Universal CIT Credit Corporation v. Congressional Motors, Inc.

Hammond, C. J., delivered the opinion of the Court. At issue is the priority between a landlord’s lien on automobiles of his tenant, a dealer, in the leased premises and the lien of a lender who had advanced the dealer the purchase price of the automobiles and prior to the levy under the warrant of distraint had perfected a security interest in them under the Uniform Commercial Code to cover his advances. Congressional Motors, Inc. had leased premises in Montgomery County to Peter Palmer, Ltd., an automobile dealer. In early December 1965 Palmer owed rent to Congressional which directed the sheriff to levy upon seven automobiles owned by Palmer and located on the leased premises.

The sheriff, having learned that Universal C.I.T. Credit Corporation was claiming a lien for its advances to Palmer superior to that of the landlord, refused to sell the automobiles as directed by Congressional, which then sought mandamus to compel the sale. Universal intervened, asserting its claimed prior lien. Judge Pugh ruled that the landlord had priority and ordered the sale of the automobiles. The priority between the landlord’s lien and Universal’s lien must be determined by the state of the law in December 1965 when the levy under the distraint warrant was made.

If the levy had been made on or after January 1, 1966, Universal’s security interest would have been explicitly preferred to the landlord’s lien under § 16 of Ch. 915 of the Laws of 1965, effective January 1 (Code, Art. 53, § 16), which completely revised and formalized the law of distress. Universal, the lender, asserts, as it did below, that the provisions of the Uniform Commercial Code are applicable and controlling. In considering the contention we must examine the law of distress as it existed before 1966, including the extent to which it exempted property on the demised premises subject to security devices and the effect the passage of the Code had on the preexisting law. Before 1966 distress was a mixture of rules of the common ³⁸³ law, many stemming from feudal times, implementing and supplementing Maryland legislation and long-standing practice.

In 1964 the Committee on Laws of the Maryland State Bar Association said in reporting on the bill which later became Ch. 915 of the Laws of 1965 : “The present distraint law in Maryland is archaic in that a landlord’s remedy of distress is exercised without supervision by any court in spite of the substantial rights, and important interests, of tenants and landlords which are involved. The sheriff or constable now acts merely as an agent of the landlord. No court record is made with respect to a distress proceeding including the levy and sale of goods on the leased premises.” (69 Transactions of the Maryland State Bar Association 305.) Despite its somewhat amorphous structure, the Maryland law of distress prior to 1966 had definitely established rules and principles. A landlord had a “quasi-lien” for unpaid rent on the goods of his tenant subject to distress even before the levy under the distraint warrant, Rhynhart, Law of Landlord and Tenant, 20 Md. L. Rev. 1 , 36; Thomson v. Baltimore & Susquehanna Steam Co., 33 Md. 312, 319 .

In Calvert Bldg. & Const. Co. v. Winakur, 154 Md. 519, 531 , Judge Parke, speaking for the Court, said: “But a quasi lien in the sense used in Thomson v. Baltimore, etc. Co., supra, and the other cases cited, means nothing more than the potential right of a landlord to subject to distress the goods and chattels on the demised premises for the rent in arrear.” 1 ³⁸⁴ The cases have held that the quasi lien oí the landlord becomes a lien either upon levy, Buckey v. Snouffer, 10 Md. 149 , 155 ; Stewart v. Clark, 60 Md. 310 , 311 ; Mears v. Perine, 156 Md. 56 , 62 ; Gay Investment Co. v. Comi, 230 Md. 433, 437 , or upon assertion of the right under the Statute of 8 Anne, Ch. 14, § 1, to be paid up to one year’s rent in arrears by another creditor levying execution or attachment. Gaither v. Stockbridge, 67 Md. 222 , 228 ; Calvert Bldg. & Const. Co. v. Winakur, supra, at pp. 528-31 of 154 Md.; Rhynhart, op. cit., says (p. 36) : “This quasi-lien may be converted to a lien, even without a distress under the Statute of 8 Anne, Ch. 14, and if the landlord’s claim for rent is properly established it will take precedence over the debt on which an attachment issues and he is entitled to be first paid out of the proceeds of the property condemned.” In bankruptcy the landlord had a prior lien on the proceeds of sale of the bankrupt’s assets sold by the trustee if the landlord had levied distress before the tenant’s adjudication as a bankrupt, Irving Trust Co. v. Burke, 65 F. 2d 730, 731-32 (4th Cir.), and the lien acquired by such a levy within four months of a bankruptcy petition was not voidable as it was regarded as one secured other than through legal proceedings.

