In re Osborn, 72-BK-808.

• Decision Date: 26 February 1975
• Docket Number: No. 72-BK-808.,72-BK-808.
• Citation: 389 F. Supp. 1137
• Parties: In the Matter of Guy B. OSBORN, Bankrupt.
• Court: U.S. District Court — Northern District of New York

389 F. Supp. 1137

In the Matter of Guy B. OSBORN, Bankrupt.

No. 72-BK-808.

United States District Court, N. D. New York.

February 26, 1975.

Warren V. Blasland, Costello, Cooney & Fearon, Syracuse, N. Y., for Trustee.

Sheldon G. Kall, Syracuse, N. Y., for Red Creek National Bank.

MEMORANDUM AND ORDER

BRIEANT, District Judge.^*

On May 11, 1972, Guy B. Osborn filed his petition in bankruptcy in this Court and was thereupon adjudicated a bankrupt. The trustee in bankruptcy appeals from an order by Honorable Leon J. Marketos, Bankruptcy Judge, entered March 29, 1973 denying his application for an order directing Red Creek National Bank of Red Creek, New York ("the Bank") to turn over to the bankrupt's estate a 1964 Mack highway tractor ("the truck") that it had repossessed on or about March 11, 1972 pursuant to a claimed security interest, or to pay the fair market value of that vehicle.

The Bank filed copies of a security agreement and financing statement (New York form UCC-1) covering this vehicle on or about October 26, 1971 with the New York Secretary of State at Albany, New York, and in the Cayuga County Clerk's Office at Auburn, New York. At that time, Osborn represented himself to be a resident of the hamlet of Martville, Town of Victory, Cayuga County. The Bankruptcy Judge has found that place was in fact his residence. There is evidence to support this finding, although the bankrupt did receive mail at his father-in-law's home in Oswego County, at an address he also used for his driver's license. Because of the marital difficulties which are the root of most bankruptcies, the bankrupt "would live out of the truck" and spend little time in Martville or Oswego County. The findings of our Bankruptcy Judge as to residence may not be disturbed by this Court on review unless clearly erroneous, which they are not. Rule 810, Bankruptcy Rules, 411 U.S. 1090.

Accordingly, the Bank would have perfected a valid security interest on October 26, 1971 by filing as aforesaid, but for the provisions of § 9-103(4) of the New York Uniform Commercial Code, 62 ½-Pt. 3 McKinney's Cons. Laws, c. 38, which provides as follows:

"(4) Notwithstanding subsections (2) and (3), if personal property is covered by a certificate of title issued under a statute of this state or any other jurisdiction which requires indication on a certificate of title of any security interest in the property as a condition of perfection, then the perfection is governed by the law of the jurisdiction which issued the certificate."

The record before the Bankruptcy Judge shows clearly that, using money borrowed from the Bank, the bankrupt purchased this second hand vehicle in Ohio, and acquired a clean certificate of title in Ohio on October 26, 1971. The security interest of the Bank was not noted on the title certificate as required by Ohio law. See Ohio Rev.Code § 4505.13 (Page 1973). The bankrupt registered the vehicle in Ohio using the title certificate and, in doing so, gave an Ohio address as his place of residence, believing that his truck leasing arrangements with a third party required registration of the vehicle in that state.

Although the Bank knew nothing of the Ohio registration and title certificate, nor of bankrupt's intention to register the vehicle there, and although the truck was garaged principally in New York, we think the learned Bankruptcy Judge erred as a matter of law in his conclusion that the Ohio certificate of title was "surplusage created by reason of the misconception of the bankrupt that he was required to have an Ohio registration", (Decision, p. 6) and that he failed to give effect to the clear provisions of § 9-103(4) of the Uniform Commercial Code.

