Church Bros. Body Service, Inc. v. Merchants Nat. Bank and Trust Co. of Indianapolis

• Decision Date: 04 September 1990
• Docket Number: No. 49A02-8906-CV-249,49A02-8906-CV-249
• Citation: 559 N.E.2d 328
• Parties: 13 UCC Rep.Serv.2d 537 CHURCH BROS. BODY SERVICE, INC., Appellant-Plaintiff, v. MERCHANTS NATIONAL BANK AND TRUST COMPANY of INDIANAPOLIS, and Jeff Zweber, Appellees-Defendants. 1
• Court: Indiana Appellate Court

Page 328

559 N.E.2d 328

13 UCC Rep.Serv.2d 537

CHURCH BROS. BODY SERVICE, INC., Appellant-Plaintiff, v. MERCHANTS NATIONAL BANK AND TRUST COMPANY of INDIANAPOLIS and Jeff Zweber, Appellees-Defendants.

No. 49A02-8906-CV-249. ¹

Court of Appeals of Indiana First District.

Sept. 4, 1990.

Stephen J. Peters, William N. Ivers, Stewart Irwin, Indianapolis, for appellant-plaintiff.

William C. Potter II, Dann Pecar Newman, Talesnick & Kleiman, Indianapolis, for appellees-defendants.

RATLIFF, Chief Judge.

STATEMENT OF THE CASE

Church Bros. Body Service, Inc., (Mechanic) appeals the trial court's grant of the motion for summary judgment by Merchants National Bank and Trust Company of Indianapolis (Bank) and the trial court's denial of Mechanic's motion for summary judgment. We reverse and remand.

FACTS

On or about May 20, 1986, Bank and Jeff Zweber (Zweber) entered into a Simple Interest Variable Rate Retail Sale Contract and Security Agreement whereby Bank loaned Zweber the money to purchase a 1986 1/2 Toyota Supra automobile in which Bank took a security interest. Among other preprinted provisions of the Security Agreement prepared by Bank were the following two provisions:

"DEFENSE OF PROPERTY

I will ... allow no adverse lien, security interest or encumbrance to be created in the future without your written consent ...

PROTECTION OF PROPERTY ...

I will maintain the property in good order and repair and will not allow the property or any part of it to be destroyed, removed or damaged so as to jeopardize your security interest. A failure to repair damage in 30 days after occurance [sic] will be a violation of this security agreement...."

Record at 39. On or about July 30, 1986, Bank recorded the certificate of title for the automobile with the Indiana Bureau of Motor Vehicles.

On December 22, 1986, Zweber delivered the automobile to Mechanic for performance of repairs necessary as a result of a collision which rendered the automobile inoperable. Mechanic's "repairs returned the Automobile to a condition adequate to operate it with reasonable safety, and the completion of such repairs was necessary to preserve the Automobile." Record at 34 (Joint Stipulation of Undisputed Facts). At the request of Zweber, Mechanic performed the repairs for a total cost of $5,398.45. Mechanic completed the repairs on or about February 11, 1987, at which time Mechanic, without having received payment from Zweber, released the automobile to Zweber. Zweber having failed to satisfy Mechanic's demand for payment, Mechanic on or about March 27, 1987, filed with the Marion County Recorder's Office a Sworn Statement of Notice of Intention to Hold Mechanic's Lien for $5,398.45 against the automobile.

Zweber had made his December 1986 payment to Bank untimely on January 9, 1987. Zweber made no further payments to Merchant. On or about May 21, 1987, Merchants notified Zweber in writing of its intention to repossess and sell the automobile if Zweber failed to make the payments due and owing under the contract.

On June 4, 1987, Mechanic filed a complaint for Declaratory Judgment, Foreclosure of Mechanic's Lien and Damages against Bank and Zweber. Mechanic also requested a temporary restraining order to prohibit Bank from selling the automobile. Bank and Mechanic having filed an agreed entry of dissolution of temporary restraining order on August 3, 1987, Bank paid $5,398.45 into the Marion County Clerk's Office to be held in escrow until the trial court ruled upon cross motions for summary judgment filed by the two parties. Zweber failed to pay the deficiencies and Bank repossessed and auctioned the automobile. The proceeds of the July 21, 1987, sale totalled $13,000.00, and selling expenses and repossession fees totalled $874.26.

After considering the Joint Stipulation of Undisputed Facts by Bank and Mechanic, as well as their pleadings, briefs, oral arguments, and motions for summary judgment, the trial court found there were no disputed issues of material fact, granted Bank's motion, and denied Mechanic's motion. The court ordered the escrow amount paid to counsel for Bank. Mechanic appeals the trial court's judgment. Zweber is not a party to this appeal.

ISSUES

1. Whether Indiana's Commercial Code determines the priority of disputes between

the holder of a non-possessory mechanic's lien and the holder of a prior perfected security interest.

2. Whether Indiana common law gives priority of a prior perfected security interest over a non-possessory mechanic's lien.

