Skip to main content

UCC Expert’s Corner: Court Finds Certificate of Title Alone Not Sufficient to Create Security Interest

By Paul Hodnefield, Esq.

In most states, security interests in motor vehicles are perfected by compliance with the certificate of title law. Generally, that requires the creditor to have its security interest indicated on the title certificate. Under UCC Article 9, however, more is required for an enforceable security interest. Certificate of title laws apply to perfection, but Article 9 governs other aspects of security interests. A creditor must comply with both the certificate of title perfection requirements and Article 9 or the security interest will be at risk. A recent court case, In re: Box, 2013 Bankr. LEXIS 2696 (M.D. Ga. July 3, 2013), illustrated the importance of these issues.

Box (the “Debtor”), an individual, purchased a vehicle on credit from M&W Auto Sales, Inc. (“M&W”). The Debtor executed a promissory note for the purchase price payable to W.C. Morrison (“Morrison”), the president and majority shareholder of M&W.

There was one problem with the loan documentation. Morrison forgot to have the Debtor sign a security agreement to grant a security interest in the purchased vehicle. Nevertheless, Morrison had himself named as first lienholder on the vehicle title.

Later, the Debtor filed a Chapter 13 bankruptcy petition. The Debtor then brought a motion seeking to have the court order Morrison to remove his name from the title and to surrender the certificate of title. The Debtor argued that without a security agreement, Morrison did not have a security interest in the vehicle.

Morrison opposed the Debtor’s motion and brought his own motion for relief from the automatic stay so he could repossess the vehicle. In the alternative, Morrison also moved for adequate protection. He claimed that the notation on the title was sufficient to establish his security interest in the vehicle.

Based on the competing motions, the court had to determine whether listing a creditor’s name on a vehicle’s title certificate, without a security agreement, created a security interest in the vehicle. After interpreting the applicable state law—Florida’s version of UCC Article 9—the court concluded that a written security agreement was required. According to the court, a bare notation of a lien on a title certificate does not create a security interest. Therefore, the court granted the Debtor’s motion and denied the motions by Morrison.

The important thing to take away from this case is that a secured party must comply with Article 9, even when a security interest in particular goods must be perfected under a state certificate of title law. Article 9 only steps back with respect to perfection. The secured party must still satisfy with all the other Article 9 requirements for creation, attachment and enforcement.

Paul Hodnefield is Associate General Counsel for Corporation Service Company (CSC) and a frequent speaker/writer on UCC due diligence issues. Please feel free to contact him with questions or comments at or 800-927-9801, ext. 62375.