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Texas Legislature Passes Certificate of Title Bill Negating Effect of Clark Contracting Decision

By Michael D. Jewesson

On June 19 of this year, Texas Governor Rick Perry signed into law Senate Bill 1592, S.B.1592, 81st Leg., Reg. Sess. (Tex. 2009) (“SB1592″), bringing an end to an intensive five-month effort to negate the broader effects of a decision handed down by a bankruptcy court in the Western District of Texas in late 2008 relating to the perfected status of a lender on a loan purportedly secured by six equipment trucks. Clark Contracting Serv., Inc. v. Wells Fargo Equip. Fin. (In re Clark Contracting Serv., Inc.) 399 B.R. 789 (Bankr. W.D. Tex. 2008). As reported in the August 2009 issue of LJN's Equipment Leasing Newsletter (“Secured Transactions: The Transfer of Security Interests,” Alan M. Christenfeld and Barbara M. Goodstein; available online at www.ljnonline.com/issues/ljn_equipleasing/28_7/news/152458-1.html), the decision in Clark Contracting left many purchasers of motor vehicle loans questioning their status as secured lenders with respect to obligors in the underlying motor vehicles. Fortunately, the Texas Business Law Foundation and the American Securitization Forum were quick to react to the Clark Contracting decision when it was published in February 2009, promoting legislation to amend the Texas Certificate of Title Act (“TCTA”) (Tex. Transp. Code Ann. ”501.001-501.159 (2007)) and other Texas statutes governing titled assets to clarify the meaning of the provisions of those statutes governing the assignment of liens in titled assets and the effect of that assignment on the perfected status of assignees.

As previously reported, the court in Clark Contracting found that Wells Fargo Equipment Finance (“Wells Fargo”), a purchaser of a secured loan made by CIT Group/Equipment Financing Inc. (“CIT”) to Clark Contracting Services, Inc. (“Clark”) for the purchase of six equipment trucks, did not have a perfected security interest in those trucks because CIT failed to apply with the county assessor-collector to have the certificates of titles for the trucks reissued to reflect Wells Fargo as the lienholder. As a result, Wells Fargo was relegated to the status of an unsecured creditor in the bankruptcy proceedings of Clark. The court's decision was inconsistent with what is believed to be the current state of the law in all of the other 49 states, many of which either have statutes that expressly provide that re-titling is unnecessary or have courts that have interpreted state law in a manner consistent with such statutes. The decision was also directly in conflict with the practice of many of the finance companies and banks that make motor vehicle loans in Texas, including lenders that financed their loans through structured warehouse facilities and securitizations.

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