O\u27Leary, John F

Potter, Stuart L

Shaw II, Samuel E

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Boston College Law ReviewVolume 6 | Issue 3 Article 194-1-1965Article 9: Secured TransactionsJohn F. O'LearyStuart L. PotterSamuel E. Shaw IIFollow this and additional works at: http://lawdigitalcommons.bc.edu/bclrPart of the Secured Transactions CommonsThis Uniform Commercial Code Commentary is brought to you for free and open access by the Law Journals at Digital Commons @ Boston CollegeLaw School. It has been accepted for inclusion in Boston College Law Review by an authorized administrator of Digital Commons @ Boston CollegeLaw School. For more information, please contact nick.szydlowski@bc.edu.Recommended CitationJohn F. O'Leary, Stuart L. Potter, and Samuel E. Shaw II, Article 9: Secured Transactions, 6 B.C.L. Rev.600 (1965), http://lawdigitalcommons.bc.edu/bclr/vol6/iss3/19BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWthe depositor to countermand his order to pay from the account. In short, thefunds represented by the item no longer belong to the depositor.This case indicates the one point in time short of final payment whenthose rights are also terminated: a decision by the, bank to pay the itemaccompanied by some action indicating that decision. This occurred two daysbefore service of the trustee writ (garnishment), even though final paymentitself did not occur until after service of the writ when the process of postingwas in fact completed. As against the owner of the item, however, the bankcould have changed its mind at any time before final payment withoutliability. Sections 4-303 and 3-418.S.L.P.ARTICLE 9: SECURED TRANSACTIONSSECTION 9-204. When Security Interest Attaches;After-Acquired Property; Future AdvancesCAIN V. COUNTRY CLUB DELICATESSEN25 Conn. Sup. 327, 203 A.2d 441 (1964)Annotated under Section 9-401, infra.SECTION 9-301. Persons Who Take Priority OverUnperfected Security Interests:"Lien Creditor"CAIN V. COUNTRY CLUB DELICATESSEN25 Conn. Sup. 327, 203 A.2d 441 (1964)Annotated under Section 9-401, infra.SECTION 9-302. When Filing Is Required to PerfectSecurity Interest; SecurityInterests to Which Filing Provisionsof This Article Do Not ApplyCAIN V. COUNTRY CLUB DELICATESSEN25 Conn. Sup. 327, 203 A.2d 441 (1964)Annotated under Section 9-401, infra.SECTION 9-312. Priorities Among ConflictingSecurity Interests in the Same CollateralCAIN V. COUNTRY CLUB DELICATESSEN25 Conn. Sup. 327, 203 A.2d 441 (1964)Annotated under Section 9-401, infra.SECTION 9-313. Priority of Security Interests in FixturesCAIN V. COUNTRY CLUB DELICATESSEN25 Conn. Sup. 327, 203 A.2d 441 (1964)Annotated under Section 9-401, infra.600UNIFORM COMMERCIAL CODE ANNOTATIONSSECTION 9-401. Place of Filing; Erroneous Filing;Removal of CollateralCAIN V. COUNTRY CLUB DELICATESSEN25 Conn. Sup. 327, 203 A.2d 441 (1964)The defendant opened its restaurant business in July, 1962, using kitchenand display equipment obtained from Hewitt Engineering, Inc.On August 16, the defendant took a loan from First Hartford and gavein return a promissory note and security interest in all of its present andafter-acquired personal property and fixtures. The day before, First Hartfordhad filed in accordance with Section 9-401 a financing statement with thelocal town clerk where filing was required in order to perfect security interestsin fixtures, and a duplicate with the secretary of state where filing wasrequired to perfect security interests in personal property.On August 30, the defendant and Hewitt executed a conditional salescontract for the Hewitt property which the defendant had been using. Thecontract provided that "the equipment shall remain personal property regard-less of any affixation to . . . realty. . ." A financing statement which pur-ported to give Hewitt a security interest in all of the defendant's then presentproperty was filed the same day with just the local town clerk.After less than four months, the defendant went into receivership. Inthis action the receiver sought a determination of priorities between FirstHartford and the assignee of Hewitt, General Electric.The court first distinguished between the Hewitt and the non-Hewittgoods. Despite the all-embracing financing statement which Hewitt had filed,the court found that the security agreement embraced only Hewitt goods.There being no security agreement with respect to non-Hewitt goods, nosecurity interest could attach under Section 9-204(1). First Hartford, on theother hand, did have a security interest in the non-Hewitt goods by virtue ofits comprehensive agreement with the defendant; therefore, its priority tothose goods was assured.By alternate reasoning which assumed arguendo that General Electricdid have a security interest in non-Hewitt goods, the court confirmed FirstHartford's priority. In regard to non-Hewitt personal property, First Hart-ford had perfected its secuity interest under Section 9-302 by filing with thesecretary of state. Hewitt had not perfected by filing there, thus First Hart-ford took priority under Sections 9-312(5) (a) and 9-301(1)(a). In regardto non-Hewitt fixtures, First Hartford took priority under the same sectionsby filing first with the town clerk.With regard to the Hewitt goods, the court first noted that as of August15 when First Hartford filed or August 16 when the security agreement wasexecuted, the defendant-debtor did not have "rights in the collateral." There-fore, First Hartford's security interest could not attach at that time. Tohold otherwise, the court said, "could result in goods, such as equipment,becoming subject to the security interest . . . although the debtor's possessionwere only that of a mere bailee, apart from any purchase or contract to buy."601BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWThe court went on to say, however, that after the Hewitt goods were sold tothe defendant on August 30, the defendant acquired rights in the goods, andthat at this time, under Section 9-204(1), the goods became subject to theafter-acquired property clause in First Hartford's security agreement. Thecourt then held that, with respect to the Hewitt goods which had not beenaffixed to realty when First Hartford's security interest attached, First Hart-ford had priority; it had filed with the secretary of state whereas Hewittand General Electric had