Bankruptcy Court Holds Truncated Name of Secured Party on Certificate of Title Still Perfected Lien

By: Julia A. Chincheck and Daniel J. Cohn, Esquire

A Kentucky bankruptcy court recently held that a secured party's lien was perfected despite the fact that the certificate of title included a truncated version of the creditor's name.  In Johnson v. Santander USA, Inc. (In re Bryant), AP No. 14-1005, No. 13-11469(1)(7) (Bankr. W.D. Ky. Dec. 8, 2014), the debtor bought a truck, and later refinanced the truck with Santander Consumer USA, Inc.  After refinancing the truck with Santander, the debtor applied for a duplicate title with the clerk's office.  The clerk destroyed the original title and issued a duplicate title.  However, this duplicate title inadvertently indicated that a bank had a first lien (when in fact it had no interest in the truck at all), and incorrectly identified the second lienholder as "Santander Consumer."

The trustee brought an adversary proceeding in the bankruptcy case, seeking to have Santander's lien avoided for two reasons.  First, the trustee asserted that Santander's lien was never perfected, because the certificate listed the bank as the first lienholder. Second, the trustee asserted that the lien was never perfected because the certificate reflected the secured party as "Santander Consumer."  Thus, according to the trustee, Santander's lien was unperfected.

The bankruptcy court first observed that the purpose of identifying lienholders is to provide inquiry notice to others that a lien potentially exists.  The court then held that the inadvertent notation of the bank as the first lienholder was immaterial to the perfection of Santander's lien, both because the trustee knew after contacting the bank that it never had any interest in the truck, and because that effectively made Santander's lien the first lien.  The court also noted that the "notation" number next to the bank's name referred exclusively to Santander.

Relying on provisions in the Uniform Commercial Code that address problems with names on financing statements, the bankruptcy court then went on hold that the truncation of Santander's name on the certificate did not make the certificate seriously misleading.  Again, the court noted that the purpose of the notation of lienholders is to provide inquiry notice.  The court observed that the certificate of title included the correct address for Santander, and that the trustee and anyone else would easily and immediately have learned of Santander's lien simply by contacting Santander at the address on the title.  Moreover, testimony in the case indicated that space limitations on the certificate or the software used to generate it may make it impossible in some cases for a certificate of title to contain the secured party's full name.  Finally, the court noted that Santander perfected its lien when it was noted as the first lienholder on the first certificate of title that was later destroyed, which perfection carried over to the duplicate certificate.  The court thus concluded that Santander had a valid, perfected lien on the truck.

This case suggests that creditors might be able to retain perfected liens even though there are minor variations from their names on a certificate of title.  However, creditors should still attempt to ensure that their information is accurately displayed on certificates of title.