried to a jury in August 2007. Joshua admitted liability for injuries suffered by the Beganovics. Lonnie claimed, as an affirmative defense, he could not be liable under the ownership liability statute because he had made a bona fide transfer of ownership of the vehicle to Joshua under the October 1, 2004 transaction.
The Beganovics filed a motion in limine prior to trial to exclude evidence of the October 1 transaction. They believed such evidence was irrelevant and Lonnie was a consent owner as a matter of law. The district court eventually permitted Lonnie to make an offer of proof outside the presence of the jury to support his claim that the October 1 transaction constituted a transfer of title to Joshua. The district court found the transaction did not constitute a transfer of his interest in the vehicle to Joshua and did not permit Lonnie to introduce evidence of the transaction to the jury. The district court ultimately directed a verdict at the close of the evidence at trial in favor of the Beganovics on Lonnie’s affirmative defense that he transferred title to Joshua. The district court held as a matter of law that Lonnie did not transfer title in his interest in the vehicle to his son prior to the accident.
The jury returned a verdict of $952,000 in favor of the Beganovics against Joshua and Lonnie. Joshua and Lonnie appealed. They claim the district court misinterpreted Iowa’s ownership liability statute and erred by failing to submit the bona fide transfer defense to the jury.
We transferred the case to the court of appeals. The court of appeals affirmed the judgment of the district court. Lonnie and Joshua sought, and we granted, further review.
III. Standard of Review.
The issue to be decided is whether, under Iowa Code section 321.493(2) (2003),
3
the legislature intended for the transaction in this case to qualify as a bona fide transfer exemption. We review the application and interpretation of statutes for errors at law.
State v. Green,
IV. Statutory Background of Consent-Owner Motor Vehicle Liability.
The specific issue presented in this case broadly pertains to the liability of one person for the tort of another, or what is commonly called vicarious liability.
4
At common law, a person was, generally, only liable for the torts of another in a master-servant setting.
See Hartman v. Norman,
This statute, originally enacted in 1919, imposes liability on the owner of a motor vehicle for damage done by reason of the negligent operation of the motor vehicle by the driver when driven with the consent of the owner. Iowa Code § 321.493(1). The legislature understood motor vehicles can be dangerous and, in the exercise of its police powers, wanted to hold owners responsible for damage caused by persons who drive a vehicle with the owner’s consent.
Seleine v. Wisner,
As with other legal principles, the principle of consent-owner liability has been shaped by events and discourse of time. This transformation was first observed in 1937 when the legislature amended the motor vehicle laws to exempt the owner of a motor vehicle from the owners’ responsibility law when the owner “made a bona fide sale or transfer of his title or interest and ... delivered possession of such vehicle to the purchaser or transferee.... ” See 1937 Iowa Acts ch. 134, § 82 (codified as amended at Iowa Code § 321.493(2)). At the same time, the legislature amended the definition of an “owner” for purposes of the motor vehicle law to include the vendee or lessee under a conditional sales agreement or lease of a vehicle. See id. ch. 134, § 1(33).
The legislature made the changes to the owners’ responsibility law in response to
Thus, the legislature began to shape the broad rule of consent-owner liability in two ways. First, it expanded the definition of an “owner” by including vendees and lessees under a conditional sales agreement. Second, it crafted an exemption from the substantive rule of owner liability for sellers in a bona fide sale or transfer. Both amendments reflected circumstances in which the imposition of liability on the actual owner did not conform with the purpose of the owners’ responsibility statute.
The next event that shaped the owners’ responsibility law came in 1953 when the legislature enacted the Iowa Motor Vehicle Certificate of Title Act. 1953 Iowa Acts ch. 127 (codified as amended at Iowa Code §§ 321.17-.44A). This legislation was part of a national movement for laws governing certificate of title to motor vehicles.
See Rouse,
The legislature ultimately answered the question in 1955 through additional amendments. It combined the owner consent statute and the bona fide sale or transfer exemption into the same statute, declared a purchaser or transferee of a bona fide sale or transfer to be an “owner” under the statute, and expressly stated that the certificate-of-title requirement did not apply in determining whether a person had made a bona fide sale or transfer under the consent-owners’ liability statute. 1955 Iowa Acts ch. 157, § 8 (codified as amended at Iowa Code § 321.493(2)). We subsequently concluded the legislature intended to express the notion that a bona fide sale or transfer, with delivery of possession of the vehicle, relieved the vendor of liability for damages resulting from the negligent operation of the vehicle even when the vendor failed to transfer the certificate of title.
