UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
FREDDY ONEAL REAGAN
DORIS JEAN REAGAN
DEBTORS CASE NO. 96-60353
JAMES R. WESTENHOEFER, Trustee PLAINTIFF
VS. ADV. NO. 96-6022
NATIONAL CITY BANK, KENTUCKY;
FREDDY ONEAL REAGAN and
DORIS JEAN REAGAN DEFENDANTS
This matter is before the Court pursuant to an Agreed Order of Submission entered herein on December 6, 1996. The plaintiff and defendant National City Bank, Kentucky, (?the Bank?) have submitted briefs. The defendant debtors did not file an answer herein and a Default Judgment was entered in regard to them on September 16, 1996. 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).
The Complaint, filed herein on July 16, 1996, alleges that the Bank=s security interest in the debtors= vehicle is unperfected because there is no indication of that security interest on the Certificate of Title relating to the vehicle. The plaintiff seeks to have the unperfected security interest declared void as to him by virtue of 11 U.S.C. '544. The Bank filed its Answer on August 16, 1996. This matter was originally set for trial on December 5, 1996, but the plaintiff and the Bank requested that the matter be taken under submission on the record. A Joint Stipulation of Facts was filed on November 26, 1996, and the Agreed Order of Submission was entered as set out above.
The Joint Stipulation set out the following facts:
?1. On October 22, 1994, debtors, Freddy Oneal Reagan and Doris Jean Reagan, purchased a used 1994 Pontiac Grand Prix automobile at Curtesy Pontiac-Acura in Lexington, Kentucky and took possession of said vehicle on October 22, 1994.
2. On October 22, 1994, Freddy Oneal Reagan and Doris Jean Reagan executed a Retail Installment Contract and Security Agreement granting the seller a lien on the vehicle. Said Retail Installment Contract and Security Agreement was subsequently assigned by the seller to National City Bank, Kentucky. A copy of said Retail Installment Contract and Security Agreement is attached hereto as Exhibit?A?.
3. On December 6, 1994, forty-five days after the above-referenced transaction, all proper documents and fees for lien notation and perfection were tendered to the McCreary County Clerk in Whitley City, Kentucky. Attached hereto as Exhibit?B? is a copy of the receipt for the tile lien statement for said vehicle showing that it was filed in the office of the McCreary County Clerk on December 6, 1994 at 8:02 a.m. in File No. 3452-04.
4. The certificate of title for the subject vehicle was issued by the Kentucky Transportation Cabinet on December 30, 1994. A copy of said certificate of title is attached hereto as Exhibit?C?. For reasons unknown to both parties and through no error of National City Bank, Kentucky, the bank=s lien did not appear on their certificate of title as issued.
5. The debtors filed for bankruptcy on May 20, 1996.
6. For purposes of this adversary proceeding, National City Bank, Kentucky stipulates that the debtors were insolvent when their bankruptcy petition was filed.?
The trustee is correct in his contention that the security interest the debtors granted to the Bank is unperfected and that, by virtue of 11 U.S.C.'544(a), the trustee, having the lien of a hypothetical judgment lien creditor, prevails under Kentucky law. Pursuant to KRS 186A.190, the sole means of perfection where a certificate of title is required is by notation on the title. Where a creditor has properly filed a financing statement but the clerk has failed to note the lien on the certificate of title, the lien is unperfected and the trustee in bankruptcy, as judgment lien creditor, prevails over the unperfected lien creditor. See In re Daulton, 155 B.R. 7 (Bkrtcy.E.D.Ky. 1993).
In consideration of the foregoing, it is therefore the opinion of this Court that the trustee should prevail upon his Complaint, and the lien of National City Bank, Kentucky, in the subject automobile should be avoided and preserved for the benefit of the debtors= bankruptcy estate and subject to the trustee=s sale and liquidation. An order in conformity with this opinion will be entered separately.
By the Court -
James R. Westenhoefer, Esq., Trustee
Scott T. Rickman, Esq.