Robison, Matter of

• Decision Date: 30 October 1981
• Docket Number: No. 79-2246,79-2246
• Citation: 665 F.2d 166
• Parties: In the Matter of Max C. ROBISON, Bankrupt. Appeal of Tony ROBISON.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 166

665 F.2d 166

In the Matter of Max C. ROBISON, Bankrupt.

Appeal of Tony ROBISON.

No. 79-2246.

United States Court of Appeals, Seventh Circuit.

Submitted Oct. 30, 1981. ^*

Decided Nov. 30, 1981.

Kenneth L. Bast, Mattoon, Ill., for appellant.

Thomas J. Logue, Glenn & Logue, Mattoon, Ill., for appellee.

Before PELL, BAUER, and WOOD, Circuit Judges.

PER CURIAM.

This is an appeal from an order of the district court affirming a bankruptcy judge's order directing defendant-appellant Tony Robison to turn over a Mack truck to the trustee of his father's bankrupt estate. The sole issue presented is whether the failure to comply with the provisions of the Illinois Motor Vehicle Code relating to the assignment and delivery of the certificate of title renders the purported transfer of a vehicle invalid as to a trustee in bankruptcy. We hold that it does not.

I

On or about May 15, 1978, Max C. Robison purchased a 1969 Mack truck. The purchase was financed with a loan from Kansas State Bank of Kansas, Illinois, in the amount of $8900. ¹ In return for the loan, Robison signed a security agreement with the Bank and executed a promissory note. Due to the bank's inadvertence, however, the security interest was never perfected, and on June 8, 1978, the Secretary of State of Illinois issued a certificate of title to Max C. Robison with no lien shown.

Max Robison never made any payments on the note to Kansas State Bank. Shortly after his purchase of the truck, he entered into an agreement with his son, Tony, under which Tony was to take possession of the truck and assume responsibility for the payments as they became due. ² Sometime in June of 1978, Tony went to the bank and explained the agreement to Michael Kern, the bank officer who had handled the original transaction for his father. After obtaining the approval of the bank president, Kern agreed to the change. But rather than draw up a new note and security agreement, Kern simply had Tony sign the existing note and security agreement that had previously been signed by his father. At the hearing before the bankruptcy judge, Kern explained that this was done so that Tony's father would remain liable as a cosigner on the note. No new certificate of title was issued.

Tony Robison then took possession of the truck and proceeded to lease it to Douglas Transit, Inc. Under the terms of the lease agreement, he was to drive the truck for Douglas, transporting general commodities throughout the state at its direction. He was to be paid a percentage of the gross amount earned on runs made with his truck. The lease was signed by both Tony and his father. His father was listed on the lease as the "registered owner" of the truck.

During the remainder of 1978, Douglas Transit, Inc., paid Tony Robison $30,885 pursuant to the lease agreement. No money was paid to Max Robison. Also during this time, Tony made three payments on the note to Kansas State Bank and paid for all parts and repairs for the truck. ³

On November 3, 1978, Max C. Robison filed a voluntary petition in bankruptcy. He listed the 1969 Mack truck as an asset on his schedule in bankruptcy and declared his indebtedness to Kansas State Bank on the promissory note he had signed for it. On November 15, 1978, the date of the first meeting of creditors, Max attempted to execute an assignment of the title to the truck to his son. On November 29, 1978, the bankruptcy trustee filed a petition for a turnover order, alleging that the purported transfer was null and void and that the truck was properly the property of the bankrupt estate.

Following a hearing on the matter, the bankruptcy court issued an order granting the petition and directing Tony Robison to turn the truck over to the trustee. The bankruptcy judge based his ruling on section 3-112 of the Illinois Motor Vehicle Code, Ill.Rev.Stat. ch. 951/2, § 3-112. Under that section, the owner of a motor vehicle who transfers his interest in the vehicle other than by creation of a security interest is required to execute an assignment and warranty of title to the transferee on the certificate of title and to deliver the certificate to the transferee at the time of delivery of the vehicle. The transferee is then required to promptly execute the application for a new certificate of title on the certificate received by him and deliver it to the Secretary of State. Subsection (e) of § 3-112 states:

(e) Except as provided in Section 3-113 and as between the parties, a transfer by an owner is not effective until the provisions of this Section and Section 3-115 have been complied with; however, an owner who has delivered possession of the vehicle to the transferee and has complied with the provisions of this Section and Section 3-115 requiring action by him is not liable as owner for any damages thereafter resulting from operation of the vehicle.

