McCormack v. E. E. McCormack Co.

• Decision Date: 16 December 1964
• Citation: 397 P.2d 198,239 Or. 264
• Parties: E. E. McCORMACK and Caroline McCormack, Respondents, v. E. E. McCORMACK CO., a corporation, Defendant, Paul Federici, Buford Seals, Lawrence Warehouse Co. and David H. Cameron, Department of Employment Commissioner, Respondents, and Investment Service Co., Appellant.
• Court: Oregon Supreme Court

Page 198

397 P.2d 198

239 Or. 264

E. E. McCORMACK and Caroline McCormack, Respondents, v. E. E. McCORMACK CO., a corporation, Defendant Paul Federici, Buford Seals, Lawrence Warehouse Co. and David H. Cameron, Department of Employment Commissioner, Respondents and Investment Service Co., Appellant.

Supreme Court of Oregon, Department 2.

Argued and Submitted Sept. 16, 1964.

Decided Dec. 16, 1964.

Robert H. Huntington, Portland, argued the cause of appellant. With him on the briefs were Rockwood, Davies, Biggs, Strayer & Stoel, Portland.

C. E. Wheelock, Portland, argued the cause for plaintiffs-respondents. On the brief were Wheelock, Richardson, Niehaus & Baines, Portland.

Before PERRY, P. J., and SLOAN, O'CONNELL, DENECKE and LUSK, JJ.

PERRY, Justice.

The plaintiffs E. E. McCormack and Caroline McCormack brought this suit to foreclose a contract of sale wherein plaintiffs agreed to sell to the E. E. McCormack Co., a corporation, a plant manufacturing concrete products.

It is conceded on this appeal that the defendant E. E. McCormack Co. breached the sales agreement with plaintiffs and that foreclosure was properly decreed.

The question raised on appeal is as to the priorities between liens claimed by the plaintiffs and liens claimed by the defendant Investment Service Co. as assignee of the United States National Bank of Oregon.

The contract of sale was entered into on March 1, 1961, and possession of the E. E. McCormack Co. and its assets was then taken over and held until the default sometime in February, 1963. In June, 1962, the E. E. McCormack Co. leased a portion of its premises to the Lawrence Warehouse Co. In July, 1962, the E. E. McCormack Co. began borrowing money from the United States National Bank and secured these loans through the pledge of manufactured products deposited with the Lawrence Warehouse Co., which warehouse company then issued its non-negotiable receipt to the bank.

The bank had notice of the provisions of the contract of sale at the time it advanced money to the E. E. McCormack Co. on the basis of the warehouse receipts. Also, the plaintiffs had notice that E. E. McCormack Co. was obtaining financing from the bank under the warehouse agreement.

The trial court held that the McCormacks held a lien under their contract of sale prior in right to that of the bank upon all of the unsold manufactured products of the E. E. McCormack Co. The Investment Service Co., as successor in interest of the bank, has appealed.

This case is vivid illustration of the need of the Uniform Commercial Code in the commerce of this age. The Uniform Commercial Code was passed by the 1963 legislature, but, since the contract of sale and purchase was entered into before that act took effect, the case must be decided upon the law as it existed prior to its passage.

The contract of sale entered into between the sellers and purchasers clearly expresses the intention that the title to the real property, the machinery, furniture, fixtures and stock in trade (described as raw materials and finished products at the time of sale) should remain in the sellers until full payment of the purchase price had been made by the purchasers. The contract also provides:

'7. POSSESSION and RIGHTS. The Buyer is in possession of said lands, property, equipment and stock-in-trade and may retain such possession so long as it is not in default under the terms of this contract. The Buyer agrees that at all times it will:

'(a) Keep the buildings and improvements on said premises, now or hereafter erected, in good condition and repair and will not suffer or permit any waste or strip thereof; and

'(b) That it will keep said premises and property free from all liens and save the Seller harmless therefrom and reimburse Seller for all costs and attorneys fees incurred by Seller in defending against any such liens; and

'(c) That it will pay all taxes hereafter levied against said property, business, premises, equipment and stock-in-trade, as well as all public charges and municipal liens which hereafter lawfully may be imposed upon said property, equipment, business and stock-in-trade all promptly before the same, or any part thereof, become past due; and

'(d) That Buyer will, at Buyer's expense, insure and keep insured all buildings, machinery, fixtures and equipment, now or hereafter erected or placed on said premises, against loss or damage by fire, with extended coverage in an amount of not less than $ replacement in a company or companies satisfactory to the Seller, with loss payable first to the Seller and then to the Buyer, as their respective interests may appear, with all policies of insurance to be delivered to the Seller as soon as insured.

'Should the Buyer fail to pay any such liens taxes or charges or to procure and pay for insurance, the Seller may do so, and any payment so made shall be added to and become a part of the debt secured by this contract and shall bear interest at the rate of 10 per cent per annum without waiver, however, of any right arising to Seller for Buyer's breach of contract.

'* * *

'10. MAINTENANCE OF INVENTORY AND EQUIPMENT. The Buyer expressly agrees with the Seller as follows, to-wit:

'(a) That the Buyer will maintain a stock of merchandise, including materials and supplies at all times while there remains unpaid a balance on this contract equal in value at cost to $40,000; and

'(b) That the tools, machinery, equipment, furniture and fixtures shall be maintained and shall not be sold or otherwise disposed of while there remains unpaid any balance on the purchase price secured under this contract.

'It is understood and agreed, however, between the Seller and the Buyer that the Buyer shall have the right to sell the stock-in-trade in the regular course of business from time to time in the future, and that said property, when so sold, shall be released and discharged from any claim or lien thereagainst by the Seller. Further that the Buyer may sell tools, machinery, equipment, furniture and fixtures provided that the property so sold be replaced with property of like or better quality and quantity, and that the lien of the Seller for the payment of the purchase price shall immediately attach to and become a first charge upon said property.

'* * *

'12. PROVISIONS ON DEFAULT OF SELLER. It is understood and agreed between the parties that time is of the essence of this agreement, and in case the Buyer shall fail to make the payments above required, or any of them, punctually within ten days of the time limited therefor, or fail to keep any agreement herein contained, then the Seller at his option shall have the following rights:

'(a) To declare this contract null and void;

'(b) To declare the whole unpaid balance of the purchase price, with interest thereon, at once due and payable, and/or

'(c) Foreclose this contract by suit in equity, and in any of such cases, all rights and interests created or then existing in favor of the Buyer as against the Seller hereunder shall utterly cease and determine, and the right of possession of the premises and property above described and all other rights acquired by the Buyer hereunder shall revert to and revest in said Seller without any act of re-entry or any other act of said Seller to be performed and without any right of the Buyer of return, reclamation or compensation for moneys paid on account of the purchase of said property and business...