Hamilton, Matter of, 88-1251

• Decision Date: 31 January 1990
• Docket Number: No. 88-1251,88-1251
• Citation: 892 F.2d 1230
• Parties: 22 Collier Bankr.Cas.2d 292, Bankr. L. Rep. P 73,237, 10 UCC Rep.Serv.2d 1437 In the Matter of Thomas Howard HAMILTON, Debtor. HOWARD THORNTON FORD, INC., Appellant, v. Michael H. FITZPATRICK, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1230

892 F.2d 1230

22 Collier Bankr.Cas.2d 292, Bankr. L. Rep. P 73,237,

10 UCC Rep.Serv.2d 1437

In the Matter of Thomas Howard HAMILTON, Debtor HOWARD THORNTON FORD, INC., Appellant, v. Michael H. FITZPATRICK, Appellee.

No. 88-1251.

United States Court of Appeals Fifth Circuit.

Jan. 31, 1990.

Rodney R. Elkins, Dallas, Tex., for appellant.

Dave Ellerbe, George Tarpley, Sheinfeld, Maley & Kay, Dallas, Tex., for appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before BROWN, JOHNSON, and DAVIS, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

The question is whether the Texas UCC 20 day grace period or the Federal Bankruptcy § 547(c) 10 day grace period for perfection of a security interest in personal property applies. Not too surprisingly we hold that the bankruptcy law prevails and thus affirm the judgment of the bankruptcy court as affirmed by the district court in favor of the trustee.

A Father's Concern for a Daughter

The scenario, unlike the interlocking complex legal issues, is simple. The bankruptcy petition of the vehicle purchaser (Debtor) was filed in Tennessee on May 23, 1985. Well within the 90 day preference period the trustee sought and obtained recovery of a BMW sedan ¹ which the Debtor had purchased for his daughter from the Dealer (Howard Thornton Ford, Inc.) in March of that year.

The significant facts, largely undisputed and where uncertain, by findings and conclusions well above the Plimsoll Line of F.R.Civ.P. 52(a) are straightforward and simple. On March 6, 1985 the Debtor, as a then pre-bankruptcy purchaser, negotiated a loan with Interfirst Bank of Dallas, NA (the Bank) and signed a promissory note on that date. The Dealer began processing the necessary documents to transfer title and create a lien in favor of the Bank on March 2d. Two of these documents are significant: Form 130-U "Application for Texas Certificate of Title--Seller, Donor or Trader's Affidavit" (Appendix A) and Form 31 "Tax Collector's Receipt for Title Applicants" (Appendix B). Form 130-U application has spaces in which the preparer is to enter both the date of the lien (block 16 listed as March 2, 1985) and the date of the Tax Collector's Receipt (block 16 listed as March 19, 1985), Form 31 Tax Receipt lists March 6, 1985 (block 30) as the date of lien and March 19, 1985 (block 1) as the date the receipt was issued. The Certificate of Title was issued by the Department of Highways and Public Transport (DHPT) on May 10, 1985 reflecting the date of the lien as March 2, 1989.

Bankruptcy Upsetting to Expectations

The bankruptcy judge and the district court fixed March 8, 1985 as the date on which the daughter picked up the car little aware that she would shortly lose this luxury as the Bank on August 25, 1985 repossessed it and then surrendered it to the Dealer who sold the car (see note 1, supra ). The bankruptcy trustee then sought recovery of the vehicle as an asset of the estate claiming the transfer to the Bank was an avoidable preference under § 547(b) of the Bankruptcy Code, 11 U.S.C. § 547(b). ² That section prescribes five requirements for establishing a preference, the first three of which are undisputed: (1) for the benefit of the creditor (Bank-Dealer), (2) made while the Debtor was insolvent, (3) which occurred within 90 days of the date of the filing of the bankruptcy petition. Besides disputing the last two: (4) to be on account of an antecedent debt and (5) enable the creditor to receive more than it would have if proceeding under Chapter 7, the Banker-Dealer contend affirmatively that the transfer was non-avoidable under § 547(c). ³

Looking to State Law A Congressional Point of View

In the analysis of the problem of supremacy/conflict between state and federal (bankruptcy) law it is worthwhile to emphasize that the problem is not accidental. It is indeed the result of a deliberate congressional determination to rely much on the basis of state law, some, if ever, specifically identified and frequently obscure.

