Dunham's Music House, Inc. v. Asheville Theatres, Inc.

178 S.E.2d 124 (1970) 10 N.C. App. 242

DUNHAM'S MUSIC HOUSE, INC.
v.
ASHEVILLE THEATRES, INC.

No. 7028SC433.

Court of Appeals of North Carolina.

December 30, 1970.

Shuford, Frue & Sluder, by Gary A. Sluder, Asheville for plaintiff appellant.

McGuire, Baley and Wood, by Richard A. Wood, Jr., Asheville, for defendant appellee.

MORRIS, Judge.

The first question raised by this appeal is whether the rights of the parties are governed by the provisions of the Uniform Commercial Code. The Code became effective in this State at midnight 30 June 1967. G.S. § 25-10-101. This was prior to the date of all transactions involved in this appeal. Unless the transactions are specifically exempted from the operation of the Code, the provisions of the Code are applicable in determining the rights of the parties.

Appellant argues that the Code expressly exempts from its provisions landlord's liens and Theatres has no security interest, so, a fortiori, decision should be controlled by pre-Code law. It is true that G.S. § 25-9-104(b) provides that the Code does not apply "to a landlord's lien". It is conceded by the parties that the landlord's right of distress as a security for the payment of rent available under English common law has never existed in North Carolina. The only statutory landlord's lien in this jurisdiction is that provided for by G.S. § 42-15. Since the advent of the Uniform Commercial Code in this State, the courts have not been called upon to determine the meaning and application of the exclusionary phrase "landlord's lien". Other courts have, however, dealt with the problem. In In Re King Furniture City, Inc., 240 F.Supp. 453 (D.C.E.D.Arkansas, 1965), the phrase was construed to refer to liens created by statute. The reasoning of the Court was:

"Furthermore a detailed reading of Ark.Stats, § 85-9-104 (the section excluding certain types of transactions from the Code) in its entirety, together with the comments of the National Conference of Commissioners of Uniform State Laws, indicates that all of the other subsections deal with matters thought to be sufficiently covered by a statute of the United States or of the several states or that they deal with special transactions which do not fit easily into general commercial statute and which are adequately covered by existing law. From this viewpoint it also appears that the term ``landlord's lien' as used in the statute must be interpreted as referring to liens created by statute, for the matter of liens on property such as here involved is obviously considered by all of the remainder of the Code as fitting into a general commercial statute."

The property involved in that case was the inventory of a furniture store and the Court had before it the determination of the question whether the lessor of the premises occupied by the furniture store had a prior right to possession of the inventory under a lien created by the lease over the trustee in bankruptcy of the furniture store, lessee. Also holding that the Code exclusion of landlord's liens is not applicable to consensual liens are In Re Leckie Freeburn Coal Co., 405 F.2d 1043 (6th Cir. 1969), and Universal C. I. T. Credit Corporation v. Congressional Motors, 246 Md. 380, 228 A.2d 463 (1967). We adopt the reasoning of these cases and hold that a lien on personal property granted a lessor by contract is not excluded from the provisions of the Uniform Commercial Code.

Appellant contends that even if this view be adopted, the lease agreement here creates no security interest. We disagree. G.S. § 25-9-204(1) provides that "A security interest cannot attach until there is agreement (subsection (3) of § 25-1-201) that it attach and value is given and the debtor has rights in the collateral. It attaches as soon as all of the events in the preceding sentence have taken place * * *" We are of the opinion that the lease, and particularly section 15 thereof, between Theatres and lessees meets the test.

Holding as we do that Theatres acquired a security interest in the piano and organ, we must now determine whether Theatres or Dunham's effectively perfected its security interest. The methods of perfecting and the priorities of holders of security interests are set out in the Code. G.S. § 25-9-302, G.S. § 25-9-304, and G.S. § 25-9-305 provide for perfection of a security interest by filing a financing statement, by operation of law, and by taking possession.

G.S. § 25-9-312 is entitled "Priorities among conflicting security interests in the same collateral". Subsection (5) governs this controversy:

"(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 as follows:

(a) in the order of filing if both are perfected by filing, regardless of which security interest attached first under § 25-9-204(1) and whether it attached before or after filing;

(b) in the order of perfection unless both are perfected by filing, regardless of which security interest attached first under § 25-9-204(1) and, in the case of a filed security interest, whether it attached before or after filing; and

(c) in the order of attachment under § 25-9-204(1) so long as neither is perfected."

Since neither Theatres nor Dunham filed a financing agreement, the priorities must be determined in the order of perfection. Theatres perfected its security interest by taking possession of the property under the provisions of G.S. § 25-9-503. It follows that the trial court correctly affirmed the General County Court.

Dunham's could have easily protected itself by filing the required statement. It would have then brought itself under the protection of G.S. § 25-9-312(4) providing: "A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within ten days thereafter."

Appellant's assignments of error based on exceptions to the findings of fact of the court are overruled. The matter, by stipulation, was heard by the court without a jury, and the findings of fact have the force and effect of a jury verdict if supported by the evidence and are conclusive if supported by any competent evidence, Stevenson v. Pritchard, 9 N.C.App. 59, 175 S.E.2d 367 (1970), even though there is evidence contra, Spartan Equipment Co. v. Air Placement Equipment Co., 263 N.C. 549, 140 S.E.2d 3 (1965).

Affirmed.

BROCK and GRAHAM, JJ., concur.