Evans v. Everett

• Decision Date: 06 September 1971
• Docket Number: No. 111,111
• Court: North Carolina Supreme Court
• Parties: , 9 UCC Rep.Serv. 769 E. R. EVANS, Plaintiff, v. W. B. EVERETT et al., Original Defendants, and Shirley Pierce et al., Additional Defendants.

Page 109

183 S.E.2d 109

279 N.C. 352, 9 UCC Rep.Serv. 769

E. R. EVANS, Plaintiff, v. W. B. EVERETT et al., Original Defendants and Shirley Pierce et al., Additional Defendants.

No. 111.

Supreme Court of North Carolina.

Sept. 6, 1971.

Pritchett, Cooke & Burch, Windsor, for plaintiff appellant.

Revelle & Burleson, Murfreesboro, for Standard Brands, Inc., and National Peanut

Corporation, a division of Standard Brands, original defendant appellees.

White, Hall & Mullen, Elizabeth City, for Early & Winborne, Inc., Jones, Jones & Jones, Ahoskie, Godwin & Glasscock, Suffolk, Va., original defendant appellee.

SHARP, Justice.

This case--one of first impression--is governed by the Uniform Commercial Code (Code), G.S. § 25--1--101 et seq., which became effective on 1 July 1967. As of that date, the statutes which had previously governed agricultural liens for advances, G.S. § 44--52 through G.S. § 44--64, were expressly repealed by G.S. § 25--10--102(1).

The appeal presents one question: Does plaintiff have a security interest in certain 1969 crops which defendant Everett sold to the other defendants? The answer depends upon whether the financing statement executed by plaintiff and defendant Everett can also serve as a security agreement. To answer the question it is necessary to know the statutory definitions of the Code's terminology.

'Security interest means an interest in personal property or fixtures which secures payment or performance of an obligation.' G.S. § 25--1--201(37).

'Security agreement means an agreement which creates or provides for a security interest. * * *' G.S. § 25--9--105(1)(h). In the Code the general term Security agreement is used 'in place of such terms as 'chattel mortgage,' 'conditional sale,' 'assignment of accounts receivable,' 'trust receipt,' etc.' See the Official Comment under G.S. § 25--9--105.

'Secured party means a lender, seller or other person in whose favor there is a security interest * * *.' G.S. § 25--9--105(1)(i).

'Debtor means the person who owes payment or other performance of the obligation secured * * *.' G.S. § 25--9--105(1)(d).

Subject to provisions of the Code not applicable to this cae, 'a security interest is not enforceable against the debtor or third parties unless (a) the collateral is in the possession of the secured party; or (b) the debtor has signed a security agreement which contains a description of the collateral and in addition, when the security interest covers crops * * * a description of the land concerned.' G.S. § 25--9--203(1). See 44 N.C.L.Rev. 716, 723--724.

As pointed out in the Official Comment upon G.S. § 25--9--203, formal requisites for a security agreement 'are reduced to a minimum. The technical requirements of acknowledgment accompany affidavits, etc. * * * are abandoned. The only requirements for the enforceability of nonpossessory security interests in cases not involving land are (a) a writing; (b) the debtor's signature; and (c) a description of the collateral or kinds of collateral. (Typically, of course, the agreement will contain much more.) * * * The formal requisites stated in this section are not only conditions to the enforceability of a security interest against third parties. They are in the nature of a Statute of Frauds.' Absent a writing satisfying these formal requisites, a security interest is no enforceable even against the debtor.

In order to perfect a security interest in farm products, crops, and equipment used in farming operations from subsequently acquired rights of Third parties, the secured party must file a financing statement in the county of the debtor's residence and also in the county where the land on which the crops are growing, or are to be grown, is located. G.S. § 25--9--401(1)(a). See 4 N.C.L.Rev. 753, 761.

'A Financing statement is sufficient if it is signed by the debtor and the secured party, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor, and contains a statement indicating the types, or describing the items, of collateral. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches. When the financing statement covers crops growing or to be grown or goods which are or are to become fixtures, the statement must also contain a description of the real estate concerned and the name of the record owner or record lessees thereof. A copy of the security agreement is sufficient as a financing statement if it contains the above information and is signed by both parties.' G.S. § 25--9--402(1).

