Lovelady

Here we hold that security interests in real estate leases are not governed by the Commercial Code. Nevertheless, we also hold that a UCC-1 financing statement which specifically states that it covers a leasehold interest, may be sufficient to constitute a leasehold mortgage.

We affirm the judgment of the trial court entered pursuant to the defendants’ motion for judgment on the pleadings.

Facts

In 1981 plaintiffs William and Vemeddral Lovelady leased property pursuant to a written agreement in the City of Fillmore for the purpose of operating their restaurant, “Henry’s.” The lease term extended through 2025.

In 1985 Loop’s Hospitality Corporation agreed to purchase the Lovelady s’ business, including the lease. The agreement provided for a note of $214,644 in favor of the Loveladys to be “. . . secured by a UCC statement . . . .” The agreement was negotiated with the aid of the Loveladys’ broker, Eric Marsh.

Escrow was opened with Bryson Escrow, Inc. The instructions prepared by Bryson stated that the note would be secured by a security agreement in the fixtures, equipment and leasehold interest. The instructions also provided that a form UCC-1 would be filed with…