In re Schutz

• Citation: 241 BR 646
• Decision Date: 12 November 1999
• Docket Number: Bankruptcy No. 99-60585. Adversary No. 99-6027.
• Parties: In re Angelia L. SCHUTZ, Debtor. Fred C. Moon, Chapter 7 Trustee, Plaintiff, v. Bank of America, F.S.B., Defendant.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri

241 B.R. 646 (1999)

In re Angelia L. SCHUTZ, Debtor.

Fred C. Moon, Chapter 7 Trustee, Plaintiff, v. Bank of America, F.S.B., Defendant.

Bankruptcy No. 99-60585. Adversary No. 99-6027.

United States Bankruptcy Court, W.D. Missouri.

November 12, 1999.

Raymond I. Plaster, Springfield, MO, for plaintiff.

David G. Wasinger, Murphy & Tobben, St. Louis, MO, for defendant.

MEMORANDUM OPINION

ARTHUR B. FEDERMAN, Bankruptcy Judge.

Chapter 7 Trustee Fred C. Moon (the Trustee) filed a Complaint to Determine Lien Priority and to Compel Turnover of Estate Property as to a 1996 Sunshine Manufactured Home, VIN ALSO1258, (the Sunshine) on the grounds that no security interest in favor of defendant Bank of America, F.S.B., (BOA) ever attached to the Sunshine. The parties agreed that the facts are not in dispute, and that this adversary proceeding should be decided as a matter of law. They then filed cross Motions for Summary Judgment, which this Court denied when it discovered a disputed fact. The parties have now resolved this dispute and again ask that the issue be decided on the pleadings. This is a core proceeding under 28 U.S.C. § 157(b)(2)(k) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a), and 157(b)(l). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below I find that BOA can use parol evidence to correct the scrivener's error and retroactively reform the security agreement to accurately reflect the intent of the parties. As such, BOA has a valid perfected security agreement in the Sunshine, therefore, I will grant summary judgment in favor of BOA.

FACTUAL BACKGROUND

The stipulated facts are as follows. On February 10, 1999, debtor Angelia Schutz, as a buyer, signed a "plain language purchase agreement," provided by seller Butler Mobile Home Sales, Inc. (Butler), agreeing to purchase a "Sunshine-382" manufactured home with the serial number "AL-S-01258."¹ The purchase agreement indicates that on February 13, 1996, she paid to Butler the sum of $1,056.00 as a down payment on the manufactured home. On February 14, 1996, Ms. Schutz and Butler executed a Retail Installment Contract and Security Agreement (the Agreement), which was assigned to BankAmerica Housing Services, a division of BOA. The Agreement erroneously described the Manufactured Home as a 1996 Titan Home, Model S-382.² The serial number, or vehicle identification number (the VIN), was not listed in the Agreement. Also on February 14, 1996, Ms. Schutz signed an Application for Missouri Title and License identifying the manufactured home as a "1996 Sunshine, VIN ALS01258."³ On that same date she signed an application for insurance on the manufactured home with Billings Farmers' Mutual Insurance Company of Billings, Missouri.⁴ The insurance application sought coverage for a "1996 Sunshine # ALS01258."⁵ On February 23, 1996, BOA sent a notice to Ms. Schutz informing her of certain errors in the Agreement. The notice stated that the Agreement disclosed the make of the manufactured home as a 1996 Titan Homes, Inc. when it should have disclosed the make as a "Sunshine Homes, Inc." The notice further noted that the serial number was not disclosed in the Agreement, when it should have been disclosed as "ALS01258."⁶ The notice was identified as being sent on behalf of "the dealer and BAHS," but it was not signed by any representative of either BOA or Bank of America Housing Services. The Agreement itself was never modified, or any modified document signed by Ms. Schultz. The State of Missouri issued a Certificate of Title on March 5th, 1996, correctly listing a 1996 Sunshine Model Manufactured Home with a vehicle identification number of ALSO1258 and indicating that BOA was a lien holder. Ms. Schutz filed her Chapter 7 bankruptcy petition on April 5, 1999.

The trustee filed this Complaint seeking a determination that BOA does not hold a valid and properly perfected security interest in the manufactured home, and that it should, therefore, be liquidated by the trustee for the benefit of debtor's unsecured creditors.⁷ BOA maintains that it has a valid security interest in the Sunshine, that the Certificate of Title is not misleading to any third party, and that the parol evidence rule requires the introduction of extrinsic evidence to correct a mutual mistake in the Agreement.

