Womack v. Newman Fixture Co., CA

• Decision Date: 31 January 1990
• Docket Number: No. CA,CA
• Citation: 27 Ark.App. 117,785 S.W.2d 226
• Parties: , 11 UCC Rep.Serv.2d 285 J.A. WOMACK and W.A. Beaver, Appellants, v. NEWMAN FIXTURE CO., Appellee. 88-325. . En Banc
• Court: Arkansas Court of Appeals

Page 226

785 S.W.2d 226

27 Ark.App. 117, 11 UCC Rep.Serv.2d 285

J.A. WOMACK and W.A. Beaver, Appellants, v. NEWMAN FIXTURE CO., Appellee.

No. CA 88-325.

Court of Appeals of Arkansas.

En Banc.

Jan. 31, 1990.

[27 Ark.App. 123-B] Tim A. Womack, Camden, for appellants.

William K. Ball, Monticello, for appellee.

MAYFIELD, Judge.

The court issued an opinion in this case on March 22, 1989, affirming the trial court's decision holding the appellee's security interest in certain restaurant equipment superior to the appellants' security interest. See Womack v. Newman Fixture Co., 27 Ark.App. 117, 766 S.W.2d 949 (1989). That decision was based upon the finding that appellants' financing statement did not adequately describe the collateral.

In the original brief filed by appellants they argued that the description of their collateral was sufficient; that the appellee was guilty of laches and unclean hands; and that the appellee's claim having been previously dismissed two times should not have been reinstated by the trial court. Appellants filed a petition for rehearing confined to the issue of the adequacy of the description. Specifically, the petition argues that our original opinion overlooked the appellants' contention that the adequacy of the description should be considered in the light of the actual knowledge appellee had about the collateral involved in this case. We agree that our opinion did not fully address this important point, and it is proper for the petition for rehearing to call this matter to our attention. See Rule 20 of the Rules of the Supreme Court and Court of Appeals. After careful study, we have concluded that the petition for rehearing should be granted.

This case arose out of the installation of equipment in a restaurant which was to be operated in a new building owned by the appellants J.A. Womack and W.A. Beaver in Camden, Arkansas. The restaurant was to be operated by Larry D. Stafford. The equipment was purchased by Stafford from the appellee Newman Fixture Company. Before making the purchase, Stafford contacted Tommy Newman who was vice-president of the appellee company and Newman made a list of the individual pieces of equipment, and the price of each, that he and Stafford thought would be needed in the restaurant. Stafford took this list to The Merchants & Planters Bank of Camden, Arkansas, and arranged for a loan to finance the purchase of the equipment. This resulted in a note signed by Stafford, which [27 Ark.App. 123-C] incorporated a lien on the equipment to be purchased, and a financing statement was also signed by Stafford.

In August of 1983, the financing statement was properly filed with the Circuit Clerk in Camden and the Secretary of State in Little Rock. The financing statement shows the debtor's name as "Larry D. Stafford d/b/a Chick-N-Shack" and lists the debtor's address as "314 North Adams, Camden, Ark. 71701." The bank's name and mailing address are shown on the statement and it is signed for the bank by an assistant vice-president. The statement describes the collateral as "All equipment used in the business known as," and on the back of the statement the description continues by stating "and all replacements thereof and all accessories, parts and equipment now or hereafter affixed thereto or used in connection therewith...."

At this point, it should be noted that Stafford's note to the bank was guaranteed by the appellants Womack and Beaver who signed the note for that stated purpose. Newman Fixture Company began installing the restaurant equipment in Womack and Beaver's building even before the building was completely finished. Eventually Newman submitted an invoice to Stafford and was paid all but $4,617.92 of the purchase price and Newman had Stafford sign a financing statement and security agreement to secure this balance due. This instrument was filed with the Circuit Clerk in Camden and the Secretary of State in Little Rock. The debtor's name is shown as "Stafford, Larry d/b/a Chick-N-Shack," and the address listed is "310 Adams Avenue, Camden, AR 71701." Attached to the instrument is a copy of the Newman invoice. It is undisputed that this instrument was filed more than six months after the bank's financing statement was filed. And it is undisputed that the bank called upon the appellants, Womack and Beaver, to pay Stafford's note in accordance with their guarantee and that they made the payment and took an assignment of the bank's rights under its security agreement and financing statement.

