TERRY L. MYERS, CHIEF U.S. BANKRUPTCY JUDGE.
In the chapter 7 case filed by Timothy Resler ("Resler") and Kimberly Resler (collectively "Debtors"), the trustee, Janine P. Reynard ("Trustee"), commenced an adversary proceeding against Bank of America ("BofA") to avoid under § 547 a security interest held by BofA.
In December 2014, Resler spoke with a sales representative of Peterson, a Boise, Idaho automobile dealer, about trading in a 2010 Lexus he and his wife owned toward the purchase of a 2015 Lexus LX570 ("Lexus"). Resler paid $2,500 to Peterson on December 20 in order to have the new Lexus transported to Boise.
Resler signed several documents at Peterson's dealership on December 29, 2014. Resler intended to purchase the Lexus as a co-buyer with Total Maintenance Solutions, LLC ("TMS"), an Idaho LLC of which Resler was a 75% owner and the managing member.
Among these several documents was an LLC resolution to lease or finance a vehicle. Ex. 303. It was signed by Resler as TMS' managing member.
Peterson as "Creditor-Seller" entered into a Retail Installment Sale Contract with TMS as "Buyer" and Resler as "Co-Buyer" for the purchase of the Lexus. Ex. 304 ("Contract").
Id.
A boxed section titled "FEDERAL TRUTH-IN-LENDING DISCLOSURES" contains the financing details of the transaction. This section includes an annual percentage rate, a finance charge, an amount financed, total of payments, and total sales price. The first payment was due February 12, 2015.
Twice, the Contract states that the Buyer and the Co-Buyer grant a security interest in the Lexus to the Creditor-Seller. The first is in the FEDERAL TRUTH-IN-LENDING DISCLOSURES box and states: "
Id.
On December 29, 2014, Resler signed his name on the Contract in six separate places. Resler's signatures on the "Buyer" lines did not show that he was signing on behalf of TMS other than through the Contract's identification of the parties at the outset, which defined TMS as the Buyer.
Addressing each area of signature specifically, Resler signed on two lines labeled "Buyer Signs X_____" and "Co-Buyer Signs X_____" in a box that states:
Id.
Immediately above the signatures and language already quoted is the following statement:
Id. Resler signed both the Buyer and Co-Buyer lines following this statement.
Finally, Resler signed twice on a single line labeled "Buyer signs X_____" in a box
There were other documents signed on December 29 as well. One was a Certificate of Origin for the Lexus, Ex. 300, which on its reverse side notes the transfer of the Lexus to Peterson, and then from Peterson to "Total Maintenance Solutions LLC or Resler, Timothy Robert" with the signature on behalf of Peterson being attested to on December 29. That reverse side also notes BofA in a "lienholder" box.
There was also a "Vehicle Buyers Order," Ex. 314 ("VBO"), for the Lexus that was printed out and shows TMS and Resler under "purchaser's name." It commences: "Please enter my order" for the Lexus. It is signed on the second page by Resler as the "purchaser." It is dated December 29, and indicates the Lexus would be delivered on or about December 29. It is not executed by Peterson at all. There is a separate, discrete box on the first page of the VBO which states:
Id. This provision requires the Purchaser's signature; it is not signed.
Resler received possession of the Lexus and drove it off Peterson's lot on December 29, 2014.
The Contract states "Seller assigns its interest in this contract to BANK OF AMERICA (Assignee) under the terms of Seller's Agreement(s) with Assignee." Peterson on December 29 sent a "financing package" to BofA which, upon BofA's acceptance, would require Peterson to assign its rights in the Contract (i.e., the rights of the Creditor-Seller) to BofA. On December 29, BofA replied through a computer program (RouteOne) used by it and Peterson. Ex. 201. In reference to the financing package submitted for the purchase of the Lexus by TMS and Resler, BofA states: "Decision: Approved by B of A on 12/29/14 — 02:44 PM." It also states "This decision expires on 28-JAN-15." Id. The parties' stipulation characterizes this as a "conditional acceptance."
