In my January 31, 2009 post “What is Replevin?”, I discussed the fundamentals of an Indiana claim for replevin, which is the judicial process to repossess personal property or, in the context of this blog, to foreclose upon non-real estate loan collateral. I cited to the Whittington opinion by Judge McKinney from the Southern District of Indiana. In 2010, the Seventh Circuit affirmed Judge McKinney’s opinion in Whittington v. Indianapolis Motor Speedway Foundation, 2010 U.S. App. LEXIS 7524 (7th Cir. 2010) (.pdf ). Whittington did not involve a loan enforcement action but is interesting and informative for lenders nonetheless.
Car trouble. The plaintiff in Whittington sought a court order granting him possession of an antique race car that he transferred to the Indianapolis Motor Speedway’s Hall of Fame Museum in the 1980’s. The plaintiff claimed that he loaned the car to the museum. The museum contended that plaintiff donated the car. The transfer was not documented, and the witness testimony was in dispute. The Seventh Circuit lectured that it was:
handicapped . . . by the lack of documentation with respect to the nature of the transaction . . .. [T]he lesson for [the plaintiff] should be that an unwritten contract is not worth the paper it isn’t written on.
(Remember that written memorialization is a very important aspect to any transaction of any significance.)
The basics. Indiana case law provides that, to succeed on a claim for replevin, a plaintiff must prove (1) his right to title or possession, (2) that the property is unlawfully detained and (3) that the defendant wrongfully holds possession of the property. Indiana also has a statute governing replevin at Ind. Code § 32-35-2. The initial burden of proof is on the person seeking repossession – for purposes of this blog, the lender/creditor. As noted by the Court, “the plaintiff must prove his right to possession on the strength of his own title, not merely the weakness of the defendant’s title or right to possession.”
Possessory right. The Court stated that having a present possessory interest in the property/car was an essential element to the replevin claim. In loan enforcement actions involving non-real estate collateral, the right to possession element should be a non-issue by virtue of the security agreement between the creditor and debtor, and/or the UCC’s enforcement sections (I.C. 26-1-9.1-601 through 628). My working understanding is that the “right to possession” facts necessary for a replevin action are satisfied by the terms of the loan or, more specifically, the secured lender’s/creditor’s remedies upon a default. (For some background, see my December 7, 2010 post.) Absent such a possessory interest, a replevin action will fail, as it did in Whittington.
Collateral only. After analyzing all the evidence, the Seventh Circuit in Whittington concluded that the plaintiff failed to establish by a preponderance of the evidence that he possessed an existing property right in the antique car. Upon a default, to repossess and ultimately liquidate most non-real estate loan collateral in Indiana, asset-based lenders and their legal counsel need to be armed with the necessary contractual repossession right found in most if not all security agreements. This involves, in short, some kind of documented collateral pledge and is the premise upon which any replevin action is based. Without this, any non-real estate assets of the borrower/debtor will not be subject to immediate repossession until the judgment execution process occurs, which process (including proceedings supplemental) is a substantially different and less effective method of collection.