Opinion
Case No. 95-10056, Chapter 7, Adversary No. 95-2024
February 27, 1996
FINDINGS OF FACT AND CONCLUSIONS OF LAW
THIS MATTER came before the court on the chapter 7 trustee's complaint to avoid the security interest of General Motors Acceptance Corporation (GMAC) in a motor vehicle pursuant to 11 U.S.C. § 547. The actual relief sought by the trustee is pursuant to § 544(a)(2). The parties filed a stipulation of facts and submitted the decision to the court on simultaneously filed briefs. Now the court, being fully advised issues these findings and conclusions.
FINDINGS OF FACT
On February 28, 1995, Dennis Wayne Ray purchased a 1995 Chevrolet Suburban from Davis Chevrolet in Gillette, Wyoming. Davis Chevrolet financed the purchase, Mr. Ray conveyed a security interest in the Suburban to Davis Chevrolet, and Davis Chevrolet assigned the contract and the security interest to GMAC the same date, February 28, 1995.
At all relevant times, Mr. Ray was a resident of Washakie County, Wyoming, and conducted his farming business in Washakie County. At all relevant times, the Suburban was located in Washakie County and was never located in Hot Springs County, Wyoming. Davis Chevrolet knew that Mr. Ray resided in Washakie County.
Davis Chevrolet filed the financing statement in Hot Springs County, Wyoming. A certificate of title was issued by the county clerk in Hot Springs County upon which the GMAC lien was endorsed.
The Suburban is a motor vehicle required to be licensed under Wyoming law. When Mr. Ray tried to license the Suburban in Washakie County, he became aware that the title work was not sent to Washakie County. Davis Chevrolet was notified. The county clerk of Hot Springs County mailed the title to the county clerk of Washakie County, where Mr. Ray licensed the vehicle.
The decision to file the financing statement was made by an agent of Davis Chevrolet in error. There is no evidence of bad faith on the part of the debtors, GMAC, or Davis Chevrolet.
Mr. and Mrs. Ray filed a voluntary chapter 7 petition in this court on March 16, 1995. GMAC received the title after the filing of the bankruptcy. At no time did GMAC file its financing statement in Washakie County.
CONCLUSIONS OF LAW
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 157(a) 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K).
The trustee seeks to avoid GMAC's security interest in the 1995 Suburban pursuant to 11 U.S.C. § 544(a)(2). The section provides that "(t)he trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor . . . that is voidable by a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time . . . an execution against the debtor that is returned unsatisfied. . ."
Under the section, the trustee is granted the status of a hypothetical lien creditor with the power to avoid liens which are not validly perfected pursuant to state law. The perfection and priority issues are determined by reference to the applicable state law, in this case Wyoming. In re Zweygardt , 149 B.R. 673, 678 (D.Kan. 1992).
The manner in which a security interest is perfected in Wyoming is governed by Article 9 of the Uniform Commercial CodeSecured Transactions codified at Wyoming Statutes §§ 34.1-9-101 et seq. (1991). Pursuant to § 34.1-9-302(e):
Two (2) steps are required for perfection of a security interest in a vehicle or motor vehicle required to be licensed as hereinafter defined:
(i) A financing statement or security agreement must be filed in the office of the county clerk of the county in which the vehicle is located; and
(ii) A notation of the security interest must be endorsed on the certificate of title to the vehicle or motor vehicle, the endorsement to be made concurrently with the filing of the financing statement or security agreement,
Section 34.1-9-303 provides that perfection occurs when all steps required under § 34.1-9-302 have been taken.
Under section 34.1-9-301(a)(ii) "an unperfected security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected" and subsection (c) defines a lien creditor as "a creditor who has acquired a lien on the property involved by attachment, levy or the like" and includes "a trustee in bankruptcy from the date of the filing of the petition."
