BMW Financial Services, N.A., LLC v. Felice

2017 IL App (2d) 160397

• Court: Appellate Court of Illinois
• Decided: April 27, 2017
• Docket: 2-16-0397
• Status: Unpublished

Opinion

2017 IL App (2d) 160397

No. 2-16-0397

Opinion filed March 23, 2017

______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

______________________________________________________________________________

BMW FINANCIAL SERVICES, N.A., LLC, ) Appeal from the Circuit Court ) of Du Page County. Plaintiff-Appellee, ) ) v. ) No. 13-L-600 ) RICHARD D. FELICE and AUTO ) SHOWCASE, INC., d/b/a Auto Showcase ) of Carol Stream, ) ) Defendants ) ) Honorable (Auto Showcase, Inc., d/b/a Auto Showcase ) Ronald D. Sutter, of Carol Stream, Defendant-Appellant). ) Judge, Presiding. ______________________________________________________________________________

PRESIDING JUSTICE HUDSON delivered the judgment of the court, with opinion. Justices Schostok and Spence concurred in the judgment and opinion.

OPINION

¶1 Plaintiff, BMW Financial Services, N.A., LLC (BMW Financial), filed a replevin

complaint in the circuit court of Du Page County, seeking possession of a 2011 Porsche

Panamera. The complaint named Richard D. Felice as defendant, but an amended complaint

named both Felice and Auto Showcase, Inc. (Auto Showcase), as defendants. Felice was later

dismissed from the action. BMW Financial and Auto Showcase filed cross-motions for

summary judgment. The trial court granted BMW Financial’s summary judgment motion,

denied Auto Showcase’s motion, and awarded possession of the Porsche to BMW Financial.

Auto Showcase filed a timely notice of appeal. We affirm.

¶2 I. BACKGROUND

¶3 For purposes of their cross-motions for summary judgment, BMW Financial and Auto

Showcase stipulated in writing to the following material facts. On or about March 13, 2012,

Bruce Grant executed a retail installment contract for the purchase of the Porsche. The retail

installment contract granted a security interest in the Porsche to BMW Financial. On or about

April 4, 2012, the Secretary of State issued an original certificate of title for the Porsche, naming

BMW Financial as the first lienholder. Grant later submitted a “lien release letter” to the

Secretary of State. BMW Financial did not execute the lien release letter, nor did it ever

authorize the release of its security interest. On November 16, 2012, the Secretary of State

issued a duplicate certificate of title to Grant. The duplicate certificate did not name BMW

Financial as a lienholder. However, the duplicate certificate stated, “This is a duplicate

certificate and may be subject to the rights of a person under the original certificate.” On or

about November 20, 2012, Grant sold the Porsche to Auto Showcase for $47,000. He executed

the assignment of title on the duplicate certificate. Auto Showcase conducted computerized

searches of the Secretary of State’s records. Those searches did not reveal the existence of any

liens on the Porsche.

¶4 On November 29, 2012, Auto Showcase sold the Porsche to Felice for $59,000. By letter

dated January 30, 2013, BMW Financial advised the Secretary of State that the lien release letter

submitted by Grant was fraudulent. BMW Financial asked the Secretary of State to “accept this

letter as notice that any further attempt to title the [Porsche] without showing [BMW Financial’s]

lien should be denied.” Auto Showcase later brought a mandamus action in the circuit court of

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Du Page County to compel the Secretary of State to issue a certificate of title naming Felice as

the owner of the Porsche. The court entered judgment in favor of Auto Showcase, and the

Secretary of State issued a certificate of title to Felice. BMW Financial was not a party to the

mandamus action. BMW Financial subsequently commenced the replevin action giving rise to

this appeal. Felice was dismissed after Auto Showcase repurchased the Porsche from him.

¶5 II. ANALYSIS

¶6 Summary judgment is proper where “the pleadings, depositions, and admissions on file,

together with the affidavits, if any, show that there is no genuine issue as to any material fact and

that the moving party is entitled to a judgment as a matter of law.” 735 ILCS 5/2-1005(c) (West

2014). Furthermore, it is proper to enter summary judgment in favor of a party who is entitled to

judgment as a matter of law on the basis of stipulated facts. LoBianco v. Clark, 231 Ill. App. 3d

35, 38 (1992). The trial court’s ruling on a motion for summary judgment is subject to de novo

review. Peacock v. Waldeck, 2016 IL App (2d) 151043, ¶ 3.

¶7 A. Perfection of Security Interest

¶8 The primary purpose of a replevin proceeding is “to test the right of possession of

personal property and to place the successful party in possession of that property.” Koerner v.

Nielsen, 2014 IL App (1st) 122980, ¶ 12. It is undisputed that BMW Financial’s right of

possession depended on whether Auto Showcase acquired title to the Porsche subject to BMW’s

security interest. “As a general rule, the holder of a perfected security interest has an interest in

the secured property, and the proceeds from the sale thereof, which is superior to the interests of

unsecured creditors of the debtor and subsequent purchasers of the secured property.” Herman v.

