Opinion ID: 2623607
Heading Depth: 2
Heading Rank: 1

Heading: onyx's liability for conversion

Text: ¶ 13 Onyx's liability for conversion was premised on the district court's holding that Mahana's interest in the truck was superior to any interest held by Onyx. The relative priority of interests is governed by statute. We review the district court's interpretation of statutes for correctness, giving no deference to its conclusions. Ward v. Richfield City, 798 P.2d 757, 759 (Utah 1990). ¶ 14 Article 9 of the U.C.C., in effect in both Utah and Arizona at the relevant time, protects non-dealer purchasers who rely on unencumbered or clean certificates of title to goods and who are otherwise unaware of prior security interests. See Utah Code Ann. § 70A-9-103(2)(b), (d) (1999) (repealed effective July 1, 2001); Ariz.Rev.Stat. § 47-9103(B)(2), (4) (1999) (repealed effective July 1, 2001). Such purchasers are commonly referred to as bona fide purchasers. See, e.g., Timm v. Dewsnup, 921 P.2d 1381, 1393 n. 7 (Utah 1996) (defining the term bona fide purchaser). The relevant statute provides: If goods are brought into this state while a security interest therein is perfected in any manner under the law of the jurisdiction from which the goods are removed and a certificate of title is issued by this state and the certificate does not show that the goods are subject to the security interest or that they may be subject to security interests not shown on the certificate, the security interest is subordinate to the rights of a buyer of the goods who is not in the business of selling goods of that kind to the extent that he gives value and receives delivery of the goods after issuance of the certificate and without knowledge of the security interest. Utah Code Ann. § 70A-9-103(2)(d) (1999) (repealed effective July 1, 2001); Ariz.Rev. Stat. § 47-9103(B)(4) (1999) (repealed effective July 1, 2001). We will refer to this provision as the Bona Fide Purchaser provision. ¶ 15 The Bona Fide Purchaser provision is subject to an exception, however. When collateral in which a lender has a perfected security interest is removed from the state that issued the certificate of title, the U.C.C. establishes a four-month period during which the security interest remains perfected as against a subsequent bona fide purchaser in the new state. From the perspective of the lienholder, this constitutes a grace period during which the lienholder retains priority over a bona fide purchaser and during which the lienholder has an opportunity to re-perfect its security interest in the new jurisdiction. The operative provision states: Except as otherwise provided in this subsection, perfection and the effect of perfection or nonperfection of the security interest are governed by the laws, including the conflict of law rules, of the jurisdiction issuing the certificate until four months after the goods are removed from that jurisdiction and thereafter until the goods are registered in another jurisdiction, but in any event not beyond surrender of the certificate. After the expiration of that period, the goods are not covered by the certificate of title within the meaning of this section. Utah Code Ann. § 70A-9-103(2)(b) (1999) (emphasis added) (repealed effective July 1, 2001); Ariz.Rev.Stat. § 47-9103(B)(2) (1999) (repealed effective July 1, 2001). We will refer to this section as the Governing Law provision. ¶ 16 The Bona Fide Purchaser provision establishes a general rule that a perfected security interest reflected only on the certificate of title issued by a prior jurisdiction is subordinated to the interest of a bona fide purchaser when goods are moved to a new jurisdiction. The Governing Law provision operates as an exception to that general rule by establishing that the Bona Fide Purchaser provision in the new state's law does not apply until after the expiration of a four-month grace period during which the lien-holder has an opportunity to re-perfect his security interest in the new jurisdiction. ¶ 17 The district court held that the Bona Fide Purchaser provision and the Governing Law provision operated to extinguish Onyx's security interest in the truck under the circumstances presented here. We agree. Chris Mahana bought the truck relying on a certificate of title issued by the state of Arizona that reflected no lien. It is undisputed that Mahana was not in the business of selling vehicles and that, when he bought the truck, he had no knowledge of Onyx's security interest. Although the precise date on which the truck was removed from California was not established, it is undisputed that the truck had made its way to Arizona by August 24, 1995, when Arizona issued the certificate of title to Sonny Nicholas. It is further undisputed that Onyx never re-perfected its security interest in the truck and did not attempt to repossess it until November of 1998, well after the four-month grace period had elapsed. Therefore, Mahana qualified as a bona fide purchaser, and his interest in the truck was