Yamaha Motor Corp., U.S.A. v. Tri-City Motors and Sports, Inc.

Decision Date12 October 1988
Docket NumberDocket No. 97913,TRI-CITY
Parties, 7 UCC Rep.Serv.2d 1190 YAMAHA MOTOR CORPORATION, U.S.A., Plaintiff-Appellant, v.MOTORS AND SPORTS, INC., James W. Hamblen and Carol J. Hamblen, Defendants, and First National Bank and Trust of Menominee, Defendant-Appellee.
CourtCourt of Appeal of Michigan — District of US

Gerald Mason, Menominee, for plaintiff.

Barstow, Selsor, Hoffman & Groulx, P.C. by L. Grant Selsor, Menominee, for First Nat. Bank & Trust of Menominee.

Before MAHER, P.J., and McDONALD and LIVO, * JJ.

MAHER, Presiding Judge.

This appeal as of right by plaintiff, Yamaha Motor Corporation, U.S.A., arises from a dispute over the competing security interests of Yamaha and defendant First National Bank and Trust of Menominee in the proceeds from certain motorcycles sold to defendant Tri-City Motors and Sports, Inc. The Menominee Circuit Court ruled in favor of First National, holding that Yamaha was estopped from asserting priority over the bank's security interest. Accordingly, the court entered a judgment of no cause of action against Yamaha on December 29, 1986. We reverse in part and affirm in part.

On May 3, 1974, Yamaha entered into a dealer franchise agreement with defendant James W. Hamblen, president and co-owner of Tri-City. Pursuant to this agreement, Hamblen was authorized to retail Yamaha products, such as motorcycles, snowmobiles, components and accessories. Also on May 3, Hamblen executed a security agreement with Yamaha which granted the manufacturer a security interest in all motorcycles, and their proceeds, sold to him on credit. A financing statement to that effect was properly filed by Yamaha on May 9, 1974, thus perfecting its security interest. M.C.L. Secs. 440.9302, 440.9303, 440.9401; M.S.A. Secs. 19.9302, 19.9303, 19.9401.

Several years later, on February 11, 1977, First National notified Yamaha that it was considering entering into a floor plan financing agreement 1 with Tri-City. To this end, it requested a repurchase agreement from Yamaha whereby it could sell any motorcycles back to the manufacturer which it found necessary to repossess from Tri-City. On February 24, 1977, Yamaha agreed to this in order to induce the bank to issue "wholesale paper" to Tri-City which could be used to purchase Yamaha products. A similar repurchase agreement was given to First National approximately three years later on February 1, 1980.

On February 28, 1977, Hamblen entered into a security agreement with First National pursuant to the floor planning arrangement. The agreement provided that, in exchange for new value given to Hamblen for the purpose of purchasing new motorcycles, First National would obtain a security interest in the motorcycles. First National began floor planning new motorcycles for Hamblen the very next day.

On March 7, 1977, First National filed a financing statement, which listed only the motorcycles as the secured collateral, with the Menominee County Register of Deeds. Because that was not a proper situs for filing, it did not operate to perfect the bank's security interest. M.C.L. Secs. 440.9303, 440.9401; M.S.A. Secs. 19.9303, 19.9401.

On May 2, 1977, First National received notice of Yamaha's purchase money security interest (PMSI) 2 in all motorcycles and their proceeds which the manufacturer had sold, or will sell, to Tri-City or Hamblen on credit.

On December 18, 1978, Yamaha properly filed a continuation statement as to its earlier financing statement, thus continuing its perfected PMSI for another five-year period. M.C.L. Sec. 440.9403(2); M.S.A. Sec. 19.9403(2).

Between February 11, 1980, and April 2, 1980, Hamblen placed three orders with Yamaha for the purchase of thirty-three new motorcycles. Separate invoices were prepared for those orders, each of which indicated that payment was to be made "C.O.D.--certified funds only." Sometime thereafter, Hamblen drove to Yamaha's warehouse in Illinois to pick up the motorcycles. He paid for them with three checks written on Tri-City's corporate account and drawn on a Wisconsin bank. Hamblen had falsely stamped the checks "certified" because he lacked sufficient funds to cover the invoices and knew the warehouse workers would not release the motorcycles without the checks being certified. The forgeries went unnoticed, and Hamblen returned to Michigan with the motorcycles.

