## Facts

- Wallace Leon Johnson and Alberta Dean Johnson (debtors) borrowed money from Liberty State Bank (Liberty).
- As collateral, the debtors granted Liberty a security interest in a semitrailer used in their landscaping business to transport a bulldozer.
- The debtors never registered the semitrailer and never obtained a Tennessee certificate of title for it.
- Liberty attempted to perfect its security interest by filing a UCC financing statement covering the semitrailer.
- The debtors later filed a bankruptcy case, and John C. McLemore was appointed as the Chapter 7 trustee.
- The trustee filed an adversary proceeding seeking to avoid Liberty’s security interest under 11 U.S.C. § 544(a), claiming Liberty was unperfected.
- The trustee argued that, under Tennessee law, a security interest in a semitrailer can be perfected only by lien notation on a certificate of title, making Liberty’s UCC filing ineffective.
- Liberty argued that because no certificate of title had ever been issued for the semitrailer, Tennessee’s title-notice method could not apply and Article 9 filing was sufficient.
- Both the trustee and Liberty filed cross-motions for summary judgment on lien perfection and the trustee’s avoidance power.

## Issues

1. Under Tennessee law, when no certificate of title has ever been issued for a semitrailer, is a secured party’s interest perfected by filing a UCC financing statement, or only by lien notation on a certificate of title?
2. If Liberty’s security interest was perfected under Tennessee law, can the Chapter 7 trustee avoid it under 11 U.S.C. § 544(a)?

## Decision

- The court held that Liberty’s security interest was properly perfected by filing a UCC financing statement because no certificate of title had ever been issued for the semitrailer.
- The court reasoned that Tennessee’s certificate-of-title perfection method applies to vehicles for which a certificate of title is issued; it does not make perfection dependent on notation on a document that does not exist.
- Because Liberty was perfected under state law, the trustee, exercising § 544(a) rights as a hypothetical lien creditor, could not avoid Liberty’s lien.
- The court granted Liberty’s motion for summary judgment and denied the trustee’s motion.

## Legal Principles

- Article 9’s filing rules govern perfection of a security interest in goods unless the collateral is actually subject to a different perfection statute that provides an exclusive method (such as a certificate-of-title lien notation scheme).
- Tennessee’s title-notice method perfects a security interest in a vehicle for which a certificate of title is issued by noting the lien on the certificate (or through the title system), rather than by filing a financing statement.
- Where no certificate of title has ever been issued for the collateral, a secured party may perfect by filing under Tennessee’s UCC because there is no title record on which to note the lien.
- A bankruptcy trustee’s avoidance power under 11 U.S.C. § 544(a) allows avoidance of interests that are unperfected under applicable state law as of the petition date; it does not defeat a security interest that is perfected under that law.
- On cross-motions for summary judgment in a lien-avoidance adversary proceeding, the court resolves the dispute by determining whether the creditor’s perfection method was legally effective against a hypothetical judicial lien creditor.

## Conclusion

In In re Johnson, the bankruptcy court held that Liberty State Bank perfected its security interest in the debtors’ semitrailer by filing a UCC financing statement because no certificate of title had ever been issued for the trailer, and the Chapter 7 trustee therefore could not avoid the lien under § 544(a).


In re Johnson, 39 B.R. 478 (1984)