Can a Properly Perfected UCC Really Give Me the Right to Repossess?
Yes, a properly perfected security interest and proof of debtor default may afford you the right to repossess the collateral. Today’s post reviews a recent case that demonstrates the power of a properly perfected UCC.
In CNH INDUSTRIAL CAPITAL, AMERICA, LLC v. T & P FARMS, LLC, Dist. Court, ND Mississippi 2017, the court granted the Secured Party the right to repossess its equipment because it had 1.) proven the debtor defaulted on the contract and 2.) properly perfected a security interest through UCC Financing Statements.
Background: The Contract, The UCC-1s & The Replevin
In 2015, the debtor, T & P Farms, LLC (T & P) purchased over $1M in farming equipment from Medlin Equipment Company of Mississippi County (Medlin).
According to the court opinion, there were 4 pieces of equipment sold, and each sale was “…evidenced by a Retail Installment Sale Contract and Security Agreement.” (3 of the 4 sales were addressed in the replevin action.)
Included in the contract, aside from the security language and terms of the sale, was a clause regarding debtor default: “the seller has the right to ‘take possession of all Collateral, without notice or hearing…’” and Medlin assigned its interest in the equipment to CNH Industrial Capital America, LLC (CNH). Subsequently, a PMSI filing was properly perfected, by CNH, for each sale/contract.
By the end of 2016, the debtor had stopped making the agreed upon monthly payments and in May 2017, CNH filed a replevin action.
What is Replevin Action?
Wex Legal Dictionary defines replevin as the action used by creditors to repossess collateral from debtors in default. “A writ authorizing the retaking of property by its rightful owner (i.e., the remedy sought by replevin actions).”
The rules of replevin may vary by jurisdiction and this case looks to Mississippi statute. According to the court opinion, a replevin action requires a declaration under oath to include:
(a) A description of any personal property;
(b) The value thereof, giving the value of each separate article and the value of the total of all articles;
(c) The plaintiff is entitled to the immediate possession thereof, setting forth all facts and circumstances upon which the plaintiff relies for his claim, and exhibiting all contracts and documents evidencing his claim;
(d) That the property is in the possession of the defendant; and
(e) That the defendant wrongfully took and detains or wrongfully detains the same
– Section 11-37-101 of the Mississippi Code
The Secured Party Prevailed
When a replevin action is filed, the party filing the action needs to prove their right to repossess the collateral. In this case, the Secured Party filed the action, then the Secured Party proved its properly perfected security interest as well as the default of its debtor.
“A plaintiff in a replevin action establishes the right to immediate possession by demonstrating a default on a purchase contract and a perfected security interest in the collateral.”
The debtor is afforded an opportunity to defend against the repossession. The debtor asked the court to consider equitable defense (a defense based on fairness, not law), based on the debtor’s need for the equipment to maintain his business and support his family. The debtor further added he should not have to pay for the equipment, because the equipment was faulty. Unfortunately, the debtor’s defense wasn’t persuasive enough.
“While a rule of equity may play some role in this determination, such as where a party claims an equitable lien in the subject of the action, T & P has not cited, and this Court has not found, any authority which supports the proposition that a possessory interest in collateral may be equitably created by either the condition of collateral unrelated to the existence of a default or the need for continued possession.”
CNH properly perfected its security interest and successfully established the debtor’s default, therefore, the court granted CNH the right to repossess the equipment.
UCC for the win!