Title: Peoples Bank & Trust Co. v. COMFORT ENG. CO.

State: mississippi

Issuer: Mississippi Supreme Court

Document:

408 So. 2d 1190 (1982) PEOPLES BANK & TRUST COMPANY v. COMFORT ENGINEERING COMPANY, INC. No. 53,164. Supreme Court of Mississippi. January 20, 1982. Smith, Downs, Ross, Trapp & Coleman, Wendell H. Trapp, Jr., Corinth, for appellant. Sparks & Colburn, David R. Sparks, Tupelo, for appellee. Before SMITH, P.J., and LEE and BOWLING, JJ. ROY NOBLE LEE, Justice, for the court: Comfort Engineering Company, Inc. filed suit against Peoples Bank & Trust Company in the Circuit Court of Lee County, Honorable Neal Biggers, presiding, seeking possession of four air conditioning units valued *1191 at approximately $86,000. The circuit judge, sitting without a jury, entered judgment in favor of Comfort Engineering Company, Inc., and Peoples Bank & Trust Company has appealed to this Court. The sole assignment of error presents the question of whether or not the lower court erred in failing to recognize that Peoples Bank & Trust Company held a valid perfected security interest superior to the interest of Comfort Engineering Company, Inc., and erred in declining to award possession of the air conditioning equipment to Peoples Bank & Trust Company. On June 27, 1975, Fashions by Wisz, Inc. (Fashions), acquired certain property in the city of Tupelo, Mississippi, for the purpose of operating a sewing plant. On December 19, 1975, appellant extended credit to Fashions in the sum of $150,000 evidenced by a promissory note in such amount. The promissory note was secured by a security interest in certain personal property generally described as sewing equipment, electric wiring, carpet, light fixtures, air conditioning units and duct work. The standard security agreement was executed by Fashions in favor of appellant and a 12-page Uniform Commercial Code Financing Statement (UCC-1) was executed in duplicate by Fashions in favor of appellant. The Uniform Commercial Code Financing Statement was filed forthwith in the Chancery Clerk's Office of Lee County, Mississippi, on December 28, 1975, and in the Office of the Secretary of State of the State of Mississippi on December 31, 1975. On January 28, 1976, Fashions contacted appellant for further credit and appellant extended Fashions an additional $150,000. Fashions executed a second promissory note payable to appellant in said amount with an indication upon the said note that it constituted an additional advance and was secured by the same collateral that secured the first promissory note. On August 9, 1976, the two $150,000 promissory notes from Fashions to appellant, aggregating $300,000, were consolidated and the indebtednesses were renewed. On May 3, 1976, appellee sold two air conditioning units to Fashions for the sum of $45,544.85 and on July 1, 1976, appellee sold two additional air conditioning units to Fashions for the sum of $40,666. Two conditional sales contracts were executed by Fashions in favor of appellee covering the respective transactions. The contracts were subsequently filed with the Lee County Chancery Clerk on August 19, 1977. Fashions became involved in deep financial trouble, defaulted upon its debts and filed a petition in bankruptcy. There were then in existence (1) a security agreement and Uniform Commercial Code Financing Statement (UCC-1) from Fashions to the appellant, dated December 19, 1975, and recorded in the Office of the Chancery Clerk of Lee County, Mississippi, and in the Office of the Secretary of State of the State of Mississippi, which contained the following statement of collateral: "air conditioning units and duct work," (2) conditional sales contract signed by Fashions dated May 3, 1976, which was filed in the Office of the Lee County Chancery Clerk on August 19, 1977, pertaining to two air conditioning units and conditional sales contract executed by Fashions in favor of appellee dated July 1, 1976, filed for record in the Lee County Chancery Clerk's Office on August 19, 1977, pertaining to the additional two air conditioning units. On October 2, 1979, appellee filed an action in replevin, claiming a security interest in the four air conditioning units mentioned above and the Lee County Circuit Court awarded possession of the four units to appellee. (a) Security agreement. The security agreement, upon which appellant relies, contained an after-acquired property clause. Language in the instrument reads as follows: The attachments incorporated into the security agreement and the dual Uniform Commercial Code Financing Statement (UCC-1), executed by Fashions, contained