Stanley v. Fabricators, Inc., 1061
| Decision Date | 06 October 1969 |
| Docket Number | No. 1061,1061 |
| Citation | 459 P.2d 467 |
| Parties | 6 UCC Rep.Serv. 1262 William P. STANLEY, d/b/a Alaska Traffic Consultants and Sea-Land Service, Inc., Appellants, v. FABRICATORS, INC., Appellee. |
| Court | Alaska Supreme Court |
Allen McGrath, Anchorage, for appellants.
Charles E. Tulin, Anchorage, for appellee.
Before NESBETT, C. J., and DIMOND, RABINOWITZ, BONEY and CONNOR, JJ.
We are required in this appeal to apply a number of provisions of the Uniform Commercial Code in determining the validity of two attachments of equipment. A detailed statement of pertinent facts must necessarily precede any discussion of the legal issues raised.
Appellee Fabricators, Inc., an Oregon corporation, leased certain dough manufacturing equipment to Pelton's Spudnuts, a Utah corporation located in Salt Lake City, Utah. Pelton's then subleased the same equipment to Foodcrafters, Inc., an Alaska corporation, which used the equipment to manufacture dough products for sale in the Anchorage area of Alaska.
The terms of the leases were identical except that the lease between appellee and Pelton's provided that if Pelton's exercised its option to cancel the lease because of an average decrease in demand for the manufactured products, that Pelton's should give a 30-day written notice and crate and ship the equipment to appellee at Seattle. Each lease stated that, 'This is a contract of rental only and not a sale, conditional or otherwise.' The period was for 60 months at a rental of $1,288 per month (preamble) and each lease stated that:
Lessee shall have the option to purchase said equipment and personalty during the term of his lease for a cash price of $58,000.00 less 75% of all sums paid as rental herein.
During the terms of the leases and in February of 1968, Foodcrafters, Inc. lost its contract to supply the military base in Anchorage. On March 4, 1968, Lyndon Sikes, President of Foodcrafters, called in representatives of Sea-Land Sales of Alaska and informed them that the equipment was to be shipped back to the continental United States and requested their inspection and advice. The evidence established that Sea-Land Sales of Alaska, a corporation, was the exclusive sales agent for Sea-Land Service, Inc., a Delaware incorporated water carrier, and for Sea-Land Freight Service, Inc., a motor carrier. Sea-Land Sales shared the same office space and accounted to Sea-Land Service, Inc., but was not a subsidiary of that corporation. Sikes advised the Sea-Land Sales representatives that he was going out of business; that the equipment was leased from Pelton's and was to be returned to Seattle and possibly to Utah. Upon returning to their office the representatives of Sea-Land Sales informed Sea-Land Service, Inc. that Foodcrafters was going out of business and planned to ship the equipment collect.
On March 8, 1968, Sikes wrote to Pelton's advising them that Foodcrafters was going out of business, enclosing estimates on crating from various moving companies and offering to assist in the crating for a fee. On March 15, 1968, Mr. Pelton came to Anchorage with his plant manager and engineer to take charge of dismantling and crating the equipment. Pelton employed A-1 Moving and Storage on Sikes' recommendation and worked with them with his assistants in dismantling and crating. Sikes kept the warehouse keys and occasionally assisted. The majority of the work had been completed by the time Pelton departed for Japan on March 17, leaving instructions with A-1 to complete the work. A-1 completed loading the equipment in the vans furnished by Sea-Land Service, Inc. at Foodcrafters' loading dock. The vans were picked up by Sea-Land Service, Inc. on March 19 and 22 as they were filled. A-1's invoice listed Foodcrafters as shipper and their bill was sent to Sea-Land Service, Inc., and subsequently to Pelton's. Sea-Land Service, Inc. issued three straight non-negotiable bills of lading, one on March 19 and two on March 22. All were signed by Sikes on behalf of Foodcrafters as consignor with appellee Fabricators, Inc., Seattle, Washington, named as consignee.
On March 25, 1968, Sea-Land Service, Inc. filed suit against Foodcrafters for the sum of $900 alleging a debt past due and attached the Spudnut equipment which was then in its vans in its possession.
