Wednesday, July 15, 2009

First to file and provide notice has priority over all other interests in property

(Tenn. Ct. App. June 9, 2009).

This case originated with a mechanic's and materialman's lien asserted by Plaintiff Metro Construction against commercial real property owned by Defendant/Cross Plaintiff Peabody Place Center in Memphis. It arises from improvements made by Metro Construction to a leasehold held by Defendant Sim Attractions. Sim Attractions abandoned the leasehold without compensating Metro Construction for the improvements, which included the installation of a several-ton race car simulator that remained in the abandoned leasehold. Defendant Fitraco claimed the simulator was its property under the terms of a lease agreement between Fitraco and Sim Attractions. It alternatively asserted a superior security interest. The trial court found that the simulator was personal property and determined that that the agreement between Sim Attractions and Fitraco was not a lease but an unperfected, disguised security agreement. The trial court attached the simulator to secure judgment in favor of Metro Construction. It also awarded Metro Construction discovery sanctions against Fitraco. The trial court awarded Peabody Place damages for lost rent. Fitraco appeals, asserting it had leased the simulator to Sim Attractions or, in the alternative, that it had properly perfected its security interest prior to judicial attachment by the trial court. It further asserts the damages claimed by Peabody Place were speculative. We reverse the judgment in favor of Metro Construction and affirm the judgment in favor of Peabody Place.

Opinion may be found at the TBA website:

"Under Revised Article 9 as adopted in Tennessee and Wisconsin, Fitraco properly filed a financing statement giving sufficient notice of its interest in the simulator. Because the collateral - the simulator - was located in Tennessee, whether Fitraco’s perfected security interest gives it priority superior to Metro Construction’s interest pursuant to judicial attachment is governed by Tennessee law. UCC § 9-301(3)(C). Generally, but subject to exceptions not present here, Tennessee adheres to the “first to file” or the “first to perfect” rule to determine priority. A perfected security interest takes priority over a lien creditor." Id.