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Foreclosure. Richmond Superior Court. Before Judge Fleming.
1. The contention that the individual claimant failed to file a bond as required by Code 39-802, under the circumstances of this case, is not meritorious.
2. First Nat. Bank &c. Co. v. Smithloff, 119 Ga. App. 284, is controlling with regard to the principal issues in the cases sub judice.
4. The proof did not demand a finding in favor of the corporate claimant that its security interest was perfected prior to the time the individual claimant acquired his right in the vehicle. Moreover, whether the individual claimant was a buyer in the ordinary course of business, as against the security interest, was for the determination of a jury.
The First National Bank & Trust Company (hereinafter referred to as First National) filed a foreclosure affidavit on its bill of sale to secure debt against F. Harold McElmurray and levied on the security, a 1967 Cadillac. In response thereto, claims were filed by John S. Smith and by Interstate Securities Company (hereinafter referred to as Interstate). Subsequently, motions for summary judgment were filed by First National and Interstate, and resisted by the claimant Smith. The trial judge overruled the motions for summary judgment on the ground that "there are material issues of fact which present jury questions." Upon the entry of the trial judge certifying that these judgments were subject to review, First National filed its notice of appeal in case 44080 and Interstate filed its notice of appeal in case 44081.
The following facts appear upon review of the record.
Smith entered into a lease agreement with McElmurray Motors of Ga. (hereinafter referred to as McElmurray Motors) on August 31, 1966. The lease agreement provided for a consideration of $10,000 evidenced by a promissory note of the same date; that upon execution of the note by McElmurray Motors to Smith, Smith would have the use and be furnished year model Continental or Cadillac each year while the indebtedness remained unpaid; that the agreement could be terminated upon a 120-day written notice by either party and the surrender of the vehicle by Smith and payment of the note by McElmurray Motors; that Smith would surrender the vehicle before the succeeding next year's models were scheduled to be delivered so that the vehicle being driven could be sold; that McElmurray Motors would furnish Smith a used car during the interim; that Smith need not wait over 30 days from delivery, except for certain exceptional reasons; that in the event a new car was not available Smith would be furnished the latest model available or could give notice under the termination clause; that if the business was sold the note would be repaid and Smith would surrender the auto; that in the event the business closed, Smith would be furnished a clear deed and title to the auto.
Smith received a promissory note in return for the loan of $10,000 as provided in the lease. Sometime around August 1, 1967, McElmurray asked him to deliver the car he had been driving under the lease agreement in exchange for a new Cadillac and pursuant thereto on August 4, 1967, Smith received the 1967 Cadillac in question and had possession of it from that time until the levy of the foreclosure proceedings.
On August 7, 1967, Interstate loaned to McElmurray Motors $6,100 secured by conveyance of the Cadillac. At that time the certificate of origin showed title in McElmurray Motors. Interstate did not keep the certificate of title which was subsequently delivered to First National with a further endorsement, dated August 11, 1967, showing title in F. Harold McElmurray. At that time, Interstate was in the business of financing automobiles for McElmurray Motors under what is commonly referred to as a "floor plan," and had filed on April 10, 1967, a financing statement pursuant to the Uniform Commercial Code. Interstate did not record the paper dated August 7, 1967.
On August 11, 1967, First National made a loan of $6,000 to McElmurray and took as security therefor a bill of sale security agreement, of the same date, to the 1967 Cadillac. At that time, First National received and kept the Manufacturer's Statement of Origin with endorsements showing title in McElmurray. McElmurray executed an MV-1 Form to show title of the first lien in First National so that it could have title shown on the Certificate of Title when it was issued.
1. Interstate now contends that while Smith filed a claims affidavit, no bond as required by Code 39-802 was filed with the affidavit. The record reveals that no objection based on this ground was made in the lower court.
The rule is well settled that a claim filed by a third party is invalid in the absence of an affidavit in forma pauperis or a bond indemnifying the plaintiff in fi. fa. Johnson v. Planters' Bank, 34 Ga. App. 241 (129 SE. 125); Brooks v. Goette, 52 Ga. App. 408 (183 SE 633). However, where a claim is pending in the superior court, the presumption is that the claimant has given the damage bond required by the statute. Drummond v. Drummond, 71 Ga. App. 474 (1) (31 SE2d 74); Hand v. Frank W. Hall Merchandise Co., 91 Ga. 130 (16 SE 644). Since no objection was made as to the lack of a bond in the trial court and in the absence of a clear showing to the contrary, this court will presume the required bond was given.
2. The recent opinion of this court in First Nat. Bank &c. Co. v. Smithloff, 119 Ga. App. 284 (167 SE2d 190), is in our view controlling with regard to the principal issues of these cases. In conformity with that opinion, the following rulings are made.
(a) A lease is not subject to the filing provisions of either the Certificate of Title Act or the Uniform Commercial Code unless it is intended to create a security interest. Therefore, it was not necessary for the claimant Smith to perfect his interest derived from the lease, since, by its terms, there was no intention to create a security interest. First Nat. v. Smithloff, 119 Ga. App. 284, 289, supra.
(b) Under Code Ann. 109A-2--401 (1) title to goods cannot pass prior to their identification. While the lease contract refers to no specific automobile and identification of a particular vehicle was not possible prior to the date it was acquired and delivered to Smith, title did pass at the time and place at which the seller completes performance with reference to the physical delivery of the goods under Code Ann. 109A-2--401 (2). First Nat. v. Smithloff, 119 Ga. App. 284, 288, supra. There was evidence from the affidavit of Smith that McElmurray acting for McElmurray Motors delivered possession of the auto to him on August 4, 1967. Interstate points out that on August 4 when Smith obtained possession of the vehicle the certificate of origin showed title to be in McElmurray and not McElmurray Motors. Using this as a basis it is urged that Smith could not acquire its interest on August 4.