On April 10, 1968, Fabricators Inc. assigned 'all of its right, title and interest' in its lease with Pelton's to National Oven Products of Washington. On April 23, 1968, Pelton's Spudnuts, Inc. wrote to Allen McGrath, Esq., counsel for appellant, explaining the lease arrangements, advising that the attached equipment belonged to Fabricators, Inc., enclosing copies of the leases, demanding release of the attachment, and advising that Sea-Land Service, Inc. would be held accountable for damages resulting from delay in making shipment. On April 26, 1968, V. Burda, an attorney of Salem, Oregon, wrote to McGrath advising that the attached equipment was owned by appellee Fabricators, Inc.; that Foodcrafters had no interest in the property, and asking to be advised what further action was required in order to release the attachment.
On June 10, 1968, summary judgment was entered against Foodcrafters and in favor of Sea-Land Service, Inc. On June 17, 1968, Fabricators, Inc. filed with the state police and served McGrath with a 'Notice of Third Party Claim' with an attached affidavit and copy of the Foodcrafters-Spudnuts lease. The district court set the time for hearing as August 15, 1968.
On July 1, 1968, McGrath, acting as attorney for appellant William P. Stanley, sued Foodcrafters in the superior court on an alleged past indebtedness and on July 11, 1968, caused the Spudnut equipment to be again attached. Fabricators, Inc. sought to challenge both attachments and entered the case by filing a complaint in intervention pursuant to Civil Rule 24. Hearing was also set for August 15, 1968, and on motion the cases were consolidated for hearing and trial on that date.
After hearing some ten witnesses during trial, the trial judge dissolved the attachments of Sea-Land Service, Inc. and William P. Stanley, holding, among other things, that the lease and the sublease were security interests within the meaning of the Uniform Commercial Code, AS 45.05.002 to 45.05.794.
Although the agreements were called leases, the trial court was correct in finding that they were security agreements since they contained provisions conferring the right to purchase the equipment at any time during the 60 month terms of the leases for the sum of $58,000 less 75% of all sums paid as rental at the rate of $1,288 per month. 1 During the last month of the term total rents paid would be $77,280. Seventy-five per cent of this amount would be $57,960. This indicates that the purchase option could be exercised for $40. Relative to $58,000, this is a nominal consideration and under clause B of AS 45.05.020(37) demonstrates that the leases in question were in fact security agreements. 2 These facts bring the agreements within the rule of interpretation laid down in United Rental Equipment Co. v. Potts & Callahan Contracting Co. 3 which we adopt.
Appellants argue however, that the secutiry interests thus created were never perfected because the interests never attached under AS 45.05.736 which provides that a security interest is perfected when it has attached and when all applicable steps required for perfection have been taken; 4 under AS 45.05.722 which provides that a security interest cannot attach until there is agreement that it attach and value is given and debtor has rights in the collateral; 5 and AS 45.05.020(3) defining 'agreement' as the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance. 6
We cannot agree. The agreements were entered into on December 1, 1966. Possession of the equipment was delivered to the lessee which transferred it to the sublessee Foodcrafters, which paid a monthly rental of $1,288 per month for a period of over 14 months until it was forced to cancel the agreement in accordance with an option contained therein. The fact that all of the parties entered into performance of the agreements on the date of execution and continued in faithful performance according to the terms of the agreements for a period of over 14 months is convincing proof that they intended that their respective interests attach upon execution of the agreements. This having been their intent, and value having been given by the lessor and sublessor by delivery of possession of the equipment and by the sublessee by the faithful payment of rental, and the sublessee having acquired a contingent equity in the equipment, it follows that the security interests of the parties had attached under the above quoted provisions of the Uniform Commercial Code. 7 The fact that the witness Burda was the only witness who testified that it was his intent that a security agreement be created is not controlling in view of the fact that the agreements were unequivocally worded to create immediate rights and liabilities in the parties, and of the intent which can be otherwise implied from the circumstances of their subsequent conduct.
Appellants' next point is that appellee did not perfect its security interest by taking possession of the equipment.
It was conceded at trial that appellee did not file the financing statement provided for in the Uniform Commercial Code but it was contended by appellee that it had perfected its security interest in the equipment by assuming possession under the provisions of AS 45.05.734 which provides that a financing statement must be filed in order to perfect a security interest except when possession of the collateral is in the secured party. 8
We decide that the trial court was correct in holding that appellee's security interest was perfected by possession of...
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