MEMORANDUM OPINION

James D. Lyon, the chapter 7 trustee of the bankruptcy estate of the debtor, Jerry C. Hicks, has moved for summary judgment on his complaint against Summit Acceptance Corp. The complaint alleges the judicial lien of the trustee under title 11 U.S.C. § 544(a) preempts the unperfected consensual lien of Summit Acceptance Corp. in a 1993 Ford Explorer automobile. Alternatively, the trustee alleges the repossession of the automobile by Summit on the eve of the debtor’s bankruptcy resulted in a preferential transfer of property of the debtor avoidable by the trustee under title 11 U.S.C. § 547.

The vehicle was purchased by the debtor from the third-party defendant Paul Miller Ford, Inc. under a Retail Installment Contract and Security Agreement. The defendant and third-party plaintiff, Summit Acceptance Corp., assignee of the Retail Installment Contract and Security Agreement, seeks summary judgment on its indemnity claim against the seller, Paul Miller Ford, Inc., for breach of the seller’s contractual duty to obtain a certificate of title to the motor vehicle and to cause the lien of Summit to be properly noted thereon.

FINDINGS OF FACT:

The following events occurred on July 9, 1997.

1. The debtor, Jerry C. Hicks, purchased a 1993 Ford Explorer automobile from Paul Miller Ford, Inc. of Lexington, Kentucky pursuant to the terms of a Retail Installment Contract and Security Agreement executed by the debtor as buyer and Paul Miller Ford, Inc. as seller. According to the contract, the cash sales price of the vehicle (including sales tax of $771.00) was $18,232.14. The debtor was given a credit on this price of $3,000 in the form of a trade-in allowance for a 1986 Nissan pick-up truck, which reduced the unpaid cash balance of the purchase price to $15,232.14. The debtor was charged $52.00 for filing fees, which, when added to the unpaid balance, increased the amount to be financed to $15,284.14. This amount, with interest at the rate of 23.95% annually, was payable by the debtor in 54 monthly installments of $465.00 commencing August 8, 1997.

2. Paul Miller Ford, Inc. prepared an Application to the Commonwealth of Kentucky Department of Motor Vehicles for Title/Registration of the vehicle in the debtor’s name as owner-buyer. This application was signed by the debtor and left with Paul Miller Ford, Inc. The application was never executed by the Secretary-Treasurer of Paul Miller Ford, Inc. in the place on the form for her signature. The form was never presented to the clerk of Fayette County as agent of the Kentucky Department of Motor Vehicles for processing.

3. The debtor signed a Title-Lien Statement prepared by Paul Miller Ford, Inc., which identified the vehicle and also identified Summit Acceptance Corp. as the secured party. This document is for presentation to the office of the County Clerk along with the Application for Title/Registration of a vehicle in order that the lien of the secured party may be noted on the Certificate of Title. Paul Miller Ford, Inc. did not cause this document to be presented to the Clerk’s office.

4. The debtor executed an Addendum to the Retail Installment Contract and Security Agreement whereby he agreed to return the vehicle to the seller in the event the contingencies or conditions checked on the addendum were not satisfied on or before July 9, 1997, the date of sale. The conditions were the assignment of the Retail Installment Contract to and acceptance by a lender, the seller’s successful arrangement of financing for the buyer’s purchase of the vehicle, and “Title to Trade,” meaning the title to the 1986 Nissan pick-up truck the debtor was trading in on the purchase price. All of these conditions were met. Paul Miller Ford, Inc. sold the trade-in-vehicle to Family Auto Sales of Somerset, Kentucky on July 15, 1997, just six days after the vehicle was traded in, for $800.00. This would not have been possible unless the debtor had signed the vehicle over to Paul Miller Ford, Inc. on the back of the Certificate of Title as provided by law. Paul Miller Ford, Inc. argues the debtor breached the Addendum provisions because the debtor did not pay to Paul Miller Ford $83.50 in Kentucky sales tax due on the transaction because the trade-in vehicle had an out-of-state (Tennessee) title. Paul Miller Ford, Inc. prepared the Addendum and no such requirement is discernible from the glib “Title to Trade” language of the Addendum. Language of a contract is construed against the preparer. If payment of the sales tax in question was a contingency or condition of transferring title to the trade-in to Paul Miller Ford, Inc., the Addendum should have so specified. KRS 139.510 imposes the duty to pay the sales tax due under that section on the taxpayer, which at the time of the transfer of the vehicle to Paul Miller Ford, Inc. was the debtor and at the time of the transfer of the vehicle to Family Auto Sales of Somerset, Kentucky may have been Paul Miller Ford, Inc., if at that time the vehicle still had a Tennessee title. In any event, the court is not persuaded that it should make a finding that payment by the debtor to Paul Miller Ford, Inc. of $83.50 representing Kentucky sales tax due for transfer of title to the trade-in vehicle was a condition imposed by the “Title to Trade” condition set out in the Addendum. Certainly there was no justification for putting the secured status of Summit Acceptance Corp. at risk for this small amount of money, apparently discovered by Paul Miller Ford, Inc. after the fact to be due and owing to the Commonwealth of Kentucky. It follows from this finding that Paul Miller Ford, Inc. does not have a claim of $30 per day and .30 cents per mile against the debtor for use of the vehicle.

