Barth Brothers v. Billings

• Citation: 68 Wis.2d 80,17 UCC Rep. 237,227 N.W.2d 673
• Decision Date: 10 April 1975
• Docket Number: No. 474,474
• Parties: , 17 UCC Rep.Serv. 237 BARTH BROTHERS, a partnership, Plaintiffs, v. Dean BILLINGS, Defendant, Farm Loan Service, Inc., Garnishee Defendant, Production Credit Assn. of Madison, Impleaded Defendant-Respondent, Alfred Barth Livestock, Inc., Impleaded Defendant-Appellant.
• Court: United States State Supreme Court of Wisconsin

Page 673

227 N.W.2d 673

68 Wis.2d 80, 17 UCC Rep.Serv. 237

BARTH BROTHERS, a partnership, Plaintiffs, v. Dean BILLINGS, Defendant Farm Loan Service, Inc., Garnishee Defendant Production Credit Assn. of Madison, Impleaded Defendant-Respondent Alfred Barth Livestock, Inc., Impleaded Defendant-Appellant.

No. 474.

Supreme Court of Wisconsin.

April 10, 1975.

This action was commended on October 5, 1972 as a garnishment action by Barth Brothers, a partnership, against Dean Billings, as principal defendant, and Farm Loan Service, Inc., as garnishee defendant. On October 24, 1972, the respondent Production Credit Association of Madison (hereinafter PCA) obtained an order to show cause as to why it should not be permitted to intervene in the action in order to protect its interests in the amount in controversy. The garnishee defendant, Farm Loan Service, Inc., then answered and petitioned for an order that PCA and Alfred Barth be impleaded as defendants and it be permitted to pay into court the amount in controversy and be discharged from all liability.

In an order dated November 30, 1972, the trial court ordered that PCA and Alfred Barth be impleaded as defendants and that Farm Loan Services, Inc., upon payment of $29,817.07 to the clerk of circuit court be discharged from all liability for the amount so paid. Answers setting forth the claims of PCA and Alfred Barth Livestock, Inc. were filed.

PCA's claim in the funds is based on promissory notes which were signed by the Billings in 1969, 1970 and 1971 to cover loans made by it to them. Security agreements signed by Dean Billings and Dorothy Billings, dated October 10, 1969, May 11, 1970, June 14, 1971 and July 7, 1971 give PCA security interests in the property described in each agreement as security 'for the payment of all existing and future indebtedness of Debtor to Secured Party, and of all renewals and extensions thereof, and any and all additional loans and advances hereafter made by Secured Party to Debtor prior to the filing of record of a Termination Statement.' All of the security agreements, in addition to describing certain specific property, provide that a security interests is given in 'All property similar to that described . . . which at any time may hereafter be acquired by the Debtor . . .' On October 20, 1969, a financing statement covering 'All Machinery, All Cattle, All Feed, All Equipment, Auto, and Truck' and proceeds of collateral was filed. The financing statement is signed by Dean Billings, Dorothy Billings and PCA by Matthew Timm.

Barth's claim is based on four notes signed by Billings in 1971 and 1972. All four notes contain a notation which basically provides that it is secured by financing statement filed with register of deeds, Dane County. Financing statements for three of the notes were filed within ten days of the notes being signed. The notes were taken for livestock purchased by the debtor. The boxes referring to proceeds on the financing statements were not checked.

The debtor, Dean Billings, operated a dairy farm in Dane County. In September, 1972, Billings left the state. Mrs. Billings decided to liquidate the personal property and, after a discussion with representatives of PCA, Farm Loan Service was contacted to auction off the property.

In late September, Alfred Barth learned of the auction and contacted Mrs. Billings. Over the objection of PCA, Barth was allowed to testify that Mrs. Billings said he would get paid for the cows he had sold Billings when they were sold. She prepared a list allegedly relating ear tag numbers on the cows Barth had sold to Billings' barn numbers. After receiving the list, Barth walked around the cow yard and checked, finding that a lot of the cows had barn numbers corresponding to the list. He had sold Billings 66 cows. There were approximately 200 cows in the yard when he checked for the cows he had sold.

The personal property of the farm was sold at auction on October 5, 1972. At that time, the amount owed by the Billings to PCA was $244,987.15. At the time of trial, October 9, 1973, $29,308.24 was still owed PCA. The amount paid by Farm Loan Service into court was from the proceeds of the sale.

The trial court held that PCA had a valid security agreement, but that Barth did not have a security interest enforceable against PCA because it did not have a signed security agreement and it failed to prove it had possession of the cows.