First Farmers State Bank of Minier, 73 Ill. App. 3d 475, 477 (1979). The perfection of security

interests in motor vehicles is governed, in part, by section 3-202(b) of the Illinois Vehicle Code

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(Vehicle Code) (625 ILCS 5/3-202(b) (West 2014)), which provides, “[a] security interest is

perfected by the delivery to the Secretary of State of the existing certificate of title, if any, an

application for a certificate of title containing the name and address of the lienholder and the

required fee. The security interest is perfected as of the time of its creation if the delivery to the

Secretary of State is completed within 30 days after the creation of the security interest or receipt

by the new lienholder of the existing certificate of title from a prior lienholder or licensed dealer,

otherwise as of the time of the delivery.” Section 3-107(a)(3) of the Vehicle Code (625 ILCS

5/3-107(a)(3) (West 2014)) provides, in pertinent part, that a certificate of title shall contain “the

names and addresses of any lienholders, in the order of priority as shown on the application.”

Section 3-108 of the Vehicle Code (625 ILCS 5/3-108 (West 2014)) provides that “[t]he

certificate of title shall be mailed or delivered to the first lienholder named in it or, if none, to the

owner.”

¶9 BMW Financial acquired a security interest in the Porsche pursuant to the retail

installment contract with Grant. BMW Financial perfected its security interest by applying for a

certificate of title that noted its lien on the Porsche. The certificate of title was issued on April 4,

2012. Auto Showcase subsequently purchased the Porsche from Grant on or about November

20, 2012. Had Grant actually paid off his car loan, BMW Financial would have been obligated

to execute a release of its security interest and deliver the release and the certificate of title to

Grant. 625 ILCS 5/3-205(a) (West 2014). Grant could have then transferred the Porsche to Auto

Showcase by executing an assignment of title in the space provided for that purpose on the

original certificate. 625 ILCS 5/3-112(a) (West 2014). Instead, he submitted a false release to

the Secretary of State, obtained a duplicate certificate of title (see 625 ILCS 5/3-111(a) (West

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2014)) that did not identify any liens on the vehicle, and executed the assignment of title on the

duplicate certificate.

¶ 10 Auto Showcase maintains that the assignment via the duplicate certificate of title was not

subject to BMW Financial’s security interest. We disagree. Auto Showcase relies, in part, on

section 9-303(b) of the Uniform Commercial Code (UCC) (810 ILCS 5/9-303(b) (West 2014)),

which provides, “Goods cease to be covered by a certificate of title at the earlier of the time the

certificate of title ceases to be effective under the law of the issuing jurisdiction or the time the

goods become covered subsequently by a certificate of title issued by another jurisdiction.” Auto

Showcase argues that “the issuance of the duplicate Certificate of Title *** which removed BMW

[Financial]’s lien, must control the determination of possession.” (Emphasis added.) Auto

Showcase cites no authority for the proposition that the issuance of a duplicate certificate

somehow renders the original certificate ineffective under Illinois law. Indeed, Auto Showcase’s

argument contorts the meaning of the adjective “duplicate.” Section 3-111(a) of the Vehicle

Code (625 ILCS 5/3-111(a) (West 2014)) provides for the issuance of a duplicate certificate “[i]f

a certificate of title is lost, stolen, mutilated or destroyed or becomes illegible.” Furthermore,

section 3-111(a) provides that the duplicate certificate “shall contain the legend ‘This is a

duplicate certificate and may be subject to the rights of a person under the original certificate.’ ”

Id. That language would be meaningless if, as Auto Showcase argues, the original certificate

were no longer effective. Consequently, we reject Auto Showcase’s assertion that, by issuing the

duplicate certificate, the Secretary of State “removed” BMW Financial’s lien.

¶ 11 B. Uniform Commercial Code

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¶ 12 Auto Showcase also relies on section 9-337 of the UCC (810 ILCS 5/9-337 (West 2014))

in support of its contention that it holds title free and clear of BMW Financial’s security interest.

Section 9-337 provides, in pertinent part:

“If, while a security interest in goods is perfected by any method under the law of another

jurisdiction, this State issues a certificate of title that does not show that the goods are

subject to the security interest or contain a statement that they may be subject to security

interests not shown on the certificate:

(1) a buyer of the goods, other than a person in the business of selling goods of

that kind, takes free of the security interest if the buyer gives value and receives delivery

of the goods after issuance of the certificate and without knowledge of the security

interest; and

(2) the security interest is subordinate to a conflicting security interest in the

goods that attaches, and is perfected under Section 9-311(b), after issuance of the

certificate and without the conflicting secured party’s knowledge of the security interest.”

Id.

¶ 13 Section 9-337 clearly does not apply here. By its terms, section 9-337 applies only to a

security interest perfected under the law of another jurisdiction; BMW Financial’s security

interest was perfected under Illinois law. Although Auto Showcase insists that it should not

matter whether the security interest was perfected under Illinois law or the law of another

jurisdiction, we cannot simply ignore the plain language of the statute. Miller v. Sarah Bush

Lincoln Health Center, 2016 IL App (4th) 150728, ¶ 17. That said, we recognize that courts “are

not bound by the literal language of a statute if that language produces absurd or unjust results.”

