Opinion ID: 1675313
Heading Depth: 1
Heading Rank: 3

Heading: Remedies Under Code 1975, 7-9-505(2)

Text: It is undisputed that Thomasson properly complied with the provisions of Code 1975, § 7-9-505(2), viz.: In any other case involving consumer goods or any other collateral a secured party in possession may, after default, propose to retain the collateral in satisfaction of the obligation. Written notice of such proposal shall be sent to the debtor and except in the case of consumer goods to any other secured party who has a security interest in the collateral and who has duly filed a financing statement indexed in the name of the debtor in this state or is known by the secured party in possession to have a security interest in it. If the debtor or other person entitled to receive notification objects in writing within 30 days from the receipt of the notification or if any other secured party objects in writing within 30 days after the secured party obtains possession the secured party must dispose of the collateral under section 7-9-504. In the absence of such written objection the secured party may retain the collateral in satisfaction of the debtor's obligation. [Emphasis added.] It is further undisputed that Bischoff did not object in writing within 30 days of his receipt of the notification from Thomasson. Cf. Waldrep v. Jochum, 337 So.2d 334 (Ala. 1976) (proper written objection given). We note that, under the circumstances of this case, Bischoff was a proper object of a written notice to the debtor to effect the remedy of retaining the collateral. See Code 1975, §§ 7-9-105(1)(d) and -112(b). Thus, Thomasson claims he is entitled to possession of the ring on the strength of this provision alone. We agree with Bischoff that this is merely bootstrapping. As pointed out by Bischoff, this remedy is only available to a secured party who attains that status via the requirements of Code 1975, § 7-9-204(1), viz.: A security interest cannot attach until there is agreement (subsection (3) of section 7-1-201) that it attach and value is given and the debtor has rights in the collateral. [Emphasis added.] Thomasson has tried to bootstrap himself around the prerequisite that the debtor (Martinez) have rights in the collateral (the ring). Nevertheless, we have established that Martinez did indeed have rights in the collateral by virtue of his status as a Code 1975, § 7-2-326, consignee whose goods are subject to the claims of his creditors. This use of U.C.C. § 2-326 to supply the necessary rights in collateral has been adopted by other jurisdictions. See General Electric Credit Corp. v. Town & Country Mobile Homes, 117 Ariz. 562, 574 P.2d 50 (1977); Nasco Equipment Co. v. Mason, 291 N.C. 145, 229 S.E.2d 278 (1976); James Talcott, Inc. v. Franklin National Bank of Minneapolis, 292 Minn. 277, 194 N.W.2d 775 (1972); Sussen Rubber Co. v. Hertz, 19 Ohio App.2d 1, 249 N.E.2d 65 (1969). In both Modular Housing, Inc., and Blowers, a perfected secured creditor was given priority over the consignor of goods, implicitly recognizing that the consignee had rights in the collateral for the secured party's interest to attach. As noted in J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code, § 23-4, at 795 (1972): If the debtor acquires goods from a third party merely on consignment, he may, under appropriate circumstances, pass a security interest in the goods to his creditor that will cut off the interest of the consignor. That is, a debtor may acquire rights in the collateral where the collateral consists merely of consigned goods. [Footnote omitted.] Finding that Thomasson properly gave notice to Bischoff of his intent to retain the ring and Bischoff failed to object in writing pursuant to Code 1975, § 7-9-505(2), we hold that Thomasson is entitled to retain possession of the ring. The judgment of the trial court, which failed to establish the priority of the interests of these parties in the ring, is due to be reversed and remanded. The trial court is to enter a judgment in favor of Thomasson on his counterclaim for title to the ring. REVERSED AND REMANDED WITH DIRECTIONS. TORBERT, C. J., and MADDOX, FAULKNER, JONES, SHORES, EMBRY and BEATTY, JJ., concur. ALMON, J., not sitting.