International Harvester Credit Corp. v. Valdez

David Valle bought a tractor and financed some of the purchase price through the seller. Valle agreed to make four installments to the seller, and the seller took a security interest in the tractor. The seller assigned the financing contract to International Harvester Credit Corporation (International) (plaintiff). International properly perfected its security interest in the tractor by ensuring that the security interest was shown on the recorded certificate of title, as required for motor vehicles. Thereafter, a truck owned by Santiago Valdez (defendant) destroyed the tractor in an accident. Valdez’s insurance carrier reached a full settlement with Valle for the damage. However, Valdez did not join International in the settlement, as neither Valdez nor his insurance carrier had actual knowledge of International’s security interest, nor did they check the tractor’s certificate of title for any security interests. Once Valle missed an installment, International learned about the accident and the settlement. Accordingly, International sued Valdez for damaging its security interest. The trial court granted summary judgment in Valdez’s favor and reasoned that Valdez did not have a duty to protect International’s security interest and that Valdez’s full settlement of the claim with Valle barred International’s lawsuit. On appeal, International argued that Valdez had constructive notice of its security interest because of the recorded certificate of title, and that Valdez had a duty to notify International of the accident and include International as a party to the settlement.