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Drown v. Perfect (In Re Giaimo)

Bankruptcy Appellate Panel of the Sixth Circuit
73 U.C.C. Rep. Serv. 2d (West) 164, 2010 FED App. 0011P, 440 B.R. 761 (2010)
ELI5:

Rule of Law:

Under Ohio law, an application for a certificate of title that is signed by the debtor, identifies the collateral, and names a lienholder, when combined with the resulting certificate of title, is sufficient to constitute an enforceable security agreement under the Uniform Commercial Code (Ohio Rev. Code § 1309.203).


Facts:

  • In February 2008, Veronica O’Keefe provided an interest-free loan to her granddaughter, Evonne Giaimo, for the purchase of a 2008 Toyota RAV 4.
  • Giaimo and O'Keefe did not execute any formal loan documents or a separate document labeled a security agreement.
  • Giaimo signed an Application for the Certificate of Title for the vehicle at the dealership.
  • The application form described the vehicle by its identification number and identified O’Keefe as the lienholder.
  • The State of Ohio subsequently issued a Certificate of Title for the vehicle which also listed O’Keefe as the lienholder.

Procedural Posture:

  • Evonne Giaimo filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code.
  • William Todd Drown, the appointed Trustee, filed an adversary complaint in the U.S. Bankruptcy Court for the Southern District of Ohio against Veronica O'Keefe to avoid her lien on Giaimo's vehicle.
  • The Trustee moved for summary judgment, arguing that no valid security agreement existed as required by Ohio law.
  • The bankruptcy court granted summary judgment in favor of the Trustee, finding the lien invalid.
  • Maureen Perfect, Executor of the Estate of Veronica O’Keefe, appealed the bankruptcy court’s order to the Bankruptcy Appellate Panel of the Sixth Circuit.

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Issue:

Are an application for a certificate of title and the resulting certificate of title, which both identify a lienholder and are signed by the debtor, sufficient under Ohio law to create an enforceable security interest in a motor vehicle absent a separate, formal security agreement?


Opinions:

Majority - Arthur I. Harris

Yes. An application for a certificate of title signed by the debtor that identifies the collateral and the lienholder, when taken together with the resulting certificate of title, is sufficient to create an enforceable security interest under Ohio law. The court's reasoning is that while Ohio's Certificate of Title Act governs the perfection of a security interest, UCC Article 9 governs its creation. The central requirement for creation is a security agreement, defined as any agreement that creates a security interest. Applying the 'composite documents approach,' the court found that the application for title, signed by the debtor (Giaimo), describing the collateral (the vehicle), and identifying the lienholder (O'Keefe), manifested a clear intent to grant a security interest. The court reasoned there would be no other purpose for a debtor to sign an application naming a lienholder if not to grant such an interest, and this interpretation aligns with the UCC's purpose to simplify commercial transactions and avoid elevating form over substance.



Analysis:

This decision establishes an important precedent in Ohio for creating security interests in vehicles, particularly in informal lending situations. By holding that standard titling documents can satisfy the UCC's security agreement requirement, the court reduces the need for formal, separate loan contracts to create an enforceable lien. This ruling prioritizes the demonstrated intent of the parties over strict formalism, providing protection for lenders who ensure their lien is noted on the title application. This may impact future bankruptcy cases where trustees seek to avoid liens based on the absence of a standalone security agreement, shifting the focus to the content and execution of the title application itself.

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