Larson Co. v. Pevos

Cynar, J. On June 6, 1967, Dean Monagin, Inc. executed an assignment to Daniel N. Pevos as assignee for the benefit of creditors of said corporation, whereby the assignor did grant, bargain and sell unto the assignee all of assignor’s property not exempt from execution. On June 19, 1967, the assignee filed a petition for an order to show cause to be heard on June 26, 1967, why property identified in the inventory and appraised as Northwest model 41 backhoe serial #20328 (1958) poor bottom, 1 yd. bucket, Murphy Model #2 Diesel, approximate cost $50,000 appraised value $11,500 on which property Larson — 173 — Company claimed a lien, should not be sold at a public auction on July 8, 1967, and the lien or claim of liens of creditor be transferred to proceeds of sale. Although the Larson Company did have notice of the June 26, 1967, hearing date for the show cause proceeding, it failed to appear for the hearing. The Oakland County Circuit Court on June 26, 1967, ordered the claimed lien of the Larson Company transferred to proceeds of a proposed auction sale. The said property was sold for $8,800 at a public auction on July 8, 1967. On August 3,1967, the Larson Company filed with the circuit court a proof of claim listing a claim in the amount of $11,755, the debt being contracted April 23, 1965, which was secured by a chattel mortgage and series of notes. The chattel mortgage dated April 23, 1965, and filed with the Oakland county register of deeds on April 26, 1965, identified and warranted the following property as free and clear from all liens: 1 — Northwest model 41 pull shovel #20328-19309P Eng. #20692 The chattel mortgage recites a debt of $12,000 to be paid off in monthly installments from May through December, 1965. On November 27, 1967, the assignee filed a notice of hearing for December 19, 1967, on its objection to the claim of the Larson Company, contending the claim should be treated as an unsecured claim. At the show cause hearing on December 19, 1967, the assignee, in support of its position, stated that the Larson Company filed a claim in the amount $11,755 claiming a chattel mortgage as security. The Larson Company was notified that a hearing would take place to determine why its lien, if any, should not be transferred to the proceeds of an — 174 — auction sale on or about July 10, 1967. The Larson Company did not appear for the hearing, and the shovel was sold for $8,800. The assignee Pevos contended that the lien was invalid under MCLA § 440.9301 (Stat Ann 1964 Rev § 19.9301[2]) because an imperfected security interest is subordinate to the rights of another lien creditor without knowledge of the security interest and before it is perfected. MCLA § 440.9301 (Stat Ann 1964 Rev § 19.9301 [3]), the assignee for the benefit of creditors herein was such a lien creditor and, unless all the creditors represented had knowledge of the security interest, such a representative of creditors is a lien creditor without knowledge. Pursuant to MCLA § 440.9401 (Stat Ann 1964 Rev § 19-.9401), the proper place to file to perfect the security instrument was with the office of the Secretary of State; and since this was not done on June 6, 1967, the lien is invalid and the claim is unsecured. The Larson Company argued that its claim was a continuing claim which existed prior to the passage of the Uniform Commercial Code (PA 1962, No 174). The claim originated in 1955 and was on a continuing basis from 1955 to the time of the assignment for the benefit of creditors. Further, from 1955 until 1965, there was notice to all creditors; and the Larson Company had a valid and existing claim against the property covered by the chattel mortgage. Further, based on § 9402 of the Uniform Commercial Code (MCLA § 440.9402 [Stat Ann 1964 Rev § 19.9402]), a filing made in good faith in an improper place or not in all places required by this section was still effective to protect the Larson Company as a secured creditor. The court ruled that the chattel mortgage was a new mortgage, that a filing with the Secretary of State pursuant to the new act was required, and — 175 — since this was not done, the claim was unsecured. The February 5, 1968, order of the court provided that the security instrument had not been properly perfected pursuant to MCLA § 440.9401 (Stat Ann 1964 Rev § 19.9401) and the assignee was a lien creditor whose rights were superior to an imperfected security instrument pursuant to MCLA § 440-.9301 (Stat Ann 1964 Rev § 19.9301[3]). The proof of claim filed on August 3, 1967, in behalf of the Larson Company alleges the debt was contracted on April 23, 1965, and there is no contrary proof or argument to explain the claimant’s own sworn proof of claim. The chattel mortgage involved herein, after the closest scrutiny, fails to support the claimant in its argument that the claim was a continuing claim from a date prior to the adoption of the Uniform Commercial Code in Michigan, which date was January 1, 1964, MCLA § 440-.9991 (Stat Ann 1964 Rev § 19.9991). On the date the chattel mortgage was executed and recorded with the Office of the Register of Deeds, MCLA § 440.9401 (Stat Ann 1964 Rev § 19-.9401) provided as follows: “(1) The proper place to file in order to perfect a security interest is as follows: # * # “(d) in all other cases, in the office of the secretary of state.” Filing with the Office of the Secretary of State was requisite to the perfection of a security interest alleged by the appellant. No security agreement was filed with the Office of the Secretary of State. Appellant contends that a filing made in good faith in an improper place is still effective to protect the Larson Company as a secured creditor. MCLA — 176 — §440.9401 (Stat Ann 1964 Rev §19.9401[2]) provides as follows: “(2) A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of this article and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.” It would appear under subsection (2) that, if the security instrument covered several types of collateral requiring different filing procedures, the security interest would be perfected with respect to the collateral against which the filing is proper, but unperfected as against the collateral which required another place of filing. In this matter, failure to file with the Secretary of State and recording of the chattel mortgage in the county was not sufficient to perfect the security instrument. MCLA § 440.9301 (Stat Ann 1964 Rev § 19.9301) provides: “(1) Except as otherwise provided in subsection (2), an unperfected security interest is subordinate to the rights of # * # “(b) a person who becomes a lien creditor without knowledge of the security interest and before it is perfected; * * * “(3) A lien creditor’ means a creditor who has acquired a lien on the property involved by attachment, levy or the like and includes an assignee for benefit of creditors from the time of assignment, and a trustee in bankruptcy from the date of the filing of the petition or a receiver in equity from the time of appointment. Unless all the creditors represented had knowledge of the security interests such a rep — 177 — resentative of creditors is a lien creditor without knowledge even though he personally has knowledge of the security interest.” The appellant having an unperfected security interest is subordinate to the lien creditor; the assignee for the benefit of creditors. The trial court correctly held that the claim of the Larson Company was unsecured. Affirmed with costs to appellee. All concurred.