Matter of Bosson

• Decision Date: 08 June 1977
• Docket Number: No. H-76-326.,H-76-326.
• Citation: 432 F. Supp. 1013
• Court: U.S. District Court — District of Connecticut
• Parties: In the Matter of Barbara J. BOSSON, Bankrupt. The CONNECTICUT BANK AND TRUST COMPANY v. Marc M. SCHINDELMAN, Esq., Trustee.

432 F. Supp. 1013

In the Matter of Barbara J. BOSSON, Bankrupt The CONNECTICUT BANK AND TRUST COMPANY v. Marc M. SCHINDELMAN, Esq., Trustee.

No. H-76-326.

United States District Court, D. Connecticut.

June 8, 1977.

COPYRIGHT MATERIAL OMITTED

Richard E. Gruskin, Gruskin & Gruskin, New London, Conn., for appellant.

Marc M. Schindelman, pro se.

RULING ON PETITION FOR REVIEW

CLARIE, Chief Judge.

The appellant, The Connecticut Bank and Trust Company (CBT), has filed this petition for review of a bankruptcy court ruling which granted possession of two automobiles to Marc Schindelman, the trustee in bankruptcy for Michael and Barbara Bosson,¹ said automobiles having been purchased approximately seven months prior to the debtors' bankruptcy. Connecticut Bank and Trust Co. v. Schindelman, Bky. No. H-76-326 (July 9, 1976). The appellant maintains that the bankruptcy judge erred in ruling that the bank's security interest was inadequately perfected. The bankruptcy court's ruling was based on the fact that notice of the liens in question was issued on certificates of title to the automobiles, which were taken out in the wife's name, while it was the husband who actually signed the underlying security agreement.

Whereas the appellant's argument as to perfection may have merit under the "notice filing" theory, which has been adopted in this Circuit,² the parties below failed to treat a central issue, namely, whether or not a valid security interest ever attached to the automobiles, since the husband, who signed the loan papers, did not acquire any readily apparent "rights in the collateral," as required under Article IX of the Connecticut Uniform Commercial Code³ (UCC). The Court finds that the husband, Michael J. Bosson, did not in fact acquire sufficient "rights in the collateral" for Article IX purposes, and that his attempted security interest was thus defective. For the latter reason, the judgment of the bankruptcy court is affirmed.

FACTS

In August of 1975, Michael J. Bosson and Barbara J. Bosson visited T.N.M. Lathrop, Inc. (Lathrop), a New London, Connecticut automobile dealership. There they negotiated the purchase of two used cars — a 1972 Volvo wagon and a 1974 Oldsmobile sedan — using the husband Michael Bosson's 1974 Mercedes sedan as part consideration for trade-in purposes. To make up the difference between the trade-in allowance on the Mercedes and the purchase price of the Volvo and Oldsmobile,⁴ Michael Bosson negotiated a loan from the appellant bank and signed a pair of "retail installment contracts" purporting to grant Lathrop a security interest in the automobiles.⁵ Neither of these contracts was signed by the wife, Barbara Bosson.

In concluding the foregoing transaction, Lathrop prepared the standard "New Owner Application" forms, which listed Barbara Bosson as the owner of the Volvo and of the Oldsmobile.⁶ On the basis of these forms, the two cars were registered in Barbara Bosson's name, and certificates of title were issued listing her as the "new owner." Under Connecticut's Certificate of Title Act (CTA), Conn. Gen. Stat. §§ 14-165 et seq., security interests in automobiles can be perfected only by listing the name and address of the secured creditor on the vehicle's certificate of title. Id. § 14-185. CBT was properly listed as first lienor on the application, and its status so appeared on the final certificate. According to a Lathrop salesman who testified before the bankruptcy court, the purpose of listing the wife's name as owner was to make a gift to the wife and to conveniently establish title to the vehicles in her because of the husband's frequent out-of-state travel as a sports team official.⁷

Approximately seven and one-half months after the completion of this transaction, Michael and Barbara Bosson filed voluntary petitions in bankruptcy. Thereupon the CBT filed a complaint to recover possession of the automobiles from the trustee,⁸ but the latter opposed this reclamation on the grounds that (1) there was no security interest as to the wife, since she never signed the security agreements; and (2) the interest granted by the husband was not perfected, since title was issued in the wife's name rather than in the husband's. The bankruptcy court concurred in this reasoning, and ruled in favor of the trustee. The appellant seeks a review of this judgment.

