Opinion ID: 491041
Heading Depth: 2
Heading Rank: 1

Heading: Perfected Security Interest

Text: 9 Article 9 of the Oregon Uniform Commercial Code (UCC) governs the perfection of security interests in personal property. See ORS 79.1010 to 79.5070. The UCC filing provisions do not apply, however, to perfection of a security interest in property subject to a certificate of title statute. ORS 79.3020(3)(b). The Oregon Motor Vehicle Code provided that the exclusive method for perfection of a security interest in non-inventory motor vehicles covered by a certificate of title was application for and notation of the security interest on the certificate of title. ORS 481.413(2), repealed, Or.Laws 1983, ch. 338, Secs. 978, 981 (repeal effective January 1, 1986). General Electric Credit Corp. v. Nordmark, 68 Or.App. 541, 684 P.2d 1, 3 (Or.App.1984). 10
11 The bankruptcy court held, and the district court affirmed, that Freightliner failed to perfect its security interest prior to the filing of debtor's bankruptcy petition. However, because it paid $40,689.67 for the assignment of Fruehauf's and TAC's perfected security interests, the courts below held that Freightliner acquired a perfected security interest to the extent of those payments. 12 There is no question that Freightliner failed to comply with the exclusive method of perfecting its security interest in debtor's vehicles and rolling stock. Debtor filed its bankruptcy petition on November 4, 1982. The earliest date on which Freightliner could have placed the required notation on the certificates of title was December 16, 1982. This was the date Freightliner received the certificates of title from TAC and Fruehauf. In actuality, Freightliner did not receive, from the MVD, the certificates of title with the requisite notations on them until between January 24 and 27, 1983. Freightliner, therefore, did not comply with the requirements of ORS 481.413(2) until after the bankruptcy petition was filed. 13 Freightliner claims, however, it did everything it could to perfect its interest in debtor's vehicle collateral before the bankruptcy petition was filed. It would have been successful, Freightliner contends, had it not been for debtor's intervening default on the loans to TAC and Fruehauf and the reticence of both of those third-party assignors in handing over the certificates of title. As a consequence, Freightliner argues that it is entitled to an equitable exception to the exclusive method of perfecting security interests pursuant to ORS 481.413(2). We do not agree. 14 The wording of ORS 481.413(2) indicates that no equitable considerations will be allowed. The statute, by its own wording, provides for the exclusive means by which a security interest in motor vehicles is perfected. A Bankruptcy Appellate Panel of this court recognized that a requirement of strict compliance with the terms of [an Arizona notation statute nearly identical to the Oregon statute] might be harsh and even unfair, however, it felt 'constrained by the mandatory language of the statute to give strict interpretation.'  In re Santa Fe Adobe, Inc., 34 B.R. 774, 775 (9th Cir. BAP 1983) (quoting Noble v. Bonnett, 118 Ariz. 397, 577 P.2d 248, 250 (Ariz.1978)). 15 Moreover, the purpose and legislative intent behind the statute suggests a strict interpretation: 16 [T]he clear contemplation of the [Oregon] legislature in ... providing for an exclusive method of perfecting security interests in motor vehicles recognized the mobility of the vehicles, the requirements for registration for use and title to obtain registration and the need for a uniform method to ascertain interests in such property exclusively. To retain a perfected security interest it was contemplated that the statutory requirements would be, and would be required to be, observed. 17 In re Hillstrom Shipbuilding Co., 5 B.R. 87, 91 (Bkrtcy.D.Oregon 1980). 