Kubota Tractor Corp. v. Citizens & Southern Nat. Bank

• Decision Date: 12 February 1991
• Docket Number: No. A90A2049,A90A2049
• Citation: 198 Ga.App. 830,403 S.E.2d 218
• Parties: , 14 UCC Rep.Serv.2d 1247 KUBOTA TRACTOR CORPORATION v. CITIZENS & SOUTHERN NATIONAL BANK.
• Court: Georgia Court of Appeals

Page 218

403 S.E.2d 218

198 Ga.App. 830, 14 UCC Rep.Serv.2d 1247

KUBOTA TRACTOR CORPORATION v. CITIZENS & SOUTHERN NATIONAL BANK.

No. A90A2049.

Court of Appeals of Georgia.

Feb. 12, 1991.

Rehearing Denied March 5, 1991.

Heyman & Sizemore, William B. Brown, Atlanta, for appellant.

Tillman, McTier, Coleman & Talley, John T. McTier, Valdosta, Chestnut & Livingston, W. Trav Carter, Doraville, for appellee.

BIRDSONG, Presiding Judge.

This appeal is from the order of the trial court granting appellee Citizens & Southern National Bank's (C & S) motion for partial summary judgment and denying appellant Kubota Tractor Corporation's (Kubota) summary judgment motion.

On September 11, 1978, appellant Kubota filed a financing statement giving notice of an alleged security interest between itself, as secured party, and Harvey's, Inc. (Harvey's), a dealer in farm and related equipment as debtor. Notwithstanding, on September 27, 1978, appellee C & S entered into a security agreement with Harvey's taking a security interest in certain of Harvey's property. The next day, C & S filed a financing statement giving notice of its security interest. On July 30, 1979, Kubota entered into a dealership agreement with the debtor, Harvey's, whereby Kubota appointed the debtor as an authorized dealer of Kubota products. This agreement created and provided for a certain security interest between the secured party Kubota and Harvey's. In 1981, 1982, 1983 and 1984, C & S also executed certain other security agreements with Harvey's. On May 12, 1983, C & S filed a timely continuation of their September 28, 1978 financing statement. On June 25, 1983, Kubota entered a supplemental agreement with Harvey's purporting to amend the description of the property secured by the original dealership agreement. On August 12, 1983, before the expiration of their September 11, 1978, financing statement, Kubota filed a document which on its face purports to be an amendment to their original financing statement. This document bears the handwritten caption of an "Amendment." It contains therein an apparent modification of Kubota's financing statement's description of the secured property, so as to conform that description to the language of the amended dealership agreement and to expressly include a broad after-acquired property clause. On September 10, 1983, five years elapsed from the date of the filing of Kubota's original financing statement. On March 2, 1984, Kubota filed a document expressly identified as a "Continuation" to its original financing statement of September 11, 1978, which did not include any reference therein either to the June 25, 1983, amendment to the dealership agreement or to the captioned "Amendment" document of August 12, 1983. Ultimately, the debtor, Harvey's, was unable to satisfy its obligations either to Kubota or to C & S, and a controversy over priority of security interests arose. Held:

1. Appellant Kubota, citing First Nat. Bank, etc., v. McElmurray, 120 Ga.App. 134, 138, 169 S.E.2d 720, asserts a security interest attaches only to the extent of the debtor's interest in the property and, as the debtor had in the security agreement assigned its interest in the collateral to Kubota, it could not subsequently convey any further interest in the same collateral to C & S.

Notwithstanding that an agreement contains words of assignment, intent of the parties and substance of the agreement, not its form, controls, as "the draftsmen of the code intended that its provisions should not be circumvented by manipulation of the locus of title." James Talcott, Inc. v. Franklin Nat. Bank, etc., 292 Minn. 277, 194 N.W.2d 775, 781(4) (S.C.Minn.); Georgia-Pacific Corp. v. Lumber Prods. Co., 590 P.2d 661, 664(3) (S.C.Okl.); see also Petition of City of Moran, 238 Kan. 513, 713 P.2d 451, 455(5) (S.C.Ks.). Thus, "the retention of a title by a secured seller does not affect or improve his priority as to other creditors." Anderson, 8 Uniform Commercial Code (3d ed.), Secured Transactions, § 9-202:4; see also OCGA § 11-9-202. Review of Kubota's Dealer Sales and Service Agreement reveals it clearly was the intent of the parties to create, and the agreement did in fact provide for and create a security interest as a secured transaction. Constituting a typical "security agreement," Kubota's agreement with Harvey's would not vest any property interest in Kubota which would prevent Harvey's from subsequently vesting an additional security interest in the property in C & S. Appellant's assertion is without merit.