The case presents a mirror, or reverse factual situation of that considered by Judge Brennan of this Court in In re White, 266 F.Supp. 863 (N.D.N.Y.1967). In that case, a mobile home was sold in Virginia, a title state, and a security interest was perfected there by a notation on the title certificate. The mobile home was moved into New York, and the creditor did nothing further to perfect his interest. The District Court in holding that the law of Virginia governed the security interest quoted from the New York Annotations of § 9-103 of the Uniform Commercial Code:

"`Subsection (4) is new and avoids the possible necessity of duplicating perfection in the case of vehicles subject to a certificate of title law requiring compliance therewith to perfect security interests. The certificate of title law requirements are adopted as the test for perfection.' (62 ½ McKinney's Consol. Laws, Book 3 Page 345)." 266 F.Supp. at 865.

See also G. M. A. C. v. Whisnant, 387 F.2d 774 (5th Cir. 1968); In re Smith, 311 F.Supp. 900 (W.D.Va.1970), aff'd sub nom. Callaghan v. Commercial Credit Corp., 437 F.2d 898 (4th Cir. 1971); In re Friedman, 4 UCC Rep.Serv. 890 (D.Conn., Ref. Dec. 1967).

In accordance with § 9-103(4), we find that it is the law of Ohio that determines the existence of a perfected security interest, at least prior to the Bank's lawful repossession of the tractor in the State of New York. See In re Edwards, 6 UCC Rep.Serv. 1124 (E.D.Mich., Ref. Dec. 1969). Under the Ohio Certificate of Title Law, a security interest must be noted on the certificate of title. Ohio Rev.Code § 4505.04. Certificates of title are issued in triplicate and copies are retained by the clerk of the court of common pleas which issued the certificate and by the state registrar of motor vehicles. Ohio Rev.Code § 4505.08. The registration of title system contemplated by the Ohio Certificate of Title Law is designed to provide public notice of ownership and encumbrance in a manner similar to that contemplated by Article 9 of the Uniform Commercial Code as in effect in New York. See In re Davidoff, 351 F.Supp. 440 (S.D.N.Y.1972).

Ohio law is not entirely clear on the effect of the procurement of a clean certificate of title to cut off equities in instances where title may be traced to a thief or to one who has obtained clean title by fraud. See Commercial Credit Corp. v. Pottmeyer, 176 Ohio St. 1, 197 N.E.2d 343 (1964); Hardware Mutual Casualty Co. v. Gall, 15 Ohio St.2d 261, 240 N.E.2d 502 (1968); G. M. A. C. v. Birkett L. Williams Co., 17 Ohio Misc. 219, 243 N.E.2d 882 (C.P., Cuyahoga County 1969); Poland Chevrolet Co. v. Shelly Smith & Sons, 21 Ohio Misc. 30, 254 N.E.2d 728 (C.P., Richland County 1969). See also J. White & R. Summers, Uniform Commercial Code § 23-21, at 860 n. 210 (1972). The instant case does not involve theft or fraud.¹

In proceedings before the Bankruptcy Judge, the President of the Bank testified that he knew that the truck was to be purchased in Ohio and that, prior to the time the Bank filed its financing statements in New York, he knew that the bankrupt had an invoice from an Ohio seller. (Decision, p. 3). The bankrupt did not attempt to deceive the Bank by procuring an Ohio title certificate under a false name or by altering the identification of the vehicle. The Bank assumed that the truck was to be registered in New York without inquiring further.² Under these circumstances, a bona fide encumbrancer for value without notice in Ohio could have acquired a valid title or priority against the Bank.

In this case, the Ohio title certificate was actually used to obtain Ohio license plates, pursuant to which the truck was operated. Perhaps the result would be different had the bankrupt brought the truck to New York immediately upon purchase and registered it here, treating the Ohio certificate as a nullity or, more likely, surrendering it here in connection with obtaining his New York registration. Then, the Ohio title certificate might be "surplusage."³

It appears that on or about March 11, 1972, two months prior to adjudication of bankruptcy, the tractor was repossessed by the Bank. Such repossession served to perfect the Bank's security interest as of that date. N.Y. U.C.C. § 9-305. See L. B. Smith, Inc. v. Foley, 341 F.Supp. 810 (W.D.N.Y.1972). This perfection does not relate back to the date of the ineffective filing of the financing statements in New York. The repossession of the...