VW Credit Inc v. First American Bank
This text of VW Credit Inc v. First American Bank (VW Credit Inc v. First American Bank) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________________
Nos. 97-20164 & 97-20339 ____________________________
VW CREDIT INCORPORATED,
Plaintiff-Appellant,
v.
FIRST AMERICAN BANK,
Defendant-Appellee.
_________________________________________________________________
Appeal from the United States District Court for the Southern District of Texas
_________________________________________________________________ March 23, 1998 Before KING, EMILIO M. GARZA, and DeMOSS, Circuit Judges.
PER CURIAM:*
Plaintiff-appellant VW Credit, Inc. appeals the district
court’s denial of its motion for summary judgment, its granting
of defendant-appellee First American Bank’s motion for summary
judgment, and its award of attorney’s fees to First American
Bank. We reverse and remand.
I. BACKGROUND
* Pursuant to 5TH CIRCUIT RULE 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIRCUIT RULE 47.5.4. In September 1989, plaintiff-appellant VW Credit, Inc. (VW
Credit) began providing floor-plan financing on new cars to Wayne
Thomas Volkswagen, Inc. (the Dealer), an automobile dealership.
As part of this financing agreement, the Dealer granted VW Credit
a security interest in its inventory, including new and used
cars, which VW Credit perfected by filing that same month.
In March 1983, defendant-appellee First American Bank (First
American) began lending money to the Dealer to acquire used cars.
First American filed a financing statement describing used cars
in the Dealer’s inventory. As a condition for receiving an
advance on this line of credit, First American required the
Dealer to deposit with it the certificates of title to the used
cars being financed. First American returned the certificate of
title to the Dealer when the corresponding advance was repaid.
Over 150 used cars were financed in this manner. First
American’s advances were repaid on all but thirteen used cars,
which were still in the Dealer’s inventory when VW Credit stepped
in.
After First American began its lending relationship with the
Dealer, VW Credit performed various audits of the Dealer’s books
and inventory. In May 1995, VW Credit discovered that the Dealer
had sold cars out of trust and was therefore in default. As a
result of the Dealer’s default, VW Credit accelerated the
Dealer’s obligation and acted to collect the debt. Relying upon
its security interest in the Dealer’s inventory, VW Credit
2 instituted this declaratory judgment action (1) to force First
American to turn over the certificates of title to the used cars
currently in inventory, (2) to force First American to turn over
the monies it received from the Dealer in relation to all of the
used cars, and (3) to receive punitive damages.
The district court concluded that (1) First American
perfected its security interest in the used car inventory by
possession of the used cars’ certificates of title; (2) First
American was not required to give notice to VW Credit of its
purchase money security interest, reasoning that the Dealer never
had possession of the cars because First American had the
certificates of title; (3) thus, First American’s security
interest had priority over VW Credits first-in-time, perfected
security interest; and (4) even if the bank did not have
priority, the theories of fraud, gross negligence, and malice
would not apply to First American’s conduct. Based upon these
conclusions, the district court entered a take-nothing judgement
and awarded attorney’s fees to First American.
II. STANDARD OF REVIEW
We review the granting of summary judgment de novo, applying
the same criteria used by the district court in the first
instance. Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir.
1994).
III. DISCUSSION
3 VW Credit challenges the district court’s conclusions which
led it to find that First American’s security interest had
priority over VW Credit’s security interest in the used cars and
their proceeds. We consider each of the district court’s
conclusions in turn.
First, possession of the certificate of title of a vehicle
under Texas law does not perfect a security interest in a vehicle
that is part of inventory. Article 9 of the Texas Uniform
Commercial Code and the Texas Transportation Code both
specifically apply Article 9’s filing provisions to vehicles
covered under the title rules in the Transportation Code when the
vehicle is held as inventory by a person in the business of
selling vehicles of that kind. See TEX. BUS. & COM. CODE ANN.
§ 9.302(c)(2) (Vernon Supp. 1998); TEX. TRANSP. CODE ANN.
§ 501.111(b) (Vernon Pamphlet 1998). Therefore, First American’s
security interest was not perfected by possession of the
certificates of title.
Second, the district court’s conclusion that no notice was
required because the Dealer never possessed the used cars cannot
stand. That conclusion apparently rests upon the theory that VW
Credit’s security interest did not attach because the Dealer
never had rights in the collateral and therefore that no
conflicting security interest requiring notice exists. See TEX.
BUS. & COM. CODE ANN. §§ 9.203(a)(3), 9.312(c)(2) (Vernon 1991 &
Supp. 1998). However, in order for First American’s security
4 interest to attach, the Dealer had to have rights in the
collateral; thus, VW Credit’s security interest also attached.
See id. § 9.203(a)(3). The Dealer’s control over the used cars
is similar to, and perhaps greater than, the control a consignee
has over consigned property. Texas courts have found that
property placed with a seller on a consignment basis is subject
to a security interest covering the inventory of the seller. See
A. Wolfson’s Sons, Inc. v. First State Bank, 697 S.W.2d 753, 755,
757 (Tex. App.--Corpus Christi 1985, no writ); see also 4 JAMES J.
WHITE & ROBERT S. SUMMERS, UNIFORM COMMERIAL CODE § 31-6, at 127-28, 128
n.15 (Practitioner Treatise Series, 4th ed. 1995) (“Courts have
looked to such factors as the debtor’s actual control over the
property and the extent to which the risks of ownership have been
shifted to the debtor.”). Additionally, to hold that First
American’s possession of the certificates of title barred the
Dealer from possessing the used cars, despite having actual
possession of the used cars, would be inconsistent with the
provisions of the Texas Code applying Article 9 to vehicles in
inventory. Therefore, First American was not excused from giving
notice to VW Credit under § 9.312(c), and the district court’s
judgment cannot stand.1
1 We need not reach the issue of attorney’s fees because, with our resolution of VW Credit’s appeal, there no longer exists a judgment upon which to base the award of attorney’s fees.
5 On appeal, both parties urge this court to resolve the case
using a rationale other than that used by the district court.2
We decline to do so.
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