NBD-Sandusky Bank v. Ritter

446 N.W.2d 340, 179 Mich. App. 580

• Court: Michigan Court of Appeals
• Decided: August 21, 1989
• Docket: Docket 104868
• Status: Published

Opinions

Michael J. Kelly, P.J.

Defendant-appellant John Deere Company appeals as of right from a judgment in favor of plaintiff NBD-Sandusky Bank. The trial court found that John Deere Company’s purchase money security interest in two pieces of farm equipment was not perfected within twenty days after the debtor received possession of the equipment, so it was subordinate to NBD’s prior perfected security interest in the same equipment under MCL 440.9312(5), (6); MSA 19.9312(5), (6).

In May of 1985, Sam and Emily Ritter entered into a security agreement granting NBD-Sandusky Bank a security interest in farm equipment owned by the Ritters, including any after-acquired property. The bank perfected its security interest in the Ritters’ farm equipment around May 30, 1985.

In July of 1985, the Ritters arranged to purchase two pieces of farm equipment from Laethem Farm Service Company. These pieces of equipment were a John Deere Model 660 combine and a John Deere sixteen-foot "quick tach” grain platform. The Ritters executed a purchase order and took possession of these two pieces of equipment on July 23, 1985. On July 31, 1985, Sam Ritter signed a Loan Contract and Security Agreement through Laethem Farm Service Company, applying for financing from John Deere Company. This contract was conditioned upon acceptance by John Deere Company as lender. Under the terms of this agreement Sam Ritter granted John Deere Company a security interest in the combine and quick tach platform. Upon Ritter’s signing of this contract, Laethem Farm Service took credit on its account with John Deere Company for the amount financed. A representative of John Deere Company signed the loan contract and security agreement on August 15, 1985. Deere Company filed a financing statement for this equipment with the Sanilac County Register of Deeds on August 7, 1985.

After trial, held October 26, 1987, the trial judge found that John Deere Company did not perfect its security interest within twenty days, that its security interest was not perfected until August 15, 1985, the date its representative signed the loan contract and security agreement, and that NBDSandusky Bank therefore was the first secured party with regard to the combine and quick tach platform.

Defendant Deere Company argues that the trial court erred in holding that plaintiffs security interest had priority over its purchase money security interest. Deere Company argues that its security interest was perfected on or before August 7, 1985, the date that it filed its financing statement. We disagree.

Priority between conflicting security interests in the same collateral is usually determined according to priority in time of filing or perfection, whichever is earlier. MCL 440.9312(6); MSA 19.9312(6). However, a purchase money security interest in collateral has priority over a conflicting security interest in the same collateral if the purchase money security interest is perfected within twenty days of the time the debtor receives possession of that collateral. MCL 440.9312(5); MSA 19.9312(5). In order for John Deere Company to claim priority over NBD-Sandusky Bank, its purchase money security interest must have been perfected within twenty days after Ritter received possession of the equipment.

As pointed out in Judge Mackenzie’s dissenting opinion, the date that Sam Ritter took possession of the property in question is determinative. However, we disagree with Judge Mackenzie’s conclusion that possession was not achieved until the loan agreement was signed. Although the term "possession” is not defined by the Uniform Commercial Code,

The Code’s general purpose is to create a precise guide for commercial transactions under which businessmen may predict with confidence the results of their dealings. [In re Automated Bookbinding Services, Inc, 471 F2d 546, 552 (CA 4, 1972).]

Since the ucc is meant to be a plainly read, uniform code, it would not be appropriate to interpret the words "receives possession” in any other way than ordinary usage dictates. The term "possession,” as commonly understood, does not indicate that a party must have an actual legitimate legal interest in the item, but merely that he has physical holding or control over it. As noted by Gilmore, a draftsman of Article 9 of the ucc,

"Receives possession” is evidently meant to refer to the moment when the goods are physically delivered at the debtor’s place of business—not to the possibility of the debtor’s acquiring rights in the goods at an earlier point by identification or appropriation to the contract or by shipment under a term under which the debtor bears the risk. [2 Gilmore, Security Interests in Personal Property, p 787 (1965).]

We therefore hold that Sam Ritter took possession of the farm equipment in question on July 23, 1985, the day the goods were physically delivered to his place of business. To claim priority over NBD-Sandusky Bank, John Deere Company’s purchase money security interest must have been perfected within twenty days after this date.

Security interests are perfected when two events occur: (1) the interest must "attach,” and (2) the creditor must have taken all the applicable steps for perfection, including filing a financing statement. MCL 440.9303(1); MSA 19.9303(1); Yamaha Motor Corp, USA v Tri-City Motors & Sports, Inc, 171 Mich App 260, 277; 429 NW2d 871 (1988). A security interest attaches when there is an agreement that certain items are to secure payment or performance of an obligation, value is given, and the debtor acquires rights in the collateral. MCL 440.9203(1),(2); MSA 19.9203(1), (2); Yamaha, at 277.

John Deere Company was required to file a financing statement, which it did on August 7, 1985. MCL 440.9302; MSA 19.9302. When a financing statement is filed prior to attachment, the security interest is perfected at the time it attaches. MCL 440.9303(1); MSA 19.9303(1).

John Deere Company’s security interest did not attach until August 15, 1985, because an agreement was not reached until that date and value was not given until that date. A security agreement usually only requires a debtor’s signature in order to be considered an agreement for attachment purposes, unless the agreement postpones the time of attaching. MCL 440.9203(l)(a), (2); MSA 19.9203(l)(a), (2). Deere Company’s loan contract and security agreement was worded as an application for financing from the Deere Company and was conditioned upon acceptance by Deere. This contract was not accepted by Deere Company until August 15, 1985, when a company agent signed it. Thus, an agreement was not reached until August 15, 1985. Since the loan contract was not approved by Deere Company until August 15, financing for the combine and platform was not provided until this date. Thus, value was not given until August 15, 1985.

Deere Company argues that the loan contract and security agreement were accepted by performance before the August 15 signing date. This claim is not supported by the evidence presented at trial. Although Laethem Farm Service Company did deliver the equipment in question to Sam Ritter prior to Deere Company’s signing, based upon the assumption that Deere Company would provide financing, Laethem was not an agent of John Deere Company and was not authorized to enter into agreements or contracts for Deere. Deere Company’s contract specifically conditioned Ritter’s financing upon acceptance by the Deere Company, and Deere’s agent’s accepting signature was dated August 15, 1985. Ambiguities in the loan contract and security agreement must be construed against Deere Company, which drafted it. Federal Land Bank of St Paul v Bay Park Place, Inc, 162 Mich App 1, 7; 412 NW2d 222 (1987). Deere Company’s contract was conditioned upon acceptance by a company agent, so Deere cannot now claim that it accepted by performance contrary to the terms of its own contract.

John Deere Company’s purchase money security interest in the combine and platform did not attach within twenty days after Sam Ritter took possession of the equipment. Deere Company’s security interest does not qualify for special priority under MCL 440.9312(5); MSA 19.9312(5). Thus, since NBD-Sandusky Bank’s security interest was first perfected, it has priority. MCL 440.9312(6); MSA 19.9312(6).

Affirmed.

S. B. Miller, J., concurred.