Before proceeding to the issue of the sufficiency of the description in the bank's financing statement, we briefly review the law that gets us to that issue. Actually, the bank and Newman Fixture Company both assert a purchase money security interest in the restaurant equipment purchased by Stafford. Ark.Stat.Ann. § 85-9-107 (Add.1961) (now Ark.Code Ann. § 4-9-107 [27 Ark.App. 123-D] (1987)), PROVIDES:

A security interest is a "purchase money security interest" to the extent that it is

(a) taken or retained by the seller of the collateral to secure all or part of its price; or

(b) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used.

Under Ark.Stat.Ann. § 85-9-203(1) and (2) (Supp.1985) (now Ark.Code Ann. § 4-9-203(1) and (2) (1987)), the bank's security interest "attached" when (a) the debtor signed a security agreement which described the collateral, (b) value had been given by the bank, and (c) Stafford had rights in the collateral. No one disputes the fact that the bank gave value by making Stafford a loan of $30,000.00 to be used to purchase the equipment; that Stafford signed the bank's note and security agreement; that Stafford applied most of that money to the purchase price of the equipment; and that the equipment was delivered to Stafford for him to use. In 8 Anderson, Uniform Commercial Code § 9-203:48 (1985), it is stated:

The Code does not require that all three conditions for attachment be satisfied at the same time. Likewise, the order in which they are satisfied has no significance.

While the debtor must have rights in the collateral before the interest attaches, there is no requirement that he have such interest when the security agreement is made. The security agreement may be executed before any of the other elements are satisfied and that fact does not invalidate or impair the security agreement. Subject to certain limitations, the parties may agree that the security interest shall attach to described goods not yet owned by the debtor.

However, Newman also had a purchase money security interest in the equipment under Ark.Stat.Ann. § 85-9-107(a), supra, because it obtained a security agreement from Stafford on the equipment to secure that part of the purchase not paid when the equipment was delivered. Ark.Stat.Ann. § 85-9-312(4) [27 Ark.App. 123-E] (Supp.1985) (now Ark.Code Ann. § 4-9-312(4) (1987)), provides:

(4) A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within twenty-one (21) days thereafter.

A security interest is perfected by the filing of a financing statement. See Ark.Stat.Ann. § 85-9-302 (Supp.1985) (now Ark.Code Ann. § 4-9-302 (1987)). (There are some exceptions, one of which is when the collateral is in possession of the secured party, but none of the exceptions apply here.) So, since both the Bank and Newman had purchase money security interests, perfected by the filing of financing statements, section (4), supra, does not tell us which purchase money security interest had priority, but under the provisions of section (5) of Ark.Stat.Ann. § 85-9-312 (Supp.1985) (now Ark.Code Ann. § 4-9-312), it would appear to go to the party who first filed a financing statement. Section (5), as it pertains to this case, provides:

(5) In all cases not governed by other rules stated in this section (including cases of purchase money security interests which do not qualify for the special priorities set forth in subsections (3) and (4) of this section), priority between conflicting security interests in the same collateral shall be determined according to the following rules:

(a) Conflicting security interests rank according to priority in time of filing or perfection.

In 2 White and Summers, Uniform Commercial Code, § 26-5 at 516 (3rd ed. 1988), it is stated:

If one does not meet one of the conditions in (3) or (4), he "does not qualify," but is the same true if he and his competitor do meet the test of (3) or (4)? We believe so. If Bank lends the down payment, seller lends the rest and each file within ten days [this would be 21 days in Arkansas], both (and therefore neither) are "entitled to the special priority" in subsection (4). Although one might argue that such creditors should share pro rata and neither receive priority, we believe that the proper rule is to go to [27 Ark.App. 123-F] the subsection (5) residuary clause and award priority to the winner there.

The rationale of the above statement is explained in 2 White and Summers, Uniform Commercial Code, supra, as follows:

Because the drafters chose to permit perfection by possession and by other non-filing acts, they could not simply give priority to the first to file. However, they went as far as possible in that direction and 9-312(5)(a) is the result: the first to file wins if both perfect by filing. Since filing is a public act the timing of which can be proved with accuracy from public records, it is the most certain and satisfactory of the measuring points for priority.

See § 26-4 at 498. In the instant case, the bank perfected its lien by filing its financing statement first. Thus, under the undisputed...