In re Potee Brick Co. of Baltimore City, 179 Fed. 525, 530 (Rose, J., D. Md., 1910). The landlord could distrain on any goods and chattels on the premises whether owned by the tenant or owned by another or subject to liens in favor of another, except as such goods were exempted by law. Giles v. Ebsworth, 10 Md. 333 , 345 ; Trieber v. Knabe, 12 Md. 491 ; McCreery v. Clafflin, 37 Md. 435 ; Swartz v. G. B. S. Brewing Co., 109 Md. 393 , 399 ; Mears v. Perine, 156 Md. 56 . Two recent cases in which otherwise valid preexisting liens of lenders were held inferior to the landlord’s because they were not such liens as were expressly given pref ³⁸⁵ ereuce by the exemption statute, Code (1957), Art. 53, § 18, are J. Holland & Sons v. Ettleman, 225 Md. 84 , and Gay Investment Co. v. Comi, 230 Md. 433 , supra.

The rule that the goods of a stranger were liable equally with those of the tenant had its origin in feudal times. This ancient privilege was regarded as an inseparable incident of the seigniory and as a remedy which was confined to the land out of which the rent issued. The tenant owed the rent but the remedy was enforced against the land as if it were the debtor. Emig v. Cunningham, 62 Md. 458, 460-61 .

(See also Rhynhart, Distress, 13 Md. L. Rev. 185 and 190; Rhynhart & Schlitz, Civil Practice before People’s Courts and Justices, ¶ 14:23, and authorities cited.) Goods and chattels of strangers which at the times here pertinent were exempt from distress and liens which were then superior to the landlord’s lien were set out in detail in § 18 of Art. 53, as it read in 1965. That section after exempting from distress a number of specified articles not the property of the tenant provided that, except in Prince George’s County, if the landlord should distrain on any non-exempt goods or chattels covered by “a conditional contract of sale defined in § 66 of Article 21 or mortgaged by the tenant by a purchase money chattel mortgage under the terms of §§ 41 to 51, inclusive, of Article 21,” he should either release such property from the distraint or pay the balance due “under such conditional contract of sale or mortgage.” Universal’s lien was not a conditional contract of sale as defined in § 66 of Art. 21 of the Code as it read before its express repeal by the Uniform Commercial Code because title to the lieued automobiles was never in Universal, the lender, nor was that lien a purchase money chattel mortgage within the terms of §§ 41-51 of Art. 21 and the contemplation of § 18 because the money it secured was not due from Palmer, the vendee, to the vendor of the automobiles for or on account of the purchase price, but was money advanced by a third person to provide the purchase price. The purchase money chattel mortgage exempted by § 18 was such a mortgage as it was defined by Maryland law prior to the enactment of the Uniform Commercial Code, § 9-107. Although § 9-107 now defines “purchase money security interest” as one taken or retained by the seller to secure all or ³⁸⁶ part of the price or taken by a person who makes advances or incurs an obligation to enable the debtor to acquire rights in or use of the collateral, Gay Investment Co. v. Comi, supra, makes clear that before the Commercial Code only a chattel mortgage which secured the vendor for all or part of the purchase price was a purchase money chattel mortgage.

Thus, under Maryland law as it existed before the enactment of the Uniform Commercial Code, the landlord’s lien would have had priority over Universal’s perfected interest since Universal did not have an interest of the types specifically excepted from distraint by § 18 of Art. 53. We turn to whether the Uniform Commercial Code repealed § 18 of Art. 53 of the Code and enacted its own rules as to priority between a landlord’s lien and a perfected Code security interest or amended that section to do this. It did not do either in terms. The lender explicitly concedes, as it must, that there was no complete repeal of § 18 of Art. 53 by virtue of Code (1964 Replacement Vol.), Art. 9533 (Uniform Commercial Code), § 10-103, declaring that “all laws and parts of laws inconsistent with this article are hereby repealed.” It really argues only that the Commercial Code impliedly amended § 18 of Art. 53 so as to add as exempt from distress chattels covered by security “financing statements” to those under conditional contracts of sale and purchase money chattel mortgages.

