Mann Investment Co. v. Columbia Nitrogen Corp. , 173 Ga. App. 77 ( 1984 )

Deen, Presiding Judge.

At issue in this case is whether a certain “equipment lease” and accompanying note constitute a conditional sales contract or a “true lease.” If the evidence supports the trial court’s finding of a conditional sales contract rather than a true lease, then there arises the further issue of priority between the competing security interests.

One Jowers, not a party to the action below, sought to purchase irrigation equipment from Chaney-Bush, likewise not a party to the underlying action, for use on his Coffee County farm. Jowers and appellant Mann Investment Co. (Mann) entered into a contract captioned “Master Equipment Lease” which set forth conventional payment terms, including that upon default the equipment would revert to Mann. According to Jowers’ testimony at trial, however, he was given to understand, before executing the “lease,” that when the final payment was made he would acquire full title to the equipment for a nominal sum (one dollar was the amount he recalled as having been mentioned). Jowers executed a Georgia sales tax exemption form listing Mann as “dealer” and himself as “purchaser,” and affirming that the equipment was to be used by him for agricultural purposes. Mann filed a financing statement naming Jowers as the debtor in the Coffee County Courthouse.

Jowers subsequently found himself unable to pay the balance owing on an account with a farm supply company owned by one Reynolds. He arranged with Reynolds to settle the account by accepting a small cash payment and acquiring the irrigation equipment as payment for the remaining balance. Reynolds also agreed to assume the remaining payments due Mann. It is undisputed that this transfer of the equipment was made with Mann’s knowledge and consent, and that Mann filed no financing statement reflecting the transfer.

When Reynolds, in turn, fell into arrears on an account owed to appellee Columbia Nitrogen Co. (Columbia), he pledged the irrigation equipment to Columbia as security for the indebtedness, informing the latter that he still owed Mann some money on it. Columbia’s agent noted from the Coffee County records that Mann had on file the original financing statement naming Jowers but none naming Reynolds; Columbia thereupon filed a financing statement, also in Coffee County, naming Reynolds.

Some time later, Columbia obtained a judgment against Reynolds on his note, and filed a writ of possession for the equipment. Mann intervened in the action, asserting that it owned the collateral and had a claim to it superior to that of Columbia. At trial the court found as fact that, inter alia, the “lease” between Jowers and Mann was in fact a financing arrangement which granted Mann a security interest in the irrigation equipment; that the transfer of the equipment from Jowers to Reynolds was made with Mann’s knowledge and consent; that Mann filed no financing statement naming Reynolds; that Reynolds executed and delivered to Columbia an installment note and security agreement involving the irrigation equipment and its proceeds; and that Columbia had filed a financing statement describing the irrigation equipment. The court then concluded as a matter of law that the Jowers-Mann contract was a sale, not a lease; that by participating in the Jowers-Reynolds sale and failing to refile, Mann lost its perfected security interest in the equipment; and that appellee Columbia possessed the superior security interest and was entitled to possession of the equipment. On appeal Mann assigns as error each of the trial court’s conclusions of law and the findings of fact on which they are based. We shall address the enumerations in an order somewhat different from that in which appellant lists them, combining and consolidating those which appear to require being treated together. Held:

1. When a cause of action is tried by the court sitting without a jury, the criterion for reviewing the court’s judgment is that, if there is sufficient competent evidence to support the court’s findings of fact, then those findings must not be disturbed on appeal. Lester Colodny Constr. Co. v. Allen, 129 Ga. App. 545 (199 SE2d 917) (1973). When the issue, as here, is the determination of whether a document denominated on its face as a lease “is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease, the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.” (Emphasis supplied.) OCGA § 11-1-201 (37). In the instant case evidence was presented at trial that Jowers, the original lessee or purchaser, understood that the terms of the contract placed him in the situation set forth in subsection (b), supra. Scrutiny of the record discloses that this evidence was never refuted, and that other evidence was adduced tending to identify the documents in question as a conditional sales contract rather than as a “true lease.” See C. & S. Equip. Leasing v. Atlanta Fed. Savings &c. Assn., 144 Ga. App. 800, 805-808 (243 SE2d 243) (1978); Peden, “The Treatment of Equipment Leases as Security Agreements,” 13 Wm. & Mary L. Rev. 110, 136. We cannot say that the trial court committed “plain error” in finding that the “major equipment lease” was actually a financing arrangement which created a security interest in favor of Mann, and we therefore affirm its finding of fact on this issue.

Decided November 26, 1984 Rehearing denied December 14, 1984 Ben B. Mills, Jr., for appellant. Roy D. Tritt, Charles C. Stebbins, III, for appellee.

2. Having found without merit those enumerations of error which challenge the propriety of the court’s findings and conclusions regarding the nature of the “equipment lease,” we must conclude that, by consenting to the sale of the equipment from Jowers to Reynolds and not filing a financing statement reflecting this transfer, Mann lost its perfected security interest. Because Columbia’s financing statement was properly and timely filed, it therefore has the status of senior security interest in the equipment in question, and Columbia is by law entitled to possession.

Had the document in question been determined by the trial court to be a lease rather than a sales contract, the requirements for filing under the Uniform Commercial Code would not be applicable. See, e.g., Sanders v. Commercial Credit Corp., 398 F2d 988 (5th Cir. 1968). Since the trial court rightly held the document to be a sales contract which would create a security interest, however, the provisions of OCGA § 11-9-306 (2) clearly govern the original transaction and its sequelae: “Except where this article otherwise provides, a security interest continues in collateral notwithstanding sale . . . thereof unless the disposition was authorized by the secured party . . .” (Emphasis supplied.) In the instant case it is undisputed that Mann acquiesced in the transfer of the irrigation equipment from Jowers to Reynolds and that Mann filed no financing statement thereafter. Under the cited Code section, then, Mann lost its perfected security interest, and the collateral properly belongs to Columbia.

Judgment affirmed.

Banke, P. J., Carley, Pope and Beasley, JJ., concur. McMurray, C. J., Birdsong, P. J., Sognier and Benham, JJ., dissent.