Here there is proof clearly showing that McElmurray was acting for McElmurray Motors with regard to the transfer to Smith. Code Ann. 109A-2--403 (Ga. L. 1962, pp. 156, 202), points out that the entrusting of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business. See Charles S. Martin Dist. Co. v. Banks, 111 Ga. App. 538, 539 (142 SE2d 309). The instant contract does not preclude Smith from being a "buyer in the ordinary course of business." First Nat. v. Smithloff, 119 Ga. App. 284, 291, supra. Thus, it could be found that McElmurray both entrusted the goods to McElmurray Motors and consented to the transfer so that Smith acquired his interest on August 4, 1967.
Moreover, for the purposes of this decision, we assume but do not decide that McElmurray Motors must have had its title listed on the certificate of origin before Smith could acquire his interest.
In such case, having already been given possession on August 4, 1967, Smith would have acquired his interest, if not retroactively to August 4, then certainly not later than August 7, at which date McElmurray Motors was officially listed on the certificate of title as holder of record. First Nat. v. Smithloff, 119 Ga. App. 284, supra. See 46 AmJur 221, Sales, 28.
(c) In the absence of special circumstances a security interest attaches only to the extent of the debtor's interest. Thus, a security interest could not be subsequently created as against the property rights of Smith, since one cannot encumber another man's property in the absence of consent, estoppel, or some other special rule. First Nat. v. Smithloff, 119 Ga. App. 284, 290, supra, and Howington v. Metropolitan State Bank, 119 Ga. 457 (167 SE2d 737). The claimant Smith was not estopped by the fact that he left the indicia of ownership with the dealer because the dealer had title, unless the business closed, in which case Smith would acquire title under the terms of the agreement.
3. We first consider the rules of law with reference to First National Bank's security interest. First National contends that this case is distinguishable from Smithloff, 119 Ga. App. 284, supra, because the instant lease agreement does not contain a provision that the leasing company covenanted that it would "not assign or otherwise convey title to any automobile subject to the agreement" as was found in that case. That this phrase is not controlling is apparent from the opinion in Smithloff which, after holding that one cannot encumber another's property, concludes (p. 290): "Of course, the company could encumber its interest in the vehicle, but not that of Smithloff." First Nat. v. Smithloff, 119 Ga. App. 284, 290, supra.
There was evidence that Smith acquired his interest not later than August 7, 1967, and that First National's security interest was created on August 11, 1967. This amounted to a showing from which a jury might find that Smith was entitled to prevail predicated on the acquisition of his interest in the specific property before the creation of the security interest.
Thus, if at all, the financing statement could be effective solely under the provisions of the Commercial Code and we evaluate its status in that posture.
Since Interstate concedes that the financing statement per se would not serve to give it a lien on the vehicle, we consider it in conjunction with, and as evidenced by, the security instrument of August 7, 1967. A security agreement is not perfected until the required steps are completed, to wit: (1) the debtor and the secured party reach an agreement (Code Ann. 109A-1--201 (3) and 109A-9--204 (1)); (2) which agreement either is evidenced by possession of the collateral by the secured party or reasonably identifies the collateral and is signed by the debtor (Code Ann. 109A-9-203, 109A-9--204 (1) and 109A-9--110); (3) the debtor has or acquires rights in the collateral (Code Ann. 109A-9--204 (1)); (4) the secured party gives value (Code Ann. 109A-1--201 (44)); (5) the necessary notice is given (Code Ann. 109A-9--302). Vol. 1, Secured Transactions under U. C. C., 3.17; Code Ann. 109A-9--303. For the necessity of meeting these requirements, see McDonald v. Peoples Auto. Loan &c. Corp., 115 Ga. App. 483, 487 (154 SE2d 886).
We have already determined that Smith's interest was, at least, acquired eo instanti with that of McElmurray Motors on August 7, 1967. By the same parity of reasoning Interstate's lien likewise could not have attached until the same day since that was when McElmurray Motors acquired title. Code Ann. 109A-9--204 (1). Hence, so far as the record shows all the necessary steps were not fulfilled prior to August 7, 1967. Vol. 1, Secured Transactions under U. C. C. 2.18 (1) & (4), 4.02 and 4.03. The burden was upon Interstate to show conclusively that its interest was perfected prior to that of Smith and, construing the proof offered most strongly against the movant and giving all favorable inference to the party opposing the motion, it failed to achieve this.
Moreover, assuming there was an effective perfected security interest, the following rule is applicable: "A buyer in ordinary course of business . . . takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence." Code Ann. 109A-9--307. See related section of Motor Vehicle Certificate of Title Act, Code Ann. 68-405a. Even if the property was previously encumbered, whether the claimant Smith occupied the status of one who took in the ordinary course of business would be a question for the jury. Hence, the evidence did not demand a finding for Interstate on its financing statement and security instrument, and the trial judge did not err in denying its motion for summary judgment.
Judgments affirmed. Felton, C. J., and Pannell, J., concur.
Hull, Towill & Norman, Julian B. Willingham, Fulcher, Fulcher, Hagler, Harper & Reed, William C. Reed, for appellants.
Friday May 22 17:36 EDT

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