For example, Congress in enacting § 547 of the Bankruptcy Act ⁴ establishing the trustee's power to avoid preferential transfers prescribed in § 547(e)(1)(B) ⁵ established that "a transfer of ... property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee." Since the federal law does not prescribe the circumstances under which or when a creditor on a civil contract cannot acquire a judicial lien superior to the interest of the transferee, the source for such definitive standards must be the state law. This automatically sends us to the Texas Business and Commerce Act (hereafter cited as UCC) The transaction involved here comes within the UCC definition of a purchase money security interest, sometimes referred to as enabling loans, ⁶ and is substantially subject to priorities over an unperfected security interest. ⁷ Perfection of such a security interest calls ordinarily for the timely filing of a financing statement. § 9.302(a) UCC which is not applicable to the sale-financing of automobile vehicles because of the express exclusion, § 9.302(c)(2) UCC for transactions covered by the Certificate of Title Act, Art. 6687-1, Vernon's Civil Statutes of Texas. ⁸

On the Road Again The Certificate of Title Act

This automatically brings into play Art. 6687-1 the Certificate of Title Act (hereafter Title Act). ⁹ Of principal importance is § 41 which provides "(a) except for a security interest in motor vehicles held as inventory by a person who is in the business of selling motor vehicles, a security interest ... in a motor vehicle that is the subject of a first sale may be perfected only by notation of the lien on the certificate of title in accordance with this Act." ¹⁰ The prior § 42 expressly provided that presentation of an application for certificate of title (form 130-U) with lien disclosed thereon and tender of the filing fee to the designated agent of the department or acceptance of the application by the designated agent of the department constituted notation of the lien under the Act was amended in 1971, ¹¹ the equivalent is established by §§ 31, 32, 32a, 42 ¹² which reflect that the Tax Collector or his/her deputy is the principal means by which a security interest can be perfected.

Section 31 expressly provides that the "... designated agent [Tax Collector or deputy] ... receiving an application for certificate of title shall [on compliance with required conditions] ... issue a receipt marked 'Original' to the applicant. But if a lien is disclosed, the ... receipt shall be issued in duplicate, one of which [to be] marked 'original' [which] shall be mailed to the first lien holder, ... the other copy ... marked 'Duplicate Original' shall be ... delivered to the applicant." Pending the issuance of actual certificate of title the copy delivered to the applicant authorizes the operation of the vehicle for a limited period of time.

Section 32 provides that the "... designated agent [Tax Collector or deputy] shall, on the same date issued by him, forward to the [DHPT] ... copies of all receipts issued by [such designated agent] ... and the [DHPT] within five (5) days ... shall issue the certificate of title...." If a lien is "disclosed in the application the said certificate of title shall be issued in duplicate, one [to be] marked 'Original' which shall be mailed to ... the first lien holder ...; the copy [to be] marked 'Duplicate Original' shall be sent to ... the applicant...."

Conflict Between UCC and § 547(c)

All this means is that, most favorable to them, the Banker-Dealer's lien was not perfected until March 19, 1985 when the receipt was dated and issued (see block 1, Form 31, and block 16, Form 130-U). But if the Texas law applies to this purchase money security interest ¹³ the Bank-Dealer's security is saved by §§ 9.301(b), 9.312(d) ¹⁴ since perfection occurred within 20 days of the date (March 8, 1985) on which the Debtor or his daughter-agent received possession of the vehicle.

Contrary to Banker-Dealer's contention there is no basis for holding Form 130-U was somehow completed earlier than March 19 since its block 16 refers to the official number of Form 31 which is imprinted in the upper left hand and right hand corner of Form 31 and the receipt date in block 16 (Form 130-U) corresponds to block 1 of Form 31 (March 19, 1985).

We hold that pursuant to the interlocking connection of the UCC and the Certificate of Title Act the Bank-Dealer purchase money security interest was perfected on March 19, 1985 on the issuance of the Receipt (Form 31) by the Tax Collector or deputy. Considering the importance--both to the state economy and state treasury--of the business of automobile sales and installment financing ¹⁵ it is plain that Texas does not, as literally required by § 41 (see note 10 and text, supra ) require physical notation on the actual certificate of title as ultimately issued by the DHPT. Rather perfection is accomplished as and when the Form 31 Receipt is dated and issued by the Tax Collector or his authorized deputy ¹⁶ who by statute is the Designated Agent for the DHPT. ¹⁷

Since Banker-Dealer cannot establish with sufficient force to overcome the trial judge's finding that possession by Debtor-agent (daughter) occurred after the date fixed (March 8) to bring perfection within 10 days their only hope of success depends on establishing that the 20 day Texas grace period, not the 10 day bankruptcy grace period, excuses this 11 day delay. ¹⁸ The Supremacy of Texas/Federal law must therefore be determined.

Section 547(c) Prevails

This brings us face to face with the conflict raised by § 547(c) of the Bankruptcy Code which provides that the trustee may not avoid a § 547(b) preference (see note 2, supra ) of a security interest in property acquired by the debtor under prescribed conditions if it is perfected on...