In the conclusion of our three-part series on recent Article 9-related court decisions, we discuss the final case: Deere & Company v. New Holland Rochester.
Don’t hesitate to share your thoughts on the decisions by publishing a comment after the post.
Contributed by Tim Hall, Managing Attorney, CT Corporation
Deere & Company v. New Holland Rochester, (Court of Appeals – Indiana) October 12, 2010
Facts: In 2008, Deere & Company and Travis Hostetler entered into two separate contracts regarding the purchase of farm equipment. Two UCC-1 financing statements were filed in relation to these transactions.
In October 2008, Hostetler entered into a transaction with New Holland, which included New Holland procuring several pieces of farm equipment as a trade. Prior to taking the equipment, Hostetler conducted a UCC search and found that Deere had a first priority perfected security interest in the equipment. However, New Holland did not contact Deere to ascertain the status of the liens. Instead, it questioned Hostetler, who told New Holland that the liens had been satisfied, and contacted Farmers Bank, which informed New Holland that the debt to Deere had been satisfied.
However, that information was incorrect. The liens had not been satisfied, and in 2009 Hostetler defaulted in its payment obligations. Deere then filed a complaint against Hostetler and New Holland to recover its goods. The trial court ruled against Deere, who subsequently filed an appeal to gain possession of the collateral.
The Court Decision: It is undisputed that New Holland had notice of Deere’s liens before completing the transaction with Hostetler. In addition, it asserted that it believed that Deere’s liens had been satisfied, regardless that it never contacted Deere to confirm that fact, and instead relied upon the statements made by others.
The court found that it is unreasonable to rely on the statements of third parties, or the debtor, about the current status of security interests. Specifically, Hostetler seemingly had every reason to be untruthful—and New Holland acknowledges that it was aware that clients often misrepresent the status of liens on equipment offered in trade.
It is our opinion that there is simply no excuse for New Holland’s failure to contact Deere directly. It could not be clearer that it is reasonably probable that Deere is entitled to possession, use, and disposition of the property, pending final disposition of the claims of the parties.
Discussion
The court’s decision is consistent with the intent of Article 9, by emphasizing that the purpose of the UCC index is to provide notice to creditors, and provide sufficient information to allow a subsequent creditor to contact the prior secured party to inquire as to the current status of the transaction.
Thanks for reading through to the conclusion of our series! As always, any comments and questions can be directed via e-mail to CT Lien Solutions, or posted as a comment to the blog.
Tim Hall has been with CT Corporation for more than 13 years. He spent his first three years as a Team Leader for a UCC Service team, and has been with the Government Relations Team for the past ten years. He is a graduate of The Ohio State University and the Northern Illinois University College of Law, and is a frequent speaker on Article 9 of the UCC.
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