18 Freightliner relies on In re Humphries, 1 B.R. 82 (Bkrtcy.D.Utah 1979) to support its argument that it is entitled to an equitable exception. In that case, plaintiff lienholder attempted to obtain from the Utah Motor Vehicle Division a new certificate of title on a truck so it could note its lien thereon. The plaintiff was thwarted due to the failure of the bankrupt to complete registration. In interpreting a notation statute nearly identical to Oregon's, the Utah court held that the lienholder qualified for an equitable exception to the statute because the lienholder did all that was required of it ... leaving on the bankrupt only the responsibility of concluding what it could not do. Id. at 84. Furthermore, the lien was noted on the Bill of Sale and thus, absent fraud, a clean certificate of title could not have been obtained and notice would have been imparted to a purchaser or creditor. Id. As a consequence, there could be no prejudice to intervening third parties. Id. 19 Humphries is distinguishable. In the case at bar the bankrupt cannot be blamed for Freightliner's failure to properly perfect its interest. The delay was caused by third party creditors trying to protect their own interests. Furthermore, the majority of the courts have held against Freightliner's argument. In In re Krulik, 6 B.R. 443 (Bkrtcy.M.D.Tenn.1980), the creditor admitted it did not perfect its interest in accordance with Tennessee's notation statute. But, it argued that its security interest was not perfected because it relied upon the debtor to apply for the title and he failed to do so. The court held that [r]eliance upon the purchaser of a motor vehicle ... does not overrule the ... statute's strict mandate with respect to perfection of security interests in such vehicles. Id. at 447. The same rule has been applied to third parties. 20 Though the actions of a third party were largely responsible for the failure to perfect the security interest, the bank was not entirely free from fault. It clearly could have, and indeed should have, more closely scrutinized the actions of those with whom it dealt. Furthermore, reliance upon the actions of a third party does not override the explicit statutory provisions. Matter of Schalk, 592 F.2d 993 (8th Cir.1979). 21 Concededly, there is some inequity in the result reached. The result is nevertheless dictated by the legal technicalities governing commercial transactions. Shelton v. Erwin, 472 F.2d 1118 (8th Cir.1973); Safe Deposit Bank and Trust Co. v. Berman, 393 F.2d 401 (1st Cir.1968). 22 In re Keith, 3 B.R. 382, 383 (Bkrtcy.E.D.Missouri 1980). See also In re Groves, 64 B.R. 329, 331 (Bkrtcy.M.D.Tenn.1986). We agree with this reasoning. As a consequence, Freightliner does not qualify for an equitable exception to ORS 481.413. The trustee properly avoided Freightliner's security interest in debtor's vehicle collateral except to the extent that Freightliner was subrogated to the perfected rights of its assignors. 23 2. To What Extent Was Freightliner Subrogated to the Perfected Security Interests of its Assignors? 24 Both parties agree that to the extent of Freightliner's payment of $40,689.67 of the debt owed Fruehauf and TAC, Freightliner is properly subrogated to the prior perfected security interests of Fruehauf and TAC. ORS 79.3020(2) provides: 25 If the secured party assigns a perfected security interest, no filing under ORS 79.1010 to 79.5070 is required in order to continue the perfected status of the security interest against creditors of and transferees from the original debtor. 26 ORS 481.410(3) provides that the holder of a security interest may assign the interest in a vehicle to a person other than the owner without affecting the interests of the owner or the validity or priority of the security interest. Similarly, a party who advances money to discharge a prior lien on real or personal property and thereafter takes a new mortgage as security for the payments of the prior debt is subrogated to the prior lien. In re Allen, 32 B.R. 93 (Bkrtcy.D.Or.1983); Metropolitan Life Ins. Co. v. Craven, 164 Or. 274, 101 P.2d 237 (1940). However, an assignee generally takes only the interest of its assignor. 27 Freightliner argues that the circumstances under which the assignments were executed justify an extension of the rule of subrogation to give a security interest in all of debtor's vehicle collateral to the full amount of Freightliner's claims. It contends that the assignors' possession of the certificates of title and prior agreements to release the certificates, together with the assignments, rendered Fruehauf and TAC agents and bailees of Freightliner, thereby allowing perfection in the vehicle collateral as security for debtor's obligations under ORS 79.3050. 2 28 Freightliner's argument is unavailing. As discussed above, ORS 481.413(2) is the exclusive method of perfecting a security interest in the debtor's vehicle collateral. We do not accept Freightliner's invitation to engraft a legal exception to the notation statute for the same reasons we do not engraft an equitable exception.