General Electric Capital Commercial Automotive Finance, Inc. v. Spartan Motors, Inc.

675 N.Y.S.2d 626 (1998)

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Nature of the Case

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Facts

On September 28, 1983, P entered into an 'Inventory Security Agreement' with Spartan (D) in connection with its 'floor plan' financing of the dealership's inventory. P acquired a blanket lien on Spartan's (D) inventory to secure a debt in excess of $1,000,000. The security agreement was duly filed in the office of the Dutchess County Clerk and with the New York State Secretary of State. On July 19, 1991, Spartan (D) signed a new Wholesale Security Agreement with D, in which the latter agreed to finance or 'floor-plan' Spartan's (D) inventory. D was to finance the acquisition of vehicles and to pay the manufacturers or distributors therefor. Spartan (D) agreed to pay D the amount it advances or is obligated to advance to the manufacturer or distributor for each vehicle with interest at the rate per annum designated by D from time to time and then in force under the D Wholesale Plan. D was granted a security interest in the vehicles and the proceeds of sale thereof. D's security agreement was duly filed. In addition, by certified letter dated July 17, 1991, D officially notified P of its competing security interest in Spartan's (D) inventory. On May 7, 1992, Spartan (D) paid $121,500 of its own money to European Auto Wholesalers, Ltd. to acquire a 1992 600 SEL Mercedes-Benz. D reimbursed Spartan (D), and the vehicle was placed on D's floor plan. On July 7, 1992, Spartan (D) paid $120,000 of its own money to the same seller to acquire a second 1992 600 SEL Mercedes. D reimbursed Spartan (D) for that amount and placed the second vehicle on its floor plan. The two vehicles remained unsold in Spartan's (D) showroom. On October 2, 1992, P sued Spartan (D), seeking $1,180,999.98, representing money then due to P under its agreement with Spartan (D). P sued D to determine lien priority in the collateral. Spartan (D) filed a bankruptcy petition and ceased doing business. Assets were acquired and sold. P has accused D of converting the two Mercedes-Benz vehicles in violation of P's antecedent security interest. P's motion for summary judgment was granted. P argued that a literal reading of D's security agreement in conjunction with the wording of Uniform Commercial Code § 9-107 (b), required a holding that D had a purchase-money secured interest only to the extent that it paid funds directly to 'manufacturers, distributors, and sellers' of Spartan's (D) inventory in advance of the transfer of the merchandise to the car dealership. The court reasoned that because 'nowhere in the contracts of adhesion signed by Spartan (D) with D is there an obligation by D to reimburse Spartan (D) for funds used to purchase automobiles.' D appealed.