Title: Phifer v. Gulf Oil Corporation

State: tennessee

Issuer: Tennessee Supreme Court

Document:

401 S.W.2d 782 (1966) Clarence E. PHIFER, Administrator, et al., Appellants, v. GULF OIL CORPORATION, Appellee. Supreme Court of Tennessee. April 15, 1966. Haston & Haston, McMinnville, for appellants. Ellis K. Meacham, Chattanooga, for appellee. CHATTIN, Justice. Appellee, complainant in the trial court, Gulf Oil Corporation, filed this action under the Declaratory Judgments Act against the defendants, appellants here, Clarence E. Phifer, Administrator of the Estate of Paul Phifer, Deceased; and the City Bank & Trust Company of McMinnville. The facts leading to this action are ably and succinctly stated by the able Chancellor *783 in his memorandum opinion, which we quote: The original bill, after reciting the foregoing facts, alleges that: "Complainant, Gulf Oil Corporation, avers that it is lawfully entitled to the fund derived from the security held by it by virtue of its lien and recording thereof under the provisions of Section 64-1801, et seq., Tennessee Code Annotated. It avers that the chattel mortgage held by defendant, City Bank & Trust Company, upon the same property is void and invalid as a violation of the Bulk Sales Act of Tennessee, Sections 47-1401, et seq., Tennessee Code Annotated. To resolve the conflicting claims between the parties, complainant, Gulf Oil Corporation, filed this bill under the provisions of the Declaratory Judgments Act of Tennessee." To the original bill, the Bank interposed a demurrer upon the ground that its chattel mortgage is prior in time to the merchandise lien of Gulf. A pro confesso was entered against the defendant, Administrator. The Chancellor overruled the demurrer of the Bank and ruled that the instrument as evidenced by the Bank's chattel mortgage is void and of no effect while Gulf's lien is a valid and prior lien on the "stock in trade," which Paul Phifer owned at the *784 time of his death. A discretionary appeal has been granted to this Court in order that the efficacy of the demurrer may be determined. The demurrer raises the sole question of whether the chattel mortgage is a legal and proper instrument as the result of the passage of Chapter 83, Public Acts of 1953, codified as T.C.A. Section 64-1801 et seq., which permits liens on merchandise. If the chattel mortgage is permitted by the above cited Section, the Bank will prevail under the doctrine of "first in time, first in right." The general rule in Tennessee has been that a chattel mortgage on merchandise for sale is void per se as to creditors of the mortgagor, but remains valid as between the mortgagor and the mortgagee. Morgan Bros. v. Dayton Coal Company, 134 Tenn. 228, 183 S.W. 1019 (1915); Bank of Cookville v. Bier, 95 Tenn. 331, 32 S.W. 205 (1895); Bank of Rome v. Haselton, 83 Tenn. 216 (1885). Prior to the passage of the Uniform Commercial Code, which went into effect July 1, 1964, and subsequent to the transactions in question, a chattel mortgage upon a stock of merchandise held for resale with possession and control in the mortgagor was fraudulent in law and absolutely void. The Uniform Commercial Code as embodied in T.C.A. Section 47-1-102 (Chapter 81, Public Acts of 1963), under compiler's notes of Section 47-1-101, expressly repeals Section 64-1801 et seq., as follows: However, Section 64-1801 et seq., applies to the case at bar in that the Uniform Commercial Code in T.C.A. Section 47-1-110 goes on to provide: A diligent search has produced no case or any authority which construes T.C.A. Sections 64-1801 et seq., the law which must be applied in this case. T.C.A. Section 64-1802 provides for a "continuing general lien upon such merchandise of the borrower as is from time to time after the execution," of the written agreement. It further provides: "* * * with or without such merchandise being taken into the constructive or actual possession or custody of the lender or of a third person for the account of the lender, and such liens shall secure the lender for all his loans * * *." While it fixes a lien upon the property, the merchandise lien does not disturb the title. T.C.A. Section 64-1804 provides that the lien is a floating lien: "When merchandise subject to the lien provided for by this chapter is sold in the ordinary course of the business of the borrower, such lien, whether or not the purchaser has knowledge of the existence thereof, shall terminate as to the merchandise so sold and shall attach to any proceeds of such sale at any time in the