In re R. & L. Cartage & Sons, Inc.
| Decision Date | 21 August 1990 |
| Docket Number | Adv. No. 89-1039.,Bankruptcy No. 86-10774 |
| Citation | 118 BR 646 |
| Parties | In re R. & L. CARTAGE & SONS, INC., Debtor. Mark A. WARSCO, Trustee, Plaintiff, v. SCHALLER TRUCKING CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
Mark A. Warsco, Fort Wayne, Ind., for plaintiff.
Stephen M. Gentry, Indianapolis, Ind., for defendant.
DECISION & ORDER ON MOTION FOR SUMMARY JUDGMENT
By its complaint in this adversary proceeding the plaintiff/trustee seeks to avoid a security interest the defendant claims to hold against property of the estate. Additionally, pursuant to § 542, the trustee seeks to compel the defendant to turn this property over to the trustee or to account for its value.
The matter is now before the court on defendant's motion for summary judgment. The motion requires the court to determine two issues. First, did defendant have a security interest in property of the debtor and second, whether the two year statute of limitations imposed by § 549(d)(1) bars the trustee's action.
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Bankr.Rule 7056(c). Thus, summary judgment is essentially an inquiry as to "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986). In ruling on a motion for summary judgment, the court accepts as true the non-moving party's evidence, draws all legitimate inferences in favor of the non-moving party, and does not weigh the evidence or credibility of the witnesses. Anderson, 106 S.Ct. at 2511.
Applying this standard to defendant's motion persuades the court that the motion for summary judgment should be denied.
Based upon the materials which were submitted in connection with the motion for summary judgment, when viewed in the light most favorable to the plaintiff/trustee, the essential facts relevant to the court's determination appear to be as follows:
Beginning in 1977 and continuing until August 20, 1986, the debtor was an agent/fleet operator for the defendant, servicing one of defendant's customers. Under this arrangement, the debtor would provide the drivers and equipment necessary to service the customer in return for a percentage of the freight charges paid.
Prior to January 23, 1986, the debtor was the record owner of fifteen semi trailers and seven truck tractors. This equipment is the subject of the Trustee's action.
On January 23, 1986, Schaller loaned the debtor the sum of $222,439.00. To secure this loan, under an oral agreement, debtor transferred title to the equipment to the defendant. The titles were processed through the Indiana Bureau of Motor Vehicles, which issued certificates of title in the defendant's name. The loan was to be repaid through a deduction from the weekly revenue checks paid by the defendant to the debtor. Upon repayment, the defendant was to transfer title to the equipment back to the debtor.
Debtor and defendant also entered into written lease agreements by which defendant leased at least three of the tractors from the debtor. The fifteen trailers were also leased by the debtor to Schaller upon the same terms, under an oral agreement. The leases required the debtor, as lessor, to provide all of the fuel, oil, and repairs needed to operate the vehicles and maintain them in the proper condition. Although the leases provided that the equipment shall be and remain in the exclusive possession and under the complete control of the defendant, the drivers were employees of the debtor subject only to the requirement that before being hired they had to be qualified by the defendant. When the equipment was not actively in use, it was apparently kept at one of the debtor's terminals which are located in Fort Wayne and Bedford, Indiana.
On August 20, 1986 debtor filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.
After the petition was filed, between August 20, 1986 and August 30, 1986, representatives of the defendant removed the equipment from the debtor's Fort Wayne and Bedford terminals. Following this removal, some of the items were scrapped, based upon the defendant's decision that they were worthless. Schaller did, however, sell three of the tractors. The precise dates upon which it did so do not appear from the motion. Sometime in 1989 Schaller sold the fifteen trailers to Emerson Transportation, Inc. for $500.00 each.
On or about March 20, 1988, the debtor's Chapter 11 bankruptcy was converted to Chapter 7 and the Plaintiff, Mark A. Warsco, was designated and qualified as the trustee.