At some point, BofA recognized that it had issues with the manner in which Resler signed the Contract on behalf of TMS. On January 15, BofA issued another decision through the RouteOne system. Ex. 307. It indicates "Decision: Approved by B of A on 01/15/15 — 01:09 PM" and states "This decision expires on 28-JAN-15." In the "comments" section of this transmittal to Peterson, BofA states in pertinent part: "returned[,] missing business name and customers title on buyers portion of contract[,] please correct and return[.]" Id.
After Peterson contacted Resler, he returned to the dealership and added the hand-written interlineation "Total Maintenance Solutions LLC" above his signature on each of the three "Buyer" signature lines, and added "owner" after his signature on two of those lines and "manager" after his signature on the other. Ex. 305.
BofA subsequently transmitted to Peterson a "Contract Purchased Fax Transmittal," on January 29. Ex. 309. It stated that "The contract listed below has been purchased by Bank of America effective 01/30/2015," and refers to the contract by number and shows the "Applicant" as Resler. Next to this information in the fax transmittal, someone made a handwritten insertion of TMS' name. There are a number of other hand-written notations on the document. Who made them, and when, was not made clear. Peterson's finance manager,
After this January 29 fax but before the funds were received, Peterson filed on January 30 a "Report Of Sale And Application for Certificate of Title." Ex. 310; see also Ex. 308 (list of title applications, including the Lexus at issue here, dated as received by the DMV on January 30, 2015).
Debtors filed their petition for chapter 7 relief on April 16, 2015.
In brief, the Court reaches the following conclusions of law upon the parties' stipulated facts as well as the evidence put before it at trial.
Upon the facts and these conclusions, the Court further concludes:
Upon the filing of a bankruptcy petition, an estate is created "composed of `all legal or equitable interests of the debtor in property as of the commencement of the case'" In re Bill, 529 B.R. 779, 782
The Idaho motor vehicle title laws state "no person acquiring a vehicle from the owner, whether the owner is a dealer or otherwise, shall acquire any right, title, claim or interest in or to the vehicle until he has issued to him a certificate of title to that vehicle[.]" Hillen v. Dennis Dillon Auto Park & Truck Ctr., Inc. (In re Byrd), 546 B.R. 434, 439 (Bankr.D.Idaho 2016) (citing Idaho Code § 49-503). The owner of a vehicle is the person who appears as such on the title certificate. Id. If a debtor is listed as the vehicle's owner on an Idaho certificate of title on the petition date, that vehicle becomes property of the bankruptcy estate. Gugino v. Jones (In re Antonie), 2011 WL 5913725, *2 (Bankr.D.Idaho Nov. 28, 2011). The result is the same if a debtor is listed as an alternate owner on the certificate. Id. "As alternate owners, each party on an `OR' motor vehicle title has the ability to unilaterally transfer complete ownership of the vehicle to another." Id. (citing Idaho Code § 49-502; Latham Motors, Inc. v. Phillips, 123 Idaho 689, 851 P.2d 985, 991-92 (Ct.App.1992)).
Resler is listed as an alternate owner on the Certificate of Title. Ex. 311. The title was issued on February 17, 2015, two months before Resler filed for bankruptcy on April 16, 2015. The Lexus is property of Debtors' bankruptcy estate.
The formation of a contract is a matter of state law and, in Idaho, "generally a question of fact for the trier of fact to resolve." Inland Title Co. v. Comstock, 116 Idaho 701, 779 P.2d 15, 16 (1989). Contract formation requires that there be a meeting of the minds, evidenced by a "manifestation of mutual intent to contract. This manifestation takes the form of an offer and acceptance." P.O. Ventures, Inc. v. Loucks Family Irrevocable Tr., 144 Idaho 233, 159 P.3d 870, 875 (2007). There must be a meeting of the minds on the essential terms of the agreement, and a contract must be "complete, definite, and certain in all its material terms, or contain provisions which are capable in themselves of being reduced to certainty." Lawrence v. Hutchinson, 146 Idaho 892, 204 P.3d 532, 538 (Ct.App.2009).
