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

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Video pen? Nice work, "JW"! Let this be a lesson and a caution to all disgruntled ex-spouses (or soon-to-be ex-spouses) . . . you may think that altercation is going to get you some satisfaction . . . it will not.

  2. First comment on this thread is a fitting final comment on this thread, as that the MCBA never answered Duncan's fine question, and now even Eric Holder agrees that the MCBA was in material error as to the facts: "I don't get it" from Duncan December 1, 2014 5:10 PM "The Grand Jury met for 25 days and heard 70 hours of testimony according to this article and they made a decision that no crime occurred. On what basis does the MCBA conclude that their decision was "unjust"? What special knowledge or evidence does the MCBA have that the Grand Jury hearing this matter was unaware of? The system that we as lawyers are sworn to uphold made a decision that there was insufficient proof that officer committed a crime. How can any of us say we know better what was right than the jury that actually heard all of the the evidence in this case."

  3. wow is this a bunch of bs! i know the facts!

  4. MCBA .... time for a new release about your entire membership (or is it just the alter ego) being "saddened and disappointed" in the failure to lynch a police officer protecting himself in the line of duty. But this time against Eric Holder and the Federal Bureau of Investigation: "WASHINGTON — Justice Department lawyers will recommend that no civil rights charges be brought against the police officer who fatally shot an unarmed teenager in Ferguson, Mo., after an F.B.I. investigation found no evidence to support charges, law enforcement officials said Wednesday." http://www.nytimes.com/2015/01/22/us/justice-department-ferguson-civil-rights-darren-wilson.html?ref=us&_r=0

  5. Dr wail asfour lives 3 hours from the hospital,where if he gets an emergency at least he needs three hours,while even if he is on call he should be in a location where it gives him max 10 minutes to be beside the patient,they get paid double on their on call days ,where look how they handle it,so if the death of the patient occurs on weekend and these doctors still repeat same pattern such issue should be raised,they should be closer to the patient.on other hand if all the death occured on the absence of the Dr and the nurses handle it,the nurses should get trained how to function appearntly they not that good,if the Dr lives 3 hours far from the hospital on his call days he should sleep in the hospital

ADVERTISEMENT