Execution Of Releases Of Liens On Vehicle Certificates Of Title Constitutes Release Of Liens Themselves
Mfrs. and Traders Trust v. Wyo. Sand and Stone, 223 Fed. Appx. 146 (3d Cir. 2007) (Circuit Judge Anthony J. Scirica)
A lender holding a security interest in vehicles of the debtor executed releases of those liens, and delivered those releases to an auctioneer selling the debtor’s vehicles. Execution of the releases prior to auction was purportedly going to assist in obtaining a higher price for the vehicles. An unsecured creditor of the debtor asserted that the proceeds of the sale did not belong to the lender because the liens were released prior to the sale. The Third Circuit Court of Appeals affirmed the bankruptcy court’s holding that by executing the releases, the lender released its liens.
Manufacturers and Traders Trust held liens on vehicles of the debtor, Wyoming Sand and Stone. Travelers Casualty and Surety Company was an unsecured creditor of the debtor. Prior to the commencement of the debtor’s bankruptcy case, the debtor requested that M&T execute releases of the liens on certain vehicles that were to be auctioned, and promised that the funds realized from these auctions would be used to reduce the debtor’s indebtedness to M&T. The debtor requested the releases based on the reasoning that the vehicles might sell for a higher price without the liens. Some of those vehicles were sold at auction, while others did not sell.
M&T then requested new titles from the Pennsylvania Department of Motor Vehicles indicating its lien on the vehicles that were not sold at auction. The DMV issued the new title documents. Post-petition, M&T hired an auctioneer to sell the remaining vehicles. M&T’s auctioneer asked M&T to release the liens. M&T agreed, and delivered the executed releases of the title liens to the auctioneer. The proceeds from the auction were held in escrow under a stipulation between M&T and Travelers.
M&T thereafter filed a complaint against the debtors and Travelers to obtain the auction proceeds. Travelers filed a motion for summary judgment on the basis that the liens were released and therefore the auction proceeds were to be shared by unsecured creditors of the debtor’s estate. The United States Bankruptcy Court for the Middle District of Pennsylvania granted Traveler’s Motion for Summary Judgment, holding that M&T had released its security interests in the vehicles. The district court affirmed.
The Third Circuit also affirmed, finding that the absence of any notation of a lien on the certificate of title indicated that no lien existed. M&T argued that because the loan agreement between M&T and the debtor was not marked “paid,” and because the agreement and title certificates were not delivered to the debtors, the liens remained intact. The court disagreed, holding that the crucial factor was whether the liens were noted on the certificates, which they were not.