The Court must address two issues on this appeal: (1) Did the filing undertaken here adequately perfect CBT's purported security interest in the two automobiles purchased by the Bossons?; and (2) Did Michael Bosson grant an effective security interest in the vehicles to the bank which was capable of being perfected?⁹ The Court finds the notice filing to have been adequate, but concludes that Michael Bosson never did acquire "rights in the collateral" sufficient for Article IX purposes, and that the appellant bank, therefore, did not acquire a security interest in the automobiles, which it could perfect.

DISCUSSION OF THE LAW

The bankruptcy court held that the appellant acquired no security interest in the vehicles in question through Barbara Bosson, although title was filed directly in her name duly listing CBT as first lienor in the vehicles, for the simple reason that the wife never signed the security agreement which such filing could perfect. Neither party contests this conclusion. What the appellant does attack is the second determination of the bankruptcy judge; namely, that perfection was inadequate as to Michael Bosson's security agreement, because the title certificate was issued in the wife's name rather than his own.

The Connecticut Certificate of Title Act does not rule out the feasibility of adequate perfection achieved through a filing of the type undertaken here. Section 14-185 of the Connecticut General Statutes, which governs the perfection of security interests in automobiles,¹⁰ reads in relevant part as follows:

"A security interest in a vehicle . . is perfected by the delivery to the commissioner of the existing certificate of title, if any, an application for a certificate of title containing the name and address of the lienholder and the date of his security agreement and the required fee."

This statute does not require, either expressly or by fair implication, that the party signing the security agreement must also be the applicant for title.¹¹

More substantial support for the permissibility of the transaction undertaken in the present case is to be found, however, in the theory of "notice filing." Under this theory, a court should, in reviewing an allegedly irregular attempt at UCC filing, look closely at whether or not "a reasonably diligent searcher" would be misled by the irregularity. J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code 839 (1972). In applying the Connecticut UCC,¹² the Second Circuit has expressly adopted this approach. In re Excel Stores, Inc., 341 F.2d 961 (2d Cir. 1965); see also In re Hollis, 301 F.Supp. 1 (D. Conn. 1969); Heffernan, The Secured Creditor Versus the Trustee in Bankruptcy, 45 Conn.B.J. No. 1, at 84 (Mar. 1971). In the present case, if Michael Bosson had attempted to apply for credit using either of the automobiles in question as collateral, a reasonably diligent creditor would not have been misled, since an inquiry with the Motor Vehicles Department would reveal that Michael Bosson did not own the car. Similarly, if Barbara Bosson attempted to borrow against either automobile, her prospective creditor would be put on notice of the existence of an encumbrance, and a simple inquiry to CBT would reveal the true nature of the transaction.¹³ This being so, the filing in the present case cannot be viewed as defective under notice filing theory.

Were this the only issue in this case, the appellant might well prevail against the trustee. A key threshold question remains to be addressed, however, which the parties neglected to litigate below. Specifically, did the appellant ever acquire a valid security interest in the automobiles in question? Under the applicable provision of the Connecticut UCC, Conn. Gen. Stat. § 42a-9-203(1),¹⁴ a security interest cannot attach unless three conditions are met: (1) the debtor must have signed a valid security agreement; (2) the creditor must have given value; and (3) the debtor must have "rights in the collateral." The first two of these conditions were clearly satisfied in the transaction between Michael Bosson and Lathrop, the automobile dealership. The problem arises over the third condition.

The UCC does not define the term "rights," except to specify that it includes "remedies." Conn. Gen. Stat. § 42a-1-201(36). The case law establishes the proposition that once a debtor acquires possession of an item of collateral pursuant to a sales contract or like agreement, the debtor has acquired sufficient "rights" for Article IX purposes.¹⁵ See, e.g., Evans Products Co. v. Jorgensen, 245 Or. 362, 421 P.2d 978 (1966); First National Bank of Elkhart County v. Smoker, 153 Ind.App. 71, 286 N.E.2d 203, 208-09 (1972); McCorquodale v. Holiday, Inc., 90 Nev. 67, 518 P.2d 1097 (1974) (no delivery); Cain v. Country Club Delicatessen of Saybrook, Inc., 25 Conn.Sup. 327, 203 A.2d 441 (Supr. Ct. 1964) (no contract); 30 A.L.R.3d 9, 44 § 13 (1970). Were this test to be applied as controlling in the present case, the appellant's claim would fail, since it was Barbara Bosson rather than her husband Michael who received possession of the automobiles, pursuant to her acknowledged status as the intended owner of the vehicles. However, the "possession-pursuant-to-a-contract" test is not a satisfactory guide to a proper result here.

Apart from the rather cursory treatment given to policy questions in many of the cases noted above, none involved a fact situation of the type presented here. In particular, none of the above-cited cases involved an automobile, which must be registered under a Certificate of Title Act. To...