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HomeMy WebLinkAbout93-2503 Civil REVEREND and MRS. WILLIAM : IN THE COURT OF COMMON PLEAS OF RUECKLE and MR. and MRS. : CUMBERLAND COUNTY, PENNSYLVANIA JOSEPH A. LASHINGER, : Plaintiffs : : v. : CIVIL ACTION - LAW : MAYAPPLE GOLF LINKS, INC., : Defendant : NO. 2503 CIVIL 1993 IN RE: ADJUDICATION BEFORE OLER, J. ORDER OF COURT AND NOW, this ~5~ day of February, 1994, upon consideration of Plaintiffs' complaint in replevin, following a bench trial and for the reasons stated in the accompanying Opinion, the Court FINDS in favor of Plaintiffs and against Defendant and DIRECTS Defendant to release the collateral which is the subject matter of this litigation to Plaintiffs. Attention of the parties is drawn to 13 Pa. C.S. S9313(h) (removal of fixtures upon default). BY THE COURT, Wesley Ole~JJr., j. Jeffrey L. Stoner, Esq. 831 Market Street Lemoyne, PA 17043 Attorney for Plaintiffs George B. Faller, Jr., Esq. 10 East High Street Carlisle, PA 17013 Attorney for Defendant REVEREND and MRS. WILLIAM : IN THE COURT OF COMMON PLEAS OF RUECKLE and MR. and MRS. : CUMBERLAND COUNTY, PENNSYLVANIA JOSEPH A. LASHINGER, : Plaintiffs : : v. : CIVIL ACTION - LAW : MAYAPPLE GOLF LINKS, INC., : Defendant : NO. 2503 CIVIL 1993 IN RE: ADJUDICATION BEFORE OLER, J. 9PINION AND ORDER OF COURT Oler, J. This action in replevin arises out of a dispute between several persons allegedly holding security interests in certain restaurant equipment (Plaintiffs) and the landlord of their alleged debtor (Defendant). Plaintiffs have filed suit to obtain possession of the equipment pursuant to their alleged liens, and Defendant has resisted turning over the equipment on the ground that the purported security interests are for the most part fraudulent or otherwise invalid. A bench trial was held in the matter on Friday, October 15, 1993. The Plaintiffs presented the testimony of three witnesses; no witnesses were called on behalf of the Defendant. A transcript of the testimony was filed on December 6, 1993, and briefs have been submitted on behalf of the parties. Based upon the evidence presented at the trial, the following Findings of Fact, Discussion and Order of Court are made and entered. FINDINGS OF FACT 1. Plaintiffs are The Reverend William Rueckle and Gladys Rueckle, husband and wife, residing at 1068 Shearwater Drive, No. 2503 Civil 1993 Audubon, Pennsylvania, and Joseph A. Lashinger and Elizabeth Lashinger, husband and wife, residing respectively as of the trial date at a nursing home and hospital in Montgomery County, Pennsylvania, and maintaining a home at 347 Cambridge Road, Norristown, Pennsylvania. 2. Defendant is Mayapple Golf Links, Inc., a corporation having offices at One Mayapple Drive, Carlisle, Pennsylvania. 3. On March 31, 1992, Defendant as lessor and Kris-Whit Corporation as lessee entered into a lease agreement, whereby Defendant leased a dining room, kitchen and several related areas on its premises to Kris-Whit for operation of a restaurant. 4. Paragraph 6 of the lease provided, in pertinent part, as follows: Lessee shall provide and install such i fixtures, furnishings, equipment and decorations to reasonably meet the requirements of Lessor and Lessor's patrons with respect to food and beverage service. Such equipment shall include, but not be limited to, kitchen equipment, dining room seating and outdoor dining equipment as set forth in the plans and specifications attached hereto as Exhibit "A" or as the parties shall otherwise agree. Defendant provided to Kris-Whit a list of the equipment which the latter was to purchase and install. 5. Paragraph 20 of the lease provided, in pertinent part, as follows: · .. Lessee shall be at liberty to encumber its fixtures and equipment through 2 No. 2503 Civil 1993 purchase money obligations for the procurement of the same. 6. The sentence quoted in the preceding paragraph was specifically negotiated by Kris-Whit with Defendant, because Kris- Whit needed financing for the equipment purchase; Defendant was aware of the need of Kris-Whit for such financing. 