Evans Products Co. v. Jorgensen

• Decision Date: 30 December 1966
• Citation: 421 P.2d 978,245 Or. 362
• Parties: , 3 UCC Rep.Serv. 1099 EVANS PRODUCTS COMPANY, a Delaware corporation, Appellant, v. Karl JORGENSEN and Richard Jorgensen, Partners, doing business as Winter Lake Veneer Company, Respondents.
• Court: Oregon Supreme Court

Page 978

421 P.2d 978

245 Or. 362, 3 UCC Rep.Serv. 1099

EVANS PRODUCTS COMPANY, a Delaware corporation, Appellant, v. Karl JORGENSEN and Richard Jorgensen, Partners, doing

business as Winter Lake Veneer Company, Respondents.

Supreme Court of Oregon, In Banc.

Argued and Submitted Oct. 3, 1966.

Decided Dec. 30, 1966.

William M. McAllister, Portland, argued the cause for appellant. With him on the briefs was Manley B. Strayer, Portland.

John W. Whitty, Coos Bay, argued the cause for respondents. With him on the brief was McKeown, Newhouse & Johansen, Coos Bay.

Before PERRY, P.J., and SLOAN, O'CONNELL, GOODWIN, DENECKE, HOLMAN and LUSK, JJ.

DENECKE, Justice.

This suit involves a question of priority under the Uniform Commercial Code (UCC) between a secured party with a 'floating lien' and a supplier of raw materials to the debtor.

Coos Plywood manufactures plywood from veneer. Evans Products and Coos Plywood entered into a security agreement in 1963 whereby Evans was the secured party and Coos the debtor. ORS 79.1050(1). The security agreement gave Evans 'a security interest in Coos' inventory as follows: All green and dry veneer, work in progress, and finished plywood now owned and all similar goods hereafter acquired, including their product, and proceeds.' Evans made loans and extended credits to Coos which were secured by the provisions of the security agreement.

ORS 79.2040(3) permits the attachment of a security interest in after-acquired property with exceptions not here relevant. The UCC, as initially adopted in Oregon, did not permit a security interest to attach to inventories under an after-acquired property clause. This was changed in 1963. Oregon Laws 1963, ch. 402, § 5, p. 618.

The defendant partnership manufactured and sold veneer which is the basic raw material for the manufacture of plywood. Through defendants' agent, Coos ordered three truck loads of veneer. The order was filled by the delivery to Coos of two truck loads on July second and the third load on the afternoon of July sixth. A tally sheet was made at the time the trucks were loaded. After delivery the tally sheet was brought to defendants' office, the amount owing was computed, entered in defendants' books, and an invoice prepared. On July eighth defendants' employee took the invoice to Coos for the purpose of receiving payment. It is not certain at this time whether the veneer was still in Coos' veneer inventory or being processed into plywood. Coos told defendants' employee it had no funds, but offered to pay with plywood. The employee went back and returned with one of defendant partners who accepted the plywood and had it removed to defendants' plant.

Evans claims a security interest in that plywood and brought this suit to foreclose its lien against such plywood and for a personal judgment against defendants.

It is defendants' theory of the case that this transaction constituted what would have been known in pre-UCC law as a cash sale. 'It is further defendants' theory that if the transaction is viewed by the court as a cash sale, then the veneer did not become a part of Coos' inventory until it was actually paid for.'

Prior to the adoption of the UCC we had held that a seller could retain title until the purchase price was paid. Weyerhaeuser Timber Co. v. First Nat. Bank, 150 Or. 172, 38 P.2d 48, 43 P.2d 1078 (1935); Keegan v. Lenzie, 171 Or. 194, 135 P.2d 717 (1943).

Under the UCC, 'title' is not the talisman. ORS 72.4010, a part of the sales portion of the UCC, states: 'Each provision of ORS 72.1010 to 72.7250 with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title.' Comment 1 to such section, states: 'ORS 72.1010 to 72.7250 deals with the issues between seller and buyer in terms of step by step performance or nonperformance under the contract for sale and not in terms of whether or not 'title' to the goods has passed.'

