Consolidated Equipment Sales, Inc. v. First Bank & Trust Co. of Guthrie

• Decision Date: 24 March 1981
• Docket Number: No. 52449,52449
• Citation: Consolidated Equipment Sales, Inc. v. First Bank & Trust Co. of Guthrie, 627 P.2d 432 (Okla. 1981)
• Parties: 31 UCC Rep.Serv. 677, 1981 OK 31 CONSOLIDATED EQUIPMENT SALES, INC., Appellant, v. FIRST STATE BANK & TRUST COMPANY OF GUTHRIE, Oklahoma, Appellee.
• Court: Oklahoma Supreme Court

Page 432

627 P.2d 432

31 UCC Rep.Serv. 677, 1981 OK 31

CONSOLIDATED EQUIPMENT SALES, INC., Appellant, v. FIRST STATE BANK & TRUST COMPANY OF GUTHRIE, Oklahoma, Appellee.

No. 52449.

Supreme Court of Oklahoma.

March 24, 1981.

Appeal from the District Court of Logan County; William D. Wheeler, Associate District Judge.

This appeal involves the Uniform Commercial Code as it relates to priority among secured creditors concerning after-acquired property clause and a lease and sales contract executed the same day; proper description of heavy equipment; personal assumption agreement; and value of collateral.

AFFIRMED.

Rheam, Noss & Evans, David L. Noss and Larry Evans, Tulsa, for appellant.

Williams & Hirzel by Thomas R. Williams, Guthrie, for appellee.

DOOLIN, Justice:

This case asks us to interpret the Uniform Commercial Code to allocate rights in collateral among a Bank, a Paving Contractor and an Equipment Sales Company.

I Facts

J. Ted McBride, an asphalt and paving contractor (McBride), acquired an Allis-Chalmers 645 wheel loader from Consolidated Equipment Sales, Inc. (Consolidated), in November 1973. Both executed a sales contract and a lease contract for the identical equipment, and under identical terms ($843.65 per month over sixty (60) months), with an identical sale/lease price ($50,619.00 including interest). The sales contract included trade-in allowance for a tractor loader. Both contracts were signed by McBride and Frank Hininger, Consolidated's Branch Manager. Consolidated argues the sales contract was negotiated first, but voided when its credit manager refused to approve the credit arrangements because of McBride's credit rating. The lease was then negotiated. Consolidated does not explain why the sales contract was never voided on its face, or destroyed.

The ownership of this wheel loader is the major issue.

Earlier that same year McBride and the appellee bank (Bank) negotiated two loans and Bank properly filed financing statements (in February and August 1973) listing as security (1) "All paving equipment and grading equipment now owned, hereafter acquired or better described" and (2) "All machinery, trucks, rollers, pavers, graders, dozers, dump trucks, pickup, concrete equipment, now owned or hereafter acquired."

Consolidated admits it does not qualify as a holder of a purchase money security interest which would fix priority in it, because it filed a financing statement more than ten days following delivery of the wheel loader. 12A O.S.1971 § 9-301(2), § 9-312(4).

McBride encountered financial problems and filed bankruptcy in August 1975. ¹ Shortly thereafter (November 1975) the wheel loader was found missing from McBride's business site and was later located at Consolidated's shop. Consolidated repaired the wheel loader, insured it for $38,000.00, leased it for six months and then sold it for $28,400.00.

Meanwhile, Bank sued McBride on several defaulted notes, and in July 1976, won a judgment of $84,000.00. In September 1976 six weeks after entry of the judgment McBride agreed to personally guarantee to the Bank the payment of the judgment, said agreement coming in the form of a "personal assumption agreement," and assigned to Bank his interest in the wheel loader.

The Bank then filed this cause, a conversion suit against Consolidated for the value of the wheel loader.

II Sale or Lease

We must initially decide whether the transfer of the wheel loader from Consolidated to McBride was a sale or lease, for a pure lease might uphold Consolidated's claim to the collateral. ²

The trial court, in a well-written "findings of fact and conclusions of law," used the following criteria in determining the transaction was a sale: Consolidated gave credit on a trade-in; it took full payment of the sales tax in advance; it assessed interest in advance; Consolidated, upon request, sent to Bank a letter indicating a "payoff" balance on the collateral; payments under the lease were identical to those under the sale; it was the "intent" of the parties as deduced from the evidence. The court concluded the lease agreement was designed by Consolidated as a security device to protect its collateral in the hands of a financially shakey buyer.

