Actual notice denies bona fide purchaser defense

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The Indiana Court of Appeals today reversed an interlocutory order and remanded for the trial court to grant prejudgment possession of farm equipment to a company that had security interest in it even though it had been traded to another company.

In Deere & Co. v. Travis Hostetler and New Holland Rochester, No. 25A05-1006-CC-367, the appellate court was asked to determine whether the trial court properly interpreted and applied Indiana Code section 32-35-2-14 that determines essentially which party is entitled to prejudgment possession.

In 2008, Travis Hostetler entered into two contracts with Deere & Co. to buy farm equipment, with the terms granting Deere purchase money security interest in the equipment. A few months later, Hostetler sought to purchase more farm equipment from New Holland and traded two pieces of equipment on which Deere had priority perfected liens. New Holland asked Hostetler about the liens, and Hostetler said they’d been satisfied. New Holland also contacted Farmers State Bank, which said the debt to Deere had been satisfied.

However, the liens had not been satisfied and Hostetler had defaulted on his payments under the contracts with Deere. Because of that, Deere accelerated the payment obligation; Hostetler owed $268,584.04 on the first contract and $20,166.03 on the second.

Deere filed a complaint against Hostetler and New Holland for replevin, although the court noted it is actually an action to foreclose a security interest.

The trial court denied Deere’s request for prejudgment possession of the equipment in question and authorized New Holland to sell the equipment. It also required Deere to release its liens, which led to this appeal.

For a plaintiff to recover in an action for replevin, he must prove that he has title or right to possession, that the property is unlawfully detained, and that the defendant wrongfully holds possession.

“It is black letter law that, upon default, a secured creditor has the right to take possession of the collateral securing its claim and the rights set forth in the agreement with the defaulting party. I.C. §§ 26-1-9.1-601(a), -609(a)(1). Furthermore, a security agreement is effective against purchasers of the collateral. I.C. § 26-1-9.1-201(a),” wrote Chief Judge John Baker.

New Holland argued it was a bona fide purchaser because it believed the liens had been satisfied because of statements to that effect by Hostetler and Farmers State Bank.

The court noted that to be a bona fide purchaser, a party must establish it obtained property without actual or constructive notice of any adverse claims to the property. However, New Holland had actual notice of Deere’s perfected security interest, the court noted.

“As a general rule, we find that it is unreasonable to rely on the statements of third parties – or the debtor –about the current status of security interests. Specifically, Hostetler had every reason to be untruthful – and, indeed, New Holland acknowledges that it is aware that customers often misrepresent the status of liens on equipment offered in trade. Tr. p. 26-27. Although it was, perhaps, more reasonable to rely on statements made by bank employees, there is simply no excuse for New Holland’s failure to contact Deere directly. Its decision to rely on statements made by a third party removes any defense it may have had as a bona fide purchaser,” the judge wrote.

As an aside, the appellate court noted that New Holland had filed a third-party complaint against Farmers State Bank.



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  1. This is ridiculous. Most JDs not practicing law don't know squat to justify calling themselves a lawyer. Maybe they should try visiting the inside of a courtroom before they go around calling themselves lawyers. This kind of promotional BS just increases the volume of people with JDs that are underqualified thereby dragging all the rest of us down likewise.

  2. I think it is safe to say that those Hoosier's with the most confidence in the Indiana judicial system are those Hoosier's who have never had the displeasure of dealing with the Hoosier court system.

  3. I have an open CHINS case I failed a urine screen I have since got clean completed IOP classes now in after care passed home inspection my x sister in law has my children I still don't even have unsupervised when I have been clean for over 4 months my x sister wants to keep the lids for good n has my case working with her I just discovered n have proof that at one of my hearing dcs case worker stated in court to the judge that a screen was dirty which caused me not to have unsupervised this was at the beginning two weeks after my initial screen I thought the weed could have still been in my system was upset because they were suppose to check levels n see if it was going down since this was only a few weeks after initial instead they said dirty I recently requested all of my screens from redwood because I take prescriptions that will show up n I was having my doctor look at levels to verify that matched what I was prescripted because dcs case worker accused me of abuseing when I got my screens I found out that screen I took that dcs case worker stated in court to judge that caused me to not get granted unsupervised was actually negative what can I do about this this is a serious issue saying a parent failed a screen in court to judge when they didn't please advise

  4. I have a degree at law, recent MS in regulatory studies. Licensed in KS, admitted b4 S& 7th circuit, but not to Indiana bar due to political correctness. Blacklisted, nearly unemployable due to hostile state action. Big Idea: Headwinds can overcome, esp for those not within the contours of the bell curve, the Lego Movie happiness set forth above. That said, even without the blacklisting for holding ideas unacceptable to the Glorious State, I think the idea presented above that a law degree open many vistas other than being a galley slave to elitist lawyers is pretty much laughable. (Did the law professors of Indiana pay for this to be published?)

  5. Joe, you might want to do some reading on the fate of Hoosier whistleblowers before you get your expectations raised up.