2. The trial court did not err in concluding Kubota's security interest against Harvey's had lapsed due to a failure to file a timely continuation statement. Ga.Code Ann. § 109A-9-403(2) (OCGA § 11-9-403(2)), in effect at the time of the execution of Kubota's security agreement and on the date of its lapse, provided that, with exceptions not here applicable, "a filed financing statement is effective for a period of five years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the five-year period unless a continuation statement is filed prior to the lapse." (Emphasis supplied.) Compare In re Cohutta Mills, 108 B.R. 815, 820 (N.D.Ga.). "Upon lapse the security interest becomes unperfected, unless it is perfected without filing. If the security interest becomes unperfected upon lapse, it is deemed to have been unperfected as against a person who became a purchaser or lien creditor before lapse." Ga.Code Ann. § 109A-9-403(2) (OCGA § 11-9-403(2)). Thus "[g]enerally, upon lapse of a senior perfected security interest, the holder of a junior perfected security interest advances in priority." State Savings Bank, etc., v. Onawa State Bank, etc., 368 N.W.2d 161, 166 (S.C.Iowa); In the Matter of Reda, Inc., 42 UCC Rep.Serv. 1126, 1136-1137, 54 B.R. 871.

Appellant, however, asserts the document it filed as an amendment, within the requisite five-year period, was also a continuation statement, which would continue the effectiveness of the original financing statement as provided by statute. Ga.Code Ann. § 109-9-403(3) (OCGA § 11-9-403(3)). Any such continuation statement must be signed by the secured party, identify the original statement by file number, and state the original statement is still "effective." Id.; In re Cohutta Mills, supra at 821. But, "[a] financing statement may be amended by filing a writing signed by both the debtor and the secured party. An amendment does not extend the period of effectiveness of a financing statement." (Emphasis supplied.) OCGA § 11-9-402(4) (Ga.Code Ann. § 109A-9-402(4)); Anderson, 9 Uniform Commercial Code (3d ed.), Secured Transactions, § 9-402:66. A continuation sheet cannot contain an amendment to the original financing statement. "A continuation statement may only be employed to continue the original financing statement, and, conversely, additional collateral may not be described in the continuation statement." Anderson, 9 UCC, supra at 9-403:11.

Examination of the document filed by Kubota on August 12, 1983, reveals it was intended to be and was in fact an amendment and not a continuation statement. The document is identified in handwriting as an "[a]mendment," it contains a property description that varies markedly from that contained in the original financing statement, and it is signed by both the secured party's representative and the debtor's representative. Accordingly, this document was not merely mislabeled due to clerical error as alleged by appellant, and it was not legally effective as a continuation statement.

Additionally, the document fails to contain the statutorily required statement that the original statement is still "effective." The document only states within an unchecked block thereof that the "original financing statement ... is still active." Compare In the Matter of Nickerson & Nickerson, Inc., 329 F.Supp. 93, 96(5) (D.C.Neb.) ("proceeds" box checked). This recitation is inadequate for two reasons: first, the box in which the statement is contained has not been "checked," whether due to clerical error or otherwise, and thus third parties examining the document would not be placed on notice that the statutorily required statement was intended to have been incorporated therein (in fact, the document on its face reasonably can be construed as not incorporating therein the required statement); secondly, there is a substantial legal difference between a statement which remains "effective" and one which is merely "active," as in the latter case a statement might be lapsed and yet be "active" because litigation or other collateral issues remained pending that demanded action thereon.

In Georgia "[t]he continuation statement must identify the original statement by file number and affirmatively state that the original statement is still effective." (Emphasis supplied.) Tuftco Sales Corp. v. Garrison Carpet Mills, 158 Ga.App. 674, 677, 282 S.E.2d 159. "The statute requires continuation statements to identify a still effective original filing so as to avoid confusion between competing claimants.... The filing, therefore, of a second financing statement which fails to refer to an effective original filing does not bring a creditor into substantial compliance" with [the code]. (Emphasis supplied.) Bostwick- Braun Co. v. Owens, 634 F.Supp. 839, 841 (D.C.E.D.Wis.) Thus even if the "amendment" document of August 12, 1983 had been intended to be and could otherwise qualify as a "continuation statement," it would still fail to prevent the lapse, as "[f]iling a new financing statement which does not ... state that it is still effective is not a substantial compliance with the statute and will not prevent lapse of the statement." (Emphasis supplied.) 79 C.J.S. Supp., Secured Transactions, § 48, p. 52.

Nor can Kubota claim a filing of the "continuation" statement on March 2, 1984, after the original financing statement had elapsed,...