5. Other documents of less significance prepared by Paul Miller Ford, Inc. and signed by the debtor on July 9, 1997 were a Theft-Guard Registration form whereby the debtor elected not to register the used 1993 Ford Explorer under the Theft-Guard System; an Odometer Disclosure Statement for the trade-in vehicle; a Dealer Warranty Disclaimer showing the 1993 Ford Explorer was being sold by Paul Miller Ford, Inc. “as is” without warranties other than those offered by the manufacturer; a form acknowledging the purchase price of the 1993 Ford Explorer to be $17,250,[1] that the debtor had received $3,000 for his 1986 Nissan trade-in, and that the unpaid balance of the purchase price of the 1993 Ford Explorer was in 54 payments of $465.00 beginning August 8, 1997; acknowledgement of a used vehicle limited warranty for three months or 4,000 miles and current odometer reading of 69,577 miles with the warranty to expire when the odometer reading reached 73,577 miles, a disclosure form summarizing the terms and conditions of the sale of the 1993 Ford Explorer to the debtor, which makes no reference to the $83.50 aforementioned sales tax due on the trade-in transaction, which Paul Miller Ford, Inc. now asserts was a condition of the sale,[2] and finally, a one-year complimentary membership application in the Ford Auto Club.

6. Paul Miller Ford, Inc. assigned the Retail Installment Contract and Security Agreement executed by it and the debtor to Summit Acceptance Corp. on July 9, 1997, the date of sale of the vehicle to the debtor.

The court makes the following additional findings of fact.

The debtor took delivery of the 1993 Ford Explorer on July 9, 1997.

The reason for the delay on the part of Paul Miller Ford, Inc. in signing and submitting to the County Clerk’s Office the Application for Title/Registration and Statement of Title Lien, both of which had been signed by the debtor, the submission of which was necessary to perfect the lien of Summit Acceptance Corp. on the 1993 Ford Explorer, is explained in an August 14, 1997 letter of Glenda Roundtree, Secretary-Treasurer of Paul Miller Ford, Inc. to the debtor.

The letter indicates Paul Miller Ford, Inc. on August 13, 1997 paid $110 to an agency for insurance for Jerry Hicks, presumably for insurance on the 1993 Ford Explorer, paid $465.00 to Summit Acceptance Corp. on August 14, 1997, representing the first installment payment due on the Retail Installment Contract for the purchase of the vehicle, and further that because the law does not allow credit on the sales and use tax if the trade-in vehicle has an out-of-state license, there was a shortage of $83.50 on the tax. The letter duns the debtor for a total of $658.50 and states the title work on the 1993 Ford Explorer will be held until the fees are paid.

It seems obvious, however, that initially none of these sums were due Paul Miller Ford, Inc. under the terms of the Retail Installment Contract and Security Agreement or the Addendum thereto.

The record does not establish any contractual basis for the delay on the part of Paul Miller Ford, Inc. in obtaining the Certificate of Title for the 1993 Ford Explorer for the debtor with the lien of Summit Acceptance Corp. noted thereon.

The amount Summit Acceptance Corp. paid to Paul Miller Ford, Inc. for the account receivable represented by the Retail Installment Contract and Security Agreement is not established in the record. However, it appears undisputed that Summit did purchase and pay Paul Miller Ford, Inc. for the receivable.

Meanwhile, the debtor had possession of the 1993 Ford Explorer for a period of more than eight months without making a single payment on the Retail Installment Contract. The record indicates the debtor drove the vehicle approximately 6,729 miles during the time he had possession of the vehicle.

The vehicle was repossessed by a Summit Acceptance Corp. office in Indianapolis, Indiana on or about March 29-31, 1998, which was after the debtor signed his petition for relief on March 28, 1998. The schedules to the petition executed by the debtor indicate he still had possession of the vehicle on March 28, 1998. The petition was filed with the court on April 3, 1998. Summit Acceptance Corp. had possession of the vehicle on the date the petition was filed.