not. Moreover, with regard to the Hewitt goodswhich had been affixed, First Hartford also took priority. Since Connecticutlaw was controlling on the definition of fixtures under Section 9-313(1), andsince Hewitt and the defendant were competent under Connecticut case law todetermine as between themselves the character of the Hewitt property, thecourt found in accordance with their conditional sales contract that theHewitt goods were personal property, even if affixed to realty. Being itemsof personalty, security interests with respect to them could be perfected onlyby a filing with the secretary of state. This, however, Hewitt and GeneralElectric failed to do, filing only with the local town clerk. Under Sections9-312 (5) (a) and 9-301(1) (a), the failure of Hewitt or its assignee to file withthe secretary of state made their unperfected security interest subordinate tothe perfected one of First Hartford.COMMENTBy refusing to find any "rights" of the defendant-debtor in the Hewittgoods prior to the written contract of sale, the court stimulates curiosity aboutthe business arrangements which allowed the restaurant to use Hewitt'sequipment. Of course, a binding contractual intent might have been formedbefore First Hartford filed on August 15 if Hewitt and the restaurant hadagreed on the essentials of their bargain nearly concurrently with the deliveryof the equipment. Even a rental arrangement would seem to create at leastan equitable contract right in the use of the equipment for the remaininglease term, to which in theory a security interest might attach if and whenthe right were sold. As the court indicates, however, a bailment in hopes ofa sale would create no rights in the bailee. Instead of engaging in a sterilediscussion of these possibilities, the court dwelt on the failure of the Hewitt-General Electric combination to file under the Code according to their owndefinition of the collateral. While the court was probably wrong in deter-mining priorities on this basis, the lesson is clear: it is safer and cheaper forthe attorney to suggest redundant filing rather than rely on an artificial defini-tion of the property involved.The court also recognized that where there is no intent to create asecurity interest, a financing statement cannot create one. Better practicewould use consistent language to describe collateral in the security agreementand the financing statement. To the extent that the Hewitt-General Electricproblems arose from lack of coordination or ignorance of the Code, the.message of this case and the availability of related model forms should dis-courage repetition.S.E.S. II602UNIFORM COMMERCIAL CODE ANNOTATIONSSECTION 9-504. Secured Party's Right to Disposeof Collateral After Default; Effectof DispositionHUDSPETH MOTORS, INC. V. WILKINSON382 S.W.2d 191 (Ark. 1964)The defendant dairyman bought a used truck on conditional sale from theplaintiff automobile dealer who allegedly assured him that the truck was ingood shape mechanically and used little or no oil. After having paid two in-stallments over a period of five months, the defendant attempted to repudiatethe contract by asserting breach of warranty. The plaintiff repossessed thetruck, resold it at private sale, and brought the present suit for the balancedue. More than a week before the sale, the plaintiff had sent the defendantnotice by certified mail, but the defendant, living on a rural mail route, didnot pick up the letter until after the sale. The defendant defended on twogrounds, lack of knowledge of the sale and breach of warranty. He alsocounterclaimed for breach of warranty. At trial he testified that on the firstday he drove the truck he discovered mechanical difficulties and high oilconsumption but that after a test drive the plaintiff's mechanics denied thatthere was anything wrong with the truck. The defendant had the necessaryrepairs made by someone else at his own expense and drove the truck dailyfor more than five months until the engine "blew up." The trial court in-structed the jury that if the defendant had no knowledge of the proposedresale before it took place, he was entitled to a verdict. The jury found forthe defendant generally.On appeal, the court found, first, that reasonable notification of resale asrequired by Section 9-504 had been given in accordance with Section1-201(26), whether or not the defendant actually came to know of it.Second, the defendant had not effectively exercised his right to reject underSection 2-601, because he had failed to notify the seller of his rejection withina reasonable time as required by Section 2-602. He could have revoked hisacceptance under Section 2-608 if his acceptance had been induced by theseller's assurances that the defects would be corrected, but the court foundthat no assurances had been given. Therefore, on the plaintiff's claim, judg-ment in favor of the defendant was reversed. Furthermore, on the counterclaimfor breach of warranty the plaintiff was entitled to an instructed verdict.COMMENTAlthough its decision may have been wise in ending litigation withoutresort to another jury trial, the court wrongly limited the buyer's rights withrespect to his acceptance of non-conforming goods. In constructing a brieffor the defendant, the court ignored the full effect of the buyer's option toaccept non-conforming goods, given him by Section 2 -601. After acceptance,the buyer is obligated to pay under Section 2-607. But he also keeps thedefensive remedies open to him, such as damages for breach under Section2-714. Although the buyer's complaint to the seller's mechanics did notamount to notice of rejection or revocation of acceptance, it appears to have603BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWbeen sufficient notice of breach of warranty under Section. 2-607. (OfficialComment 4) so that breach of warranty damages should have been con-sidered as a possible support of the trial court's judgment for the defendantbuyer on his counterclaim.S.E.S. IISICEELS V. UNIVERSAL C.I.T. CREDIT CORP.222 F. Supp. 696 (1963), reversed in part, 335 F.2d 846 (1964)Annotated under Section 1-203, supra.ARTICLE 10: EFFECTIVE DATE AND REPEALERSECTION 10-101. Effective DateMEADOW BROOK NAT'L BANK V. ROGERS253 N.Y.S.2d 501 (Nassau County Ct. 1964)Annotated under Section 3-305, supra.604

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