Title To Car Is Valid Security Agreement

Listed Price Not Amount Of Debt

Where the buyer of a car did not make all the payments and the seller wanted to repossess the car or collect the balance due, the car’s certificate of title is a security agreement under the Uniform Commercial Code -but the seller’s security interest is not necessarily limited to the price listedon the title, the Michigan Court of Appeals has decided.

Instead, the certificate of title’s price which, in this case, was lower than the actual purchase price created “a question of fact as to the intended scope” of the seller’s I security interest, the court said.

In making its ruling, the Court of Appeals affirmed the trial court’s finding that the title created a security agreement.

“The application for a certificate of title showed unequivocally that plaintiff was to have a security interest in the Corvette,” the Court of Appeals said.

However, the panel reversed the trial court’s ruling that the seller’s interest was limited to the amount listed on the title and that the seller’s interest was discharged.

“While the purchase price is listed as $500 on the title application, that figure is not necessarily a term of the security agreement itself,” the Court of Appeals said in a per curiam decision.

The published case is Roan v. Murray, Lawyers Weekly No. 26787 (4 pages). Court of Appeals judges Maureen P. Reilly and Mark J. Cavanagh were on the panel, along with Oakland County Circuit Court Judge Robert C. Anderson, who sat by assignment.

Court Not “Nitpicky”

This was a Judgment call. The court could have gone either way,” said Farmington Hills attorney Steve Lehto, who represents the seller. “I’m glad the court said there was a valid security interest here. Courts are often too ‘nitpicky’ about when an interest exists, when the code is actually quite liberal about it,” he said. However, Lehto said he was disappointed that the court did not let his client recover attorney fees. “There’s a practical problem here,” he stated. “My client has been forced to sue in order to get his money or the car back. By doing so, he’s running up attorney fees. I was hoping that there would be some interpretation by the court allowing for the recovery of attorney fees in such circumstances.” Lehto explained that under Michigan law “you can recover the reasonable expenses of retaking the collateral. Attorney fees should be part of that.” An appeal is unlikely, Lehto said, because there is “a dearth of Article 9 law in this state.”

Willing To Pay

Thomas Clemons, who represents the buyer, said that his client “has been willing to pay the money all along.” However, “the seller really wants the car back,” he asserted, noting that the buyer has “renovated the car and made significant improvements to it” since its purchase. “I think that the plaintiff feels that if he took the car and sold it he could offset some of his attorney fees,” the Algonac lawyer said. Clemons said that he does not plan to appeal the decision.

Sour Sale

Plaintiff James Roan sold defendant Steven Murray a 1968 Chevrolet Corvette for $3,500 in March 1987. The plaintiff was listed as the first secured party on the defendant’s application for the certificate = = tie, which was signed by the defendant. The panel said. purchase price listed on the title was $500.Therefore, the issue in this case was The parties had agreed that the defendant” whether the vehicle title application was would pay the plaintiff in interest-free installments. The defendant made “sporadic” $100 payments to the plaintiff until Aug. 2 I, 1989. At that time, the defendant had paid a total of $1,100 and did not make any additional payments. The plaintiff then sought the return of the car. Meanwhile, the defendant had made improvements to the car. The plaintiff filed a complaint against the defendant in January 1993. In the complaint the plaintiff argued that the application for certificate of title was a security agreement under §9-203 of the UCC.

The trial judge ruled that the plaintiff had a valid security agreement. However, the judge said that the plaintiff’s security interest was only for $500-the amount listed on the certificate of title. As a result, the plaintiffs interest had been extinguished because the defendant paid the plaintiff more than $500.

The trial court entered a money judgment for the plaintiff in the amount of $2,400 but ordered the plaintiff to execute a release of his security interest on the title of the car.

What Is Security Agreement?

On appeal, the plaintiff argued that the trial court improperly relied upon the defendant’s “false representation of the vehicle purchase price in the application for certificate of title to conclude that plaintiff’s security interest was limited to $500.”

However, the defendant claimed that the plaintiff did not establish “any enforceable security interest at all because the title application is insufficient to constitute the type of written security agreement required by §9203 of the UCC.”

