United Rental Equipment Co. v. Potts & Callahan Contracting Co.

• Decision Date: 07 June 1963
• Docket Number: No. 326,326
• Parties: , 1 UCC Rep.Serv. 351 UNITED RENTAL EQUIPMENT COMPANY, Inc. v. POTTS AND CALLAHAN CONTRACTING COMPANY, Inc., et al.
• Court: Maryland Court of Appeals

Page 552

231 Md. 552

191 A.2d 570, 1 UCC Rep.Serv. 351

UNITED RENTAL EQUIPMENT COMPANY, Inc. v. POTTS AND CALLAHAN CONTRACTING COMPANY, Inc., et al.

No. 326.

Court of Appeals of Maryland.

June 7, 1963.

John T. Brooks, Baltimore (Allen, Burch & Allen and Francis B. Burch, Baltimore, on the brief), for appellant.

Benjamin H. Murray, Baltimore (J. Paul Bright, Jr., Baltimore, on the brief), for Potts & Callahan Contracting Co., Inc.

Eugene P. Smith, Baltimore (M. William Adelson, Baltimore, on the brief), for Mark M. Mayers & Co., Inc.

Jacob Hornstein, Baltimore, for Standard Finance Co.

Before BRUNE, C. J., and HAMMOND, PRESCOTT, HORNEY and MARBURY, JJ.

HAMMOND, Judge.

The lessee of an air compressing machine suffered judgment and execution to go against him, and the machine was sold by the sheriff. At issue in this appeal is whether the purchaser or the lessor of the machine, claiming it as owner, has title, and the purchaser's right to damages because the lessor in seeking to establish its ownership of the machine by legal action prevented the purchaser from disposing of the machine as its own and subjected it to expense.

The following facts are revealed by the record. On August 19, 1960, United Rental Equipment Co., Inc. (United) transferred possession and the right of use of a Worthington air compressor, with a P & H diesel engine (the compressor), to one Edward Wuensche under a document entitled 'Crane Rental Contract,' which recited that the compressor and other items of mechanical equipment were leased by United to Wuensche and set forth provisions as to the use, operation and maintenance of the equipment. It was provided that the rental would be $800 a month for the compressor for a minimum period of one month and that 'after expiration of the minimum term * * * the Lessee shall pay * * * the same rental per month * * * until the aforesaid equipment is returned to the Lessor.' The agreement provided that Wuensche was to use the compressor in Philadelphia, Pennsylvania, and oral permission was given by United for use outside the metropolitan area of Philadelphia.

In the agreement the lessee agreed to pay all sales and use taxes. The lessor reserved the right to terminate the lease at any time if the equipment was being overloaded, abused or neglected, or if it was in danger because of strikes or other conditions, or for violation by the lessee of any provision of the lease. It was agreed also that eighty-five per cent of the rental of the compressor was to be applied on the specified purchase price thereof of $14,500.

The agreement between United and Wuensche was never recorded or filed in any place of public record.

Wuensche brought the compressor to Baltimore. On October 24, 1960, he gave a judgment note for $24,000 to Mark M. Mayers and Company, Inc., an appellee, and on November 23, 1960, arranged that the compressor be mortgaged to Standard Finance Company, another appellee, for $6,600. On March 30, 1961, Mayers took judgment against Wuensche and issued a writ of fieri facias. Pursuant to the writ, the sheriff of Baltimore seized the compressor and in due course sold it to Potts and Callahan Contracting Company, Inc., another appellee, on April 18, 1961. On June 22, United advised Potts and Callahan that it claimed title to the compressor. This was the first any of the appellees had heard of the United-Wuensche lease agreement.

The compressor brought $5,900 at the sheriff's sale, and the net balance of the purchase price was paid into court. The parties stipulated that if United's claim of title was denied, Potts and Callahan had title to the compressor free and clear and unencumbered by any lien or claim of title of any of the parties and that the money in court would be subject to further litigation by the various claimants of it.

During the summer of 1961 Potts and Callahan found that the engine of the compressor furnished insufficient power. In November the Worthington Corporation, as a matter of good will, offered to allow $10,000 for the compressor on a trade-in for a new compressor priced at $19,000. Potts and Callahan testified it was forced to decline the offer because of United's claim of title and was required to rent other compressors to fullfill its contracts. It claimed below, and the court granted, reimbursement for these rental expenditures.

About a week after the sheriff's sale, Standard filed a petition seeking to have its mortgage claim paid from the proceeds of sale. Potts and Callahan intervened as a plaintiff and brought in the sheriff, United, Mayers and Standard as defendants. Various pleadings were filed, which it is not necessary to detail. Eventually, Judge Foster decided, in what we treat as a summary judgment on the pleadings and a stipulation of facts (although in form he sustained a demurrer by Mayers to United's answer, as particularized, to Potts and Callahan's petition of intervention), that the title of Potts and Callahan was unassailable and, thereafter, after taking testimony, held that United owed Potts and Callahan $1,470 as reimbursement for the expense it had been put to in order to procure working substitutes for the compressor. United appealed.

The first question presented is whether the unrecorded lease-purchase agreement between United and Wuensche was valid as to subsequent creditors of Wuensche with a judicial lien.

The parties are in agreement that the law of Pennsylvania controls the answer, although suggesting that the answer would be the same under the law of Maryland or the law of New Jersey.

Pennsylvania was the place where the equipment was to be used during the term of the lease. New Jersey, where the contract was executed, has held that the law of the jurisdiction in which property contracted for is to be delivered and held by the purchaser and not the lex loci contractus determines the validity of such a contract. Knowles Loom Works v. Vacher, 57 N.J.L. 490, 31 A. 306, 33 L.R.A. 305. This Court has held that the validity and effect of foreign contracts dealing with personalty are to be determined according to the law of the place where the contract is executed and delivered. Scott v. First National Bank, 224 Md. 462, 465, 168 A.2d 349; Union Trust Co. of New Jersey v. Knabe, 122 Md. 584, 89 A. 1106.

United argues, and the appellees do not dispute, that prior to 1954 Pennsylvania recognized the bailment lease as valid to sustain the lessor's title against claimants through the lessee, even though the lease was not recorded. See Brown v. Billington, 163 Pa. 76, 29 A. 904; General Motors Acceptance Corporation v. Hartman, 114 Pa.Super. 544, 174 A. 795. This Pennsylvania rule, an anomaly in the law, was noticed in Beckwith Machinery Co. v. Matthews, 190 Md. 182, 188, 190, 57 A.2d 796, 175 A.L.R. 1360.

In 1954 Pennsylvania adopted the Uniform Commercial Code which, then, required the bailment lease to be recorded under the secured transactions section. Purdon's Penna.Statutes Annotated (Purdon's Statutes), Title 12A, Sec. 9-102. See also that part of the Commentary-Uniform Commercial Code, by Dechert and Brennan, entitled 'Article 9--Secured Transactions,' to be found at page LX et seq., Purdon's Statutes, Vol. 12A (the first of the volumes containing Title 12A).

In 1958 the Commissioners on Uniform State Laws revised the Code, and the Pennsylvania legislature amended its statute to incorporate the 1958 revisions and eliminated specific reference to the bailment lease. The amendments took effect on January 1, 1960, and the Code, as revised, thus was applicable to the lease agreement now before use.

Purdon's Statutes, Title 12A (1962 Cum.Supp.), Sec. 9-102(2), reads:

'This Article applies to security interests created by contract including pledge,...