Max H. Klein, Middleton, for impleaded defendant-appellant.

Ross, Stevens, Pick & Ross, S.C., by Jack F. Olson, Julie K. Mitby, Madison, for impleaded defendant-respondent.

HANLEY, Justice.

The following issues are presented upon appeal:

1. Did PCA have a valid perfected security interest in the cows sold at auction and the proceeds from that sale?

2. Did Barth have a purchase money security interest in the cows he sold Billings which would give it priority over PCA's claim?

3. Did Barth take possession of the cows it sold Billings prior to their sale at auction?

4. Did Barth prove that the cows it sold at auction were ones in which he had a security interest?

5. Is Barth entitled to the proceeds from the sale of the cows?

6. Is PCA entitled to double costs on this appeal because of the failure of Barth to include in its appendix an abridgment of the testimony at trial?

PCA's Security Interest

The first issue concerns the validity and effectiveness of PCA's security interest. PCA's security interest stems from the security agreement signed by Dean Billings and Dortothy Billings dated October 10, 1969. This security agreement provides that the security interest is given as security for payment of all existing and future indebtedness of the Billings to PCA. It also provides that the security interest is given in certain described property including 'all cattle and offspring including, but not limited to (certain listed cattle) and also all cattle purchased with PCA drafts and/or advances' and '(a)ll property similar to that described . . . above, which at anytime may hereafter be acquired by the Debtor . . .'

A security agreement may provide that collateral, whenever acquired, shall secure all obligations covered by the security agreement. Sec. 409.204(3), Stats. Also, obligations covered by a security agreement may include future advances whether or not the advances are given pursuant to commitment. Sec. 409.204(5), Stats.

The argument by Barth is that the security interest is invalid in after-acquired property because no new value was given. Sec. 409.204(1), Stats., provides that a security interest cannot attach until (1) there is an agreement; (2) value is given; and (3) the debtor has rights in the collateral. Sec. 401.201(44), Stats., provides in pertinent part:

'Except as otherwise provided . . . a person gives 'value' for rights if he acquires them:

'. . .

'(b) As security for or in total or partial satisfaction of a pre-existing claim . . .'

Therefore, a security interest may be given for a pre-existing debt. In White and Summers, Handbook of the Law Under the Uniform Commercial Code (1972), p. 792, sec. 23--4, the authors discussed this issue:

'The initial harvest of Article Nine cases under this section includes few surprises. Despite the plain language of 1--201(44)(b), serveral parties have argued that a creditor does not given value if he takes his security interest to secure a pre-existing claim against the debtor. The courts have tossed these parties out on their ears, as well they ought.'

Barth contends that new value must be given for a valid security interest in after-acquired property. This contention is based on Sec. 409.108, Stats., which provides:

'Where a secured party makes an advance, incurs an obligation, releases a perfected security interest, or otherwise gives new value which is to be secured in whole or in part by after-acquired property his security interest in the after-acquired collateral shall be deemed to be taken for new value and not as security for an antecedent debt if the debtor acquires his rights in such collateral either in the ordinary course of business or under a contract of purchase made pursuant to the security agreement within a reasonable time after new value is given.'

This section does not invalidate security interests in after-acquired property where a pre-existing claim is the value given, however. Rather, this section '. . . is of importance principally in insolvency proceedings under the federal Bankruptcy Act or state statutes which make certain transfers for antecedent debt voidable preferences.' Uniform Commercial Code, (UCC) sec. 9--108, Comment.

In the case of In re Platt (Ed Penn.1966), 257 F.Supp. 478, a situation similar to this was involved. The secured party there was given a security interest in the debtor's inventory and accounts receivable currently owned and thereafter to be acquired, to secure then existing indebtedness, a present advance and future advances. The trustee in the bankruptcy proceeding argued that the secured party was at most secured only as to the amount still owing on the present advance because that was the only new value given. The court stated:

'(This) argument is devoid of merit. Attachment plus filing was sufficient to perfect the security agreement. The only element of attachment in dispute is value up to the full debt proved in bankruptcy. However, value as defined by the Code may consist of pre-existing claims. Sec. 1--201(44). Therefore, all of the indebtedness covered by the security agreement was secured by the accounts and inventory of the debtor.

'Section 9--108 is irrelevant in a situation governed by Section 70(c) of the Bankruptcy Act. It is intended only as a purported definition of 'intecedent debt' to attempt to override the alleged harshness of Sec. 60 of the Bankruptcy Act.' P. 482.

Therefore, PCA's security interest, in this case, is not invalid because it was given as security for a pre-existing claim.

Barth also...