7. The president of Kris-Whit Corporation was Joseph A. Lashinger, Jr., Esq.; the vice-president was Justin J. Gambone. They were also directors of the corporation, and each owned one- half of its stock. The corporation was organized in 1992 for the purpose of entering into the lease with Defendant; its name derived from the names of the owners' daughters, Kristine and Whitney. 8. Plaintiffs, William and Gladys Rueckle are the father and mother-in-law of Justin j. Gambone. Plaintiffs Joseph A. and Elizabeth Lashinger are the father and mother of Joseph A. Lashinger, Jr., Esq. 9. On April 1, 1992, Kris-Whit Corporation executed a promissory note for $20,000 in favor of Plaintiffs Rueckle and a promissory note for $20,000 in favor of Plaintiffs Lashinger. 10. On the same date, Kris-Whit Corporation executed a security agreement with respect to the note in favor of Plaintiffs Rueckle, the collateral recited being "all furniture, fixtures, equipment, inventory, accounts receivable, chattel papers, accounts and goods." An identical security agreement with respect to the note in favor of Plaintiffs Lashinger was also executed on that 3 No. 2503 Civil 1993 date by Kris-Whit Corporation. 11. No financing statements with respect to the security agreements were filed until March 5, 1993. 12. According to testimony of Joseph A. Lashinger, Jr., Esq., the reason that financing statements were not filed at the outset was as follows: We were trying not to file them all that period before because we needed additional capital. Other improvements were necessary to this building at Mayapple. The company [Defendant Mayapple] was directing Mr. Gambone, not directing, they were negotiating with Mr. Gambone. They wanted a deck built on the back of the club house. They wanted some other improvements done to the building. We didn't have capital. There were conversations that would affect our position in the leasehold if we didn't make the improvements. I said to Mr. Gambone, my capital situation hadn't changed. He told me his capital situation hadn't changed. So we tried not to encumber the equipment. We were going to try to use it as leverage with lend[e]rs, and I was out still shaking the bushes trying to raise capital as was Mr. Gambone. 13. He testified further on this point as follows: We were attempting to leave the equipment unencumbered, as I said earlier, because at Mr. Gambone,s opinion we were going to build a deck and make other improvements to the property in conjunction with what [Defendant] wanted done, and I knew we couldn't get capital. The only thing we had to pledge was that equipment .... 14. The $20,000 loan from Plaintiffs Rueckle to Kris-Whit was 4 No. 2503 Civil 1993 made in the form of a $5,000 check dated March 31, 1992, to Justin J. Gambone, and a $15,000 payment on an antecedent debt by Mr. Gambone; Plaintiffs authorized Mr. Gambone to apply this payment in the present venture. Of this $20,000 total, Defendant concedes the existence of a cognizable security interest as to the $5,000 amount only.~ 15. The $20,000 loan from Plaintiffs Lashinger was made in the form of cash. Defendant does not concede the existence of a cognizable security interest as to any portion of this amount.2 16. Prior to seeking and obtaining the aforesaid funds from relatives, the two stockholders of Kris-Whit had unsuccessfully attempted to secure financing from one or more financial institutions. 17. The aforesaid loans from Plaintiffs were used by Kris- Whit to purchase equipment for the restaurant. 18. Apparently, relations between Defendant lessor and Kris- Whit lessee began to deteriorate after the lease was signed. 19. According to testimony of Joseph A. Lashinger, Jr., Esq., the reason for the filing of the financing statements with respect to the aforesaid security agreements was as follows: ... Mr. Gambone said, it looks like we're not going to get along with the landlord, and I 3. ~ Trial Brief of Defendant Mayapple Golf Links, Inc., at 1, 2 Trial Brief of Defendant Mayapple Golf Links, Inc., at 3. 5 No. 2503 Civil 1993 was hearing it from my family to make sure the money is protected, so I did the prudent thing [i.e., filed the financing statements]. 