Statutory interpretation requires the court to look to the plain language of the statute and give effect to its meaning. Schusterman v. United States , 63 F.3d 986, 989 (10th Cir. 1995), petition for cert. filed, 64 U.S.L.W. 3511 (1996). If the statute is clear, the inquiry ends. Under the clear language of the perfection statute, both steps must be taken before a security interest is perfected. In this case they were not. Unless strict compliance with the statute is excused, GMAC's lien is subordinate to the trustee's interest as an executing creditor.
Because GMAC did file its financing statement, albeit in the wrong county, a look at the results in other jurisdictions is warranted. Most states do not require a filed financing statement to perfect a security interest in a motor vehicle. In those jurisdictions, a lien on the title is all that is required to perfect. See, e.g., In re Hancock , 126 B.R. 270 (Bankr.E.D.Tex. 1991).
Almost without exception, the trustee is able to avoid a security interest in a vehicle when the creditor fails to comply with state law requiring that the lien be noted on the certificate of title. In re Minichello , 120 B.R. 17 (Bankr.M.D.Pa. 1990); In re Fix , 172 B.R. 61 (Bankr.D.Neb. 1994). Similarly, courts have found liens to be unperfected when a financing statement is filed but the notation has not been made on the title. In re Meek , 1991 W.L. 368017 (Bankr.E.D.Ky. 1991).
The Wyoming Supreme Court has addressed a similar situation in the case of American National Bank v. First National Bank , 446 P.2d 968 (Wyo. 1968). There the First National Bank had filed a financing statement, but did not specifically refer to the vehicle in question. No lien was endorsed on the title. The court held that the lien was not perfected due to the failure of the creditor to comply with the two-step perfection process. Id . at 970.
Likewise, strict compliance is required when the collateral is other than a titled vehicle. In circumstances which require filing in a specific county and the creditor files in the wrong county, the security interest is not perfected. United States v. Branch Banking Trust Co . , 11 U.C.C. Rep. Serv. 2d 351, 358 (E.D.N.C. 1990) (dispute over priority between two creditors, the PMSI creditor having filed in the wrong county); In re Bush, 159 B.R., 209, 212 (Bankr.E.D.Ky. 1993). Strict compliance is also required to perfect when the statute requires filing in the office of the Secretary of State; the lien being unperfected if the creditor files in error with the county clerk. In re Mott Signs, Inc ., 110 B.R. 568, 570 (Bankr.N.D.Fla. 1989).
Neither of the parties, nor this court, has found a reported decision addressing the precise issue in this case: whether a creditor which files its financing statement in the wrong county, and has the lien noted on the title, is perfected. The obvious result to be reached from a review of the related case law and application of the clear statutory language is that the lien of GMAC is not properly perfected. Such a conclusion would ordinarily end the inquiry, but GMAC urges the court to consider three (3) separate arguments to support a ruling to the contrary.
First GMAC urges the court to apply the provisions of Wyoming Statute § 34.1-9-401(b). This section has been called the good faith filing exception because it provides that when a filing is made in an improper place, it is nevertheless effective against any person with knowledge of the contents of the financing statement. The U.C.C. defines knowledge as "actual knowledge." Wyo. Stat. § 34.1-1-201 (xxv) (1991).
GMAC's reliance on § 34.1-9-401(b) is misplaced. That section is not effective against a trustee in bankruptcy. The trustee acquires his rights without regard to his own actual knowledge or that of any creditor. In re Towery , 53 B.R. 76, 78 (Bankr.W.D.Ky. 1985); In re Advanced Aviation, Inc . , 101 B.R. 310, 313 (Bankr.M.D.Fla. 1989). Nor can a debtor's knowledge be imputed to the trustee. In re Techno Products, Inc . , 129 B.R. 487, 489 (Bankr.N.D.Ohio 1991).
Second, and intertwined with the foregoing good faith exception argument, GMAC contends that because the improper filing was a mistake made while acting in good faith, the lien should not be avoided. GMAC argues that because no one was harmed, the lien is perfected.
