Replevin Damages: Deterioration and Loss of Use

Lesson.  In Indiana replevin cases, plaintiffs are not limited to the remedy of repossession but may also be entitled to money damages for deterioration of the property value and for loss of use.

Case cite.  Roy Bayer Trust v. Red Husky, 13 N.E.3d 415 (Ind. Ct. App. 2014).

Legal issue.  Whether the trial court abused its discretion in determining the amount of damages awarded to the plaintiff.  

Vital facts.   Roy Bayer Trust was a dispute between a lessor and a lessee of a Kenworth (semi-tractor).  The lessee defaulted under the terms of the lease.  Evidence showed that the fair market value of the Kenworth was $16,000 and that the Kenworth was sold for only $6,000 due to deterioration, which occurred while the lessee held it wrongfully post-default.  Evidence also showed that the Kenworth could have been leased to another party had the lessee not detained it, although the trial court did not consider these damages.   

Procedural history.  The Roy Bayer Trust opinion arose out of (1) the lessee’s appeal of the trial court’s summary judgment for the lessor and (2) the lessor’s cross-appeal contesting the amount of damages awarded to it by the trial court. 

Key rules. 

  • In actions to recover possession of personal property, judgment for the plaintiff may include damages for detention of such property.  Indiana Code § 32-35-2-33(2).
  • The usual measure of damages is the value of the loss of use, measured by the fair rental value.  Such damages must be reasonable in relation to the fair market value of the property, however.
  • In addition to loss of use, the court may award damages for deterioration in the value of the property while in the hands of the defendant.

Holding.  The Indiana Court of Appeals affirmed in part and remanded in part.  The Court affirmed the trial court’s summary judgment to the lessor for damages based upon the deterioration of property value.  The Court remanded the case for the trial court to determine whether the lessor was entitled to more damages for loss of use.   

Policy/rationale.  The Court believed that the damages rules above are prudent.  “The amount of damages in a replevin action must be limited to a reasonable amount-both as a general matter and in relation to the fair market value of the property.  And although the deterioration and loss of use are separate theories of recovery, we believe the total damages award is subject to a requirement of reasonableness.” 

Related posts.  What Is Replevin?


For Summary Judgment On Replevin Claim, 5 Dots To Connect With Affidavit

Barbara v. Pringle, 2013 U.S. Dist. LEXIS 167024 (.pdf), discussed last week, involved a replevin claim.  The borrowers pledged a security interest in all relevant personal property owned by the companies.  The lender sought to recover such non-real estate property pledged as collateral for the loans. 

Security interest.  The lender in Barbara established a security interest in the collateral described in the guaranty agreement pursuant to Indiana Code § 26-1-9.1-203, which security interest had been perfected by the filing of financing statements with the Indiana Secretary of State.  The Court then noted “it is black letter law that, upon default, a secured creditor has the right to take possession of the collateral securing its claim.”  The Court basically said that the plaintiff lender should prevail on the replevin claim. 

But.  The Court, on summary judgment, concluded that summary judgment could not be entered for the borrower because the requisite affidavit supporting the replevin action had not been submitted.  In Indiana, a replevin claim is successful “if the plaintiff proves her right to title or possession of the property, proves that the property is unlawfully detained, and proves that the defendant wrongfully holds possession of the property.” 

Affidavit.  Before a replevin order could be issued, the lender needed to comply with Indiana law requiring the filing of an affidavit that describes the property at issue and states:

  1. the plaintiff is the owner of the property or is lawfully entitled to possession,
  2. the property has not been taken for a tax assessment or fine pursuant to statute;  seized under an execution or attachment against the property of the plaintiff, or if seized, it is by statute exempt from seizure,
  3. the property has been wrongfully taken and is unlawfully detained by the defendant,
  4. the estimated value of the property, and
  5. the county in which the property is being detained.

See, Ind. Code §§ 32-35-2-3 and 4.  Since the plaintiff lender did not provide the affidavit, the Court was unable to grant summary judgment at that time. 

Lenders and their loan enforcement counsel should remember the replevin affidavit when filing a motion for summary judgment.  The affidavit should address each of the five matters above.  Without such evidence, the motion will be denied.


Innocent Purchaser Of Motorcycle Loses To Secured Party In Replevin Action

The vernacular of “foreclosure” typically relates to real estate, while “replevin” normally pertains to personal property.  For more, click on my prior post What Is Replevin?  In Dawson v. Fifth Third Bank, 965 N.E.2d 730 (Ind. Ct. App. 2012), the Indiana Court of Appeals teaches us that security interests in personal property generally will not be extinguished even if the ownership of that loan collateral changes. 

