First Nat. Bank, Cortez, Colo. v. First Interstate Bank, Riverton, N.A.

• Decision Date: 16 June 1988
• Docket Number: No. 86-283,86-283
• Citation: First Nat. Bank, Cortez, Colo. v. First Interstate Bank, Riverton, N.A., 758 P.2d 1026 (Wyo. 1988)
• Parties: 6 UCC Rep.Serv.2d 919 FIRST NATIONAL BANK, CORTEZ, COLORADO, a United States Banking Corporation, Appellant (Plaintiff) v. FIRST INTERSTATE BANK, RIVERTON, N.A., Wyoming, a United States Banking Corporation, Appellee (Defendant).
• Court: Wyoming Supreme Court

Page 1026

758 P.2d 1026

6 UCC Rep.Serv.2d 919

FIRST NATIONAL BANK, CORTEZ, COLORADO, a United States Banking Corporation, Appellant (Plaintiff) v.FIRST INTERSTATE BANK, RIVERTON, N.A., Wyoming, a United States Banking Corporation, Appellee (Defendant).

No. 86-283.

Supreme Court of Wyoming.

June 16, 1988.

Rehearing Granted Aug. 18, 1988.

Donald P. White of White & White, P.C., Riverton, Robert Duitch and Dean T. Ogawa of Duitch & Johnson, P.C., Colorado Springs, for appellant.

Joel M. Vincent of Hettinger, Leedy and Vincent, P.C., Riverton, for appellee.

Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT and MACY, JJ.

URBIGKIT, Justice.

This appeal presents a UCC and FAA airplane security-interest-priority conflict between two lenders, and raises a question of the validity of antecedent-debt inclusion in document clauses variously labeled dragnet or anaconda.We reverse the trial court's finding that the first recorded security interest should be accorded priority.

The rule here established is that an anaconda or dragnet clause, as a matter of notice to subsequent parties in interest or claimants to the encumbered asset, is valid in the absence of actual knowledge only if the additionally included existent indebtedness is expressly described in the security instrument which constitutes the filed notice.Under security-document notice requirements, any subsequent party claiming an interest should have constructive or actual notice of the secured total claimed to lose priority to the pre-existing dragnet clause included indebtedness.

This is a case of first impression in Wyoming, and there is a paucity of authority where the conflict has arisen between creditors and not between the creditor and debtor.Additionally, this case, involving airplanes, invokes federal law in the preemptive filing requirement of federal statute, 49 U.S.C.App. § 1403, and state law priority effect under the Uniform Commercial Code.¹

I.FACTS

On August 7, 1981, Richard and Verlene M. Walker borrowed approximately $93,000 from First Interstate Bank of Riverton, N.A., Wyoming (First Interstate Bank).Their promissory note was secured by "Rigs."Renewed a second time on July 27, 1982, the Walkers then owed First Interstate Bank $77,000, as secured by "2 drilling rigs."On April 6, 1984, the Walkers again approached First Interstate Bank for a loan of $7,328, which was provided based upon security agreement encumbrance of the Walkers' airplane.That security agreement contained a dragnet clause, which the Walkers initialed separately, providing:

"In addition to the Note, this security agreement secures all amounts I owe to the Bank, whether now or later.This means that every loan I have now or get later is secured by this security agreement, as well as any other amount I may owe to Bank (such as an overdraft on my checking account)."

Conforming to federal law, 49 U.S.C.App. § 1403, which requires the recording of all conveyances affecting titles to aircraft with the Federal Aviation Administration (FAA) in Oklahoma City, Oklahoma, First Interstate Bank filed the security agreement on May 9, 1984.

On August 17, 1984, the Walkers contacted First National Bank of Cortez, Colorado (First National Bank), for a $58,836 loan, and offered their plane as collateral on a second lien to the prior $7,328 encumbrance.Relying on a title search of FAA records, which revealed only that dollar amount of prior encumbrance, First National Bank advanced the money, secured by the Cessna airplane collateral.This encumbrance document was filed with the FAA on September 12, 1984.Walkers next executed a supplementary security agreement in favor of First Interstate Bank in September, 1984, recorded in October, 1984, re-securing the August 7, 1981 note and expressly including the airplane as security.In more recent foreclosure activity, First Interstate Bank sold the airplane and retained all proceeds, and the trial court determined that the dragnet clause in the initial airplane security agreement secured not only the $7,328 loan but accorded additional security for the earlier $93,000 obligation as against the later First National Bank $58,836 chattel security claim.A classic case of this kind of dragnet clause application is consequently presented, involving a prior indebtedness not directly referenced in document detail, and a later lender relying on the same security for loan collateral.

