First Nat. Bank, Cortez, Colorado v. First Interstate Bank, Riverton, Wyoming

• Citation: 774 P.2d 645
• Decision Date: 26 May 1989
• Docket Number: No. 86-283,86-283
• Parties: 8 UCC Rep.Serv.2d 1206 FIRST NATIONAL BANK, CORTEZ, COLORADO, a United States banking corporation, Appellant (Plaintiff), v. FIRST INTERSTATE BANK, RIVERTON, WYOMING, A United States banking corporation, Appellee (Defendant).
• Court: United States State Supreme Court of Wyoming

Page 645

774 P.2d 645

8 UCC Rep.Serv.2d 1206

FIRST NATIONAL BANK, CORTEZ, COLORADO, a United States banking corporation, Appellant (Plaintiff), v. FIRST INTERSTATE BANK, RIVERTON, WYOMING, A United States banking corporation, Appellee (Defendant).

No. 86-283.

Supreme Court of Wyoming.

May 26, 1989.

Lawrence J. Wolfe, Julie E. Trenerry, and Timothy Kingston, Holland & Hart, Cheyenne, for appellant.

Joel M. Vincent, Hettinger, Leedy & Vincent, Riverton, for appellee.

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

THOMAS, Justice.

Upon the rehearing which the court granted in this case, the majority became convinced that the original opinion of the court was in error. ¹ The issue now to be resolved is whether a secured party must set forth in a security agreement or financing statement with specificity the amount of any antecedent indebtedness that the instrument secures or yield priority to a subsequent creditor if it fails to do so. The court has concluded that, so long as a security interest is properly perfected, priority is not lost under such circumstances because the subsequent creditor has the notice required by law which permits it to ascertain the facts relative to the antecedent indebtedness. In the original opinion of the court, the conclusion was reached that the subsequent creditor could prevail, with the court primarily relying upon precedent which requires that, in situations involving the mortgage of real estate, the intent of the parties is controlling. The prior opinion of the court in this case now is vacated, and the judgment of the district court is affirmed.

In the initial briefs filed in this case, the respective parties articulated certain issues to be addressed. The appellant, First National Bank, Cortez, Colorado (Cortez Bank), stated the issues to be reviewed as:

"A. Will aircraft collateral used to secure a promissory note which is recorded with the FAA in the form of a security agreement also serve to secure a separate antecedent debt which has not been recorded with the FAA to the detriment of a third party who also claims pursuant to a properly perfected security agreement?

"B. Should a properly recorded security agreement have priority over an antecedent debt which has not been properly recorded where the antecedent debt is not specifically set forth in a security agreement?

"C. Did the Lower Court err in holding in favor of an antecedent debt without considering the intent of the parties?"

As appellee, the First Interstate Bank of Riverton, N.A. (Riverton Bank), offered this statement of issues:

"1.1 Whether federal law or state law determines the effect of filing.

"1.2 Whether First Interstate held a prior perfected and superior security interest in the aircraft with regard to that security interest held by Cortez.

"1.3 Whether Cortez can raise the issues set forth in its brief or in the alternative, has standing with regard to those issues."

In its Brief in Support of Appellee's Petition for Rehearing, the Riverton Bank then articulated the following issues:

"3.1 The District Court in and for Fremont County, Wyoming, Ninth Judicial District will not be able upon remand to conduct proceedings in accord with the majority opinion of this Court in that the aircraft in question was sold with other collateral by First Interstate, in bulk, for a price of $70,000.00, and therefore, there is no method by which to determine what portion of the $70,000.00 received by First Interstate is attributable to the aircraft.

"3.2 The decision of the majority opinion is contrary to the intent of the drafters of the Uniform Commercial Code, settled opinion of learned authorities, and to the intent of the legislature of the State of Wyoming in adopting the Uniform Commercial Code.

"3.3 Whether the opinion of the majority violates Section 6 of the Wyoming Constitution, that being the protection of due process of law in that the same is an unreasonable restraint upon the freedom of contract.

"3.4 Whether the majority opinion usurps the authority of the legislature with a consequent and adverse impact upon banking and commerce in the State of Wyoming to the detriment of its citizens."

The Cortez Bank does not articulate issues on rehearing but, instead, summarizes its position with these statements "I. Appellee's security agreement was inaccurate and therefore misleading. It was ineffective to perfect appellee's interest in the airplane and FNBC is entitled to the sale proceeds.