DISCUSSION AND DECISION

The parties agree that no genuine issue of material fact exists. Summary judgment is appropriate in such a case only if supported as a matter of law. Ayres v. Indian Heights Volunteer Fire Department (1986), Ind., 493 N.E.2d 1229, 1234; Sharp v. Indiana Union Mutual Insurance Co. (1988), Ind.App., 526 N.E.2d 237, 239, trans. denied. If the trial court has misapplied the laws, we will reverse. Ayres, 493 N.E.2d at 1234. When we review the propriety of the grant or denial of summary judgment, we stand in the same position as the trial court. Jones v. Marengo State Bank (1988), Ind.App., 526 N.E.2d 709, 714. Therefore, we give no deference to a trial court's judgment based upon stipulated facts. See Citizens Gas and Coke Utility v. Economy Insurance Co. (1985), Ind., 486 N.E.2d 998, 999; Estate of Payne v. Grant County Court (1988), Ind.App., 508 N.E.2d 1331, 1333, cert. denied, 488 U.S. 853, 109 S.Ct. 139, 102 L.Ed.2d 112.

Issue One

Mechanic contends the Indiana Commercial Code does not apply to this dispute, whereas Bank argues the Code does apply. The main purpose of the secured transactions chapter of the Indiana Commercial Code is to bring all consensual security interests in personal property under one chapter. See IND.CODE Sec. 26-1-9-102(1) and Statement of Purposes and Comment 1 under Uniform Commercial Code Comment following IND.CODE Sec. 26-1-9-102 (West's Annotated Indiana Code 1980). Therefore, the chapter does not apply to non-consensual, statutory liens except as provided in IND.CODE Sec. 26-1-9-310. See I.C. Sec. 26-1-9-102(2) and IND.CODE Sec. 26-1-9-104(c) (The chapter, I.C. Sec. 26-1-9, does not apply "to a lien given by statute or other rule of law for services or materials except as provided in [I.C. Sec. 26-1-9-310] on priority of such liens ...").

Only possessory liens are covered by the language of I.C. Sec. 26-1-9-310:

"When a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statutory and the statute expressly provides otherwise."

Moreover, the Indiana Comment to I.C. Sec. 26-1-9-310 (Burns Indiana Statutes Annotated 1974) indicates the language was not intended to address nonpossessory liens, stating "Article [Chapter] 9 does not apply to landlord's liens, or to a lien given by law for services or materials, except to the extent that this section (Sec. 9-310) determines priorities. Sec. 9-104(b) and (c)." Similarly, the Indiana Comment states that a landlord's crop lien and an attorney's lien are not possessory liens and the Comment concludes that I.C. Sec. 26-1-9-310, therefore, does not govern them. Thus, while I.C. Sec. 26-1-9-310 establishes that possessory mechanic's liens, known as artisan's liens, are superior to prior perfected security interests, it does not establish whether a non-possessory mechanic's lien is superior to a prior perfected security interest.

Contrary to Bank's contention, we cannot infer the legislature intended to "accord[ ] any statutory or common law lien super priority only so long as possession of the good is retained." Appellee's Brief at 12. The legislature merely expressed its intent that the Indiana Code apply to a dispute between a holder of a possessory mechanic's lien (artisan's lien) and a holder of a prior perfected security interest. We agree with the court in In Re Brazier Forest Products, Inc. (1986), 106 Wash.2d 588, 724 P.2d 970, 976-78:

"In summary, and in accordance with the predominant authority, nonpossessory liens are outside the scope of section 9-310 and, therefore, their priority relative to a perfected security interest is governed by pre-Code statutory and common law. We conclude that this interpretation of section 9-310 is more reasonable than inferring from the provision that all non-possessory liens are subordinate to perfected security interests."

Accord, Smith v. Atlantic Boat Builder Co. (1978), Fla.App., 356 So.2d 359; Board of Education v. Kolman (1970), 111 N.J.Super. 585, 270 A.2d 64; Leger Mill Co. v. Kleen-Leen, Inc. (1977), Okla., 563 P.2d 132. We hold that Indiana's Commercial Code does not apply to the present dispute and that a trial court should look to the lien statutes and common law to determine the priority status of a non-possessory mechanic's lien.

Issue Two

Mechanic contends Indiana common law gives its non-possessory mechanic's lien priority over Bank's prior perfected security interest under the factual circumstances. Bank argues common law rules provide Bank's prior perfected security interest priority.

There are two Indiana statutes which provide mechanics' liens. IND.CODE Sec. 9-9-5-6 provides a possessory mechanic's lien, also known as an artisan's lien, for an individual or firm which repairs a motor vehicle at the owner's request. IND.CODE Sec. 32-8-31-1 et seq. provides a mechanic's lien to a person who repairs a motor vehicle and files a notice of intention to hold lien with the county recorder. Neither statute provides indication of the lien's priority or subordination to a prior perfected security interest. We concluded in Hendrickson & Sons Motor Co. v. Osha (1975), 165 Ind.App. 185, 203, ...