International Harvester Credit Corp. v. Pefley

• Decision Date: 29 December 1983
• Docket Number: No. 2-681A192,2-681A192
• Citation: 458 N.E.2d 257
• Parties: 37 UCC Rep.Serv. 907 INTERNATIONAL HARVESTER CREDIT CORPORATION, Appellant (Plaintiff Below), v. Robert PEFLEY and Pefley & Son, Inc., Appellees (Defendants Below).
• Court: Indiana Appellate Court

Page 257

458 N.E.2d 257

37 UCC Rep.Serv. 907

INTERNATIONAL HARVESTER CREDIT CORPORATION, Appellant (Plaintiff Below), v. Robert PEFLEY and Pefley & Son, Inc., Appellees (Defendants Below).

No. 2-681A192.

Court of Appeals of Indiana Second District.

Dec. 29, 1983.

R.P. Fisher, McCallen, Fisher & Ireland, Wabash, for appellant.

Stephen H. Downs, Plummer, Tiede, Magley, Metz & Downs, Wabash, for appellees.

SULLIVAN, Judge.

International Harvester Credit Corporation (International Harvester) appeals a negative judgment in a suit against defendants, Robert Pefley and Pefley & Son, Inc. (Pefley), of Lagro, Indiana, for conversion of a new International Harvester tractor. Pefley purchased the tractor in question from one James Oliver who had two days previously, unknown to Pefley, purchased the tractor from Sanders Sales & Service, Inc. (Sanders) of Urbana, Ohio, giving a security interest in the tractor to Sanders who subsequently assigned the security interest to International Harvester. Oliver's sale to Pefley was in breach of his security agreement and he defaulted on his payments to International Harvester who sought at trial to recover against Pefley.

The parties to this cause have framed numerous issues for review. The lawsuit here is subject to the provisions of the Uniform Commercial Code (hereinafter, UCC). U.C.C. Sec. 9-306, Official Comment Number 3; United States v. McCleskey Mills, Inc., (5th Cir.1969) 409 F.2d 1216. See Bottema v. Producers Livestock Association (1st Dist.1977) 174 Ind.App. 206, 366 N.E.2d 1189 at 1192. Therefore, after close consideration of each issue and in view of our disposition of this case, we regard the relevant issues to be:

(1) Whether International Harvester in fact held a perfected security interest in the collateral in Ohio, and if so,

(2) Whether a purchaser who buys property subject to a security interest within four months of its removal from the state in which the security interest is perfected should prevail over the secured party who fails to perfect in the new situs state within four months. ¹

On February 3, 1977, James Oliver (Oliver) of Champaign County, Ohio, purchased an International Harvester tractor, model 886, from Sanders Sales & Service, Inc., (Sanders) a farm implement dealer in Urbana, Ohio. Oliver and Charles Sanders, president of Sanders, had agreed earlier in the week to a sale price of $18,800 for the tractor, but Oliver completed the transaction on February 3rd with Gene Hodge, Sanders' sales manager, because Charles Sanders was out of town. ² Hodge prepared an installment sales contract which contained a security agreement, financing terms, and a description of the collateral. He also prepared a financing statement and an invoice receipt. After Hodge explained the terms of the security agreement, the financing arrangements, and the terms of the installment sales contract, Oliver signed each of the three documents. Hodge then initialed and dated the invoice receipt, received Oliver's downpayment of $6,500 and gave Oliver a key to the tractor. Oliver departed with the tractor and has not been seen by the parties to this cause since then. On February 4th, the day after the sale, Hodge, pursuant to the Uniform Commercial Code requirement, filed the financing statement in the county recorder's office of Champaign County, Ohio, the county of Oliver's residence. Charles Sanders returned from out of town on February 14th, and at that time signed and dated the installment sales contract-security agreement for the purpose of assigning the agreement to International Harvester.

The installment sales contract-security agreement signed by Oliver provided, in part, that International Harvester, Sanders' assignee, was to hold a purchase money security interest in the tractor for the unpaid balance of $12,303; equal payments of $4,257 were to be made annually on February 3rd of the subsequent four years; and Oliver, while subject to International Harvester's security interest in the tractor, was not to sell, assign, lease or remove the tractor from the state without the express approval of International Harvester.

