decided: October 27, 1978.
LAWRENCE S. WIND
WESTINGHOUSE CREDIT CORPORATION, APPELLANT, AND KING KOACH MARINE SALES
No. 679 October Term 1977, Appeal from the Order of the Court of Common Pleas, Civil Division, of Delaware County, No. 914 of 1974, entered on 11/30/76.
Arthur L. Jenkins, Jr., Norristown, for appellant.
Jack Brian, Upper Darby, for appellee, Lawrence S. Wind.
R. Bernstein, with him Anthony F. Raffaele, Media, for appellee, King Koach Marine Sales.
Watkins, President Judge, and Jacobs, Hoffman, Cercone, Price, Van der Voort and Spaeth, JJ. Van der Voort, J., dissents. Watkins, former President Judge, and Hoffman, J., did not participate in the consideration or decision of this case.
[ 260 Pa. Super. Page 387]
This is an action in replevin for possession of a motor boat. The questions presented involve whether a security interest in the boat should be accorded priority, and whether a breach of warranty occurred.
In March 1973 Charles Allen, a resident of Berks County, Pennsylvania, bought a twenty-four foot motor boat from King Koach Marine Sales of Delaware County, Pennsylvania. Appellant, Westinghouse Credit Corp., financed the
[ 260 Pa. Super. Page 388]
purchase price of $9,500 by a conditional sales contract, under which Westinghouse took a secured interest in the boat. In April 1973 Westinghouse filed a financing statement in the Office of the Prothonotary for Berks County.
In May 1973 King Koach delivered the boat to Allen at a marina in North East, Maryland. In October 1973 Allen sold the boat to appellee, Lawrence Wind, at a Maryland marina. Shortly thereafter, Wind Moved the boat to a different marina, also in North East, for maintenance and winter storage. In November 1973 Bernard King, the proprietor of King Koach, and a representative of Westinghouse came to the second marina in Maryland, took possession of the boat, and returned it to the King Koach sales premises in Pennsylvania.
On Wind's action in replevin, the lower court held Westinghouse's secured interest unperfected in Maryland and therefore subordinate to Wind's rights, and awarded Wind possession of the boat. On a cross-claim by Westinghouse against King Koach, the lower court held that King Koach had not breached a warranty contained in its non-recourse agreement with Westinghouse, and therefore that King Koach was not liable to Westinghouse for the value of the security interest. This appeal questions both rulings.
I. Wind v. Westinghouse
A. Choice of Law
Westinghouse argues that the lower court erred in applying Maryland law to determine the priorities between Wind and Westinghouse. We disagree.
We need not decide whether, under Pennsylvania law of choice of law, Maryland or Pennsylvania law should govern the initial determination of the applicable law on perfection and priorities, for both states have enacted § 9-103 of the Uniform Commercial Code, which provides in relevant part:
(3) If personal property other than that governed by subsections (1) and (2) is already subject to a security interest when it is brought into this state, the validity of the security interest in this state is to be determined by
[ 260 Pa. Super. Page 389]
the law (including the conflict of laws rules) of the jurisdiction where the property was when the security interest attached. However, if the parties to the transaction understood at the time that the security interest attached that the property would be kept in this state and it was brought into this state within 30 days after the security interest attached for purposes other than transportation through this state, then the validity of the security interest in this state is to be determined by the law of this state. If the security interest was already perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into this state, the security interest continues perfected in this state for four months and also thereafter if within the four month period it is perfected in this state. The security interest may also be perfected in this state after the expiration of the four month period; in such case perfection dates from the time of perfection in this state. If the security interest was not perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into this state, it may be perfected in this state; in such case perfection dates from the time of perfection in this state.
12A P.S. § 9-103 (1970); 95B Maryland Annot.Code, Art. 95B, § 9-103 (1964).*fn1
[ 260 Pa. Super. Page 390]
Applying § 9-103 to the facts of this case: Westinghouse's security interest in the boat, perfected under Pennsylvania law ("already perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into this state"), was also perfected under Maryland law for four months ("continues perfected in this state for four months"), but was perfected in Maryland after the four-month period only if Westinghouse perfected it in Maryland according to Maryland law ("and also thereafter if within the four month period it is perfected in this state").*fn2 If the security interest was not re-perfected in Maryland, it became unperfected at the end of the four-month period. See Re Dumont-Airplane & Marine Instruments, Inc., 203 F.Supp. 511 (D.C.N.Y.1962); U.C.C. § 9-103, 1972 Amendments, in Anderson, Uniform Commercial Code (Cum.Supp.1970-1974) at 1074-76.*fn3
B. Maryland Law on Perfection and Priorities
Under Maryland law, Westinghouse was required to file a financing statement in order to perfect its security interest:
[ 260 Pa. Super. Page 391]
A financing statement must be filed to perfect all security interests except the following:
(d) a purchase money security interest in consumer goods having a purchase price not in excess of $500.00 . . .