The clause used by First Interstate Bank was all-inclusive: "all amounts I owe to the bank, whether now or later."The provisions invoke principles relating to after-acquired indebtedness as well as to previously existing debts.The philosophic difference is that the secured party can, in loan document, accurately enumerate any asserted existent indebtedness coverage at instrument execution date, to be contrasted with later incurred indebtednesses as, for example, overdrafts.Additionally, the UCC as enacted in Wyoming expressly provides for a future-advance clause in chattel mortgages:

"(e) Obligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment."Section 34-21-923(e), W.S.1977[UCC 9-204].

For a discussion of this clause, seeII Gilmore, Security Interests in Personal Property, Ch. 35, § 35.5 at 931(1965).

II.RELATION OF FEDERAL AND STATE LAW

The United States Congress and succeeding case law has clarified that the supremacy clause and federal statutes control the fact of recording, but the effect of recording and sufficiency of the recorded instrument remain questions to be determined under state law.

Section 503 of the FAA,49 U.S.C.App. § 1403, establishes the recording system and provides:

"(c) Validity of conveyances or other instruments, filing.No conveyance or instrument the recording of which is provided for by section 503(a)[subsec. (a) of this section] shall be valid in respect of such aircraft, * * * against any person other than the person by whom the conveyance or other instrument is made or given, his heir or devisee, or any person having actual notice thereof, until such conveyance or other instrument is filed for recordation * * *.

"(d) Effect of recording.Each conveyance or other instrument recorded by means of or under the system provided for in subsection (a) or (b) of this section shall from the time of its filing for recordation be valid as to all persons without further or other recordation * * *."

In 1964, Congress added section 506, and49 U.S.C.App. § 1406 now provides:

"The validity of any instrument the recording of which is provided for by section 503 of this Act * * * shall be governed by the laws of the State, District of Columbia, or territory or possession of the United States in which such instrument is delivered, * * *."

In Matter of Gary Aircraft Corp., 681 F.2d 365, 368-369(5th Cir.1982), cert denied sub. nom.General Dynamics Corporation v. Gary Aircraft Corporation, 462 U.S. 1131, 103 S.Ct. 3110, 77 L.Ed.2d 1366(1983), the court provided the analysis:

"Without question, section 506 reserves some areas of regulation for the states by assigning question of 'validity' to state law.At the same time, Congress has provided that exclusive means of recordation and has preempted state laws providing filing systems for interests in aircraft.[Citations.]

* * *

* * *

"After considering the language of the FAA and the CAA as well as their legislative history, we conclude that the FAA does not displace state law assignment of priorities to interests in aircraft."

" * * * [E]very aircraft transfer must be evidenced by an instrument, and every such instrument must be recorded, before the rights of innocent third parties can be affected.Furthermore, because of these federal requirements, state laws permitting undocumented or unrecorded transfers are pre-empted, * * *."Philko Aviation, Inc. v. Shacket, 462 U.S. 406, 409-410, 103 S.Ct. 2476, 2478, 76 L.Ed.2d 678(1983).

See alsoBank of Lexington v. Jack Adams Aircraft Sales, Inc., 570 F.2d 1220(5th Cir.1978);Northern Illinois Corp. v. Bishop Distributing Co., 284 F.Supp. 121(W.D.Mich.1968).

III.VALIDITY OF FILING--REASON AND EFFECT

With priority of filing determinable under the federal statute, we then turn to the validity of filing as determined under the UCC and state law.The purpose of chattel security filing statutes is to provide notice, and any interpretative analysis should accord with that purpose.Lee, Protections and Priorities Under the Uniform Commercial Code, 17 Wyo.L.J. 1(1962);Rudolph, Secured Transactions Under the Commercial Code, 14 Wyo.L.J. 220(1960).It is noteworthy that neither author discussed the anaconda or dragnet relationship of filed instruments to pre-existing debts.SeeFirst National Bank of Rock Springs v. Ludvigsen, 8 Wyo. 230, 56 P. 994, reh. denied8 Wyo. 230, 57 P. 934(1899).The business purpose inculcated in filing statutes is to permit continued business transactions with ascertainable knowledge of risk factors involved.If notice perfection is not provided, that commercial protection is denied and security lending risk analysis rendered unjustifiably indeterminate.We apply an interpretative analysis that advances legislative purpose, while recognizing that the text should be interpreted as written.Aldisert, The Judicial Process, § 4 at 170(1976).

The notice-of-encumbrance problem is amplified in airplane cases, since access to filed documents located in Oklahoma City, Oklahoma, to examine the actual instrument is denied as could be possible by a quick trip to the local court clerk's office where other security documents are locally filed.

Unfortunately, this record does not demonstrate what would be found if physical examination of the records at the FAA facility had been made since the court's declaratory judgment decision was rendered on a stipulated factual record consisting of copies of a few...