In a recent Indiana case, the Court found that a possessory lien for repairs made to a semi-truck took priority over the lender’s properly perfected security interest. In this case, a lessee rented a semi-truck. Under the lease agreement, the consideration lessee was obligated to pay was based on the price of the truck, plus the interest, divided by the total term in months to arrive at a monthly payment. At the conclusion of the term, the lessee had the option to buy the truck for a fraction of the total rental price.
The lessee operated the truck for Gangloff Industries. At some point, the truck broke down, and Gangloff paid for the repairs. Before the lessee was able to repay the corporation for the repairs, the lessee died. Gangloff then took possession of the truck.
The Court found that because the “lease agreement” between the parties looked more like a sale than a lease, the “lender” had a security interest in the truck. Because the corporation was owed money by the lessee for the repairs that it had paid for, the corporation had a possessory lien. The Court found that the corporation’s possessory lien had priority over the lender’s security interest.
This case is an example of how a properly perfected first position can be weakened by a subsequent possessory lien. If you have questions about lien priority, please call one of the firm’s Creditors’ Rights attorneys.
Tags: creditors' rights, lease agreement, possessory lien, security interest