Certificate of Title Act Primes the Uniform Commercial Code in Determining Claims to Titled Motor Vehicles
 
May 16, 2005
 
Michael Weissman - Chicago

In First Merit Bank, N.A. v. Angelini, 159 Ohio App.3d 179, 823 N.E.2d 485 (2004) the issue was which of two secured creditors was the superior lienholder on two motor vehicles.

In January 2002 auto dealer John Angelini sold a 2000 Astro van to Carl Ross. Ross received credit for a trade-in; the unpaid balance was financed by First Merit Bank (First Merit). In March 2002 Jerry Longacre purchased a Saturn from Angelini. He, too, received a trade-in allowance and financed the unpaid balance with First Merit. On the day of the purchases, both Ross and Longacre left their trade-ins with Angelini and drove away in their new vehicles but did not receive title certificates for the new vehicles.

Prior to the sales, Galion Building and Loan Bank (Galion) had perfected security interests in both vehicles. Each vehicle was collateral for a loan to Angelini. Galion’s liens were specifically noted on the face of each title certificate. Galion also had physical possession of the title certificates for both vehicles.

Although Angelini was paid in full for both the Astro and the Saturn, he failed to pay Galion. Not having been paid, Galion would not release the title certificates. Lacking the title certificates, First Merit was unable to obtain clear title certificates for Ross and Longacre. And without evidence of ownership, Ross and Longacre could not obtain license plates for their vehicles.

First Merit sued both Angelini and Galion. As to Angelini, First Merit alleged that he committed fraud when he received First Merit’s loan proceeds and failed to pay Galion. As to Galion, First Merit sought to have Galion’s perfected security interest in the vehicles extinguished and the certificates of title transferred.

The first issue the court considered was whether the provisions of the Ohio Certificate of Title Act prevailed over the Uniform Commercial Code. First Merit argued that it should prevail since it was the secured creditor of bona fide purchasers for value. But the court did not see it that way. It held that in Ohio a purchaser of a motor vehicle acquires no right, title or interest in a vehicle until he obtains a certificate of title. Ruling for Galion, the court said, “… because the certificates of title were never assigned and delivered to Angelini, Angelini was never the lawful owner of the vehicles, and, therefore, could not lawfully pass title to First Merit. Accordingly, by retaining possession of the certificates of title, Galion’s security interests in these vehicles remained superior.”

And in answer to First Merit’s argument that public policy requires protection for the secured creditors of bona fide purchasers for value of motor vehicles, the court said that even though the general approach of the Uniform Commercial Code is to protect bona fide purchasers it should not apply in this case “because motor vehicles are a distinct and different type of goods.”

What’s the point?

When dealing with motor vehicles whose title certificates are encumbered, lenders must concern themselves with the applicable provisions of state certificate of title laws rather than the Uniform Commercial Code.

For more information, e-mail Michael L. Weissman at michael.weissman@hklaw.com or call toll free, 1-888-688-8500.