Rucker v. State Exchange Bank, CC-195

• Decision Date: 14 February 1978
• Docket Number: No. CC-195,CC-195
• Parties: 23 UCC Rep.Serv. 1020 Nell RUCKER and the Federal Land Bank of Columbia, Appellants (Defendants), v. STATE EXCHANGE BANK, a Florida Banking Corporation, Appellee (Plaintiff).
• Court: Florida District Court of Appeals

Page 171

355 So.2d 171

23 UCC Rep.Serv. 1020

Nell RUCKER and the Federal Land Bank of Columbia, Appellants (Defendants), v. STATE EXCHANGE BANK, a Florida Banking Corporation, Appellee (Plaintiff).

No. CC-195.

District Court of Appeal of Florida, First District.

Feb. 14, 1978.

Rehearing Denied March 14, 1978.

Frank M. Gafford, Lake City, for appellants.

Edwin B. Browning, Jr., of Davis, Browning & Hardee, Madison, W. Roderick Bowdoin of Jopling, Darby, Peele, Page & Bowdoin, Lake City, Randell H. Rowe, Jr., Madison, Ray L. Lilley, for appellee.

MILLS, Acting Chief Judge.

The issue raised by this appeal is whether a real estate mortgage securing a promissory note becomes a secured transaction under Article 9 of the Uniform Commercial Code when it is assigned, along with the note, as collateral for a bank loan. Rucker and Land Bank contend that under Section 679.102(3), Florida Statutes (1975), it is a secured transaction. Exchange Bank contends that under Section 679.104(10), Florida Statutes (1975), it is not a secured transaction.

Rucker and Land Bank appeal from a judgment foreclosing a real estate mortgage on land owned by Rucker and assigned by the mortgagee, Harrell, along with the note it secured, to Exchange Bank as collateral for loans made by Exchange Bank to Harrell. If the contention of Rucker and Land Bank is correct, we must reverse the judgment. If the contention of Exchange Bank is correct, we must affirm the judgment.

On 17 April 1974, South 41 Corporation (South 41) purchased seventy-five acres of land from Harrell and gave Harrell a note secured by a purchase money mortgage. On 18 April, South 41 deeded the land to Rucker subject to the mortgage.

On 7 May and 9 July, Harrell obtained loans of $24,000.00 and $5,000.00 from Exchange Bank and assigned the South 41 note and mortgage to it as collateral for the loans. The Exchange Bank promptly recorded the assignment and gave notice of the assignment to South 41. It did not give notice to Rucker. It did not perfect a security interest.

On 23 July, Rucker mortgaged the land to Land Bank and paid to Harrell the entire sum due on the South 41 note and mortgage. Although Rucker obtained a satisfaction from Harrell, which she promptly recorded, she did not ascertain if the mortgage had been assigned by him nor did she demand that he surrender the mortgage to her.

On 2 January 1975, Harrell defaulted in the payment of the loans which were then due the Exchange Bank and no payment was made on the South 41 note and mortgage. The Exchange Bank brought foreclosure proceedings against Rucker based on the South 41 mortgage held by it. The trial court entered a judgment in favor of Exchange Bank; and Rucker and Land Bank appeal.

Section 679.9-102(3) provides:

"The application of this chapter to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this chapter does not apply."

Amended Comment 4 under this section states:

"The owner of Blackacre borrows $10,000 from his neighbor, and secures his note by a mortgage on Blackacre. This Article is not applicable to the creation of the real estate mortgage. Nor is it applicable to a sale of the note by the mortgagee, even though the mortgage continues to secure the note. However, when the mortgagee pledges the note to secure his own obligation to X, this Article applies to the security interest thus created, which is a security interest in an instrument even though the instrument is secured by a real estate mortgage. This Article leaves to other law the question of the effect on rights under the mortgage or delivery or nondelivery of the mortgage or of recording or non-recording of an assignment of the mortgagee's interest. See Section 9-104(j). But under Section 3-304(5) recording of the assignment does not of itself prevent X from holding the note in due course."

Section 679.9-104(10) provides:

"This chapter does not apply:

"Except to the extent that provision is made for fixtures in § 679.313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder;"

Coogan, Kripke and Weiss state:

"The status under article 9 of the assignment of a note secured by a real estate mortgage has been widely discussed in New York and was among the subjects that the New York financial bar wanted clarified by legislation. The title companies in New York have insisted that for 'mortgage warehousing' the situation in which a mortgage banker or broker makes a real estate mortgage loan and pledges the mortgage to a bank until he finds a permanent mortgagee not only must the note (or bond) and mortgage be delivered and the assignment of the mortgage recorded under real estate law, but a financing statement with respect to the transaction must also be filed under article 9. Insofar as we understand the argument of the title companies, it rests on two separate bases:

(a) The persons demanding clarification argue that, even though section 9-104(j) (§ 679.104(10)) excludes from the Code the transfer of an interest in or lien on real estate, the matter is not clear because of three facts: the real estate mortgage is itself personal property, presumably a general intangible; the pledge of the note is expressly brought under article 9 by section 9-102(3) (§ 679.102(3)); and Official Comment 4 to that section specifically states that article 9 is applicable to the security interest created in the note and mortgage.

(b) Another argument is that the note and the real estate mortgage together are something more than they are separately. Just as a note and chattel mortgage together constitute a new form of collateral to which the Code applies the title 'chattel paper' and for which it sets forth special rules, so the note and real estate mortgage together may constitute a 'general intangible,' which is defined to include all personal property not otherwise classified. If either of the arguments is sound, a security interest in the mortgage could be perfected only by filing.

"We are satisfied that this view is unduly fearful. The clear intent of section 9-104(j) (§ 679.104(10)) to exclude transfers of liens on real estate would be completely nullified if the argument were accepted that the lien, as a form of wealth, is personal property, a security interest in which is subject to article 9. Likewise, we feel that the argument that a note and real estate collateral could, in combination, be a general intangible under the Code is inconsistent with the fact that, when the Code intended to give special status to a combination of this nature (the chattel paper case), it expressly provided for it. If the theory advanced by the title companies were sound, it would apparently drag back into the Code all the other matters...