20. Defendant is described as a "judgment creditor" of Kris- Whit in Defendant,s brief on the issues herein, although its status in this regard is not established in the trial record;~ the inference sought to be drawn, apparently, is that Defendant at some point after the filing of the said financing statements caused judgment to be confessed against Kris-Whit for rent due under the lease. On this basis, Defendant asserts its own interest in the equipment - an interest that would prevail over fraudulent or otherwise invalid security interests of Plaintiffs. DISCUSSION ~tatement of law. As a general rule, secured transactions as to personal property and fixtures are governed by Article 9 of the Uniform Commercial Code. Skeels v. Universal C.I.T. Credit Corp., 335 F.2d 846 (3d. Cir. 1964). Pennsylvania,s version of Article 9 is found in the Act of November 1, 1979, P.L. 255, ~1, as amended, 13 Pa. C.S. ~9101 et seq. (Main Vol. & 1993 Supp.). One "who has a valid security interest in collateral and has thereby acquired rights in the collateral itself" is a secured party. Reuter v. Citizens & Northern Bank, 410 Pa. Super. 199, 207, 599 A.2d 673, 677 (1991); see Act of November 1, 1979, P.L. 255, ~1, as amended, 13 Pa. C.S. ~9105. A security interest "is ~ Trial Brief of Defendant Mayapple Golf Links, Inc., at 3. 6 No. 2503 Civil 1993 defined as an interest in personal property or fixtures which secures payment or performance of an obligation... Reuter v. Citizens & Northern Bank, 410 Pa. Super. 199, 205, 599 A.2d 673, 676 (1991); see Act of November 1, 1979, P.L. 255, ~1, as amended, 13 Pa. C.S. ~1201 (1993 Supp.). The instrument by which a security interest is usually created is a written security agreement. Act of November 1, 1979, P.L. 255, ~1, as amended, 13 Pa. C.S. ~9105 ("security agreement.).4 This agreement must be signed by the debtors and contain a description of the collateral. Id., 13 Pa. C.S. ~9203(a)(1); see Matter of Bollinger Corp., 614 F.2d 924 (3d Cir. 1980). The parties, intent, of course, is a factor to be considered in the interpretation of any instrument claimed to be a security agreement. See Reuter v. Citizens & Northern Bank, 410 Pa. Super. 199, 599 A.2d 673 (1991). An interest thus created has the potential for enforcement if value has been given by the party to be secured and the debtor has acquired rights in the collateral. Act of November 1, 1979, P.L. 255, ~1, as amended, 13 Pa. C.S. ~9203(a) (1993 Supp.). "Value,.. in this context, is broadly 4 Where property intended to be collateral is in the possession of the party intended to be secured, a written security agreement is not required. s It has been held that a security agreement need not be signed by the creditor. The National Dime Bank of Shamokin v. Cleveland Brothers Equipment Co Inc , (Dauphin Co. 1959). ', - 20 D. & C.2d 511, 515 7 No. 2503 Civil 1993 defined.6 In general, a security interest which is not "perfected.. is vulnerable to other interests. Act of November 1, 1979, P.L. 255, Sl, as amended, 13 Pa. C.S. S9301. But, where a security interest is perfected by filing, it will prevail in the usual case over a subsequent judgment lien obtained by a creditor. Mid-Eastern Electronics, Inc. v. First National Bank, 455 F.2d 141 (4th Cir. 1970). Thus, where proper perfection has occurred, it may be said that, "[o]rdinarily, a security agreement is effective according to 6 With exceptions not here relevant, value is defined as follows: IAI person gives "value" for rights if he acquires them: (1) in return for a binding commitment to extend credit or for the extension of immediately available credit whether or not drawn upon and whether or not a chargeback is provided for in the event of difficulties in collection; (2) as security for or in total or partial satisfaction of a preexisting claim; (3) by accepting delivery pursuant to a preexisting contract for purchase; or (4) generally, in return for any consideration sufficient to support a simple contract. Act of November 1, 1979, P.L. 255, ~1, as amended, 13 Pa. C.S. ~1201 (1993 Supp.). No. 2503 Civil 1993 its terms as between the parties, against purchasers of the collateral, and against creditors... 