The "interpretation and legal effect of an unambiguous contract are questions of law[.]" Luzar v. Western Sur. Co., 107 Idaho 693, 692 P.2d 337, 341 (1984) (citing Clark v. St. Paul Prop. & Liab. Ins. Co., 102 Idaho 756, 639 P.2d 454 (1981)); see also Credit Suisse AG v. Teufel Nursery, Inc., 156 Idaho 189, 321 P.3d 739, 746 (2014). A contract is ambiguous if it may be "reasonably subject to conflicting interpretations." Bakker v. Thunder Spring-Wareham, LLC, 141 Idaho 185, 108 P.3d 332, 337 (2005). A court will give an unambiguous contract its plain meaning. Id. "The purpose of interpreting a contract is to determine the intent of the contracting parties at the time the contract was entered." Id.
The Contract, Ex. 304, satisfies all the requirements of a contract under Idaho law. The Contract was formed, and under it Peterson, as Creditor-Seller, sold the Lexus to TMS and to Resler, the Buyer and Co-Buyer respectively, on December 29, 2014. The absence of TMS' name and Resler's title in the signature spaces on that date did not render the Contract ambiguous.
"If a written contract is complete upon its face and unambiguous, no fraud or mistake being alleged, extrinsic evidence of prior or contemporaneous negotiations or conversations is not admissible to contradict, vary, alter, add to, or detract from the terms of the contract." Howard v. Perry, 141 Idaho 139, 106 P.3d 465, 467 (2005). "A written contract that contains a merger clause is complete upon its face." Id. at 468. A merger clause proves that an agreement is integrated. Id. Where two parties enter into a binding, integrated agreement, any "prior written agreements as well as prior oral agreements" are rendered inoperative. Restatement (Second) of Contracts § 213, cmt. a (1981).
The Contract contains a merger/integration clause. See Ex. 304 ("This contract contains the entire agreement between you [Buyer and Co-Buyer] and us [Creditor-Seller] relating to this contract. Any change to this contract must be in writing and we [Creditor-Seller] must sign it. No oral changes are binding."). The Contract is thus the only document that contains the terms of the agreement between Peterson and Resler. No prior or contemporaneous documentary evidence may be used to contradict the plain terms of the Contract.
Peterson attempts to make much of the "contingency clause" found in the VBO, Ex. 314.
Peterson argues that Resler's signing the Buyer's lines without clarifying that he was signing on behalf of TMS impacts the formation of the Contract on the theory of "mutual mistake."
"A mutual mistake occurs when both parties, at the time of contracting, share a misconception about a basic assumption or vital fact upon which they based their bargain." Bailey v. Ewing, 105 Idaho 636,
Peterson failed to carry that burden. There was a mistake of form, not substance, due to the missing (and later inserted) identification on the signature lines of TMS' name and Resler's capacity. All parties knew, and the Contract's definition of Buyer and Co-Buyer confirm, an understanding of the identity of the two purchasing parties. There was no "misconception about a basic assumption or vital fact." Further, should the manner of the initial execution of the Buyer's lines here constitute a "mutual mistake," something the Court does not find, the remedy allowed Peterson is rescission. The Contract was not rescinded.
Peterson further argues that because BofA financing was referenced, and the Contract indicated "Seller assigns its interest in this contract to Bank of America," the Contract was effective only when the assignment was accepted by BofA. However, the Contract, which is complete and unambiguous, contains no terms making it conditional on the dealer's anticipated assignment being accepted.
The contract was not voided. No new contract was written. TMS and Resler had agreed to the terms of the contract as Buyer and Co-Buyer. Peterson had agreed to the Contract as Creditor-Seller. BofA, perhaps reasonably enough, wanted to avoid future disputes over the effectiveness of TMS' obligation under the Contract given the manner or lack of identification of the capacity of the individual executing on behalf of the LLC.