On February 5th, two days after Oliver had purchased the tractor from Sanders for $18,800, giving a security interest in it, he sold it for $14,000 to Robert Pefley of Lagro, Indiana, a farm implement dealer who travels widely throughout the country buying and selling farm equipment at auctions. Oliver and Pefley met for the first and only time at a farm implement auction in London, Ohio, on February 1st, two days before Oliver purchased the tractor in question from Sanders. Curiously, and unexplained in the record, Oliver had the tractor in his possession at this auction and put it through the "show ring" soliciting bids. Testimony reveals that the Sanders' sales personnel seemed quite puzzled by this occurrence. In any event, the tractor was back on Sanders' lot being prepped for sale on February 3rd. At the auction, before bids commenced, Oliver and Pefley discussed sale of the tractor but no agreement was reached. During the bidding, Pefley's bid of $14,000 was the highest but Oliver refused to accept it. Oliver called Pefley in Indiana the next day, still wanting to sell the tractor. They agreed, over the phone, to a price of $14,000, Pefley's bid of the previous day. Oliver made arrangements to have the tractor delivered to Pefley in Indiana on February 5th at which time Pefley paid the $14,000.

Pefley testified that he was unaware of Oliver's deal with Sanders and had no knowledge of a security interest in the tractor or that Oliver did not own the tractor when he showed it at the auction on February 1st. Pefley testified that he asked Oliver whether the tractor was subject to any liens or mortgages and was assured by Oliver that the tractor was "free and clear." Pefley did not conduct a record search in Ohio to make certain that the tractor was free of another's security interest. Pefley explained that it was not customary for those in the business of buying and selling farm equipment at auctions to conduct record searches for prior security interests, although he had done so on occasion. He also testified that it was presumed, among those in his business, that goods placed on consignment at farm auctions were not impaired by security interests, apparently because those who take goods on consignment at auctions are themselves liable for conversion if collateral subject to prior security interests is sold.

On February 7, two days after Pefley bought the tractor from Oliver, he sold it to Stilesville Auction in Stilesville, Indiana. Later in February, Pefley was contacted by a Mr. Howard of the London Auction and informed that "there might be a problem on the model 886." Pefley was told that another smaller tractor which had been sold through the auction by Oliver was discovered to be stolen and that he should be alert to a similar problem with the 886. Upon learning this, Pefley contacted Stilesville and made arrangements to buy back the 886 at a price $200 more than Stilesville had paid for it. Pefley testified that he took this action because of his concern for his reputation as a merchant. After another month had passed and Pefley had heard nothing further regarding the 886, Pefley again sold the tractor, this time to a man in Pennsylvania.

International Harvester's representative testified that the company learned of the removal of the tractor from Ohio sometime within thirty days from the time Sanders had sold the tractor to Oliver. International Harvester did not file a financing statement in Indiana at any time. Legal proceedings on the matter were instituted in October of 1977, and International Harvester's representatives tried, unsuccessfully, to locate Oliver in the interim.

We are presented here with a negative verdict against the party having the burden of proof. On appeal we may look to the evidence solely for the purpose of determining whether there is uncontradicted evidence which leads to conclusions contrary to that of the jury. Langford v. Anderson Banking Co. (1970) 146 Ind.App. 677, 258 N.E.2d 60, 64. Where the facts are undisputed, and are such that reasonable men can draw but one conclusion therefrom, the question becomes one of law. Lafayette Bank and Trust Co. v. Price (1st Dist.1982) Ind.App., 440 N.E.2d 759, 763; Baltimore and O.R. Co. v. Patrick (1960) 131 Ind.App. 105, 166 N.E.2d 654.

International Harvester contends that it was entitled, as a matter of law, to a determination that it held a perfected security interest in the International Harvester tractor under Ohio law as of February 4, 1977. Harvester further argues that the giving of an instruction to the jury directing it to ascertain whether Harvester's security interest had attached and was perfected was error because it had proven each and every formal requisite for attachment and perfection. Harvester believes the evidence was uncontradicted, thus creating a question of law rather than one of fact.

I.

In determining whether a valid security interest has been created and perfected, the requirements of the Uniform Commercial Code (hereinafter referred to as the UCC) are controlling.

The UCC (1962 Official Text) has been adopted in Indiana and is codified in Title 26 of the Indiana Code. UCC Sec. 9-103(3) provides, in pertinent part:

"If personal property other than that governed by subsections (1) and (2) is already subject to a security interest when it is brought into this state, the validity of the security interest in this state is to be determined by the law (including the conflict of laws rules) of the jurisdiction where the property was when the security interest attached."

In this case, the collateral was in Ohio when the security interest allegedly attached. We will, therefore, look to Ohio law to consider the validity of the security interest. At the time this suit arose, Ohio law contained the 1962 provisions of the UCC's...