The required components of a security agreement are “minimal” under the UCC, the Court of Appeals said.

“Article 9 defines ‘security agreement’ as ‘an agreement which creates or provides for a security interest,”‘ the court said.

Section 9-203(1) is “essentially a statute of frauds” and provides that “a security interest is not enforceable against a debtor and does not attach unless the secured party retains possession of the collateral or the agreement is in writing, signed bye the debtor and sufficient to create a security interest in the Corvette,” the court stated.

Title Creates Interest

The Court of Appeals then looked to other state court rulings, as well as Michigan statutes and case law, for guidance.

In White v. Household Finance Corp., 158 Ind. App. 394 (1973), the Indiana Court of Appeals ruled that “the application for certificate of title was not sufficient to create a security interest because it was not the agreement of the parties, but merely evidence that there may be an agreement,” the Court of Appeals explained.

But in Krieger v. Hartig, 11 Wash. App.898 (1974), the court held that “in view of the Code’s general policy to avoid technical formalities, the application for transfer of title was sufficient to create a security interest in compliance with §9-203,” the panel said.

Meanwhile, MCL 440.1201(3) provides that an “agreement” is “the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this act (sections 1205 and 2208),” the Court of Appeals said.

Further, the Michigan Supreme Court “has recognized that, although a signed writing describing the collateral is required, the remainder of the ‘agreement’ under the UCC may be established by parole evidence of course of dealings, usage of trade, or course of performance,” the panel observed, citing NBD-Sandusky Bank v. Ritter, 437 Mich. 354 (1991).

In the present case, the application for certificate of title “showed unequivocally” that the plaintiff had a security interest in the car.

“Thus, we conclude that the title application constituted a security agreement which gave plaintiff a security interest in the vehicle,” the panel said.

Question Of Fact

“However,” the Court of Appeals continued, “while we hold that the trial court correctly concluded that defendant’s title certificate application was sufficient evidence of the UCC security agreement for purposes of §9203(1) of the we find that the trial court erred in ruling that plaintiff’s security interest is necessarily limited to $500 of the purchase price, which the parties agree was. $3,500.”

Although the purchase price was listed as $500 on the certificate of title, “that figure is not necessarily a term of the security agreement itself” the panel explained.

“Indeed, it is highly questionable whether a written security agreement needs to state any terms of the security agreement other than to sufficiently describe the collateral,” the court said, noting that “[a] security agreement is not required to state the amount of the debt secured.

“At most, the representation on the application that the purchase price was $500 creates only a question of fact as to the intended scope of plaintiff’s security interest, not a conclusive statement of the amount of security involved,” the Court of Appeals said.

In addition, “even if it were established that plaintiff’s security interest is limited to $500, we reject the briar court’s conclusion that defendant’s initial payment of $1,100 on the debt necessarily discharges plaintiff’s security interest,” the panel stated.

“It could be argued that defendant’s $1,100 in payments were made on the $3,000 of unsecured debt, and that none of the $500 of secured debt has yet been paid by defendant,” the court said.

“This interpretation seems more consistent with the parties’ actual course of conduct, as apparently neither party sought the removal of plaintiff’s lien on the title once $500 of the debt had been paid,” the Court of Appeals observed.

The court also addressed the plaintiff’s argument that he was entitled to repossession of the car under MCL 440.9503, which says, “[unless] otherwise agreed a secured party has on default the right to take possession of the collateral.”

“Because we find that the trial court erred in holding that plaintiff’s security interest had been extinguished and that a question of fact exists as to the extent of plaintiff’s interest, we direct the trial court to address this issue on remand,” the panel said.

‘We note that if plaintiff is entitled to repossession of the Corvette and he elects to retain it, he must provide written notice to defendant. Defendant will then have twenty-one days to object in writing, in which case plaintiff must dispose of the vehicle in a commercially reasonable manner and account to defendant for any surplus,” the Court of Appeals concluded.
© Michigan Lawyer’s Weekly, November 4, 1996