On April 1, 1998 Summit Acceptance Corp. notified the debtor it had repossessed the 1993 Ford Explorer on March 31, 1998, and that he had until April 11, 1998 to pay off the balance due on the debt, otherwise the vehicle would be sold at private sale and the proceeds of sale applied to expenses, attorney fees, and then toward satisfaction of the debt, after which the debtor would remain liable for any deficiencies.

On April 25, 1998 Summit Acceptance Corp. obtained an Indiana Certificate of Title (a repossession title) showing Summit as the owner and as the holder of a lien on the vehicle. This transfer of title to the vehicle to Summit occurred after bankruptcy. See title 11 U.S.C. § 549.

Thereafter, on October 21, 1998, counsel for Summit Acceptance Corp. wrote to Paul Miller Ford, Inc. stating --

Summit believes that it is appropriate to turn this vehicle over to Mr. Hick’s (sic) bankruptcy trustee, as there appears to be no valid defense to the trustee’s claim, and fighting the trustee’s request would simply increase legal fees and other expenses.

Counsel for Summit also informed Paul Miller Ford, Inc. that the failure to file the Application for Title and the Title Lien Statement with the appropriate authorities was a violation of the warranties made by Paul Miller Ford in paragraphs 1(c) and (d) of the dealer’s agreement entered into by the parties on December 18, 1996. Counsel’s letter demanded that Paul Miller Ford, Inc. repurchase the Hicks contract pursuant to paragraph 3 of the dealer’s agreement, and stated that as of April 3, 1998 the outstanding balance due on the contract was $17,583.51, and that interest and attorney fees continue to accrue.

Pursuant to an agreed order submitted by counsel for Summit and counsel for the trustee and entered by the court on March 2, 1999, Summit was authorized to sell the 1993 Ford Explorer. Counsel for Summit is holding the proceeds of sale pending further orders of the court.

The Dealer’s Agreement between Summit Acceptance Corp. (“S.A.C.”) and Paul Miller Ford, Inc. provides:

1. Dealer agrees and does hereby warrant, represent and covenant as to each Receivable as follows:

. . .

(b) that all Receivables offered by DEALER to S.A.C. are valid deferred payment obligations for the amount therein set forth covering new and/or used motor vehicles owned by DEALER free and clear of all liens and encumbrances (except liens and encumbrance created by the Receivables) and are free and clear of any prior outstanding inventory financing security interest.

(c) DEALER has properly filed of record the Debtor’s obligation and grant of security interest in the subject motor vehicle and DEALER has properly perfected said security interest according to applicable law and said security interest shows S.A.C. as the secured party or as the proper assignee of the secured party;

(d) DEALER has obtained a certificate of title for the subject motor vehicle reflecting S.A.C. as the primary lien holder;

(e) DEALER has not made any agreement, either oral or written, affecting S.A.C.’s right or relationship with Debtor without S.A.C.’s prior express written approval.

. . .

3. At any time prior to the scheduled maturity of any receivable, and upon notice and demand from S.A.C., the DEALER hereby agrees to repurchase from S.A.C any Receivable for which there has been a breach of one or more of the DEALER’s representations and warranties as set forth in Paragraph 1, above. In the event that DEALER is required to repurchase any Receivable pursuant to this Paragraph 3, the DEALER’s repurchase price shall be equal to the total outstanding indebtedness then currently due under the terms of said Receivable.

Pursuant to the Dealer’s Agreement Paul Miller Ford made other warranties consistent with the above warranties.

Paul Miller Ford, Inc., by counsel, as previously noted, takes the position that the title transfer to the trade-in vehicle could not be completed because Hicks failed to pay to Paul Miller Ford $83.50 Kentucky Sales and Use Tax due on the transfer. This is a strange argument in view of the fact Paul Miller Ford, Inc. was able, six days later, to sell and transfer the trade-in to Family Auto Sales of Somerset, Kentucky for $800.00.

Paul Miller Ford, Inc. contends the 1993 Ford Explorer never became part of the debtor’s bankruptcy estate; that by reason of the fact the debtor never received a Certificate of Title, the debtor had no legal or equitable interest in the vehicle when bankruptcy intervened. Therefore, the trustee of the debtor’s estate has no claim to the vehicle. Counsel for Paul Miller Ford, Inc. seems to concede the debtor may have had an equitable interest in the 1993 Ford Explorer to the extent of $750.00, the net amount, after costs of sale, which Paul Miller Ford, Inc. realized from the resale of the trade-in vehicle.

