Court Opinion

ID: 9735811
Source: CourtListenerOpinion
Date Created: 2023-08-26 18:31:29.487372+00
Date Added: 2024-06-11T18:27:01.711594
License: Public Domain

Mackenzie, J.
(dissenting). I disagree with the majority’s conclusion that John Deere did not give value until its representative signed the loan contract and security agreement on August 15. The record indicates that immediately after Ritter signed the contract and security agreement on July 31, Laethem received a retail note credit from John Deere and thus received its money for Ritter’s purchase of the equipment. I am of the opinion that this transaction constitutes the giving of value by John Deere.
Even if the trial court and the majority are correct that attachment and perfection of John Deere’s purchase money security interest did not occur until August 15, in my view both have committed a fundamental error of law by assuming that such perfection was untimely for purposes of determining priority. I believe that both the trial court and the majority have incorrectly assumed that, for ucc Article 9 purposes, John Deere had twenty days from July 23, the day Ritter took delivery of the equipment, in which to perfect.
The basic issue in this case is whether the security interest of NBD-Sandusky or of John Deere has priority. Since this case involves a purchase money security interest, the time Ritter took "possession” of the equipment is crucial; under § 9-312, MCL 440.9312(5); MSA 19.9312(5), it is the benchmark for determining whether John Deere timely perfected its security interest in order to assert priority:
(5) A purchase money security interest in collat*589eral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter. [Emphasis added.]
Thus, if John Deere’s purchase money security interest was perfected no later than twenty days after "the debtor receive[d] possession of the collateral,” it has priority over the security interest of NBD-Sandusky.
In a typical purchase money situation, a seller extends credit to a buyer/debtor or a lender advances the money to enable the buyer/debtor to purchase the collateral, and the buyer/debtor then acquires the collateral. The loan transaction is completed, followed by the transfer of the collateral to the debtor. This case does not present a typical purchase money situation, however. In this case, the subject equipment was delivered to Ritter before he made his loan application and the application was accepted by the purchase money lender. The cases considering such "inverse” purchase money transactions are nearly unanimous in holding that, where the debtor has received the goods to be purchased prior to the extension of credit or advancement of money, he is not a "debtor in possession of collateral” under ucc §9-312 until the execution of a loan commitment, giving the purchase money lender twenty days from the loan commitment date to perfect.
Brodie Hotel Supply, Inc v United States, 431 F2d 1316 (CA 9, 1970), was the first decision to recognize that under ucc §9-312 "possession” depends not on physical control over the property to be purchased, but on the time the debtor/creditor relationship arises. In Brodie, the seller of certain restaurant equipment allowed the future pur*590chaser to take over use of the equipment in June, 1964. On November 2, 1964, the buyer borrowed money from a bank using the equipment as security. The bank filed its financing statement on November 4, 1964, and subsequently assigned the loan to the Small Business Administration. On November 12, 1964, the equipment buyer executed a chattel mortgage on the equipment in favor of the seller and the seller gave the buyer a bill of sale. The seller filed a financing statement on November 23, 1964. In an ensuing priority dispute between the Small Business Administration and the equipment seller, the seller contended that it was entitled to priority under § 9-312. The Brodie court agreed. The court began its analysis by noting that under § 9-312, a purchase money security interest, to have priority, must be perfected after a "debtor” receives possession of "collateral.” Ucc §9-105(l)(d) defines "debtor” as "the person who owes a payment or other performance of the obligation secured, whether he owns or has rights in the collateral.” The Brodie court reasoned that because the buyer did not become obligated to the seller to pay the equipment purchase price until he executed the chattel mortgage on November 12, 1964, the buyer did not become a "debtor” until that date. Moreover, the equipment could not become "collateral” for the unpaid purchase price until the obligation to pay the purchase price arose, again November 12. See ucc § 9-105(l)(c). The Brodie court thus concluded that since the seller filed its financing statement within the statutorily required time period after "the debtor receive[dj possession of the collateral”—November 12—the seller’s purchase money security interest had priority over the bank’s earlier security interest under § 9-312. This was so even though the buyer had had physical possession of the equipment since the previous June.