Situation.  In Dawson, Buyer purchased a motorcycle from Seller, who had given Buyer a certificate of title showing the motorcycle was free of any lienholders.  Buyer later learned that Seller fraudulently obtained the title and that the current certificate of title listed Bank as a lienholder.  Which party - Buyer or Bank - was entitled to possession of the motorcycle free and clear of all liens?

Replevin 101.  Replevin is a statutory remedy allowing one to recover possession of property “wrongfully held or detained” by another.  Ind. Code § 32-35-2 is the Indiana statute.  The elements of a replevin action require the plaintiff to prove (a) its title or right to possession, (b) that the property is unlawfully detained and (c) that the defendant wrongfully holds possession.  In the secured lending context, Indiana law is clear that, upon default, a creditor has the right to take possession of the collateral securing its claim and in accordance with the agreement with the defaulting party.

Competing rights.  Bank held a security interest in the motorcycle based upon Seller’s promissory note and security agreement.  The most current certificate of title on file with the Bureau of Motor Vehicles reflected Bank’s security interest.  Bank had never released its lien.  In what proved to be a fatal error, Buyer purchased the motorcycle without checking with the BMV to verify that the certificate of title supplied by Seller was the most recent one.  Since Seller was in default under the security agreement based upon non-payment, Bank, as the secured party, had the right to take possession of the motorcycle.  Ind. Code § 26-1-9.1-609(a).  Buyer did not dispute Bank’s rights.  Rather, Buyer contended that its purchase, and thus ownership, of the motorcycle precluded Bank from arguing that Buyer wrongfully held possession of the motorcycle – one of the elements of an Indiana replevin claim.  Bank, while not contesting ownership, asserted that such ownership was subject to Bank’s lien. 

Ownership immaterial.  A security agreement is effective against purchasers of collateral.  Ind. Code § 26-1-201-9.1.  Third-party purchasers are therefore at risk if they buy encumbered personal property from a seller/debtor in default.  Although Buyer had an interest in the motorcycle as its purchaser, the interest was not superior to Bank’s perfected security interest.  The Court affirmed the trial court’s summary judgment for Bank accordingly. 

Perfection.  Footnote 4 of the Dawson opinion contains lots of information related to certificates of title and the issue of perfecting Bank’s security interest.  Bank’s perfection was a non-issue, but the Court’s remarks are informative.

Equitable estoppel.  The Court in Dawson devoted a portion of its opinion to Buyer’s claim for equitable estoppel.  The discussion focused on certificates of title and which party was in the best position to protect itself based upon the public records.  The opinion is helpful for those who deal with motor vehicle transactions.  In the end, Bank was not responsible for Seller’s loss. 

 


Prejudgment Possession (Replevin) of Equipment Permitted Under Indiana Law

This post falls in line with those of January 31, 2009, December 7, 2010, and January 6, 2011 regarding Indiana’s remedy of replevin, including the right to prejudgment possession of personal property loan collateral.  The Indiana Court of Appeals’ decision in Deere v. New Holland, 2010 Ind. App. LEXIS 1899 (Ind. Ct. App. 2010) (click and save for .pdf) supports the proposition that prejudgment repossession is available in Indiana.  The Court also held that the creditor’s lien survived the debtor’s transfer of the property.

What happened.  The creditor in Deere held a perfected security interest in farm equipment.  The original debtor traded the equipment to another business, which relied upon statements of third parties that the creditor’s lien had been satisfied.  The successor business – the defendant in the suit – did not contact the creditor to verify whether the liens had been released.  There was a default under the applicable security agreement, and the amount due under the agreement was accelerated as a result.  As is often the case, the agreement provided the creditor with the right to recover the equipment upon the default.  The case surrounded the defendant’s (the subsequent owner of the equipment) objection to the creditor’s effort to repossess.

Repossession rules.  The Court in Deere reiterated that, upon a default, creditors have the right to take possession of the collateral securing their claim.  See Indiana Code § 26-1-9.1-601(a) and 609(a)(1).  Significant to Deere, “a security agreement is effective against purchasers of the collateral.”  I.C. § 26-1-9.1-201(a).  Depending upon the circumstances, repossession can occur through self-help or, as in Deere, a suit for replevin.  An Indiana replevin action is a “speedy statutory remedy designed to allow one to recover possession of property wrongfully held or detained as well as any damages incidental to detention.”  A plaintiff/creditor must prove:  (1) it has the right to possession, (2) that the property is unlawfully detained, and (3) that the defendant wrongfully holds possession.  The Court concluded, based upon undisputed facts, that the creditor was entitled to possession, use and disposition of the equipment pending final adjudication of the claims of the parties.

