## Facts

- An Illinois corporation operated by Roger Smith sold a new airplane to Maurice and Mrs. Shacket, who paid in full and took possession.
- Smith did not deliver the original bills of sale reflecting the chain of title; he provided only photocopies and promised to complete the paperwork.
- Smith later fraudulently purported to sell the same aircraft to Philko Aviation, delivering the original title documents to Philko.
- Philko’s financing bank recorded Philko’s conveyance with the Federal Aviation Administration (FAA).
- The Shackets, lacking original title documents and having made no FAA filing, brought a federal action to determine title.
- Philko claimed priority under § 503(c) of the Federal Aviation Act of 1958, which conditions validity against certain third parties on FAA recordation.
- The district court and Seventh Circuit ruled for the Shackets under state law recognizing oral sale plus delivery as effective against third parties without recordation.

## Issues

1. Whether § 503(c) of the Federal Aviation Act preempts state law rules that allow undocumented or unrecorded aircraft transfers to affect the rights of innocent third parties.
2. Whether § 503(c) requires that aircraft transfers be evidenced by a written instrument and recorded with the FAA to be valid against innocent third parties without actual notice.

## Decision

- The Supreme Court unanimously reversed and remanded.
- The Court held that § 503(c) preempts state laws that permit undocumented or unrecorded aircraft transfers to defeat the rights of innocent third parties.
- The Court construed § 503(c) to require that every aircraft transfer be evidenced by an instrument and that the instrument be recorded before it can affect the rights of innocent third parties.
- Because Philko obtained and recorded the original title documents and the Shackets did not record, the Shackets’ unrecorded interest could not prevail against Philko’s recorded interest as to innocent third-party rights.

## Legal Principles

- The Federal Aviation Act establishes a national recordation system intended to provide a single, reliable source of information about title and interests in civil aircraft.
- Under § 503(c), a transfer affecting title or interests in a civil aircraft must be (1) evidenced by a written instrument and (2) recorded with the FAA to be valid against innocent third parties without actual notice.
- State laws that give effect against innocent third parties to oral, undocumented, or unrecorded aircraft transfers conflict with § 503(c) and are preempted.

## Conclusion

The Court held that federal law makes FAA recordation of a written conveyance a condition for an aircraft transfer to affect the rights of innocent third parties, displacing contrary state rules that would validate off-record transfers against such parties.


Philko Aviation, Inc. v. Shacket, 462 U.S. 406 (1983)