*591The Brodie court’s construction of § 9-312 was reiterated in In re Ultra Precision Industries, Inc, 503 F2d 414 (CA 9, 1974). In that case, Ultra executed a chattel mortgage on its after-acquired property in favor of National Acceptance Corporation on March 3, 1967. On April 30 and June 30, 1968, Ultra took delivery of two machines from Wolf Machinery Company. The agreement between Wolf and Ultra allowed Ultra to test the machines for a reasonable period. Ultra accepted the machines and executed purchase money loan documents covering them on July 31, 1968. Wolf filed a financing statement on August 5. A third machine was delivered to Ultra on August 7, 1968. It was accepted and loan documents were executed on October 23, 1968. Wolf filed a financing statement the following October 30. After Ultra declared bankruptcy, National claimed priority under its 1967 security agreement, contending that Ultra became a "debtor” when the machines were delivered and that Wolf could not assert priority under § 9-312 because it had not filed its financing statement within the allowable time after each delivery. The Ultra court disagreed. Recognizing that "Ultra held no assignable legal interest in the machines which could fall into the grasp of National’s after-acquired property security clause” until Ultra was committed to receiving and repaying the purchase money (i.e., became a "debtor”), the court concluded that Ultra was in "possession of the collateral” not on the dates it received the machines, but on the dates it became obligated to Wolf. Ultra, at 417. Since Wolf perfected its purchase money security interest by filing its financing statements within the time period set forth in § 9-312, its interest took priority over National’s earlier security interest.
Other cases considering the issue are in accord. *592See State Bank & Trust Co of Beeville v First Nat’l Bank of Beeville, 635 SW2d 807 (Tex App, 1982); Ford Motor Credit Co v First State Bank of Smithville, 674 SW2d 443 (Tex App, 1984); International Harvester Co v Bank of California, N A, 29 Wash App 905; 632 P2d 522 (1981); Rainier National Bank v Inland Machinery Co, 29 Wash App 725; 631 P2d 389 (1981); Commerce Union Bank v John Deere Industrial Equipment Co, 387 So 2d 787 (Ala, 1980). See also In re Automated Bookbinding Services, Inc, 471 F2d 546 (CA 4, 1972), p 553, n 14. And see generally 2 White & Summers, Uniform Commercial Code 3d ed, § 26-5, p 514, n 29. Cf. North Platte State Bank v Production Credit Ass’n of North Platte, 189 Neb 44; 200 NW2d 1 (1972); Mark Products U S, Inc v Interfirst Bank Houston, N A, 737 SW2d 389 (Tex App, 1987).
Applying the above decisions to the instant case, it is readily apparent that Ritter became a "debtor in possession of the collateral” under § 9-312(5) on August 15, when John Deere officially agreed to accept Ritter’s loan application, and not on July 23 as the majority and trial court assume. Under §9-312(5), therefore, if John Deere perfected its purchase money security interest in the equipment on August 15 or twenty days thereafter it had priority over NBD-Sandusky’s security interest. Perfection requires attachment of the security interest and filing of a financing statement. MCL 440.9303(1); MSA 19.9303(1).. As the majority concludes, the requisites for attachment, MCL 440.9203(1),(2); MSA 19.9203(1),(2), were undoubtedly met by August 15: Ritter had signed the security agreement, John Deere had given value, and Ritter had an interest in the collateral. Further, filing of the financing statement was accom*593plished before August 15, as permitted by MCL 440.9402(1); MSA 19.9402(1). John Deere’s purchase money security interest was therefore perfected on August 15, the date the "debtor,” Ritter, received "possession of the collateral.” Under MCL 440.9312(5); MSA 19.9312(5), John Deere’s security interest must take priority over NBD-Sandusky’s. The trial court clearly erred in holding to the contrary. Accordingly, I would reverse.