Massey-Ferguson Credit Corp. v. Wells Motor Co., Inc.

• Decision Date: 31 August 1979
• Docket Number: MASSEY-FERGUSON
• Citation: 374 So.2d 319
• Parties: 27 UCC Rep.Serv. 267 CREDIT CORP., a corp. v. WELLS MOTOR CO., INC., a corp., et al. 78-327.
• Court: Alabama Supreme Court

Page 319

374 So.2d 319

27 UCC Rep.Serv. 267

MASSEY-FERGUSON CREDIT CORP., a corp. v. WELLS MOTOR CO., INC., a corp., et al.

78-327.

Supreme Court of Alabama.

Aug. 31, 1979.

Alan C. Livingston and William C. Carn, III, of Lee & McInish, Dothan, for appellant.

Jere C. Segrest of Hardwick, Hause & Segrest, Dothan, for appellee, Wells Motor Co., Inc., a corp.

Edward M. Price, Jr. of Farmer, Farmer, Price & Espy, Dothan, for appellee, George R. Jeffcoat.

JONES, Justice.

Plaintiff, Massey-Ferguson Credit Corporation, filed suit against Defendants, Wells Motor Company and George R. Jeffcoat, claiming damages for conversion of a corn combine in which Plaintiff held a security interest perfected in accordance with the laws of South Carolina.

The combine was originally bought by Wade Drake from Presley Equipment Company of South Carolina; and Massey-Ferguson was assigned a security interest which it recorded on September 30, 1974. In 1976 the combine was sold at auction in North Carolina to Wells Motor Company of Alabama and was delivered to Wells in Dothan on March 21, 1976. After making some repairs and improvements, Wells sold the combine to Jeffcoat on June 1, 1976, within four months after the collateral's removal to this State. A financing statement, executed by Jeffcoat to First National Bank of Ashford, was filed on June 4, 1976. It was undisputed at trial that both Defendants were purchasers for value and without knowledge of Plaintiff's security interest.

Subsequently, Massey-Ferguson located the combine and filed its conversion suit on August 27, 1978. The following day more than two years after the collateral's removal to Alabama Massey-Ferguson filed a financing statement in this State.

Wells and Jeffcoat set up, as an absolute defense, Plaintiff's failure to perfect its security interest by filing in accordance with the Uniform Commercial Code, § 9-103(3), adopted in § 7-9-103(3), Ala.Code 1975. ¹ After an Ore tenus trial of this cause without a jury, the trial Court dismissed the complaint as to both Defendants. Plaintiff appeals.

The issue here presented concerns the interpretation much disputed of the above-cited U.C.C., § 9-103(3), which provides in part as follows:

". . . If the security interest was already perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into this state, the security interest continues perfected in this state for four months and also thereafter if within the four month period it is perfected in this state. The security interest may also be perfected in this state after the expiration of the four month period; in such case perfection dates from the time of perfection in this state. If the security interest was not perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into this state, it may be perfected in this state; in such case perfection dates from the time of perfection in this state."

Appellant, Massey-Ferguson, contends that, under § 9-103(3), it held an absolute priority against other interests acquired during the first four months of the collateral's entry into Alabama; and, given that the sale of the combine occurred during this period, it is therefore irrelevant that they did not file in this State until after the sale.

Appellees, to the contrary, maintain that Massey-Ferguson's security interest, even if perfected at the time of the sale, became unperfected upon Appellant's failure to file in this State within the four-month period following the collateral's removal to Alabama.

The issue before us may be stated in general terms as follows: Does the holder of a perfected out-of-state security interest receive an absolute priority against new interests acquired and filed during the first four-month period, or does his failure to refile locally within the four-month period cause his priority to be displaced? In other words, is the four-month period referred to in § 9-103(3) a period of absolute perfection? Or is it merely a grace period during which the out-of-state holder must refile if he is to insure against his priority being displaced?

Acknowledging there is authority to support both positions, the trial Court held that "the better reasoned and more equitable" interpretation was that maintained by the Appellees. We agree.

Although other aspects of U.C.C., § 9-103, have been interpreted by the appellate courts of this State, ² the issue presented on this appeal is one of first impression. Therefore, we look for guidance to the Uniform Commercial Code itself, the official Comments to the Code, the writings of commentators, and the case law of other jurisdictions.

We are urged to begin our analysis of the text by noting that, despite the confusion that has surrounded its meaning, the text from the point of view of grammatical construction tends to support one interpretation to the exclusion of the other. Appellant would have the phrase, "if within the four-month period it is perfected in this state," refer only to the words immediately preceding it, "and also thereafter." Appellees counter, however, that were this the case, the text would necessarily require an additional comma so as to create two independent clauses, only the second of which would then be modified by the conditional phrase ending the sentence. But these arguments likely to be appreciated only by the strict grammarian are overly technical in nature and are hardly dispositive of this issue.

We are more impressed by the observation that if the drafters had intended Appellant's meaning, much of the existing text would constitute confusing surplusage. The words, "and also thereafter if within the four month period it is perfected in this state," would be unnecessary as stating what occurs "thereafter," i. e., after the four-month period, as this is already made clear by the sentence which follows:

". . . The security interest may also be perfected in this state after the expiration of the four month period; in such case perfection dates from the time of perfection in this state."

The courts and commentators who have taken the position we adopt today have acknowledged their influence by official Comment 7 to the text. ³ We, too, are persuaded by Comment 7, particularly the following:

". . . Subsection (3) proceeds on the theory that not only the secured party whose collateral has been removed but also creditors of and purchasers from the debtor in this state should be considered. The four month period is long enough for a secured party to discover in most cases that the collateral has been removed and to file in this state; thereafter, if he has not done so, his interest, although originally perfected in the state where it attached, is subject to defeat here by those persons who take priority over an unperfected security interest (see Section 7-9-301) . . . .

"In case of delay...