2 Anderson, Uniform Commercial Code S9:151, at 443 (1977). "Goods are 'fixtures, when they become so related to particular real estate that an interest in them arises under real estate law." Act of November 1, 1979, P.L. 255, Sl, as amended, 13 Pa. C.S. ~9313(a). Under the Uniform Commercial Code, "Ia] security interest in fixtures, whether or not perfected, has priority over the conflicting interest of an ... owner of the real estate where ... (1) the ... owner has consented in writing to the security interest ... or (2) the debtor has a right to remove the goods as against the ... owner... Id., ~9313(e). Under Pennsylvania,s trade fixtures doctrine, "where a tenant attaches to real estate fixtures and equipment necessary for the operation of its business, such items become 'trade fixtures,, and a presumption arises that the tenant is entitled to remove them during or at the termination of its lease... Cattie v. Joseph p. Cattie & Brothers, Inc., 403 Pa. 161, 163, 168 A.2d 313, 314 (1961). Finally, pervading the Uniform Commercial Code is a requirement of good faith. "Every contract or duty within [the] title imposes an obligation of good faith in its performance or enforcement... Act of November 1, 1979, P.L. 255, ~1, 13 Pa. C.S. ~1203. Good faith is defined as "[h]onesty in fact in the conduct or transaction concerned... Id., 13 Pa. C.S. S1201. Thus, a security interest given with the intent to defraud a creditor will not be enforced, and may in fact be considered violative of the Uniform Fraudulent Conveyance Act. Mihalek v. Coal Technology Corp., 46 D. & C.3d 574 (Chester Co. 1987); see Act of May 21, 1921, P.L. 1045, 39 P.S. ~351 et seq. As Judge 9 No. 2503 Civil 1993 Gawthrop observed in Mihalek, "compliance with the drafting, signing and filing procedures [of the Uniform Commercial Code] is but the starting point of inquiry as to the validity of a security interest rather than an ironclad guarantee of priority over later- perfected or unperfected security interest holders... Id. at 578. On the other hand, "as a general rule fraud is not presumed, and the burden of establishing it rests on the party who alleges it .... " Matter of Estate of Evasew, 526 Pa. 98, 103, 584 A.2d 910, 912 (1990). Application of law to facts. In the instant case, Plaintiffs have generally complied with the drafting and procedural requirements of the Uniform Commercial Code with respect to the creation of security interests in the restaurant equipment and the perfection of those interests: the security agreements were in writing, signed by the debtor, descriptive of the collateral, and clear as to intent; value was given for the interests, and the 7 debtor had rights in the collateral. The security interests were typically perfected through the filing of financing statements; to the extent that the collateral was fixtures, and in view of the landlord,s written acquiescence to encumbrance and Pennsylvania,s trade fixtures doctrine, the argument that perfection was Unnecessary is compelling. Under these circumstances, in the usual case the security interests would prevail over a subsequent judgment lien of a creditor, such as that asserted by Defendant. 7 The Court does not regard as relevant to the issue of value in this sense the question of whether the $15,000 which Mr. Gambone intended to pay to his parents-in-law, and which they authorized him to apply on their behalf to the Kris-Whit enterprise, was a legal, or merely moral, obligation on his part to them. The money was considered by him and his parents-in-law to be theirs, and by loaning it to the corporation they gave value for the security interest which they acquired. 10 No. 2503 Civil 1993 On the issue of fraud, the Court is not persuaded that the conduct or testimony of Attorney Lashinger, Mr. Gambone, or the Plaintiffs has been fraudulent, in bad faith, or perjurious. For these reasons, the following Order will be entered: QRDER OF COURT AND NOW, this /~.~ day of February, 1994, upon consideration of Plaintiffs, complaint in replevin, following a bench trial and for the reasons stated in the accompanying Opinion, the Court FINDS in favor of Plaintiffs and against Defendant and DIRECTS Defendant to release the collateral which is the subject matter of this litigation to Plaintiffs. Attention of the parties is drawn to 13 Pa. C.S. S9313(h) (removal of fixtures upon default). BY THE COURT, j~ J- Wesle Oler Jr. Wesley Oler, Jr., J. Jeffrey L. Stoner, Esq. 831 Market Street Lemoyne, PA 17043 Attorney for Plaintiffs George B. Faller, Jr., Esq. 10 East High Street Carlisle, PA 17013 Attorney for Defendant .rc 11