Hartman,
The question under this statute is not who may own the vehicle or have a lien according to the county records. It is not who may owe for the purchase price or how the indebtedness is evidenced. If there was a bona fide sale and delivery of possession, the statute relievesthe seller from liability for subsequent negligence of the operator.
Id.
at 704,
The next significant event affecting the owners’ responsibility law occurred in 1965 when the legislature, as part of its adoption of the Uniform Commercial Code, amended the definition of an “owner” in the definition section of the motor vehicle chapter. While maintaining the primary definition of an owner as “a person who holds legal title,” the legislature removed the alternate definition of an owner pertaining to vendees, lessees, or mortgagors. 1965 Iowa Acts ch. 413, § 10112 (codified as amended at Iowa Code § 321.1(49)). In its place, the legislature declared a debtor to be an owner when “a motor vehicle is the subject of a security agreement with a right of possession [vested] in the debtor.” Id.
The final substantive amendment to the statute occurred in 1995. At this time, the legislature defined an “owner” for the purposes of imposing civil liability under the owners’ responsibility law as a “person to whom the certificate of title for the vehicle has been issued or assigned or to whom a manufacturer’s or importer’s certificate of origin for the vehicle has been delivered or assigned.” 1995 Iowa Acts ch. 136, § 1 (codified as amended at Iowa Code § 321.493(1)). Yet, the legislature specifically excluded a lessor of a motor vehicle from the meaning of an “owner” for the purposes of determining civil liability.
Id.
It also provided a definition of a “leased” vehicle.
Id.
This amendment followed on the heels of our decision that a leasing company remained the owner of a motor vehicle because the lease of a motor vehicle did not constitute either a security agreement or a bona fide sale or transfer.
Peterson v. Ford Motor Credit Co.,
Accordingly, the legislative history of the owners’ responsibility law reveals our legislature has modified the breadth of consent-owner liability over the years in two ways. First, consent-owner liability under the owners’ responsibility law has been circumscribed by changes made to the definition of an owner. The legislature has not only defined an owner as a person to whom the certificate of title to the vehicle has been issued or assigned, but also included three additional categories of persons to whom the certificate of title has not been issued or assigned. These categories are: (1) the ’lessee under a written lease for a period of twelve months or more with a lessor to whom the certificate of title has been issued, (2) a debtor in possession of a vehicle pursuant to a security agreement, and (3) a purchaser or a transferee of a vehicle who has received delivery of the vehicle under a bona fide sale or transfer. Iowa Code §§ 321.493(l)(a), 321.1(49), 321.493(2).
Second, the corresponding titleholder in each additional category of those persons defined as an owner has either been excepted by the legislature from the definition of an “owner” or exempted from liability. Thus, a lessor who holds title is excluded from the definition of an owner, while the lessee is included in the definition.
Id.
§ 321.493(l)(a). A title-holding creditor of a debtor in possession of a vehicle under a security agreement is excluded from the definition of an owner, while the debtor is included in the definition.
Id.
Finally, no liability is imposed on a person who has made a bona fide sale or transfer of a motor vehicle and delivered possession to the purchaser or transferee, but who remains the record titleholder.
Id.
§ 321.493(2). Accordingly, the legislature excepts or exempts three categories of titleholders who have a legal relationship with the possessor of the vehicle and substitutes the possessor
V. Application of Statute.
In this case, Lonnie acknowledges he falls within the definition of an “owner” under the owner responsibility law as a person to whom certificate of title has been issued or assigned. This acknowl-edgement creates a prima facie case of ownership, which may be overcome by evidence that the titleholder is exempt from liability under the statute or is not an owner under the statute.
See W. States Ins. Co. v. Cont’l Ins. Co.,
Lonnie does not argue he is excluded as an “owner” under the statute as a lessor. He does not claim to be a creditor holding title under a security agreement. Instead, he asserts he is exempt from liability under the owners’ responsibility statute as a person who made a bona fide sale or transfer of a motor vehicle and delivered possession of the vehicle. Thus, we must decide if the district court properly determined the offer of proof made by Lonnie at trial was insufficient to submit his bona fide sale or transfer defense to the jury. This ultimately narrows the issue to whether or not the legislature intended for the transaction described in this case to fall within the bona-fide-transfer exemption under the statute.
