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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 the dissent discussed in the comment below. See comments on that story for an amazing discussion of likely judicial corruption of some kind, the rejection of the rule of law at the very least. http://www.theindianalawyer.com/justices-deny-transfer-to-child-custody-case/PARAMS/article/42774#comment

  2. That means much to me, thank you. My own communion, to which I came in my 30's from a protestant evangelical background, refuses to so affirm me, the Bishop's courtiers all saying, when it matters, that they defer to the state, and trust that the state would not be wrong as to me. (LIttle did I know that is the most common modernist catholic position on the state -- at least when the state acts consistent with the philosophy of the democrat party). I asked my RCC pastor to stand with me before the Examiners after they demanded that I disavow God's law on the record .... he refused, saying the Bishop would not allow it. I filed all of my file in the open in federal court so the Bishop's men could see what had been done ... they refused to look. (But the 7th Cir and federal judge Theresa Springmann gave me the honor of admission after so reading, even though ISC had denied me, rendering me a very rare bird). Such affirmation from a fellow believer as you have done here has been rare for me, and that dearth of solidarity, and the economic pain visited upon my wife and five children, have been the hardest part of the struggle. They did indeed banish me, for life, and so, in substance did the the Diocese, which treated me like a pariah, but thanks to this ezine ... and this is simply amazing to me .... because of this ezine I am not silenced. This ezine allowing us to speak to the corruption that the former chief "justice" left behind, yet embedded in his systems when he retired ... the openness to discuss that corruption (like that revealed in the recent whistleblowing dissent by courageous Justice David and fresh breath of air Chief Justice Rush,) is a great example of the First Amendment at work. I will not be silenced as long as this tree falling in the wood can be heard. The Hoosier Judiciary has deep seated problems, generational corruption, ideological corruption. Many cases demonstrate this. It must be spotlighted. The corrupted system has no hold on me now, none. I have survived their best shots. It is now my time to not be silent. To the Glory of God, and for the good of man's law. (It almost always works that way as to the true law, as I explained the bar examiners -- who refused to follow even their own statutory law and violated core organic law when banishing me for life -- actually revealing themselves to be lawless.)

  3. to answer your questions, you would still be practicing law and its very sad because we need lawyers like you to stand up for the little guy who have no voice. You probably were a threat to them and they didnt know how to handle the truth and did not want anyone to "rock the boat" so instead of allowing you to keep praticing they banished you, silenced you , the cowards that they are.

  4. His brother was a former prosecuting attorney for Crawford County, disiplined for stealing law books after his term, and embezzeling funds from family and clients. Highly functional family great morals and values...

  5. Wondering if the father was a Lodge member?

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