In re McClain

• Decision Date: 04 October 1971
• Docket Number: No. 724-70.,724-70.
• Citation: 447 F.2d 241
• Court: U.S. Court of Appeals — Tenth Circuit
• Parties: In the Matter of Charley Paul McCLAIN, Bankrupt. Fred W. WOODSON, Trustee, Appellant, v. UTICA SQUARE NATIONAL BANK OF TULSA, Appellee.

447 F.2d 241 (1971)

In the Matter of Charley Paul McCLAIN, Bankrupt.

Fred W. WOODSON, Trustee, Appellant, v. UTICA SQUARE NATIONAL BANK OF TULSA, Appellee.

No. 724-70.

United States Court of Appeals, Tenth Circuit.

August 27, 1971.

Rehearing Denied October 4, 1971.

COPYRIGHT MATERIAL OMITTED

Warren L. McConnico, Tulsa, Okl., for appellant.

William C. Anderson, Tulsa, Okl. (Doerner, Stuart, Saunders, Daniel & Langenkamp, Tulsa, Okl., on the brief), for appellee.

Before BREITENSTEIN, McWILLIAMS and BARRETT, Circuit Judges.

BREITENSTEIN, Circuit Judge.

In this voluntary bankruptcy proceeding the question is whether the appellee Utica Square National Bank of Tulsa is a secured or an unsecured creditor. Over the objections of the trustee, the referee held that the bank was a secured creditor and the district court affirmed.

The bankrupt purchased a Chevrolet pickup truck from an automobile dealer in February, 1969, and executed a promissory note and a separate security agreement-financing statement. In that statement he warranted, by checking a box thereon, that the pickup was to be used primarily "In Business." The dealer assigned the note and the purchase-money security interest to the bank for value. In reliance on the "In Business" designation the bank filed the security agreement in Oklahoma County, Oklahoma.

The bankruptcy proceedings were begun in April, 1970. The bank filed a proof of secured claim and the trustee objected thereto on the ground that the security agreement had not been filed in the proper county. The trustee contends that despite the "In Business" designation the pickup had always been used as consumer goods and that the security agreement had to be filed in Tulsa County, the county of the debtor's residence. The trustee offered evidence that the bankrupt never used the pickup for business purposes and, hence, his intent at the time of purchase was not to use it primarily for business purposes. The bank objected on the ground that parol evidence was inadmissible to vary the terms of the written security agreement. The referee sustained the objection and the district court affirmed.

Oklahoma has adopted the Uniform Commercial Code. See 12A Okl.St.Ann. An automobile comes within the term "goods" as there defined. See § 9-105(1) (f) and Osborn v. First National Bank of Holdenville, Okl., 472 P.2d 440, 441-442. Goods are classified into four categories: consumer goods, equipment, farm products, and inventory. § 9-109. The classes are mutually exclusive, and the goods cannot be in two categories at the same time as to the same person. § 9-109, Comment 2.

The perfection of a security interest by filing requires the determination of the proper county in which to file. If the collateral is classified as consumer goods, the proper county in which to file is the county of the debtor's residence, in this case Tulsa County. § 9-401(1) (a). If business equipment, the security agreement is to be filed with the county clerk of Oklahoma County. § 9-401(1) (c). In the case before us the bank filed in Oklahoma County.

The first problem is the rejection of the parol evidence offered by the trustee to sustain his claim that the pickup was in the class of consumer goods. The Bankruptcy Act allows the trustee to elect the status of an ideal lien creditor. See 11 U.S.C. § 110(c). As such he is in the position of a third-party lien creditor without notice. His priority is determined by the substantive law of the state where the property is located. Carroll v. Holliman, 10 Cir., 336 F.2d 425, 429. In Oklahoma an unperfected security interest is subordinate to the rights of a person who becomes a lien creditor without knowledge of the security interest and before it is perfected. § 9-301(1) (b). We are unimpressed by the bank's reliance on B. F. Hoffman, Inc. v. Richman, 3 Cir., 75 F.2d 823, which does not discuss the bankruptcy trustee's powers under 11 U.S.C. § 110(c).

The parol evidence rule applies only to the parties to the agreement in question. In re Assessments of Alleged Omitted Property of Kennedy for Taxation in Osage County for 1917, 177 Okl. 74, 58 P.2d 134, 137; see also Bardwell v. Commissioner of Internal Revenue, 10 Cir., 318 F.2d 786, 790, and Great West Casualty Company v. Truck Insurance Exchange, 10 Cir., 358 F.2d 883, 885. The bank says that the parol evidence rule is not applicable because it is admittedly a holder in due course, and the note and security interest are subject only to defenses of a "real" nature. See e. g., § 3-305(2). The evidence sought to be introduced goes not to the note but to the security agreement. Cases holding that parol evidence cannot be introduced against one holding a negotiable instrument in due course are not strictly in point. Neither are decisions relating to the defense by a mortgagor against a holder in due course. In the case at bar we have a third party attacking the security interest.

A holder in due course of negotiable paper secured by collateral is in a different position when equities and defenses are asserted by...