Because the Robisons had failed to comply with this section prior to the date Max Robison filed his petition for bankruptcy, the bankruptcy judge concluded that a valid transfer had not occurred and title to the truck therefore vested in the trustee as of that date.

The district court affirmed the bankruptcy judge's order holding first that the evidence was sufficient to support his finding that no transfer had in fact occurred. The court then went on to hold that, even if a transfer of ownership had been made, it was not effective as to the trustee because of the parties' failure to comply with section 3-112 of the Motor Vehicle Code.

II

The trustee argues in his brief that this court, like the district court, should affirm the turnover order on the ground that the bankruptcy judge's factual finding that no transfer had occurred is sufficiently supported by the evidence. Rule 810 of the Rules of Bankruptcy Procedure requires reviewing courts to accept such findings "unless they are clearly erroneous...." The trustee contends that the bankruptcy judge's finding of no transfer is not clearly erroneous in light of the record considered as a whole and that it should therefore be accepted by this court.

The difficulty with this argument is that it does not appear that the bankruptcy judge made the finding which the trustee urges this court to accept. In granting the trustee's petition for a turnover order, the bankruptcy judge did not state that the bankrupt had not in fact transferred ownership of the truck to his son, but rather that a valid transfer had not been made. Because the bankrupt had not executed an assignment of title and delivered the certificate to his son before he filed his petition for bankruptcy, the judge concluded that, as a matter of law, a valid transfer could not have occurred before that time. Thus, the question before this court is not whether there is sufficient evidence to support the bankruptcy judge's factual findings, but whether he is legally correct in his conclusion that noncompliance with section 3-112 renders the attempted transfer of a motor vehicle ineffective as to a trustee in bankruptcy.

On this issue, appellant contends that both the bankruptcy court and the district court erred in holding that noncompliance rendered the transfer invalid. He argues that both the plain language of section 3-112 and the Illinois cases applying it clearly show that compliance with that section is not essential to a valid transfer of a motor vehicle.

We agree with appellant that under Illinois law an individual can effectively transfer his interest in a motor vehicle without complying with section 3-112. Subsection (e) of section 3-112 specifically states that a transfer is not effective "(e)xcept ... as between the parties ... until the provisions of this Section ... have been complied with; ..." (emphasis added). As appellant points out, the obvious implication of this language is that, as between the parties, a transfer is effective even though compliance has not yet been achieved.

The Illinois cases cited by appellant strongly support this interpretation. They hold that, as between the parties, the time of the passing of title to a motor vehicle is a question of their intent. Perry v. Saleda, 34 Ill.App.3d 729, 737, 340 N.E.2d 314, 320 (1975); State Farm Mutual v. Lucas, 50 Ill.App.3d 894, 8 Ill.Dec. 867, 365 N.E.2d 1329 (1977); County Mutual v. Aetna Life & Casualty, 69 Ill.App.3d 764, 26 Ill.Dec. 207, 387 N.E.2d 1037 (1979); Ricke v. Ricke, 130 Ill.App.2d 563, 264 N.E.2d 285 (1970). While the certificate of title issued by the Secretary of State may constitute evidence of this intent, it is not conclusive. Thus, as the court stated in State Farm Mutual v. Lucas, supra, 50 Ill.App.3d at 898, 8 Ill.Dec. at 870, 365 N.E.2d at 1332, "(t)he Illinois rule is that the gift of an automobile can be effected without going through the Secretary of State's Office and that the donee acquires title regardless of such formalities."

Applying these principles to the facts of this case, appellant contends that the evidence clearly shows that his father intended to and did transfer the truck to him in June of 1978. Because that transfer was effective as between the parties, he argues that it must also be effective as against the trustee since he merely "stands in the shoes of the bankrupt" and can have no greater right in the property than the bankrupt whom he represents. (Appellant's Brief, p. 6.)

On this point, however, appellant is clearly mistaken. For "(w)hile it is unquestionably true that the trustee (stands) in the shoes of the bankrupt, it is equally true that he (stands) in the overshoes of the creditors ...." Schneider v. O'Neal, 243 F.2d 914, 918 (8th Cir. 1957). See generally 4B Collier On Bankruptcy, P 70.45 et seq. (14th Ed.). Under section 70(c) of the Bankruptcy Act, ⁴ 11 U.S.C. § 110(c), the trustee occupies the position of a lien creditor of the bankrupt (whether or not such a creditor actually exists) as of the date of bankruptcy. Section 70(e) additionally empowers the trustee to set aside...