CONCLUSIONS OF LAW:

Both the debtor and Paul Miller Ford, Inc. executed the July 9, 1997 Retail Installment Contract and Security Agreement whereby Paul Miller Ford, Inc. sold the 1993 Ford Explorer automobile to the debtor. The debtor took possession of the motor vehicle on the date of sale. Thereupon the debtor became the owner of the vehicle subject to the security interest of the seller. On the date of sale Paul Miller Ford, Inc. assigned the Retail Installment Contract and Security Agreement to Summit Acceptance Corp. pursuant to the terms of the December 18, 1996 Dealer’s Agreement between Paul Miller Ford, Inc., as dealer, and Summit Acceptance Corp. (“S.A.C.”).

One of the warranties made by the Dealer in assigning this receivable to Summit was that the Dealer has not made any agreement, either oral or written, affecting S.A.C.’s right or relationship with the debtor without S.A.C.’s prior express written approval. See Dealer’s Agreement, paragraph (1)(e). If the Addendum to the sales contract signed by the debtor were interpreted to permit Paul Miller Ford, Inc. to hold the title work on the 1993 Ford Explorer until the debtor paid the $83.50 Kentucky Sales and Use Tax due on the transfer of the trade-in vehicle, this would be a written agreement between the dealer and the debtor affecting Summit’s right or relationship made without Summit’s prior written approval. The court has found as a fact that the Addendum to the sales contract signed by the debtor did not impose the condition that the debtor pay such sales and use tax and that the debtor complied with the terms of the Addendum when the debtor transferred title to the trade-in vehicle to Paul Miller Ford, Inc. The transfer of the trade-in vehicle to Paul Miller Ford, Inc. obviously occurred because Paul Miller Ford, Inc. was able to sell the trade-in six days later to Family Auto Sales of Somerset, Kentucky.

Paul Miller Ford, Inc. failed to sign and forward to the County Clerk’s Office the Application for Title/Registration and failed to forward the Title Lien Statement signed by the debtor identifying Summit Acceptance Corp. as the secured party holding a security interest in the 1993 Ford Explorer. Holding up the title work to the vehicle pending collection of the small amount of sales and use tax in question was impermissible after the Retail Installment Contract and Security Agreement had been assigned to Summit. Paul Miller Ford, Inc. received payment from Summit for the receivable represented by the Retail Installment Contract and Security Agreement executed by the dealer and the debtor. In other words, Paul Miller Ford, Inc. received payment for the 1993 Ford Explorer while Summit was left twisting in the wind as an unsecured creditor by reason of the fact the seller was holding up the title work on the vehicle. This, despite the fact that, in assigning this receivable to Summit, Paul Miller Ford, Inc. warranted it had properly perfected Summit’s security interest in the vehicle.

Upon taking possession of the 1993 Ford Explorer pursuant to the terms of the Retail Installment Contract and Security Agreement the debtor became the owner of the vehicle subject to the unperfected security interest of Summit. KRS 186.010(7)(a).

During the entire period the debtor was in possession of the 1993 Ford Explorer Summit held an unperfected purchase-money security interest in the vehicle, and by reason of the failure of Paul Miller Ford, Inc. to obtain a certificate of title to the subject vehicle reflecting Summit as the primary lienholder, Summit was an unsecured creditor of the debtor.

Assuming Summit became the holder of a possessory security interest in the 1993 Ford Explorer when it repossessed the vehicle on the eve of bankruptcy, this change in status occurred within 90 days of bankruptcy. As a result, Summit’s unperfected purchase-money security interest in the vehicle is inferior to the judicial lien of the trustee which attached to the vehicle on the date of bankruptcy. Title 11 U.S.C. § 544(a). Also, Summit’s possessory security interest in the vehicle is avoidable by the trustee under title 11 U.S.C § 547(b) as a preferential transfer of property of the debtor.

Accordingly, the motion of the trustee for summary judgment on his complaint against Summit Acceptance Corporation must be sustained. The trustee of the debtor’s chapter 7 bankruptcy estate is entitled to the proceeds of sale of the 1993 Ford Explorer.

The motion of the defendant and third-party plaintiff, Summit Acceptance Corporation for summary judgment on its complaint against Paul Miller Ford, Inc. likewise should be sustained.

Dated:

By the court –

________________________________
JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

James D. Lyon, Esq., Trustee

William T. Shier, Esq., Attorney for Trustee

Dean A. Langdon, Esq., Attorney for Summit Acceptance Corp.

Carroll M. Redford, III, Esq., Attorney for Paul Miller Ford, Inc.

[1] This figure is $211.14 less than the amount shown in the Retail Installment Contract and Security Agreement. This extra charge of $211.14 should cover the $83.50 in sales tax about which Paul Miller Ford, Inc. complained.

[2] By signing this document the debtor agreed to provide collision, comprehensive, and liability insurance before accepting delivery of the vehicle. Whether the debtor did so or not does not appear to be at issue.