This action was initiated by the plaintiff's complaint on March 14, 1989, which originally named defendant's president, John V. Loudermilk, as the sole defendant. An amended complaint was filed on September 27, 1989, joining Schaller Trucking Corporation as a defendant. Mr. Loudermilk was subsequently dismissed on the plaintiff/trustee's motion.
At no time does it appear that defendant ever sought or obtained relief from the automatic stay. The property in question has never been abandoned in accordance with the requirements of the Bankruptcy Code.
In support of its motion for summary judgment the defendant contends that it was not the recipient of a preferential transfer because its security interest in the equipment was perfected when the State of Indiana issued certificates of title showing it as the owner. Assuming that a security interest in a motor vehicle can be properly perfected in this fashion, defendant's argument still fails. Perfection alone is not enough to create an enforceable security interest.
Article 9 of the Uniform Commercial Code applies to any transaction, regardless of its form, which is intended to create a security interest in personal property. I.C. XX-X-X-XXX. "This section makes clear that Article 9 of the U.C.C. is intended to exclusively govern all manner of secured transactions . . ." Aetna Finance Co. v. Hendrickson, 526 N.E.2d 1222, 1226 (Ind. App.1988). The draftsmen "intended that its provisions should not be circumvented by manipulations of the locus of title." First National Bank of Elkhart County v. Smoker, 153 Ind.App. 71, 286 N.E.2d 203, 208-209 (1972). Thus, its provisions concerning the rights and duties of the parties apply regardless of whether title to the collateral is in the secured party or in the debtor. I.C. XX-X-X-XXX. In order to have obtained a security interest (perfected or otherwise) in the equipment, defendant was required to comply with the requirements of Article 9.
"While Article 9 of the Uniform Commercial Code has stripped the formal requirements for creation of a security interest to the bone, certain minimal requirements must still be observed." Mitchell v. Shepherd Mall State Bank, 458 F.2d 700, 703 (10th Cir.1972). These requirements are found at section 9-203 which provides:
Thus, unless the secured party is in possession of the collateral, in the absence of a written security agreement there is no security interest that is capable of being enforced against anyone. White v. Household Finance Corp., 158 Ind.App. 394, 302 N.E.2d 828, 837 (1973). Defendant fails to fulfill either requirement.
Absent the lender's possession, the creation of an enforceable security interest requires the debtor to sign a written security agreement containing a description of the collateral. International Harvester Credit Corp. v. Pefley, 458 N.E.2d 257, 260 (Ind.App.1983); Kruse, Kruse & Miklosko, Inc. v. Beedy, 170 Ind.App. 373, 353 N.E.2d 514, 535 (1976). "More harm than good would result from allowing creditors to establish a secured status by parol evidence after they have neglected the simple formality of obtaining a signed writing." White, 302 N.E.2d at 837. A security agreement is one which "creates or provides for a security interest." I.C. XX-X-X-XXX(1)(l). No "magic words" are necessary to create this interest. Mitchell, 458 F.2d at 703; In re Conard, 43 B.R. 540, 543 (Bankr.S.D.Ind.1984). Nonetheless, the agreement "must contain language which specifically creates or grants a security interest in the collateral described." Mitchell, 458 F.2d at 703. This language must be such that it "leads to the logical conclusion that it was the intention of the parties that a security interest be created." Id.
Defendant may not rely upon its oral agreement with the debtor to assert an enforceable security interest against the equipment. There is no written agreement containing a description of the collateral which would have created such an interest. The applications for title, although signed by the debtor and describing the equipment, do not fulfill the requirements of a written security agreement. White, 302 N.E.2d at 836. Neither do the three written leases. Nothing in them indicates that they are anything other than leases. Although the defendant and debtor might have orally agreed that Schaller would have a lien on the equipment until the January, 1986 loan had been paid, there is no written agreement, signed by the debtor, which manifests an intention to create such an interest. In the absence of such an agreement, even though the requirements for perfection might have otherwise been fulfilled, no security interest exists. White, 302 N.E.2d at 837. Perfection by itself accomplishes...
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