DISCUSSION

The perfection of a lien on a manufactured home is governed by section 700.350 of Missouri's Revised Statutes.⁸ The creation of a security interest in a manufactured home, however, is governed by Article 9 of Missouri's Uniform Commercial Code.⁹ The creation of a security interest must be considered separately from perfection because "the fact that title certificate notation is required in most states to perfect a security interest in a motor vehicle in the hands of the ultimate user has no effect upon the creation of a security interest in a motor vehicle."¹⁰ Before a security interest can be either enforced or perfected it must properly attach to the collateral in question. The attachment and enforceability of the security interest in motor vehicles is governed by section 400.9-203 of Missouri's Revised Statutes. That section provides that "a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless . . . the debtor has signed a security agreement which contains a description of the collateral."¹¹ The issue here is whether this Court can consider all of the documents involved in this transaction to determine if they, taken together, satisfy the requirement that a security agreement must contain a description of the collateral before the agreement attaches to the collateral.

A security agreement by definition is a contract entered into voluntarily.¹² Section 400.9-102(2) states that "this article applies to security interests created by contract."¹³ The comment to section 400.9-102 states that the "main purpose of this Section is to bring all consensual security interests in personal property and fixtures under this Article."¹⁴ Therefore, any interpretation of Article 9 of Missouri's Uniform Commercial Code is dependent upon the basic tenets of Missouri contract law. The most basic tenet of that law is that a valid contract must reflect the intention of the parties at the time it was signed. I find that the Agreement in this case does not reflect the intention of the parties. Butler clearly intended to sell to Ms. Schutz a 1996 Sunshine Manufactured home. The plain language purchase agreement so reflects, the fact that Butler delivered and Ms. Schutz accepted the Sunshine so reflects, and the notice sent to Ms. Schutz by BOA ten days after the Agreement was signed so reflects. Moreover, Ms. Schutz intended to purchase the Sunshine as reflected by the plain language purchase agreement she signed, the Sunshine she accepted when it was delivered, the Application for Missouri Title and License she submitted, and the application for insurance she sent to Billing Farmers' Mutual Insurance Company of Billings, Missouri. The issue I must decide, however, is whether I can use this extrinsic evidence to correct the mutual mistake that is contained in the Agreement. The use of extrinsic evidence to interpret a contact is governed by the Parol Evidence Rule. Missouri's Parol Evidence Rule "precludes the use of extrinsic evidence to vary or contradict the terms of an unambiguous and complete written instrument absent fraud, common mistake, accident or erroneous omission."¹⁵ In Unlimited Equipment Lines, Inc., the Court allowed parol evidence to show that because of mutual mistake the contract did not express what the parties to the contact intended.¹⁶ The Court held that "a contract must be read according to the parties' intent despite clerical errors and omissions."¹⁷ The Unlimited Court also found that parol evidence is admissible to correct typographical errors in order to construe a provision according to the parties' intent.¹⁸

In Morris v. Brown, the Court discussed the use of parol evidence to reform a deed that does not express the intent of the parties due to a mutual mistake.¹⁹ In that case the court articulated the following three elements that a well-pled petition for reformation of a deed must contain: (1) a preexisting agreement between the parties affected by the proposed reformation that is consistent with the change sought; (2) an assertion that a mistake was made in that the deed did not reflect what had been agreed upon; and (3) an assertion that the mistake was common to both parties.²⁰ After discussing these elements, the Court of Appeals held that it was not error for the trial court to admit parol evidence in determining if a mutual mistake had been made in drafting the deed, despite the fact that the deed was not ambiguous on its face.²¹ While the case at hand involves a security agreement, not a deed, the three elements offer guidance to this Court. The plain language purchase agreement, signed by both Ms. Schutz and a representative of Butler four days before the Agreement was signed, indicates Butler's intent to sell and Ms. Schutz's intent to purchase a 1996 Sunshine Manufactured Home, VIN AL-S-01258.²² The Agreement, however, describes the manufactured home as a 1996 Titan Homes, Inc.²³ Based upon the parties' conduct both before and after signing the Agreement, I find that the Agreement did not reflect what had been agreed upon. I also find that the mistake was common to both parties in that neither Butler nor Ms. Schutz noticed the wrongly identified collateral at the time they signed the Agreement. But, BOA, as the assignee of the Agreement, did notice the mutual mistake and notified Ms. Schutz of the error ten days later.

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