Notice of lien.  The real meaty issue in Deere related to the defendant’s belief, based upon representations made by third parties, that the creditor’s liens had been satisfied.  Indeed proof showed that such representations occurred.  Nevertheless, the evidence was undisputed that the defendant had actual notice that the prior lien existed at a point in time, and the defendant never contacted the creditor to confirm the alleged satisfaction of the lien. 

BFP defense?  The court translated the defendant’s argument as “raising an affirmative defense that it was a bona fide purchaser because it relied in good faith on the information it gleaned from [third parties].”  I have written about the bona fide purchaser defense on a handful of occasions, including on October 4, 2009 when I discussed how actual knowledge defeats Indiana’s bona fide purchaser doctrine.  This knowledge was fatal in the Deere case.  The defendant had actual notice of the perfected security interest in the equipment.  Any reliance on statements by third parties with respect to the satisfaction of liens “simply was not reasonable”: 

As a general rule, we find that it is unreasonable to rely on the statements of third parties – or the [original] debtor – about the current status of security interests.

The lesson for parties acquiring equipment that may be subject to a security interest is to conduct an independent investigation into the status of any liens.  Relying on written or oral representations by the seller will not protect parties from a creditor’s action to foreclose the lien.  From the creditors’ perspective, in cases of clear defaults, Indiana law generally allows repossession (and liquidation) of personal property loan collateral before the entry of judgment.


Possessory Interest Key To Indiana Replevin (Repossession) Action

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.


What Is Replevin?

In Indiana, a cause of action for “replevin” will come into play if your lending institution collateralized its loan with tangible personal property and if your borrower defaulted on such loan.  For more on the fundamentals of a claim for replevin in Indiana, keep reading.

Vocabulary.  Black’s Law Dictionary defines replevin as follows:

An action whereby the . . . person entitled to repossession of [personal property] may recover [it] . . . from one who . . . wrongfully detains such [personal property].  Such action is designed to permit one having the right to possession to recover property in specie from one who has either wrongfully taken or detained property.

In this context, a lender is the person entitled to repossession of the property, and a defaulting borrower is the one who has wrongfully detained the property. 

Indiana statute.  Ind. Code § 32-35-2 governs replevin actions.  The detailed statute provides the procedural steps to repossess personal property.  Section 1 states that grounds for an action for replevin exist:

If any personal goods, including tangible personal property constituting or representing choses in action, are: 
(1) wrongfully taken or wrongfully detained from the owner or person claiming possession of the property; or
(2) taken on execution or attachment and claimed by any person other than the defendant;
the owner or claimant may bring an action for the possession of the property.

When lenders seek to enforce a security interest in, for example, a borrower’s equipment, counsel should include a count for replevin, which will result in a court order granting the right to repossess the equipment.  A count for replevin typically will be in addition to a count for damages based upon a promissory note/credit agreement.

Indiana case law.  A handful of recent Indiana judicial opinions provide further insight into replevin actions.  “To succeed on his claim for replevin, [plaintiff] must prove by a preponderance of the evidence that the [defendant] wrongfully held or detained property that belonged to him.”  Whittington v. Indianapolis Motor Speedway Foundation, Inc., 2008 U.S. Dist. LEXIS 62760 (S.D. Ind. 2008) (Whittington.pdf) (The Court determined, in a case involving an antique car, that the transaction was a gift, rather than a loan.  Because the plaintiff failed to prove that he had a possessory interest in the car, his claim for replevin failed.)  See also, Schaefer v. Tyson, 2009 U.S. Dist. LEXIS 4536 (S.D. Ind. 2009) (Schaefer.pdf) (Replevin action dismissed by six-year statute of limitations.)  In McCready v. Harrison, 2009 U.S. Dist. LEXIS 1518 (S.D. Ind. 2009) (McCready.pdf), Judge David Hamilton noted, generally, that:

 “A replevin action is a speedy statutory remedy designed to allow one to recover possession of property wrongfully held or detained, as well as any damages incidental to the detention.”
 Reasonable loss of use damages may be recovered in a replevin action; I.C. § 32-35-2-33 provides that judgments for plaintiffs in replevin actions may be for (1) delivery of the property, or the value of the property in case delivery is not possible and (2) damages for the detention of the property. 

To repossess and, ultimately, liquidate most non-real estate loan collateral in Indiana, asset-based lenders and their legal counsel need to be familiar with I.C. § 32-35-2 and the applicable case law.