Borg-Warner Acceptance Corp. v. C.I.T. Corp.

• Decision Date: 21 September 1984
• Docket Number: No. 07-83-0019-CV,BORG-WARNER,07-83-0019-CV
• Citation: 679 S.W.2d 140,39 UCC Rep.Serv. 1864
• Parties: 39 UCC Rep.Serv. 1864 ACCEPTANCE CORPORATION, Appellant, v. C.I.T. CORPORATION, Appellee.
• Court: Texas Court of Appeals

Page 140

679 S.W.2d 140

39 UCC Rep.Serv. 1864

BORG-WARNER ACCEPTANCE CORPORATION, Appellant, v. C.I.T. CORPORATION, Appellee.

No. 07-83-0019-CV.

Court of Appeals of Texas,

Amarillo.

Sept. 21, 1984.

Rehearing Denied Oct. 19, 1984.

Robert M. Warner, Dallas, for appellant.

Don C. Dennis, Lubbock, for appellee.

Before REYNOLDS, C.J., and COUNTISS and BOYD, JJ.

REYNOLDS, Chief Justice.

Borg-Warner Acceptance Corporation, the inventory financer, appeals from a summary judgment decreeing that C.I.T. Corporation, the retail financer, has a superior security interest in two International Harvester tractors originally acquired for sale by Lubbock Implement Company, Inc., the dealer. The judgment was rendered upon the motion of C.I.T., who instituted this cause of action for a declaratory judgment after Lubbock Implement filed for bankruptcy reorganization and the tractors were thereafter repossessed by Borg-Warner and sold with the consent of all parties to the cause. Concluding that the fact issues which exist are immaterial to the properly rendered summary judgment, we affirm.

Borg-Warner entered into a security agreement with, and financed the two International Harvester Model 3588 tractors for, Lubbock Implement and timely perfected its security interest therein by the filing of a UCC-1 financing statement. Thereafter, on 6 April 1981 Lubbock Implement entered into a "Texas Security Agreement (Conditional Sales Contract)" to sell the tractors to Deld Farms, Inc., for a cash price of $89,000 and a time price of $117,371.70 which included a $9,000 down payment. At that time, Don E. Davis was president of both Lubbock Implement and Deld Farms, and his son, Eddie Don Davis, was secretary of Deld Farms and also worked as a salesman for Lubbock Implement. On 7 April 1981 the security agreement-sales contract was assigned by Lubbock Implement to C.I.T., and C.I.T. perfected its security interest in the chattel paper by timely filing a UCC-1 financing statement. Lubbock Implement credited Deld Farms' open account for the $80,000 purchase price advanced by C.I.T., but did not debit the account for the same amount. The testimony is unclear as to whether the $9,000 down payment was ever made by Deld Farms, and the warranty cards to the tractors were not issued.

The two tractors were removed from Lubbock Implement's lot by Eddie Don Davis some time after the execution of the security agreement-conditional sales contract, and "hauled" to a farm operated by Deld Farms in Lamesa, Texas. The testimony is conflicting as to how much the tractors were used by Deld Farms in its farming operations, or whether they were used at all. After a day or several days, the tractors were returned to Lubbock Implement's lot where they remained until Lubbock Implement filed for bankruptcy reorganization and they were repossessed by Borg-Warner. During the time the tractors were on Lubbock Implement's lot, but after the conditional sales contract-security agreement had been executed by Deld Farms, Don Davis represented to Borg-Warner that the tractors were in inventory by signing the inventory floor-check list which included the tractors as inventory. Lubbock Implement never informed Borg-Warner that the tractors had been sold, and Lubbock Implement's business records reflected that the tractors remained in inventory.

Borg-Warner appeals from the judgment adverse to it. ¹ By five points of error, Borg-Warner contends that it raised a genuine issue of material fact as to C.I.T.'s theories of recovery under the Texas Uniform Commercial Code. ² At the outset we note that C.I.T. is entitled to summary judgment only if it can show that on at least one of its theories every element essential to its recovery is so clearly established that there is no material issue of fact as to the truth of its contentions. Matthews v. Houtchens, 576 S.W.2d 880, 884 (Tex.Civ.App.--Fort Worth 1979, no writ); 4 R. McDonald, Texas Civil Practice in District and County Courts § 17.26.2 (rev.1971). The evidence must be viewed in a light most favorable to the non-movant, conflicts in the evidence are ignored, and the evidence which tends to support the position of the non-movant is accepted as true. Great American R. Ins. Co. v. San Antonio Pl. Sup. Co., 391 S.W.2d 41, 47 (Tex.1965).

Borg-Warner and C.I.T. joined the issues in the trial court which are raised on appeal, one of which is C.I.T.'s contention that it is entitled to priority to the proceeds from the consented-to sale of the tractors under section 9.308(2), and Borg-Warner's fifth-point-of-error argument that section 9.308 applies only to priorities of security interests in chattel paper and hence does not control here in determining the priorities of security interests in the tractors. ³ Section 9.308(2) provides that:

A purchaser of chattel paper or an instrument who gives new value and takes possession of it in the ordinary course of his business has priority over a security interest in the chattel paper or instrument

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(2) which is claimed merely as proceeds of inventory subject to a security interest (Section 9.306) even though he knows that the specific paper or instrument is subject to the security interest.

As Borg-Warner points out, section 9.308, when considered by itself, applies to priorities in chattel paper or other instruments, and not to priorities in the collateral itself. However, section 9.308 refers to section 9.306 which provides in pertinent part:

(e) If a sale of goods results in an account or chattel paper which is transferred by the seller to a secured party, and if the goods are returned to or repossessed by the seller or the secured party, the following rules determine priorities:

(1) If the goods were collateral at the time of sale for an indebtedness of the seller which is still unpaid, the original security interest attaches again to the goods and continues as a perfected security interest if it was perfected at the time when the goods were sold....

(2) An unpaid transferee of chattel paper has a security interest in the goods .... prior to a security interest asserted under Subdivision (1) to the extent that the transferee of the chattel paper was entitled to priority under Section 9.308.

Therefore, since the goods were returned to Lubbock Implement, if C.I.T. has a security interest in the chattel paper under section 9.308 which is prior to Borg-Warner's interest, then C.I.T.'s interest in the goods takes priority over Borg-Warner's section 9.306(e)(1) security interest by operation of section 9.306(e)(2). Crocker Nat Bank v. Clark Equipment Credit Corp., 724 F.2d 696, 699-701 (8th Cir.1984).

C.I.T. conclusively established the first three elements of its cause of action, under section 9.308(2), i.e., it purchased and took possession of the chattel paper in the ordinary course of its business and gave Lubbock Implement new value. Only the fourth element, i.e., whether the chattel paper constitutes proceeds of inventory, remains at issue.

Borg-Warner argues that since there was "no actual sale" the "alleged chattel paper" cannot be proceeds. However, section 9.306(a) defines proceeds to include "whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds." (Emphasis added.) The term "other disposition" is not defined by the Code, but it has been characterized as something other than a sale or exchange, with the minimum requirement that the transaction meet the threshold test of effecting a transfer of the property. Weisbart & Co. v. First Nat. Bank of Dalhart, Tex., 568 F.2d 391, 395 (5th Cir.1978). When Deld Farms took possession of the tractors after the execution of the conditional sales contract-security agreement, this transaction was, when viewed in the light most favorable to Borg-Warner, at the least a disposition within the meaning of section 9.306.

It follows that the conditional sales contract-security agreement assigned to C.I.T. was proceeds of inventory within the meaning of sections 9.308(2) and 9.306(a). Therefore, C.I.T....