Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

Exercise 22

Purchase-Money Security Interest. In 2007, James Cavazos purchased a new Mercedes vehicle from a dealer and gave JPMorgan Chase Bank (Chase) a purchase-money security interest (PMSI) in the car. The state recorded Chase's lien on the original certificate of title. Cavazos then forged a release of the lien against the title and received a certified copy of the original title. In reliance of that title, NXCESS Motor Cars, Inc., bought the car. It sold the car to Xavier Valeri, who granted a PMSI to U.S. Bank. NXCESS warranted that the title was free of all liens. When a new title was issued, Chase learned of Cavazos's forgery It sued Cavazos, Valeri, and U.S. Bank for conversion (see Chapter 4). It demanded possession of the vehicle and that Cavazos repay the loan. Valeri and U.S. Bank contended that they were buyers in the ordinary course of business and had good title to the Mercedes because the state provided a title free of liens and claims. Cavazos is liable on the loan, but who has the right to possess the car? Which purchase-money security interest dominates? Explain your answers. [ NXCESS Motor Cars, Inc. v. JPMorgan Chase Bank, N.A. 317 S.W3d 462 (Tex.App.-Houston 2010)]