Borg-Warner Acceptance Corp. v. First Nat. Bank of Pipestone
| Decision Date | 16 January 1976 |
| Docket Number | No. 45455,BORG-WARNER,45455 |
| Parties | , 18 UCC Rep.Serv. 526 ACCEPTANCE CORPORATION, Appellant, v. FIRST NATIONAL BANK OF PIPESTONE, Pipestone, Minnesota, Respondent, Alton G. Claussen, Respondent. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
The Uniform Commercial Code adopted in Minnesota establishes priorities of creditors by date of filing except where a subsequent creditor furnishes purchase money and complies with Minn.St. 336.9--312(3). Subsequent conduct of secured creditors cannot be considered to vary priorities established by date of filing.
James E. O'Neill, Pipestone, David K. Hackley, Minneapolis, for appellant.
Gale E. Fisher, Sioux Falls, S.D., David J. Trygstad, Pipestone, for First Nat. Bank.
William P. Scott, Pipestone, for Claussen.
Heard before SHERAN, C.J., and TODD, MacLAUGHLIN, YETKA and SCOTT, JJ., and considered and decided by the court en banc.
Borg-Warner Acceptance Corporation (Borg-Warner) appeals from a judgment granting The First National Bank of Pipestone (Bank) priority in certain assets of their mutual debtor. Borg-Warner was the first to file a financing statement covering, among other goods, the same inventory included in a financing statement subsequently filed by the Bank. The lower court considered the subsequent conduct of the parties in determining priority. We reverse.
In the fall of 1970, defendant Alton G. Claussen (Claussen) purchased a hardware store at Pipestone, Minnesota. Borg-Warner and the Bank independently provided the financing of the purchase. Borg-Warner was financing the acquisition of various appliances for resale by Claussen. Trust receipts were used to identify the appliances being financed, and regular inspections were made by Borg-Warner of Claussen's appliance inventory to determine the status of merchandise scheduled on the trust receipts. To secure this transaction, Borg-Warner and Claussen entered into a security agreement entitled 'FINANCE AGREEMENT AND POWER OF ATTORNEY', which provided in part:
'TO: B--W ACCEPTANCE CORPORATION
'In order to induce you to finance the acquisition by the undersigned (hereinafter called 'Debtor') of goods for inventory from a seller of such goods (hereinafter called Distributor), and to grant you a security interest in all inventory and proceeds of Debtor to secure such financing as well as all other debts or liabilities of Debtor to you, whether now existing or hereafter arising, and for other valuable consideration received, Debtor covenants and agrees as follows:
'4) To secure the prompt payment of all advances and performances of all obligations hereunder and all other debts or liabilities of Debtor to you, whether now existing or hereafter arising, Debtor grants to you a security interest under the Uniform Commercial Code as adopted in this state in all Debtor's inventory and proceeds regardless whether Debtor obtained rights therein prior to or contemporaneously with or subsequent to the incurring of any debts or liabilities to you, it being the intention of the parties that such security interest shall extend to and include all present inventory in Debtor's possession, as well as any and all subsequently acquired by way of replacement, substitution, addition or otherwise, and proceeds.'
A financing statement (form UCC-1) which listed as collateral all inventory of Claussen was filed with the secretary of state on November 27, 1970.
On November 24, 1970, Claussen and the Bank entered into a security agreement which also included all Claussen's inventory as collateral. A financing statement was filed with the secretary of state on December 9, 1970, covering 'All General Electric Appliances.' On December 14, 1970, the Bank advanced funds to Claussen to acquire the general inventory of the former owner. On December 17, 1970, the Bank filed a financing statement covering all Claussen's inventory with the Pipestone County register of deeds. The statement was not filed with the secretary of state until February 10, 1971.
Claussen was required by his agreement with Borg-Warner to 'curtail' merchandise scheduled on the trust receipts--a practice where monthly payments are made to reduce the balance due on unsold items. By the fall of 1972, Claussen, through this method, had paid in full for some items of unsold appliances. On November 28, 1972, Borg-Warner and the Bank entered into an agreement whereby the Bank subordinated any interest it might have in such items to Borg-Warner's interest.
On October 19, 1973, Claussen could not meet his obligations and surrendered possession of the business to the Bank. An inventory was taken by both the Bank and Borg-Warner. At this time, Claussen owed the Bank $95,095.17 and Borg-Warner $23,682.30. The inventory disclosed appliances listed in the trust receipts of Borg-Warner showing a curtailed balance due of $12,974.96 and revealed that Clausssen was 'sold out of trust' in the amount of $10,707.34. Pursuant to agreement, the Bank sold all of Claussen's assets and remitted to Borg-Warner the sum of $12,974.96, representing the curtailed balance due upon those items financed by Borg-Warner and physically in Claussen's inventory at the time of closing.
Borg-Warner's action against the Bank and Claussen followed. Prior to trial, Claussen was adjudged bankrupt and his obligations to Borg-Warner and the Bank were discharged. At the time of trial, Claussen appeared and alleged his bankruptcy as a defense. Borg-Warner stated that it had no personal claim against Claussen, and the Bank agreed that it would not pursue its cross-complaint against Claussen personally. The judgment entered did not dispose of the claims against Claussen, but did grant the Bank priority over Borg-Warner, disallowing the latter's claim against the balance of the proceeds of the sale.
The sole issue on appeal is whether a security agreement, absolute on its face, may be construed and limited on the basis of subsequent conduct.
Minnesota has adopted the Uniform Commercial Code. Minn.St. 336.1--102(2)(a) states that one of...
To continue reading
Request your trial
-
Community Bank v. Jones
...post-agreement conduct of the secured creditor. See Baker Prod. Credit v. Long Cr. Meat, supra; Borg-Warner Acceptance Corp. v. First National Bank of Pepistone, 238 N.W.2d 612 (Minn. 1976). It must be remembered that plaintiff's financial statement was fully filed and perfected. Any subseq......
-
In re Lion Capital Group
...501 F.2d 459 (8th Cir.1974); Community Bank v. Jones, 278 Or. 647, 566 P.2d 470 (1977); and Borg-Warner Acceptance Corp. v. First National Bank of Pipestone, 307 Minn. 20, 238 N.W.2d 612, 615 (1976). This belated and improper submission is not accepted. Moreover, these cases concern the iss......
-
Wabasso State Bank v. Caldwell Packing Co.
...a financing statement, to rely upon the secured position set out in his written security agreement. Borg-Warner Acceptance Corp. v. First Nat. Bank of Pipestone, Minn., 238 N.W.2d 612, filed January 16, 1976. Defendants " * * * The 'problem' arises not from the drafting of the security agre......
-
Peoples Bank and Trust v. Reiff
...perfection, unless the creditors involved show a deliberate intention to so reorder their priorities. See Borg-Warner Accept. Corp. v. First Nat. Bank, Minn., 238 N.W.2d 612 (1976). In Borg-Warner, the Supreme Court of Minnesota upheld the priority of filings, even though the court believed......