superior to that of Onyx. ¶ 18 Our interpretation of the applicable U.C.C. provisions is consistent with that of the Arizona Court of Appeals in a case relied on by the district court, Arrow Ford, Inc. v. W. Landscape Constr. Co., 23 Ariz.App. 281, 532 P.2d 553 (1975). The court in Arrow Ford held: The UCC's establishment of a four-month period of protection was an attempt to insure a definite cut-off period for the determination of rights and priorities of liens. Our holding effectively attains that goal. At the expiration of the four-month period, either the secured party has reperfected and has priority over subsequent interest holders or fails to reperfect and loses his priority. Id. at 558 (interpreting a prior version of Article 9). ¶ 19 Our interpretation is also supported by the views of the U.C.C. commentators. The seventh official comment to section 9-103 of the U.C.C. explains: After the four month period or the remaining period of effectiveness, whichever is shorter, the secured party must comply with perfection requirements in [the new] state.... The four month period is long enough for a secured party to discover in most cases that the collateral has been removed and refile in [the new] state; thereafter, if he has not done so, his interest, although originally perfected in the jurisdiction from which the collateral was removed, is subject to defeat here [in the new state] by purchasers of the collateral. U.C.C. § 9-103 (1998). ¶ 20 In urging us to hold that its interest in the truck was superior to that of Mahana, Onyx focuses exclusively on the Bona Fide Purchaser provision. Onyx argues that Mahana was entitled to bona fide purchaser status only if he gave value and received delivery of the truck after the issuance of a Utah certificate of title that reflected no lien. Under Onyx's proposed interpretation, bona fide purchaser status is available only to those purchasers who purchase goods in reliance on a clean certificate of title issued by the state in which the purchase occurs. ¶ 21 Onyx's proposed interpretation is inconsistent with the statutory language. Were we to accept Onyx's interpretation of the Bona Fide Purchaser provision, it would render the Governing Law provision meaningless. Under the Governing Law provision, the issue of perfection is governed by the laws ... of the jurisdiction issuing the certificate until four months after the goods are removed from that jurisdiction and thereafter until the goods are registered in another jurisdiction, but in any event not beyond surrender of the certificate. Utah Code Ann. § 70A-9-103(2)(b) (1999) (emphasis added) (repealed effective July 1, 2001); Ariz.Rev.Stat. § 47-9103(B)(2) (1999) (repealed effective July 1, 2001). Accordingly, it was only during the first four months after the truck was moved to Arizona that Onyx's California lien could trump the Arizona certificate of title. The statutory scheme does not contemplate the resuscitation of the California lien after the vehicle has been moved to and titled in another state. Nor does the Bona Fide Purchaser provision contain any language suggesting that bona fide purchaser status is available only to those consumers who purchase a vehicle in the same state that issued the certificate of title free of any liens. ¶ 22 Onyx's proposed interpretation is similarly inconsistent with the statutory purpose, which is to establish a period of time during which a security interest may be re-perfected, and after which consumer purchasers may rely on unencumbered certificates of title without risk of loss due to unknown liens. An interpretation that would allow the revival of a previously extinguished security interest simply because collateral is moved to a new jurisdiction is inconsistent with this statutory purpose. [2] ¶ 23 In urging us to hold that its interest takes priority over Mahana's, Onyx relies on Commercial National Bank v. McWilliams, 270 Ark. 826, 606 S.W.2d 363 (1980). In McWilliams, the Arkansas Supreme Court sided with a lienholder against a downstream purchaser who had purchased a motor home in a different state from the one in which the lienholder had perfected its interest. Id. at 365. In McWilliams, however, the purchaser did not rely on a clean certificate of title. Id. Although the purchaser was eventually able to procure a clean certificate of title, he did not do so until after the lienholder had brought a legal action seeking to foreclose its lien. Id. Because the purchaser had not relied on the issuance of a clean certificate of title, he did not qualify as a bona fide purchaser under U.C.C. Article 9. Id. ¶ 24 Unlike the purchaser in McWilliams, Mahana is entitled to protection as a bona fide purchaser because he purchased the truck after Arizona had issued a clean certificate of title and because Onyx failed to assert any claim to the truck until long after the four-month statutory grace period had expired. We accordingly affirm the decision of the district court with respect to Onyx's liability for conversion.