the following reference and statement of collateral: "Air conditioning units and duct work." The Uniform Commercial Code Financing Statement also contained the following provision: Mississippi Code Annotated section 75-9-312(5)(a) (1972) governs the priority between conflicting security interests in the same collateral as follows: The parties agree that the facts of this case are largely uncontradicted and that the decision here is one upon the law as applied to those facts. It is undisputed that appellant perfected its security interest in the air conditioning units, according to law. Likewise, it is undisputed that appellee wholly failed to perfect its security interest in said property. (b) After-acquired property clause. Mississippi Code Annotated section 75-9-204 (1972) provides the following with reference to after acquired property. Thus, after-acquired property clauses are valid under Mississippi law. The financing statements should reasonably describe the collateral to be secured, although further inquiry beyond the financing statement may be necessary to examine the after-acquired property to disclose the complete status of the transaction. National Cash Register Co. v. Firestone & Co., 346 Mass. 255, 191 N.E.2d 471 (1963). Official comments to the Uniform Commercial Code insofar as they relate to after-acquired property, follows: 69 Am.Jur.2d, Secured Transactions, section 298 (1973), states the general law on *1193 after-acquired property in a security agreement as follows.[1] (c) Purchase money secured party. Appellee contends that it is entitled to priority and equitable consideration by the Court for the reason that appellee attained the status of a purchase money secured party. Admittedly, appellee sold the air conditioning units directly to Fashions, installed them at Fashions, and was not paid for the sales. However, in order for appellee, or any other party in its position, to receive such consideration, it must act and comply with the statute. Mississippi Code Annotated section 75-9-312(4) (1972) provides the action to be taken by a party to obtain the benefit of a purchase money security interest: Since appellee wholly failed to comply with the above provision, it failed to protect itself and cannot now claim the benefit of the section. In Mammoth Cave Production Credit Association v. York, 429 S.W.2d 26 (Ky. 1968), the Court said: (d) Conditional sales contract. Appellee suggests that, since it never surrendered title to the air conditioning units, it should be entitled to some consideration therefor. Mississippi Code Annotated section 75-9-202 (1972) states the following: In O'Dell v. Kunkel's, Inc., 581 P.2d 878 (Okl. 1978), the Oklahoma Court stated: See also James Talcott, Inc. v. Franklin National Bank of Minneapolis, 292 Minn. 277, 194 N.W.2d 775 (1972). (e) New value. Appellee argues that for an interest in after-acquired property to overcome the claim that security was taken for an antecedent debt, the secured *1194 party, at the inception of the new transactions, must have given new value in some form and the after-acquired property must have come in the ordinary course of business or as an acquisition that was made under a contract of purchase entered into, pursuant to the security agreement, within a reasonable time after the giving of new value, and cites Sears, Roebuck & Co. v. Detroit Federal Savings & Loan Ass'n., 79 Mich. App. 378, 262 N.W.2d 831 (1978). Appellee also contends that the collateral was insufficiently described in the executed security agreement, citing In Re Laminated Veneers Co., Inc., 471 F.2d 1124 (2d Cir.1973), and Mammoth Cave Production Credit Ass'n v. York, 429 S.W.2d 26 (Ky. 1968). We are not persuaded by that argument and think the reasoning in Barth Brothers v. Billings, 68 Wis.2d 80, 227 N.W.2d 673 (1975), is sound, where the Court said: Discussing the subject, in Sears, Roebuck & Co. v. Detroit Federal Savings & Loan Ass'n., 79 Mich. App. 378, 262 N.W.2d 831 (1978), the Court stated: *1195 We are of the opinion that appellant had a valid perfected security interest in the after-acquired air conditioning units and that appellee failed to perfect its purchase money security interest in said property. The lower court, therefore, erred in entering judgment for appellee, and the same is reversed and judgment is rendered here for appellant. REVERSED AND RENDERED. PATTERSON, C.J., SMITH and SUGG, P. JJ. and WALKER, BROOM, BOWLING, HAWKINS and DAN M. LEE, JJ., concur. [1] In Re: Hammons, 438 F. Supp. 1143 (S.D. Miss. 1977). In Re: King-Porter Co., 446 F.2d 722 (5th Cir.1971).