Because of the passage of the UCC the above-cited cases are no longer applicable. ¹

In order for Evans to secure a security interest in the veneer delivered by defendants to Coos, there must be an agreement that it attach, that value be given, and 'the debtor (Coos) has rights in the collateral.' ORS 79.2040(1). The first two conditions are clearly satisfied. On the issue of whether 'the debtor has rights in the collateral (the veneer),' we look to the earlier provision of the UCC. ORS 71.2010(37) provides: 'The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer is limited in effect to a reservation of a 'security interest. " ORS 72.4010(1) also states this proposition.

In the present case there was delivery to the buyer 'Coos' and the only interest that could be retained by the defendants was a 'security interest.' Coos had possession of the veneer which was delivered pursuant to contract of sale. Under these circumstances Coos had 'rights' in the collateral, the veneer; therefore, Evans' security interest attached to the veneer when it was delivered to Coos. ² Cf. ORS 79.2040 (3) and Comment 2 to said section. The 'perfection' of Evans' interest was not in issue, however, Evans had taken 'all the applicable steps required for perfection.' ORS 79.3030. ³

If defendants' intention was to retain title to the veneer after delivery and until cash was paid, and we will assume that was their intention, they could have reserved a 'security interest' in the veneer and had priority over Evans. ORS 79.3120(3) gives one with a purchase money security interest priority over an inventory financier when certain steps have been taken. Defendants could have had a 'purchase money security interest' as defined in ORS 79.1070(1). To create such interest an agreement signed by Coos and describing the collateral is necessary to satisfy ORS 79.2030. To perfect such interest a financing statement must be filed. ORS 79.3020. Evans must be notified before delivery that the sellers intend to have a purchase money security interest in the veneer.

Defendants did not attempt to create nor perfect any purchase money security interest in the veneer (that was the only interest they could reserve when delivery was made) and, therefore, Evans' security interest must prevail unless another section of the UCC gives priority to defendants. ORS 79.2010.

Defendants further contend that Evans' security interest in the plywood was extinguished when the plywood was transferred to the defendants.

ORS 79.3060(2) provides:

'Except where ORS 79.1010 to 79.5070 otherwise provide, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his action was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.'

The security agreement between Coos and Evans provides that Coos:

'* * * may also sell the Inventory and products thereof in the ordinary course of business * * *. A sale in the ordinary course of business does not include a transfer in partial or total satisfaction of a debt or any bulk sale.'

If the transfer of the plywood to defendants was in satisfaction of a debt owing on the veneer, the transfer was in violation of the security agreement and Evans' security interest would continue in the plywood unless another UCC section provides otherwise.

ORS 79.3070(1) provides:

'A buyer in ordinary course of business as defined in subsection (9) of ORS 71.2010 * * * takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence.'

ORS 71.2010(9) states a sale in the ordinary course of business does not include a transfer 'in total or partial satisfaction of a money debt.'

If the transfer from Coos to defendants was a sale in the ordinary course of business, defendants acquired the plywood free of Evans' security interest. The issue under both the statutes and the agreement is whether the transfer was in satisfaction of a debt.

The defendants claim there was an exchange of value for value, veneer for plywood. However, there was a lapse in time between the delivery of the veneer and the receipt of the plywood; nor did the original plan call for such an exchange. Defendants, however, are not claiming that to qualify as buyers in the ordinary course there must be a direct exchange of veneer for plywood; rather, they make the novel argument that they received the plywood in exchange for their sellers' remedies under the sales article of the UCC.

Defendants contend that the transaction involved a cash sale and that they exchanged their rights under ORS 72.5070(2). If, however, the transaction is construed by us to be a credit sale, they claim that the plywood was received in consideration of their relinquishing their rights under ORS 72.7020(2) (right of reclamation after discovery of buyer's insolvency).

ORS 72.5070(2) provides: 'Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.' We will assume for the moment that the agreement between defendants and Coos called for payment upon delivery of the veneer. Comment 3 to ORS 72.5070 states: 'Subsection (2) deals with the effect of a conditional delivery by the seller and in such a situation makes the buyer's 'right as against the seller's conditional upon payment. These words are used as words of limitation to conform with the...