Osborn v. First Nat. Bank of Holdenville

• Decision Date: 16 June 1970
• Docket Number: No. 42020,42020
• Citation: 7 UCC Rep.Serv. 908,472 P.2d 440
• Court: Oklahoma Supreme Court
• Parties: 7 UCC Rep.Serv. 908 Rachel OSBORN, Plaintiff in Error, v. The FIRST NATIONAL BANK OF HOLDENVILLE, Oklahoma, a corporation, Defendant in Error.

Page 440

472 P.2d 440

7 UCC Rep.Serv. 908

Rachel OSBORN, Plaintiff in Error, v. The FIRST NATIONAL BANK OF HOLDENVILLE, Oklahoma, a corporation, Defendant in Error.

No. 42020.

Supreme Court of Oklahoma.

June 16, 1970.

Syllabus by the Court

1. There is no distinction between used automobiles and other chattels in the Oklahoma Uniform Commercial Code. A buyer of a used car from a used car dealer is under the same obligations and is entitled to the same protection as any other buyer of another chattel.

2. Where an automobile has been returned to or repossessed by seller who had assigned the security interest in the automobile, it is necessary for the secured party (assignee) to reperfect security interest for protection against purchasers or creditors of seller-assignor under 12A O.S.1961, § 9--306(5)(d).

Appeal from the District Court of Lincoln County; Donald E. Powers, Judge.

Action in replevin by secured party, The First National Bank of Holdenville, Oklahoma, against purchaser of used car, Rachel Osborn, following a return or repossession of automobile by seller from original buyer. From a judgment on the verdict for secured party, purchaser appeals. Reversed.

William A. Vassar, Chandler, for plaintiff in error.

Erwin & Erwin, Chandler, for defendant in error.

Doerner, Stuart, Saunders, Daniel & Langenkamp, William C. Anderson, R. Thomas Seymour, Tulsa, for amicus curiae.

HODGES, Justice.

This appeal is from a judgment rendered upon a jury verdict in favor of plaintiff in the District Court of Lincoln County in a replevin action. Parties will be referred to as they appeared below.

The question involved in this appeal is who has paramount title as between two innocent parties: (1) the purchaser of an used automobile following a repossession by original dealer-assignor of a security interest (defendant, Rachel Osborn); or (2) the assignee of a security interest (plaintiff, The First National Bank of Holdenville).

Buddy's Used Cars was the original owner of the car in question. The car was sold by Buddy to one Dickie Tiger and his wife, the original purchasers, who executed a promissory note for the balance of the purchase price and a financing statement and security agreement in favor of Buddy. Buddy in turn assigned the note and security agreement with recourse to the plaintiff. Tiger made one payment on the car and defaulted. It appears from the record that the payment was made to Buddy's Used Car lot and not the plaintiff. Tiger purchased the car in March and sometime in the month of June, the car was either picked up or repossessed by Buddy for nonpayment of the note.

After the repossession, Buddy's Used Car lot, which was located in Hughes County, either sold the car to Jack Washburn, a used car dealer in Pottowatomie County, or transferred the car as payment on a prior debt. Washburn in turn sold the car to a used car dealer in the same County by the name of Walling, who then sold it to the defendant in Pottowatomie County. Defendant resides in Lincoln County.

Plaintiff filed notice of the transaction between Buddy's and Tiger and the assignment in Hughes County in March, and also filed notice of these transactions in Lincoln County in August. The filing in Lincoln County was after the purchase of the car by the defendant.

Plaintiff asserts its security interest was perfected and that defendant cannot take better title than that of original seller, Buddy's Used Cars. The question then arises whether Buddy's sale to Washburn defeated the bank's (plaintiff) perfected security interest.

The Oklahoma Uniform Commercial Code does not make a distinction between automobiles and other chattels as do some states. In our jurisdiction, a buyer of a used car from a used car dealer is under the same obligations and is entitled to the same protection as any other buyer of another chattel under the Commercial Code.

The evidence is conflicting as to the status of Washburn. There is some evidence the car was purchased in cash by Washburn from Buddy. Other evidence indicates the car was transferred by Buddy to Washburn as payment on a prior debt. If Washburn's status is that of a creditor and the sale is made to him upon satisfaction of an antecedent indebtedness, then in that event, Washburn is not a 'buyer in ordinary course of business' as defined by the code in 12A O.S. 1--201(9). United States v. Greenwich Mill & Elevator Co., D.C.Ohio, 291 F.Supp. 609. If Washburn is not a 'buyer in ordinary course of business' then he is not entitled to the protection of 12A O.S. 9--307 or the entrusting provision of the code as provided in 12A O.S. 2--403(2). However, this factual conflict, and its significance, does not need to be resolved in view of the applicability of the following provision of the code. Title 12A O.S. 9--306(5) provides:

'If a sale of goods results in an account or chattel paper which is transferred by the seller to a secured party, and if the goods are returned to or are repossessed by the seller or the secured party, the following rules determine priorities:

(a) If the goods were collateral at the time of sale for an indebtedness of the seller which is still unpaid, the original security interest attaches again to the goods and continues as a perfected security interest if it was perfected at the time when the goods were sold. If the security interest was originally perfected by a filing which is still effective, nothing further is required to continue the perfected status; in any other case, the secured party must take possession of the returned or repossessed goods or must file.

(b) An unpaid transferee of the chattel paper has a security interest in the goods against the transferor. Such security interest is prior to a security interest asserted under paragraph (a) to the extent that the transferee of the chattel paper was entitled to priority under Section 9--308.

(c) An unpaid transferee of the account has a security interest in the goods against the transferor. Such security interest is subordinate to a security interest asserted under paragraph (a).

(d) A security interest of an unpaid transferee asserted under paragraph (b) or (c) must be perfected for protection against creditors of the transferor and purchasers of the returned or repossessed goods.'

This provision is new in Oklahoma. It deals with goods and merchandise that have been repossessed or returned to the dealer or merchant by the purchaser. Subsection 5(d) specifically deals with lien priorities against creditors of the dealer-transferor and purchasers of the returned or repossessed goods. It provides that when mortgaged goods are returned to or repossessed by the dealer that the original perfection of the lien does not automatically carry over to the returned car. In such instances, the holder of the chattel paper must do one of two things to protect its security interest: (1) take possession of the returned or repossessed car; or (2) reperfect a new security interest as to the dealer and file as to it. See, Uniform Commercial Code Comment, 12A O.S.1961, 9--306 at...