On March 20, 1980 (after the new motorcycles were ordered but before they were picked up), First National released that portion of Tri-City's inventory which it held as security for the then-outstanding debt of $49,656. Although the value of the released inventory was unknown, it seems certain that the debt was under-secured. According to Tri-City's records, Hamblen often sold motorcycles, which First National had floor planned, without making the corresponding debt reduction payments to the bank. At the time of the release, First National issued a check to Tri-City for $49,656 which was retained and used to pay off the entire floor plan debt. Immediately thereafter, the bank arranged a new floor plan with the dealership whereby the newly ordered motorcycles were to be used to secure a "new" loan in the amount of $49,574.

At the time the new floor plan was executed, Tri-City was not in possesion of any of the motorcycles. In fact, Tri-City had not yet placed the last order and Yamaha had only prepared the first invoice. The new floor plan was apparently substituted for the original on the basis of either a handwritten list of the motorcycles ordered or copies of the orders themselves and Hamblen's assertion that he already possessed the collateral.

On May 6, 1980, Hamblen sold the dealership franchise, along with the equipment and inventory, to Lakeside Motors for $45,000 in cash and assumption of Hamblen's then-outstanding floor plan debt of $46,408. 3 Twenty-six of the newly acquired motorcycles were included in the inventory which was sold to Lakeside Motors. Of the other seven motorcycles, Hamblen kept one for his personal use and had sold six previously.

On May 9, 1980, Yamaha was informed by its bank that Hamblen's checks had been refused because of insufficient funds. Pursuant to its policy, Yamaha asked that the checks be presented a second time to the Wisconsin bank on which they were drawn. Again they were refused. Yamaha was notified of the final refusal on May 21, 1980.

Earlier, on May 9 (the same day Yamaha first learned the checks had been refused), First National and Lakeside Motors entered into a security agreement which covered the new motorcycles listed on the substitute floor plan held by Hamblen and Tri-City. As per the agreement, Lakeside Motors delivered several trust receipts to First National for the twenty-six motorcycles. In so doing, it incurred a debt of $46,408--the exact amount owed by Tri-City prior to the franchise transfer.

On May 15, 1980, First National filed a financing statement with the local register of deeds. As before, this was an improper filing and did not perfect the bank's security interest. See MCL 440.9303, 440.9401; MSA 19.9303, 19.9401.

The next day, First National and Lakeside Motors entered into their own floor plan arrangement whereby the dealer received an approved line of credit of $35,000 with an outstanding debt of $46,408. The bank also drafted a check payable to Lakeside Motors in the amount of $46,408, which it retained and presumably applied against the debt Lakeside Motors assumed from Tri-City during the franchise purchase.

On May 20, 1980, First National filed another financing statement covering the motorcycles and the proceeds therefrom. This time the filing was in the correct location (the Secretary of State's office) and, thus, perfected the bank's security interest. M.C.L. Sec. 440.9401(1)(c); M.S.A. Sec. 19.9401(1)(c).

After Yamaha received notice that Tri-City's checks had been refused a second time, it tried unsuccessfully to contact Hamblen. It never attempted, however, to repossess the motorcycles held by Lakeside Motors. Yamaha explained that it did not do this because it did not want to jeopardize its business relationship with Lakeside Motors or face a possible lawsuit for repossessing the motorcycles. Yamaha also never informed First National of the dishonored checks.

Hamblen did not make good on the checks. However, Lakeside Motors sold all the motorcycles and applied the proceeds therefrom to pay off its floor plan debt to First National. Yamaha did not receive any proceeds of the sales.

On May 19, 1981, Yamaha filed suit in the Menominee Circuit Court against Tri-City, Hamblen and his wife, Carol Hamblen. First National was added as a party defendant by stipulation on May 19, 1982. Subsequent to this, Yamaha filed a motion for summary disposition against all the defendants. The court granted the motion as to Tri-City and Hamblen 4, but denied it as to Carol Hamblen and First National.

On September 17, 1985, First National filed a cross-claim, and later moved for summary disposition, against Tri-City and Hamblen. The motion was denied by order of the court.

On April 28, 1986, a bench trial commenced as to Yamaha's remaining claims and First National's cross-claims. At the close of Yamaha's proofs, the court granted Carol Hamblen's motion to dismiss. MCR 2.504(B). At the conclusion of the trial, the court indicated it would take the other matters under advisement.

On December 3, 1986, the court issued an opinion and order in favor of First National for the reason that "Yamaha's actions were not an exercise in good faith, reasonableness and care." The court held that Yamaha had slept on its rights for two years and had failed to notify First National of the dishonored checks at a time when the bank could have protected its security interest. Consequently, Yamaha was estopped from asserting priority of its perfected PMSI. The court also...

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