"II. The other arguments raised in the petition for rehearing are without merit."

There is no need to consider constitutional arguments in this case. The other issues are resolved adequately by the disposition of the case in accordance with a standard application of the Uniform Commercial Code. In summary, that application leads to the conclusion that the security agreement was adequate to secure antecedent indebtedness as between the parties to it and, therefore, was binding upon them and their successors in interest with notice. The security agreement was perfected in accordance with the Uniform Commercial Code, and the Cortez Bank is presumed to have had notice of it. The notice was sufficient to put the Cortez Bank upon inquiry, and nothing in the record suggests that it could not have discovered that antecedent indebtedness was secured, and the amount thereof, had it made an appropriate inquiry as the Uniform Commercial Code contemplates.

The material facts, which are not disputed by the parties, can be readily summarized. On August 7, 1981, Richard and Verlene Walker (Walkers) borrowed about $93,000 from the Riverton Bank. They gave the Riverton Bank a promissory note on that occasion which was secured by property identified as "Rigs." That note was renewed on July 27, 1982, at which time the Walkers owed the Riverton Bank about $77,000, and was secured by "2 Drilling Rigs." The next transaction is the critical one. On April 6, 1984, the Walkers asked to borrow an additional sum which was loaned by the bank upon a security agreement which encumbered the Walkers' 1979 Cessna airplane. The security agreement showed the principal amount as $7,328.35, but it also included the following statement:

"(Check and initial if applicable X /s RW VW.) 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 the Bank (such as an overdraft on my checking account)."

This statement was checked in the appropriate place and initialed by each of the Walkers. At that time, the Walkers owed the Riverton Bank $77,605.63, which was the balance due on the previous promissory note.

The Riverton Bank filed its security agreement with the County Clerk and Ex-Officio Register of Deeds in and for Fremont County, Wyoming on April 12, 1984. On May 9, 1984, the security agreement was also filed with the Federal Aviation Administration (FAA).

On August 7, 1984, Richard Walker, d/b/a R & R Drilling, obtained a loan from the Cortez Bank. That loan, in the amount of $58,836.73, was secured by the same Cessna airplane. The record is silent as to any investigation made by the Cortez Bank prior to making the loan even though the district court found that the Cortez Bank relied upon a title search of the airplane before making the loan to Walker. In November, an examination was made of the FAA title record by Federal Aviation Title Company which reflected the situation as of November 23, 1984. It indicated that the original amount secured by the Riverton Bank's security agreement was $7,328.35, but made no reference to the clause that secured all amounts owed. The title examination also reflected the fact that the Cortez Bank recorded its security agreement with the FAA on September 14, 1984.

Subsequently, having obtained peaceful possession, the Riverton Bank sold the Cessna airplane. The sale was made in bulk with other collateral in the possession of the Riverton Bank for $70,000. The Riverton Bank retained the entire proceeds of the sale.

This action then was instituted by the Cortez Bank seeking a declaratory judgment that it was entitled to the proceeds from the sale of the aircraft in excess of the sum of $7,328.35 specified in the security agreement recorded with the FAA on May 9, 1984 by the Riverton Bank. The district court ruled that the substantive effect of the recordings which perfected the respective security interests was controlled by state law. It held that the security agreement should be given effect according to its terms between the parties to it and any subsequent purchasers, if it had been properly perfected. It applied a presumption of notice to subsequent purchasers resulting from the proper filing of a security agreement and ruled that, having notice, the Cortez Bank could have obtained the appropriate information necessary for making its loan to the Walkers. The court then ordered that the declaratory judgment be granted to the Riverton Bank against the Cortez Bank, and this appeal was taken from that judgment.

The essence of the dispute, as presented in this court, is found in the claim of the Cortez Bank that it was misled by the amount recited in the security agreement and that, consequently, the security agreement is not effective with respect to any indebtedness other than that amount. The Riverton Bank argues that this is not a proper construction of the Uniform Commercial Code and the applicable authorities; that it gave value for the security interest it acquired in the Cessna airplane; that it properly perfected its security interest; and that it was properly entitled to priority with respect to its security interest.

If collateral is not in the possession of the secured party, it is necessary that the debtor sign a written security agreement containing a description of the collateral and manifesting...