Maryland Annot.Code, Art. 95B, § 9-302(1).*fn4
There is no dispute that Westinghouse filed no financing statement in Maryland; therefore, after the running of the four-month period during which Westinghouse's interest remained perfected in Maryland, the interest was unperfected.*fn5 By application of § 9-301 of the Code, Westinghouse's unperfected security interest is subordinate to the rights of Wind, who is a buyer not in the ordinary course of business who gave value and received delivery of the collateral without knowledge of the security interest and before it was perfected (or, more accurately in this case, before it was re-perfected).
C. § 9-103(4)
Appellant argues that subsection (4) of § 9-103 should govern rather than subsection (3). Subsection (4) provides:
[ 260 Pa. Super. Page 392]
(4) Notwithstanding subsections (2) and (3), if personal property is covered by a certificate of title issued under a statute of this state or any other jurisdiction which requires indication on a certificate of title of any security interest in the property as a condition of perfection, then the perfection is governed by the law of the jurisdiction which issued the certificate.
This argument fails because there is no statute, either in Pennsylvania or in Maryland, that requires "indication on a certificate of title of any security interest in the property was a condition of perfection."
Appellant cites no such Pennsylvania statute, nor has our research disclosed any. Appellant does insist that the Maryland Boat Act, Maryland Annot.Code, Art. 14B,*fn6 provides the necessary requirements to bring subsection (4) into play. It is true that §§ 4A(a) and 4C of the Boat Act make reference to a requirement that an owner of a vessel principally used on the waters of Maryland secure a certificate of title for the vessel.*fn7 However, these do not even mention security interests, much less require their indication on certificates of title "as a condition of perfection."*fn8 It follows that subsection (4) of § 9-103 is not applicable.
[ 260 Pa. Super. Page 393]
We therefore find that the lower court correctly found appellee entitled to possession of the boat.*fn9
II. Westinghouse v. King Koach
Appellant argues that if Wind is entitled to possession of the boat -- as we have just held he is -- then King Koach is liable to appellant for breach of a warranty contained in the "Dealer Non-Recourse Agreement" that governed the assignment of conditional sales contracts by King Koach to appellant.
In pertinent part, the warranty in question provides: Dealer [King Koach] hereby warrants with respect to each Contract purchased by WCC [Westinghouse] hereunder that . . . (d) it will constitute a valid and binding title retention of or lien upon the merchandise described therein, and the assignment of such Contract to WCC hereunder will vest WCC with full and complete title thereto and valid title to or lien upon the merchandise covered thereby, free from liens, setoffs, counterclaims and other defenses.
In our view, as in the lower court's, King Koach did not breach this warranty. When King Koach assigned the conditional sales contract to appellant, appellant acquired a valid security interest in the boat. Indeed, appellant still has a valid security interest in the boat; it simply does not
[ 260 Pa. Super. Page 394]
have what it would like to have, namely, a valid and perfected interest as against Wind. The lack of perfection is not to be held against King Koach, however, for King Koach did not warrant a perfected interest.
Appellant also argues that King Koach breached a common-law warranty owed by an assignor to his assignee, namely, that the assignor will do nothing to defeat or impair the value of the assignment. See Restatement of Contracts § 175 (1932); 6 Am.Jur.2d Assignments § 107 (1962). It is arguable that by delivering the boat in Maryland and thereby setting in motion the four-month period during which appellant would have to re-perfect its interest in Maryland, King Koach impaired the value of the assignment. However, appellant never raised this claim below, either in its pleadings, or in its exceptions to the findings of the lower court.*fn10 It is therefore not surprising that King Koach did not attempt to defend against the claim (for example, by proving "circumstances showing a contrary intention," Restatement of Contracts § 175(1)), that the lower court did not pass upon the claim in its findings, and that the court en banc did not address the claim in its opinion sur exceptions. In these circumstances we hold that the claim was waived. Dilliplaine v. Lehigh Valley Trust Co., 457 Pa. 255, 322 A.2d 114 (1974).