Superior Bank v. HUMAN SERVICES, A02A0037.

• Decision Date: 24 October 2001
• Docket Number: No. A02A0037.,A02A0037.
• Citation: 252 Ga. App. 489,556 S.E.2d 155
• Parties: SUPERIOR BANK, FSB et al. v. HUMAN SERVICES EMPLOYEES CREDIT UNION.
• Court: Georgia Court of Appeals

556 S.E.2d 155

252 Ga. App. 489

SUPERIOR BANK, FSB et al. v. HUMAN SERVICES EMPLOYEES CREDIT UNION.

No. A02A0037.

Court of Appeals of Georgia.

October 24, 2001.

Reconsideration Denied November 16, 2001.

Bridgers, Stringfellow, Bland & Peters, Henry R. Stringfellow, Decatur, for appellants.

Macey, Wilensky, Cohen, Wittner & Kessler, Michael C. Kaplan, Atlanta, for appellee.

ELDRIDGE, Judge.

A used car dealer, Car Consultants Finance, Inc. d/b/a R & V Auto Sales, sold the 1994 Infiniti Q45 to Ronald and Veronica D. Wilborn for their personal use. On July 15, 1998, the Wilborns, individually, entered into an Open-End Credit Plan Security Agreement to purchase the 1994 Inifiniti, vehicle identification number JNKG01D7RM258118, with Human Services Employees Credit Union. On August 11, 1998, the Credit Union perfected its security interest with the Georgia Department of Motor Vehicles.

On December 22, 1998, the Wilborns, who owned Car Consultants, had the used car dealer sell to Marilyn Billingsley by a retail automobile sales contract the car. Superior Bank, FSB financed Billingsley's purchase of this car and attempted to perfect its security interest in the car. Car Consultants did not pay off the car lien to the Credit Union or deliver the title so that its prior security interest was unknown to Billingsley and Superior Bank. On November 17, 1999, after the prior security interest was discovered, Billingsley, and Superior Bank sued the Credit Union, the Wilborns, and Car Consultants to quiet title to the car and to determine that Superior Bank had the first lien. The Credit Union answered and counterclaimed to either regain possession or for conversion of the car. The Wilborns filed a plea of stay in bankruptcy, which was granted, and they were voluntarily dismissed from the suit. On October 20, 2000, the Credit Union moved for summary judgment. On May 23, 2001, the trial court granted summary judgment to the Credit Union and gave it possession of the car. We affirm, because the Credit Union did not know that the Wilborns had transferred the car to their dealership, Car Consultants, and had not consented to the sale by Car Consultants in the ordinary course of business as dealers; the Wilborns defaulted on repayment of the purchase financing to the Credit Union, and no one else has repaid such debt, giving the Credit Union the right of possession to the car. See OCGA § 11-2-403(2).

1. The plaintiffs contend that the trial court erred in not finding that Billingsley was a buyer in the ordinary course of business—OCGA § 11-1-201(9). They also contend that the trial court erred in finding that the Wilborns were prohibited from entrusting the car to Car Consultants for sale because of the security contract with the Credit Union. They further assert that the trial court erred in failing to apply OCGA § 11-2-403 to protect Billingsley as the good faith purchaser of entrusted goods in the ordinary course of business from a dealer in such goods. Plaintiffs also contend that the trial court failed to apply OCGA § 11-9-307. All of these issues must be decided together rather than in a piecemeal fashion, because the issues interlock.

The plaintiffs mistakenly rely upon several provisions of the Uniform Commercial Code for results not intended by the Code. First, reliance is placed on OCGA § 11-1-201(9), definition of buyer in the ordinary course of business, which means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind. Secondly, they rely upon OCGA § 11-2-403(2): "[a]ny entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business." OCGA § 11-2-403(3) defines entrusting as "includ[ing] any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence." Finally, the plaintiffs rely upon OCGA § 11-9-307(1), "[a] buyer in ordinary course of business ... takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence," and OCGA § 11-9-307(2), "[i]n the case of consumer goods, a buyer takes free of a security interest even though perfected if he buys without knowledge of the security interest, for value, and for his own personal, family, or household purposes unless prior to the purchase the secured party has filed a financing statement covering such goods." Despite the plain meaning of these statutes, plaintiffs attempt to cobble together a means to escape a statutorily created perfected security interest that was prior in time to the resale and financing.

The Credit Union possessed a perfected first security interest created by the Wilborns and recorded on the motor vehicle title certificate issued by the State of Georgia to the Wilborns for the car that they initially purchased from Car Consultants. See OCGA §§ 11-9-302(3)(b); 40-3-50.

The Credit Union did not either own or possess the car, which belonged to the Wilborns who had both ownership and possession, and it had the right of possession only upon a default of the purchase money security interest by the Wilborns after Car Consultants failed to pay off its security interest upon resale. Therefore, only the Wilborns were the entrusters under the facts and law of this case, because OCGA § 11-2-403(2) and (3) apply only to the owner of the goods as the entruster. Sunnyland &c. Credit Union v. Fort Wayne Mtg. Co., 182 Ga.App. 5, 6, 354 S.E.2d 645 (1987) (the first security holder was not the owner and could not be the entruster even if it, upon default, placed the personalty with a dealer for resale; the security interest survived resale); United Carolina Bank v. Sistrunk, 158 Ga. App. 107, 109(1), 279 S.E.2d 272 (1981) (secured party is not the entruster, only the owner can be the entruster under this section; therefore, the security interest survived resale). Thus, the Wilborns, as owners, knowingly placed the car for sale with a dealer of such goods, Car Consultants, to sell the car. However, this did not impair the Credit Union's prior perfected security interest.

Thus, under the facts of this case, the Wilborns and not the Credit Union were the "entrusters," because they held title subject to the Credit Union's security interest. Therefore, they alone had the right to entrust the car to Car Consultants, a dealer in such goods, to sell only under OCGA § 11-2-403(2) and (3) "all rights of the entruster," which was subject to the prior perfected security interest in the Credit Union. Billingsley acquired what title the Wilborns had and ownership in the car; Superior Bank obtained a subordinate second security interest in the car subject to the Credit Union's perfected pre-existing security interest.

A different interpretation of [OCGA § 11-2-403(2) and (3) ] as to whether an entruster can empower a dealer to transfer rights of the secured creditor in the goods[] would contravene [OCGA § 11-9-306(2),]; which provides: "Except where this Article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange, or other disposition thereof unless the disposition was authorized

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