We think Universal’s concession is correct but that its contention of implied amendment is not. It would be hard to deduce that the Legislature intended to repeal the exemption given by § 18 to conditional contracts of sale and purchase money chattel mortgages since these forms of secured financing were among the security interests recognized and protected by the Commercial Code, and § 18, if it remained in effect, would extend their effectiveness. Further the able and knowledgeable subcommittee on laws of the Maryland State Bar Association (which included the president of the Senate, a law professor who was also a member of the Association’s committee on the Commercial Code and a lawyer experienced and active in debtor-creditor relationships) which prepared the bill to revise the law of distress, 2 the Legislative Council which ³⁸⁷ recommended the bill to the Legislature and the Legislature which passed it unchanged as Ch. 915 of the Laws of 1965 could scarcely have reasonably thought that the Uniform Commercial Code had repealed § 18 because Ch. 915 in terms repealed that section as it then existed and enacted in its place a new § 16 to provide inter alia that all chattels covered by “a recorded conditional contract of sale or chattel mortgage or any other security interest which shall have been recorded prior to the levy under said distraint,” shall, in effect, be exempt from distress. There is no suggestion in the report of the sub-committee (69 Transactions of the Maryland State Bar Association 305-07) or in the recommendation of the Legislative Council (Report to The General Assembly of 1965, p. 54), or in Ch. 915 itself that the repeal of § 18 and the enactment of § 16 of' Art. 53 was intended to declare or clarify the law of distress, as it was after the enactment of the Uniform Commercial Code, or that it was other than a usual repeal of an existing, effective statute. 3 The matter of whether the Commercial Code impliedly amended § 18 of Art. 53 requires consideration of the purposes, of that Code and the provisions enacted to accomplish those purposes.

The basic plan of Art. 95B is to deal with the normal and ordinary aspects of a commercial transaction from start to finish by means of nine subtitles, eight of which are devoted to a specific phase or facet of commercial activity. Subtitle 1 provides the general rules of construction and definitions applicable to all of the other subtitles. Section 1-103 (references, unless otherwise noted, will be to Code [1964 Replacement Vol.] Art. 95B) provides that “unless displaced by the particular provisions of this article, the principles of law and equity, including the law merchant * * * shall supplement its provisions.” ³⁸⁸ The purposes of subtitle 9—Secured Transactions—are well summed up in the appendix to the interim report of the Committee on the Commercial Code to the 1962 Mid-Winter Meeting of the Maryland State Bar Association (67 Transactions 276, 280-81) : “This Article will replace our present chattel mortgage, conditional sale, trust receipt, factor’s lien, pledge and assignment of accounts receivable statutes. The basic and fundamental idea of the Article is that all of these present varying types of security arrangements can be, and, in the Code, they are assimilated into one single lien concept or interest in personal property which is called a ‘Security Interest’, with such security interest having different effects which are spelled out in detail depending upon the type of transaction out of which the security interest arises.

Under the Article all secured transactions involving personal property would be governed by a single, well organized and comprehensive set of rules.” The official comment following § 9-101 reiterates this analysis and adds: “Under this Subtitle the traditional distinctions among security devices, based largely on form, are not retained; the Subtitle applies to all transactions intended to create security interests in personal property and fixtures, and the single term ‘security interests’ substitutes for the variety of descriptive terms which has grown up at common law and under a hundred-year accretion of statutes. This does not mean that the old forms may not be used, and Section 9-102 (2) makes it clear that they may be.” ^Section9-102 (2) says: “This subtitle applies to security interests created by contract including pledge, assignment, chattel mortgage, chattel trust, trust deed, factor’s lien, equipment trust, conditional sale, trust receipt, other lien or title retention contract and lease or consignment intended ³⁸⁹ as security. This subtitle does not apply to statutory liens except as provided in § 9-310.” (Emphasis supplied.) 4 The official comment states that the purpose of § 9-102 is to bring all consensual security interests in personal property, with exceptions specified in §§ 9-103 and 9-104, under subtitle 9. “The Subtitle does not in terms abolish existing security devices” but if they are used the rules of subtitle 9 govern. Section 9-201—General validity of security agreement—provides “Except as otherwise provided by this article a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.”' The official comment notes that “exceptions to