Lewiston Bottled Gas Company v. Key Bank of Maine
601 A.2d 91 (1992)
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Rule of Law:
To perfect a purchase money security interest in goods that become fixtures, a financing statement filed as a fixture filing must contain the name of the record owner of the real estate if the debtor does not have an interest of record. Failure to name the record owner renders the security interest unperfected and subordinate to a prior, properly recorded mortgage on the real estate.
Facts:
- In July 1986, Key Bank of Maine loaned $2.58 million to William J. DiBiase, Jr., secured by a recorded mortgage on real estate he owned. The mortgage included a clause covering after-acquired fixtures.
- On June 10, 1987, DiBiase formed a corporation, Grand Beach Inn, Inc. (Grand Beach), to build and operate an inn on his property, with himself as the sole shareholder.
- On June 15, 1987, Grand Beach contracted to buy ninety heating and air-conditioning units from Lewiston Bottled Gas Company (LBG).
- The next day, Grand Beach granted LBG a purchase money security interest in the ninety units.
- LBG filed financing statements in the county Registry of Deeds, identifying the debtor as 'Grand Beach Inn, Inc., William J. DiBiase, Jr., President', but the filings were indexed only under the corporation's name, 'Grand Beach Inn, Inc.', not under DiBiase's name, who was the record owner of the land.
- On June 29, 1987, Key Bank loaned DiBiase additional money, secured by a second mortgage on the same property. The bank's title search did not uncover LBG's security interest.
- In September and October 1987, the ninety units were installed into the exterior walls of each room of the inn.
Procedural Posture:
- Key Bank initiated foreclosure proceedings on its two mortgages on the Grand Beach Inn property in May 1989.
- The parties agreed to let the foreclosure proceed and to litigate the priority of their respective interests in the heating and A/C units separately.
- Lewiston Bottled Gas Company (LBG) filed a complaint in the Superior Court (trial court) seeking a declaratory judgment that its security interest had priority over Key Bank's mortgages.
- The Superior Court granted summary judgment in favor of Key Bank, finding the units were fixtures and Key Bank's mortgage had priority.
- LBG, as the appellant, appealed the summary judgment order to the Supreme Judicial Court of Maine, with Key Bank as the appellee.
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Issue:
Does a purchase money security interest in goods that become fixtures have priority over a prior recorded mortgage on the real estate if the fixture filing lists the debtor's corporate name but fails to name the individual who is the record owner of the real estate?
Opinions:
Majority - Clifford, Justice.
No. A purchase money security interest in fixtures is subordinate to a prior recorded mortgage if the security interest is not properly perfected by a fixture filing that complies with statutory requirements. The heating and air-conditioning units became fixtures because they were physically annexed to the inn, were adapted for the inn's use, and the objective intent was to make them part of the real estate, regardless of a private agreement to the contrary. For LBG's purchase money security interest to gain priority over Key Bank's pre-existing mortgage under 11 M.R.S.A. § 9-313(4)(a), it needed to be perfected by a proper 'fixture filing.' Under § 9-402(5), when the debtor (Grand Beach Inn, Inc.) does not have an interest of record in the real estate, the financing statement must show the name of a record owner (DiBiase). LBG's financing statement failed to do this, as it was indexed only under the corporate debtor's name. This filing was insufficient to provide notice to a title searcher examining the property records under the owner's name, DiBiase. Therefore, LBG's security interest was unperfected, and Key Bank's properly recorded mortgage has priority.
Analysis:
This decision emphasizes the critical importance of strict compliance with the statutory requirements for perfecting a security interest in fixtures under the Uniform Commercial Code. It clarifies that the purpose of a fixture filing is to provide notice within the real estate recording system, which is indexed by the names of property owners. The ruling serves as a stark warning to creditors that they must conduct a title search to identify the correct record owner and include that name in their financing statement if the debtor is not the owner. Failing to do so renders the filing ineffective against real estate encumbrancers like mortgagees, subordinating the creditor's interest even if it is a purchase money security interest.