People v. Johnson, 2013 IL App (1st) 120413, ¶ 17. “In such an instance, we may modify, alter

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or supply words to ‘obviate any repugnancy or inconsistency with the legislative intention.’ ” Id.

(quoting Community Consolidated School District No. 210 v. Mini, 55 Ill. 2d 382, 386 (1973)).

Auto Showcase argues that limiting section 9-337 to security interests perfected in other

jurisdictions “would achieve absurd results within interstate commerce.” We disagree. The

following comment accompanying section 9-303 of the UCC is illuminating:

“Ideally, at any given time, only one certificate of title is outstanding with respect

to particular goods. In fact, however, sometimes more than one jurisdiction issues more

than one certificate of title with respect to the same goods. This situation results from

defects in certificate-of-title laws and the interstate coordination of those laws, not from

deficiencies in this Article. As long as the possibility of multiple certificates of title

remains, the potential for innocent parties to suffer losses will continue. At best, this

Article can identify clearly which innocent parties will bear the losses in familiar fact

patterns.” 810 ILCS Ann. 5/9-303, Uniform Commercial Code Comment 6, at 474

(Smith-Hurd 2004).

In enacting section 9-337, the General Assembly evidently discerned a need to afford special

protection against hidden lien interests arising under the laws of other states. We see nothing

absurd in distinguishing between interstate and intrastate priority conflicts. In any event, section

9-337 is inapplicable because the duplicate certificate clearly indicated, as required by section 3­

111(a) of the Vehicle Code (625 ILCS 5/3-111(a) (West 2014)), that others might have rights

under the original certificate.

¶ 14 Auto Showcase contends that it “researched the Certificate of Title presented by Grant

using all available commercial means for determining whether any encumbrance remained on the

vehicle, finding none.” According to Auto Showcase, to hold in favor of BMW Financial

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“would effectively negate the legal significance of Illinois duplicate certificates of title and the

ability for consumers and dealers to rely upon records of the Secretary of State.” But it is

equally true that to hold in favor of Auto Showcase would effectively negate the ability of

creditors to rely on the statutory mechanism for protecting their lien rights. And although we

sympathize with the plight of a purchaser in Auto Showcase’s position who has examined the

Secretary of State’s vehicle records to confirm that title is unencumbered, Auto Showcase cites

no statutory authority or case law for the proposition that errors in those records affect either the

validity or the priority of a security interest that was perfected in accordance with section 3­

202(b) of the Vehicle Code.

¶ 15 C. Buyer in Ordinary Course

¶ 16 Auto Showcase contends that its customer, Felice, took title free and clear of BMW

Financial’s lien because he was a buyer in the ordinary course of business. In support of this

argument, Auto Showcase cites American National Bank & Trust Co. of Chicago v. Mar-K-Z

Motors & Leasing Co., 57 Ill. 2d 29 (1974), and Massey-Ferguson, Inc. v. Helland, 105 Ill. App.

3d 648 (1982). In Mar-K-Z, an automobile leasing company granted the plaintiff a security

interest in one of its rental vehicles. The leasing company then sold the vehicle, but defaulted on

its loan. In holding that the buyer took title free and clear, the court relied on section 9-307(1) of

the UCC, as in effect during the relevant time frame (Ill. Rev. Stat. 1969, ch. 26, ¶ 9-307(1)

(codified at 810 ILCS 5/9-320(a) (West 2014))), which provided that “ ‘[a] buyer in ordinary

course of business *** takes free of a security interest created by his seller even though the

security interest is perfected and even though the buyer knows of its existence.’ ” Mar-K-Z, 57

Ill. 2d at 32. Because Auto Showcase did not create BMW Financial’s security interest in the

Porsche, that provision does not apply to Auto Showcase’s sale to Felice. The outcome of

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Helland hinged on the same UCC provision. Accordingly, Helland, like Mar-K-Z, does not

apply here.

¶ 17 D. Fraud and Unjust Enrichment

¶ 18 Finally, Auto Showcase cites Carroll v. Curry, 392 Ill. App. 3d 511 (2009), and Adams v.

Greg Weeks, Inc., 327 Ill. App. 3d 380 (2002), for the proposition that (in Auto Showcase’s

words) “in cases of fraud or unjust enrichment, Illinois courts may consider equitable principles

in deciding replevin cases.” The argument is meritless. In Carroll we observed that, “where

Illinois reviewing courts have applied equitable principles to bar recovery in replevin, it was

because allowing recovery would have sanctioned fraudulent conduct or resulted in unjust

enrichment.” (Emphasis added.) Carroll, 392 Ill. App. 3d at 517. BMW Financial did not

commit fraud, so a judgment in its favor would not sanction any fraud. Nor would a judgment in

its favor result in unjust enrichment.

¶ 19 III. CONCLUSION

¶ 20 For the foregoing reasons, the judgment of the circuit court of Du Page County is

affirmed.

¶ 21 Affirmed.

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