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First National Bank of the North v. Automotive Finance Corp.

May 27, 2003

FIRST NATIONAL BANK OF THE NORTH, RESPONDENT,
v.
AUTOMOTIVE FINANCE CORPORATION, APPELLANT, J. DOE I-III, DEFENDANTS.



Scott County District Court File No. 20021760

Considered and decided by Toussaint, Chief Judge, Lansing, Judge, and Huspeni, Judge.*fn1

SYLLABUS BY THE COURT

A consumer lender, whose security interest in a vehicle is indicated on a vehicle's certificate of title in accordance with the perfection rules prescribed by Minn. Stat. §á168A.17 (2002), has priority to the possession of the vehicle over the claim of a flooring lender with a security interest in the inventory of a defaulting dealer who, through trade in, has re-acquired the vehicle.

The opinion of the court was delivered by: Lansing, Judge

Affirmed

OPINION

This appeal in a replevin action involves a dispute between a consumer lender and a defaulting dealer's flooring lender over the priority of security interests in three vehicles. The district court determined as a matter of law that the consumer lender's security interest in each vehicle is superior to the security interest held by the flooring lender. The flooring lender appeals the summary judgment granted the consumer lender, and we affirm.

FACTS

Automotive Finance Corporation (AFC) is a nationwide flooring lender that entered into a financing arrangement with Scott Ferrozzo individually and doing business as Shakopee Used Cars and Trucks (the dealer). Under the terms of the financing arrangement, AFC agreed to lend the dealer $100,000 for the purchase of vehicles for its inventory. In exchange, the dealer granted AFC a security interest in the dealer's inventory, including all vehicles owned or acquired by the dealer in the future. AFC perfected its security interest by filing a financing statement with the Minnesota Secretary of State, as required by the Uniform Commercial Code. Minn. Stat. §á336.9-310(a) (2002).

The dealer sold three vehicles in its inventory to individual buyers. Each of the buyers financed the purchase through a loan with First National Bank of the North (the bank). The bank secured repayment of the loans by taking a security interest in each of the vehicles, which it duly noted on the certificates of title. See Minn. Stat. §á168A.17, subd. 1 (2002) (prescribing procedures for perfecting security interest in vehicles). The bank appears as the first secured party on the vehicle title.

Shortly after each of the transactions was completed, the dealer defaulted on its loan to AFC, and each of the borrowers defaulted on his loan to the bank. At some point, each borrower "traded in" his vehicle to the dealer in exchange for a new vehicle. Neither the borrowers nor the dealer, however, paid off the loans to the bank. Before the bank could physically repossess the vehicles that secured each loan, AFC repossessed the dealer's inventory in satisfaction of its financing arrangement with the dealer. The repossessed inventory included the trade-in vehicles that secured the bank's loans.

The bank brought a replevin action to recover the vehicles. Both the bank and AFC moved for summary judgment, each claiming that its interest was superior. The district court granted the bank's motion for summary judgment, and AFC now appeals.

ISSUE

Does a consumer lender's valid security interest, noted on a vehicle's certificate of title and perfected under Minn. Stat. ยงรก168A.01-.31 (2002), take priority over a flooring lender's ...


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