The Official Comment accompanying G.S. § 25--9--402(1) explains that this section adopts a system of notice filing. 'What is Required to be filed is not, as under chattel mortgage and conditional sales acts, the security agreement itself, but only a simple notice which may be filed before the security interest attaches or thereafter. The notice itself indicates merely that the secured party who has filed May have a security interest in the collateral described. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs. Section 9--208 provides a statutory procedure under which the secured party, at the debtor's request, may be required to make disclosure.' (Emphasis added.)

Subsection (3) of G.S. § 25--9--402 sets out a form which, if substantially followed, will comply with the requirements for a financing statement. Here the parties used and substantially followed this form. They do not contend that the financing statement in suit fails to meet the requirements of the statute. It is defendants' contention that Everett signed no agreement which created or provided for a security interest in the collateral described in the financing statement, and that the financing statement cannot serve as a security agreement.

The Code distinguishes between a security agreement and a financing statement. The security agreement is a writing which (1) creates or provides for a security interest, (2) contains a description of the collateral, plus a description of the land involved 'when the security interest covers crops or oil, gas or minerals to be extracted or timber to be cut,' and (3) is signed by the debtor. The financing statement is a writing which (1) contains the signature and addresses of Both the debtor and creditor and (2) a description of the collateral plus a description of the land involved 'when the financing statement covers crops growing or to be grown or goods which are or are to become fixtures.' The discrepancies between the formal requisites of a security agreement and a financing statement have been criticized as 'confusing and unnecessary,' and the failure of the two sections to mesh with respect to the description requirement called 'inexcusable.' 1 Gilmore, Security Interests in Personal Property, § 11.4 (1965).

Although the financing statement need only be 'a skeletonic statement' that the parties intend to engage in future transactions, which may never be consummated, G.S. § 25--9--402(1) specifically provides that 'a copy of the security agreement is sufficient as a financing statement' if it contains the required information and is signed by both parties. We perceive no sound reason why a financing statement may not also serve as a security agreement if it meets the requirements of G.S. § 25--9--105(1)(h) and G.S. § 25--9--203(1) (b). This is the concensus of both opinion writers and commentators on the Code.

Although the Code contemplates the execution of two separate writings, it does not prohibit the combination of a security agreement and financing statement. In American Card Company v. H.M.H. Company, 97 R.I. 59, 196 A.2d 150, a case upon which both appellant and appellees rely, the court held that The financing statement in suit (not reproduced in the opinion) could not qualify as a security agreement. It said: 'It is not possible for a financing statement which does not contain the debtor's Grant of a security interest to serve as a security agreement.' Id. at 62, 196 A.2d at 152. (Emphasis added.)

It appears that the Rhode Island court was of the opinion that technical words of conveyance from the debtor to the secured party were required to create a security interest. In criticizing American Card, Gilmore, a former Official Comment writer for Article 9 of the Code, in his treatise on Security Interests in Personal Property said: 'Certainly, nothing in § 9--203 requires that the 'security agreement' contain a 'granting' clause. The § 9--402 financing statement contained all that was necessary to satisfy the § 9--203 statute of frauds as well as being sufficient evidence of the parties' intention to create a security interest in the tools and dies (the described collateral). No doubt the court would have upheld the security interest if the debtor had signed two pieces of paper instead of one. The § 9--402 provision that a short financing statement may be filed in place of the full security agreement was designed to simplify the operation. The Rhode Island court gives it an effect reminiscent of the worst formal requisites holding under the 19th century chattel mortgage acts.' 1 Gilmore, Security Interests in Personal Property, § 11.4 at pp. 347--348 (1965).

Long before the adoption of the Code, this Court held that no particular form of words was necessary to create a lien or to constitute a chattel mortgage, and that, as between the parties, an Oral mortgage was as good 'as if it had been in writing, provided, if reduced to writing, it would have been valid.' White Co. v. Carroll, 146 N.C. 230, 232--233, 59 S.E. 678, 679. Accord, Kearns v. Davis Bros., 186 N.C. 522, 120 S.E....