The Uniform Commercial Code contains no such equitable exception and GMAC cites no case law in support of this argument. In the case of In re Trim-Lean Meat Products, Inc ., 10 B.R. 333, 335 (D.Del. 1981), the court stated that under Delaware law the creditor might have an equitable lien if an uncooperative debtor had prevented the creditor from perfecting. There is no evidence in this case that anyone other the creditor is responsible for the improper filing.
Furthermore, when Davis Chevrolet was apprised of the problem, it took no steps to correct it, other than to gain the comfort from the county clerks. A creditor has the responsibility to see that perfection of its lien is properly accomplished. In re Daulton , 155 B.R. 7, 9 (Bankr.E.D.Ky. 1993).
Third, and also intertwined with the two (2) previous contentions, is the GMAC constructive notice argument. GMAC argues that the mistake in filing is not fatal because the certificate of title provides constructive notice or puts a creditor on inquiry notice.
Constructive notice is notice implied in the law which is obtained from the record, without regard to actual notice. The very protections provided by Article 9 are based on constructive notice found in the records of the county clerk or Secretary of State. First National Bank v. First Interstate Bank , 774 P.2d 645, 651 (Wyo. 1989).
In support of its argument, GMAC cites two (2) cases in which the courts held the trustee to a standard of inquiry notice above that found in the record. McCannon v. Marston , 679 F.2d 13 (3rd Cir. 1982); In re Davis , 109 B.R. 633 (Bankr.D.Vt. 1989). In those cases, the encumbered property was real property. Under the applicable state law, the courts held that possession by a third party required further inquiry by the trustee (or other creditors) of the third parties' interest.
Those two (2) cases cited by GMAC can provide no comfort. The cases are not factually analogous.
Wyoming apparently recognizes the concept of inquiry notice. However, whether that notice extends beyond the notice found in the filing records is open to question. In the case of First Interstate Bank v. First Wyoming Bank , 762 P.2d 379, 383 (Wyo. 1988), the court stated that "[o]ur recording statute is the only means to effect constructive notice. A purchaser without actual notice of an alleged infirm title has the right to rely on the records." This court has found no law which applies the concept of inquiry notice, beyond that obtained from the record, to secured transactions under the U.C.C.
In the other case cited by GMAC, In re Morse , 30 B.R. 52, 53 (1st Cir. B.A.P. 1983), the real property record contained inconsistencies which were found to put the trustee on inquiry notice under Maine law. That case is inapplicable as well.
In this case, the Washakie County records contain nothing to provide notice to an executing judgment creditor that GMAC has a lien on the vehicle. The debtor had possession of the Suburban, the Suburban has Washakie County license plates, and GMAC has the title. GMAC has failed to explain what particular facts of this scenario could put an executing creditor in Washakie County on any kind of notice of GMAC's lien.
GMAC is actually arguing that as a matter of law, when a lien is recorded on a title, that title is constructive notice of the security interest without regard to the filing requirement of § 34.1-9-302 (e)(i). In the previously cited Daulton case, the court had occasion to address a similar argument. There the creditor argued that if a judgment lien creditor had inquired after the title, the creditor would have had knowledge of the lien. The court rejected the argument, stating that inquiry notice under the U.C.C. is applied to determine the adequacy of a collateral description in a properly filed financing statement.
The court went on to hold that further inquiry was not required when a search of the proper records revealed nothing. In re Daulton , 155 B.R. at 9. The court stated that the creditor's rationale would yield the "strange result that the creditor who has not recorded its lien properly has exactly the same protection as a creditor who has taken all the steps required." Id .
This court cannot find as a matter of law that a creditor is perfected when that creditor fails to adhere to the provisions of Wyoming Statute § 34.1-9-302(e)(i) by filing a financing statement in the county where a licensed vehicle is located. Such a ruling would render the filing requirements of the statute superfluous.
Accordingly, the court holds that the lien of GMAC in the 1995 Chevrolet Suburban is not perfected and is, therefore, subordinate to the interest of the trustee. The court will issue a judgment in conformance with this opinion.