Consolidated argues the sales contract, signed first by the parties, was rejected by the company's credit manager the same day it was signed; the parties then entered into a lease agreement. The sales contract did indeed contain a clause making it subject to approval by the credit department. However, Consolidated offers no explanation why the sales contract was not voided on the spot when the credit was disallowed and the lease contract signed, and there is no indication on the sales contract itself that the credit manager disapproved credit for McBride.

Consolidated disputes the trial court's criteria for determining the transaction was a sale. On the charging of sales tax, it notes 68 O.S.1971 § 1302(c) defines a "sale" to include a "lease or rental of tangible personal property whether such exchange, barter, lease or rental results in either the transfer of the title or the possession." It argues the lease installment terms were identical because the value of the wheel loader following the five-year lease would be less than ten per cent of its sales value. It also notes there was no option to purchase and no agreement that McBride should take title to the wheel loader when the lease expired. Consolidated said its response to the Bank as to a "payoff" said nothing about a sale or lease, only that McBride still owed so much on the lease, which it thought the Bank might want to include in its refinancing arrangement with McBride.

The Code's pertinent mention of "lease" is when it speaks of a lease taken as a security interest at 12A O.S.1971 § 1-201(37):

"... Whether a lease is intended as security is to be determined by the facts of each case, ³ however, (a) the inclusion of an option to purchase does not itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security." (Emphasis added).

Neither of the above two conditions (a and b) is present from the evidence; in fact, the trial court found specifically there was no option to purchase.

Consolidated briefs this proposition of error as if there existed no sales agreement, and that the only issue was whether the lease contract was a true lease or a lease taken as security interest. If this were the case, its arguments would have merit. But the lease contract is not alone; it is coupled with a sale contract. When construing both contracts together and upon consideration of the evidence, we conclude the trial court's judgment entry was sustained by sufficient evidence to find that a sale was intended by the parties. We find therefore the trial court's finding that a sale was intended was not clearly against the weight of the evidence. ⁴

III Description

Was the wheel loader adequately described in the Bank's two financing statements so as to give Bank priority in the collateral over Consolidated as after-acquired property? ⁵

Consolidated argues the specific descriptions of "all machinery", "paving equipment" and "concrete equipment" were insufficient to include the wheel loader; that only specific identification of the wheel loader or a general description of "equipment" would warrant giving Bank priority in the collateral.

Section 9-110 notes that a "description" of personal property is sufficient "whether or not it is specific if it reasonably identifies what is described." (Emphasis added).

Section 9-402(1) says, "A financing statement is sufficient if it ... contains a statement indicating the types, or describing the items, of collateral ..." The official comment to this section attempts to explain the reasoning for description of "types":

"This Section adopts the system of 'notice filing' ... What is required to be filed is not ... the security agreement itself, but only a simple notice which may be filed before the security interest attached or thereafter. The notice itself indicates merely that the secured party who has filed may have a security interest in the collateral described. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs ..."

It is thus evident that only notice sufficient to place the inquiring party on guard to further inquiry is all that is required of the financing statement; it need not describe the collateral in exacting detail. Thus a description of "all equipment" in a service station was sufficient to include an adding machine. American National Bank & Trust Co. of Sapulpa v. National Cash Register Co., 473 P.2d 234 (Okl.1970).

Testimony reveals that the wheel loader was used in McBride's paving and asphalt business to prepare the road surface by scooping dirt and depositing it in a dump truck. The Bank's loan as evidenced on its financing statement was made to McBride in his capacity as owner of the paving business. This alone should have been sufficient to put Consolidated on notice to inquire further into Bank's financing statement reference to after-acquired property.

We find the description of "all machinery", "paving equipment" and "concrete equipment" was sufficient to include the wheel loader, and place other parties on notice to inquire further.

IV Personal Assumption Agreement

We are next asked to decide the legal consequences of a "personal assumption agreement" entered into between Bank and McBride which Consolidated discovered during trial.

The "Personal Assumption Agreement" was concluded September 7, 1976. Its three pages (summarized here) make the following points:

Bank had just been granted an $84,000.00 judgment against McBride for default on earlier notes,...