UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
BARBARA A. BROWN
DEBTOR CASE NO. 89-00971
CHARLES L.J. FREIHOFER, TRUSTEE PLAINTIFF
VS. ADV. NO. 89-0276
PROVIDENT BANK DEFENDANT and
A.T. WOOD, County Clerk, et al. THIRD-PARTY DEFENDANT
This matter is before the Court on the Trustee's Motion for Summary Judgment. The issue is the perfection of a lien on a 1986 Nissan automobile. The Trustee contends that defendant Provident Bank ("the Bank") failed to timely perfect its lien on the automobile. The Bank, by way of its Answer, denies that its failure to have its lien noted on the Certificate of Title rendered its lien inferior to the interest of the Trustee. The record in this case does not indicate that service was accomplished on A.T. Wood, et al., the third-party defendants. This Opinion will dispose only of the issues existing between the Trustee, as set out in his Complaint, and the Bank. This Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(K). For the reasons set out below, this Court is of the opinion that a Summary Judgment should be entered for the Trustee.
There are no material facts in issue. The record shows that the lien of the Bank did not appear on the Kentucky Certificate of Title issued on January 17, 1989. The debtor filed a petition for Chapter 7 relief in this Court on September 14, 1989.
In In re Joanne Farmer, Case No. 88-00417, Adv. No. 89-00005 (Bkrtcy E.D.Ky 1989), the Court discusses the Trustee's position under 11 U.S.C.'544(a), the "strong arm statute", and cites the holding in Kentucky Finance Company v. Spradlin, Ky. App., 717 S.W.2d 843 (1986), in response to the defendant bank's assertion that a financing statement was the document necessary to perfect its security interest. The Court in Kentucky Finance stated:
A financing statement is a means of notifying the public prior to the issuance of a certificate of title that a lien is or will be claimed on a vehicle. Perfection of the lien (for priority) dates from the time of filing. However, when a certificate is issued it would appear that the financing statement is merged into the certificate and the certificate becomes the only document necessary to achieve perfection...
In the instant case, the Trustee's rights as a judgment lien creditor arose on the date of filing of the bankruptcy petition and on that date the Bank's lien was unperfected. As of that date, KRS 186A.190(1) provides: "The perfection and discharge of a security interest in any property for which has been issued a Kentucky certificate of title shall be by notation in the certificate of title." The law as applied to the facts herein is the same as in the Farmer case. On the date of filing of the bankruptcy petition, the Bank's lien was not noted on the outstanding certificate of title. The Bank's security interest was therefore unperfected. On the same date, the Trustee became a judgment lien creditor. 11 U.S.C.'544(a). Matter of Quality Holstein Leasing, 752 F.2d 1009 (5th Cir. 1985). An unperfected security interest is subordinate to the rights of a lien creditor. KRS 355.9-301(1)(b). A lien creditor includes a Trustee in bankruptcy. KRS 355.9-301(3). When a statute requires perfection of a security interest by indication on a certificate of title, a security interest can be perfected only by that method. KRS 355.9-302(3)(4). That section and KRS 186A.195(1) mandate that the certificate of title governs the resolution of perfection and priority disputes. This Court came to the same conclusion on these issues in In re Johnny Raines, Case No. 89-01606 (Bkrtcy E.D.Ky 1990).
In consideration of the foregoing, it is therefore the opinion of this Court that the security interest granted by the debtor to the defendant Provident Bank is void, that the defendant has no lien or security interest in the subject vehicle, and that the Trustee is entitled to judgment as a matter of law.
By the Court -
Charles L.J. Freihofer, Esq., Trustee
Michael A. Lanzillotta, Esq.