Request By:
Ms. Dora N. Henry
Estill County Clerk
Irvine, Kentucky 40336
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You have raised a question concerning the validity of a "Transfer of Equity and Assumption Agreement" relating to a mobile home. Under the proposed instrument, the original purchaser purports to transfer any interest he has in the mobile home to a third party, with the third party's assumption of the remaining obligation due under the original security agreement covering the vehicle.
Your specific question is whether or not you can accept such a transfer in view of the existence of the lien arising out of the original security agreement? We are of the opinion that you can legally accept it.
KRS 186.230(9) provides that the county clerk shall see that KRS 186.005 to 186.260 in his county are enforced. In so doing, "No person shall be permitted to sell, trade or transfer ownership of a motor vehicle if evidence is presented to the county clerk that any lien exists on the motor vehicle. "
We conclude that KRS 186.230(9) is clearly unconstitutional, since, without any meaningful reason, it prohibits the alienability or transfer of a motor vehicle while a lien is still on it.
As stated in 16 Am.Jur.2d, Constitutional Law, § 361, p. 689, "The Fiftn Amendment to the Federal Constitution prevents the federal government or its agencies from depriving any person of his property without due process of law. The Four-teenth Amendment to the Federal Constitution, and all the various state constitutions, prevent any action by a state which would accomplish such deprivation."
Elsewhere in 16 Am.Jur.2d, Constitutional Law, § 363, 3. 691, this is written: "The constitutionally protected right of property is not an absolute right. The right is subject to such reasonable restraints and regulations established by law as the legislature, under the governing and controlling power vested in it by the constitution, may think necessary and expedient."
"A very important incident of the right of property is the right to dispose of it." Ibid., § 366, p. 696; and Terrace v. Thompson, 263 U.S. 197, 68 L. Ed. 255, 44 S. Ct. 15 (1923), at 68 L. Ed. 275. Thus, the court in Terrace affirmed that the Fourteenth Amendment, as against the aribitrary action of the arbitrary action of the state, would protect the owners of property in their right to dispose of the property for lawful purposes.
Various statutes relating to the registration of motor vehicles in KRS Chapter 186 have been characterized as police measures and regulatory in character. Siler v. Williford, Ky., 350 S.W.2d 704 (1961) 707; and McKenzie v. Oliver, Ky., App., 571 S.W.2d 102 (1978) 106. However, the court in Schoo v. Rose, Ky., 270 S.W.2d 940 (1954), pointed out that "In order to sustain a legislative enactment as an exercise of the police power it is necessary that the act should have some reasonable relation to such objects as public safety, health, peace, good order or morals. Moreover, the law must tend toward the accomplishment or promotion of the enumerated objects in a degree that is perceptible and clear." (Emphasis added).
It is clear that the restrictions or regulations of police power legislation, to be constitutionally sustainable, must not be arbitrary so as to be uneasonable. Beacon laquors v. Martin, 279 Ky. 468, 131 S.W.2d 446 (1939) 448; and City of Louisville v. Kuhn, 284 Ky. 684, 145 S.W.2d 851 (1940) 856.
We conclude that KRS 186.230(9) promotes no perceptible and clear legitimate public interest. The statute has no reasonable relation to such police power objects as public safety, health, peace, good order or morals. Thus the statutory restraint is unreasonable and arbitrary; and the statute is thus unconstitutional for that reason. See § 2, Kentucky Constitution; Moore v. Ward, Ky., 377 S.W.2d 881 (1964); and Pritchett v. Marshall, Ky., 375 S.W.2d 253 (1964) 258.
The protection of the Lienholder is amply provided for by law. Note KRS 186.045, relating to noting a lien on the certificate of registration.
Note that KRS 355.9-311 carefully preserves the right of an owner of a motor vehicle to transfer his interest, even though a lien has been imposed on the vechicle. The statute provides that:
"The debtor's rights in a collateral may be voluntarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstanding a provision in the security agreement prohibiting any transfer or making the transfer constitute a default."
The purpose of KRS 355.9-311 is "To make clear that in all security transactions under this Article, the debtor has an interest (whether legal title or an equity) which he can dispose of and which his creditors can reach." U.L.A., Uniform Commercial Code, Master Edition 3, page 203. See also on that point Sturdevant v. First Sec. Bank of Deer Lodge, Mont., 606 P.2d 525 (1980) 528. See also Shaw Mudge & Co. v. Sher-Mart Mfg. Co., Inc., 132 N.J. Super. 517, 334 A.2d 357 (1975), holding that under the Uniform Commercial Code, 9-311, the debtor's rights in collateral (property subject to a security interest) may be voluntarily or involuntarily transferred, subject, however, to a perfected security interest.
CONCLUSION
Since KRS 186.230(9) is clearly unconstitutional, and since KRS 355.9-311 permits the alienability of the secured transaction debtor's rights, it is our opinion that you, as county clerk, should accept the proposed transfer and note on the new registration certificate issued to the new owner the lien in question. The court wrote in Lincoln Bank & Trust Company v. Queenan, Ky., 344 S.W.2d 383 (1961) 385:". . . . We adopt as a rule of construction that the code is plenary and exclusive except where the legislature has clearly indicated otherwise."
See OAG 79-445, copy enclosed, in which this office previously concluded that KRS 186.230(9) was unconstitutional.