Montclair National Bank and Trust Company (bank) and Eastern Airmotive Corporation (Eastern) have filed cross-motions seeking a determination of priority between a federally recorded security interest in an aircraft and an aircraft mechanic's possessory lien for repair work done and storage charges incurred.
The facts are undisputed. Bernard Smith of Crestwood, New York, bought a Cessna Model 172 airplane for $16,300 on January 14, 1966. The Bank financed the purchase, $11,460.79 now remaining unpaid. Its security interest was recorded with the Federal Aviation Agency (FAA) on February 3, 1966.
Smith leased the plane to Harold Lamm, Jr. While in Lamm's custody, the aircraft was damaged and turned over by him to Eastern for repair in July 1966.
This action was brought by Smith after receiving notice of Eastern's intention to sell the aircraft at public sale to satisfy its claimed lien for repairs and storage, the bill amounting to $6,139.84, including $2,125 for 14 months storage at $5 a day. Eastern has not recorded its aircraft lien. The bank, holder of the security interest, intervened, challenging the priority of Eastern's possessory lien. Lamm is in default.
After Eastern was enjoined from proceeding with the sale, the plane was sold by agreement of all parties to the General Aviation Co. for $7,000. without prejudice to the rights of the parties, which are to be determined as if the sale had been made pursuant to court order. The aforesaid agreement of the parties rendered academic the court's reservations as to its jurisdiction to enjoin the sale, it having been the court's opinion that perhaps Smith was constrained to proceed at law in accordance with N.J.S. 2A:44-4.
Under New Jersey law the lien of an aircraft mechanic, unlike the lien of an automobile mechanic (N.J.S. 2A:44-21) has, by statute, express priority over a perfected security interest. N.J.S. 2A:44-2 states:
"Any person, engaged in the business of operating a hangar or place for the storage, maintenance, keeping or repairing of aircraft who, in connection therewith, stores, maintains, keeps or repairs any aircraft or furnishes gasoline, accessories, materials or other supplies therefor at the request or with the consent of the owner or his representative, agent or lessee, whether such owner be a conditional vendee or a mortgagor remaining in possession or otherwise, shall have a lien upon such aircraft or any part thereof for the sum due for such storing, maintaining, keeping or repairing of such aircraft or for furnishing gasoline, accessories, materials or other supplies therefor, and may, without process of law, detain such aircraft at any time it is lawfully in his possession until such sum is paid.
The lien shall be superior to all other liens, except liens for taxes, and the operator of such aircraft shall be deemed the agent of any owner, mortgagee, conditional vendor or other lienor thereof for the creation of such superior lien."
Section 9-310 of the Uniform Commercial Code provides:
"When a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statutory and the statute expressly provides otherwise." N.J.S. 12A:9-310.
The New Jersey Study Committee Comment to 12A:9-310, in discussing aircraft liens under Note 3 states:
"A qualified lien and lienholder under N.J. Stat. 2A:44-1 et seq. would, pursuant to § 9-310, take priority over a perfected security interest under Article 9."
The New Jersey Aircraft Mechanics Lien Statute originated in the Laws of 1934. In 1938 Congress enacted the predecessor of the present 49 U.S.C.A. § 1403. The federal statute now provides:
"(a) The Administrator shall establish and maintain a system for the recording of each and all of the following:
(1) Any conveyance which affects the title to, or any interest in, any civil aircraft of the United States; * * *
(c) No conveyance or instrument the recording of which is provided for by subsection (a) of this section shall be valid in respect of such aircraft, aircraft engine or engines, propellers, appliances or spare parts against any person other than the person by whom the conveyance or other instrument is made or given, his heir or devisee, or any person having actual notice thereof, until such conveyance or other instrument is filed for recordation in the office of the Administrator.
(d) Each conveyance or other instrument recorded by means of or under the system provided for in subsection (a) or (b) of this section shall from the time of its filing for recordation be valid as to all persons without further or other recordation, except * * * [the exception is not applicable here]."
The reported federal and state court cases that have considered the question have all held that, notwithstanding state laws to the contrary, 49 U.S.C.A. § 1403 gives a validly recorded security interest priority over an unrecorded possessory mechanic's lien.
In the leading case of In re Veterans' Air Express Co., Inc., 76 F. Supp. 684 (D.C.N.J. 1948), the California Civil Code would have given priority to the possessory lien of a company which repaired, overhauled, reconditioned and converted two aircraft without seeking or obtaining the consent of the United States Government, which held chattel mortgages on the planes executed when the Government sold the planes and recorded with the then Civil Aeronautics Administration. Relying upon the Commerce Clause of the United States Constitution, the court stated:
"Since, then, this court is of the opinion that the regulatory provisions of recordation in accordance with the Civil Aeronautics Act is within the scope of proper application of Federal Law in a field of Federal competence, the lien claimed by the United States of America is senior to any claim established under a State Law affecting the same object." (at p. 690)
While it is true that the United States Government was the prevailing party in that action, and the court indicated an alternate ground for its holding -- "Federal statutes may declare liens in favor of the Government nad [ sic ] establish
their priority over subsequent purchasers or lienors irrespective of state recording acts," ibid. at p. 690 -- yet sovereign immunity has not been the only basis for so holding, as is shown by the subsequent case of United States v. United Aircraft Corp., 80 F. Supp. 52 (D.C. Conn. 1948).
In this later case a possessory artificer's lien on the plane's engines was held prior to a purchase money chattel mortgage on the aircraft held by the United States because the mortgage as recorded did not contain a sufficient description of the engines, only the number of the aircraft itself having been recorded and not the serial numbers of its individual engines, Ibid., at p. 54. The federal court rejected the Government's sovereign immunity theory, saying:
"Liens on government property might well cripple the United States in carrying out its sovereign functions. No such danger is apparent in applying to the United States, as the holder of security for a debt, the same rules as to validity and ...