hands of the borrower." On the other hand, a chattel mortgage is a conveyance from the mortgagor to the mortgagee of the title to the property mortgaged, subject to defeasance on payment by the mortgagor of the mortgage debt. Blackwood Tire & Vulcanizing Company v. Auto Storage Company, 133 Tenn. 515, 182 S.W. 576, L.R.A. 1916E, 254 *785 (1915); 14 C.J.S. Chattel Mortgages § 1, page 575. Under the Merchandise Lien Act, title, possession and power of sale remain in the borrower. The lien created attaches to the goods but title is not affected. Upon a sale, title passes to the purchaser but the lien is transferred by operation of the statute to the proceeds of the sale. A chattel mortgage, on the other hand, conveys title to the merchandise and the borrower has no title to pass to an ordinary purchaser in the course of trade. It is because of passage of title under the chattel mortgage which makes the law frown on a mortgage on merchandise which is held for sale. The buyer does not usually inquire into the location of title of goods held for sale. The Bank invoked the equitable maxim, "equity looks to the intent rather than to form." The Bank had its election to use the merchandise lien; instead, it sought to use a different instrument and labeled it "chattel mortgage" which expressly conveyed title to a Trustee. A lien created by statute is limited in operation and extent by the terms of the statute, and can arise and be enforced only in the event and under the facts provided for in the statute; it cannot be extended by the courts to cases not provided for by the statute. 33 Am.Jur., Liens. Section 26; Parker-Harris Company v. Tate, 135 Tenn. 509, 188 S.W. 54, L.R.A. 1916F, 935 (1916); Rent-A-Car Company v. Belford, 163 Tenn. 590, 45 S.W.2d 49 (1932). Since the merchandise lien has only such force as the statute gives it, and a chattel mortgage was not expressly included in T.C.A. Section 64-1801, then this Court cannot mold a chattel mortgage into a merchandise lien. The Uniform Commercial Code in T.C.A. Section 47-9-101 et seq., has as its purpose to provide a simple and unified structure within which the immense variety of present-day secured financing transactions can go forward with less cost and with greatest certainty. See comments to official text, T.C.A. Section 47-9-101. In addition, the traditional distinction among security devices, based largely on form, are not retained. The single term "security interest," applies to all transactions intended to create security interests in personal property and fixtures, even though the old descriptive terms such as chattel mortgages, conditional sales, trust receipts, factors liens, etc., may still be used. See T.C.A. Section 47-9-102. Furthermore, under the Uniform Commercial Code there is no distinction in determining whether "title" to collateral is in the secured party or in the debtor and adopts neither a "title theory" nor a "lien theory" of security interest. See comment to official text, T.C.A. Section 47-9-101. While rights, obligations and remedies under T.C.A. Section 47-9-101 et seq., do not depend on the location of title; title was of paramount importance under the prior existing law which controls this case. The contention of the Bank that T.C.A. Section 64-1801 et seq., and the Uniform Commercial Code are in pari materia is without merit. It is too far fetched to relate the "security interest" theory of the Uniform Commercial Code back to T.C.A. Section 64-1801 et seq., and then to incorporate a chattel mortgage on merchandise held for sale as valid under T.C.A. Section 64-1801 et seq. It is evident that the Legislature intended to, and did, create an entirely new security device in enacting T.C.A. Section 64-1801 et seq. Under it, title, possession and power of sale remain in the borrower. The lien created attaches to the goods, but title is not affected. Upon a sale, title passes to the purchaser, but the lien is transferred by operation of the statute to the proceeds of the sale. The rule that is relied upon to invalidate the chattel mortgage of the Bank has been too well intrenched in this *786 State to infer that the Legislature intended to wipe it out by implication. Thus, the rule which states that a mortgage upon a stock in trade with power of disposition left in the mortgagor is void as to other creditors makes the chattel mortgage of the Bank void. For the reasons herein stated, the decree of the Chancellor is affirmed. BURNETT, C. J., and DYER and CRESON, JJ., concur. WHITE, J., not participating.