Our preceding discussion of the early background and history of the owners’ responsibility law reveals the bona-fide-sale-or-transfer exemption surfaced in the statute to shield from liability title owners who sold a motor vehicle but retained title under a conditional sales contract.
See Rouse,
We have applied the bona-fide-sale-or-transfer exemption from civil liability following the passage of the Registration of Title Act on several occasions. In
Hart
In contrast, we have refused to recognize a bona fide transfer without a sale or transfer between the parties. In
Peterson,
we held a lessee under a lease of a motor vehicle with an option to purchase could not establish a bona fide sale or transfer with the car dealer who transferred title to the lessor.
Lonnie maintains his name emerged from the transaction in this case as an owner on the certificate of title only as an accommodation to his son, not to maintain any control or dominion over the vehicle. Consequently, Lonnie asserts the reason he is a titleholder is compatible with the same circumstances that supported exempting the titleholders from liability in State Automobile and Six. Lonnie argues he was at least entitled to have the jury decide if he was exempt from liability under the owners’ responsibility law. He contends that denial of a jury trial on the issue of ownership effectively imposed a standard for liability based on “title principles,” in direct contravention of the standard of liability under the statute based on “ownership principles.” Lonnie asserts that denial of a jury trial resurrects the long dispelled notion that a bona fide sale or transfer requires the transfer of a certificate of title.
We agree the owners’ responsibility law recognizes a distinction between “title principles” and “ownership principles” in determining liability under the bona-fide-sale-or-transfer exemption. The statute, however, utilizes both principles by first imposing liability based on “title principles” and then exempting titleholders who make a bona fide sale or transfer from liability by applying “ownership principles.” Thus, “title principles” apply to impose liability unless the titleholder has made a bona fide sale or transfer and delivery of possession. Yet, if a titleholder has failed to make a bona fide sale or transfer, liability is imposed based on title, and “ownership principles” do not apply.
Normally, a jury must decide the question whether a bona fide sale or trans
We acknowledge the rationale for exempting from liability sellers and transfer-ors of a bona fide sale or transfer of vehicle who remain titleholders is compatible with exempting persons like Lonnie who became a titleholder simply to assist or enable another person to obtain financing to purchase a vehicle. The offer of proof by Lonnie revealed he was, as a copurchaser, as detached from the concept of ownership as a bona fide seller or trans-feror who delivered possession but failed to deliver title.
Nevertheless, courts interpret a statute to discern its intended scope by relying on the language of the statute.
Iowa Beta Chapter of Phi Delta Theta Fraternity v. State,
VI. Conclusion.
We have considered all claims raised by Lonnie and Joshua. We affirm the judgment of the district court and the decision of the court of appeals.
DECISION OF COURT OF APPEALS AND JUDGMENT OF DISTRICT COURT AFFIRMED.
Notes
. The net trade-in allowance was actually $307 because the payoff amount of the existing financing on the 2001 Dakota was $9180. Thus, the amount financed by Lonnie and his corporation to purchase the 2004 Durango was $31,859.
. Interestingly, Lonnie testified he estimated the new basis for the 2004 Durango was $30,000, based on the zero basis of the 2001 Dakota and a cash boot of $30,000. While the cash boot was actually over $36,000, according to the terms of the purchase agreement, Lonnie neglected to recapture the equity in the 2001 Dakota of more than $9000, which he passed on to Joshua in the form of a reduction in the purchase price. Thus, the depreciation allowance on the 2004 Durango should have been less than the amount calculated by Lonnie.
. All further references to the Iowa Code are to the 2003 Code unless otherwise indicated.
. Vicarious liability is broadly defined as liability a person bears for the actionable conduct of another person because of a relationship between the two parties.
Black’s Law Dictionary
934 (8th ed.2004). We recognize our owners’ responsibility statute does not operate to impute the driver’s liability to the owner, but imposes liability by imputing the driver's negligence to the owner.
Estate of Dean v. Air Exec, Inc.,