ILNews

Actual notice denies bona fide purchaser defense

Back to TopE-mailPrintBookmark and Share

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.


 

ADVERTISEMENT

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Not enough copperheads here to care anymore, is my guess. Otherwise, a totally pointless gesture. ... Oh wait: was this done because somebody want to avoid bad press - or was it that some weak kneed officials cravenly fear "protest" violence by "urban youths.."

  2. Should be beat this rap, I would not recommend lion hunting in Zimbabwe to celebrate.

  3. No second amendment, pro life, pro traditional marriage, reagan or trump tshirts will be sold either. And you cannot draw Mohammed even in your own notebook. And you must wear a helmet at all times while at the fair. And no lawyer jokes can be told except in the designated protest area. And next year no crucifixes, since they are uber offensive to all but Catholics. Have a nice bland day here in the Lego movie. Remember ... Everything is awesome comrades.

  4. Thank you for this post . I just bought a LG External DVD It came with Cyber pwr 2 go . It would not play on Lenovo Idea pad w/8.1 . Your recommended free VLC worked great .

  5. All these sites putting up all the crap they do making Brent Look like A Monster like he's not a good person . First off th fight actually started not because of Brent but because of one of his friends then when the fight popped off his friend ran like a coward which left Brent to fend for himself .It IS NOT a crime to defend yourself 3 of them and 1 of him . just so happened he was a better fighter. I'm Brent s wife so I know him personally and up close . He's a very caring kind loving man . He's not abusive in any way . He is a loving father and really shouldn't be where he is not for self defense . Now because of one of his stupid friends trying to show off and turning out to be nothing but a coward and leaving Brent to be jumped by 3 men not only is Brent suffering but Me his wife , his kids abd step kidshis mom and brother his family is left to live without him abd suffering in more ways then one . that man was and still is my smile ....he's the one real thing I've ever had in my life .....f@#@ You Lafayette court system . Learn to do your jobs right he maybe should have gotten that year for misdemeanor battery but that s it . not one person can stand to me and tell me if u we're in a fight facing 3 men and u just by yourself u wouldn't fight back that you wouldn't do everything u could to walk away to ur family ur kids That's what Brent is guilty of trying to defend himself against 3 men he wanted to go home tohisfamily worse then they did he just happened to be a better fighter and he got the best of th others . what would you do ? Stand there lay there and be stomped and beaten or would u give it everything u got and fight back ? I'd of done the same only I'm so smallid of probably shot or stabbed or picked up something to use as a weapon . if it was me or them I'd do everything I could to make sure I was going to live that I would make it hone to see my kids and husband . I Love You Brent Anthony Forever & Always .....Soul 1 baby

ADVERTISEMENT