Trustee seeks to avoid BofA's interest in the Lexus as a preference under § 547(b), which allows a trustee to:
The element at issue in this case is that of an antecedent debt under § 547(b)(2).
Section 547(e)(2)(A) states "for the purposes of this section . . . a transfer is made . . . at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after, such time, [or] at the time such transfer is perfected, if such transfer is perfected after such 30 days." What constitutes a transfer and when that transfer occurs is a question of federal law. Crawforth, 2003 WL 22221330 at *3 (citing Fitzgerald v. First Sec. Bank (In re Walker), 77 F.3d 322, 323 (9th Cir.1996)). The granting of a security interest is a transfer. See § 101(54). A transfer is perfected when "a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee." Section 547(e)(1)(B).
BofA holds, by assignment, the interests of Peterson under the Contract, and steps into Peterson's shoes in that regard. The interest transferred to the creditor is a security interest in the Lexus. The security interest was created in the Lexus, and to the benefit of Peterson, by the terms of the Contract on December 29, 2014. See Idaho Code § 28-9-203(b) (generally, security interest attaches to collateral and becomes enforceable when value has been given; debtor has rights in the collateral; and debtor has authenticated a security agreement that provides a description of the collateral). Resler had an interest in the Lexus under the Contract, and took possession of the Lexus, that same day.
The parties did not focus on the date of perfection. Here, Peterson filed multiple title applications, including the application for the Lexus, on January 30, 2015. Ex. 308; Adv. Doc. No. 51 at 3. The actual application regarding the Lexus is date stamped February 5, 2015, Ex. 310, and the title report issued by the Idaho Transportation Department shows a February 9 "recorded" date for the lien.
Idaho Code § 49-510(2) states that "A lien is perfected as of the date of the filing of a properly completed application with the department or an agent of the department." Thus, this Court in Gugino v. Credit Acceptance Corp., (In re Conklin), 511 B.R. 688 (Bankr.D.Idaho 2014), held that perfection occurs upon the filing of a properly completed title application, not necessarily the date listed on the certificate of title. Here, the Court need not determine which of these dates is the actual date of perfection, as all of them—January 30, February 5, February 9—fall beyond 30
This establishes that the transfer on or after January 30, 2015 was on account of an antecedent debt. Krommenhoek v. Pfankuch Food Servs., Inc. (In re Pfankuch), 393 B.R. 18, 25-26 (Bankr.D.Idaho 2008), explains that for a debt to be antecedent, it must have been incurred before the transfer, and a debt is incurred when the debtor first becomes legally bound to pay. Resler became legally bound to pay the purchase price for the Lexus upon the execution of the Contract on December 29, 2014. That Peterson assigned its rights under the Contract to BofA through an agreement separate from the Contract did not create a new debt. Upon the purchase of the Contract on January 30, see Ex. 309, BofA simply gained and thereafter held the rights to collect and enforce the debt Resler and TMS had previously owed to Peterson.
Trustee has established the elements of § 547(b). The transfer is avoidable absent an applicable defense.
Peterson has argued the applicability of § 547(c)(3)(B). That section provides a defense to preference transfer avoidance if the transfer creates a security interest in property acquired by a debtor for new value if such security interest "is perfected on or before 30 days after the debtor receives possession of such property." This Court defines "possession" in the § 547(c)(3)(B) context to mean "physical control or custody of the collateral[.]" Hopkins v. Lang (In re Carpenter), 378 B.R. 274, 279 (Bankr.D.Idaho 2007) (citing Crawforth, 2003 WL 22221330 at *5-6).
Resler received possession of the Lexus on December 29, 2014, and the security interest was perfected, at the earliest, on or after January 30, 2015. That is to say, the interest was perfected at least 32 days after Resler received possession of the Lexus. The defense is unavailable.
Trustee has established that Resler's transfer of a security interest in the Lexus is avoidable as a preference under § 547(b), and BofA has not established a statutory defense to that avoidable transfer. Trustee may submit a form of Judgment consistent with this Decision.
