J.I. Case Credit Corp. v. Crites

• Decision Date: 01 July 1988
• Docket Number: No. 85-2931,85-2931
• Citation: 851 F.2d 309
• Parties: 6 UCC Rep.Serv.2d 551 J.I. CASE CREDIT CORPORATION, Plaintiff-Appellee, v. Bobby CRITES, Defendant, and Rodney Timm, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 309

851 F.2d 309

6 UCC Rep.Serv.2d 551

J.I. CASE CREDIT CORPORATION, Plaintiff-Appellee, v. Bobby CRITES, Defendant and Rodney Timm, Defendant-Appellant.

No. 85-2931.

United States Court of Appeals Tenth Circuit.

July 1, 1988.

Jay Williams (Kenneth I. Jones, Jr., on the brief), Eagleton, Nicholson, Jones, Blaney & Pringle, Oklahoma City, Okl., for plaintiff-appellee.

James Craig Dodd (Mary Helm, with him on the briefs), Dodd & Helm, Enid, Okl., for defendant-appellant.

Before MOORE, ANDERSON, and TACHA, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

Rodney Timm appeals from a judgment of the District Court for the Western District of Oklahoma awarding immediate and permanent possession of a Case tractor to the J.I. Case Credit Corporation. We affirm.

I.

On September 22, 1981, Bobby Crites purchased a new Case tractor from Jensen's, Inc., a farm equipment dealer in Fairview, Oklahoma. Crites executed a retail installment contract and security agreement for the purchase of the tractor. The contract and security agreement were assigned to J.I. Case Credit Corp. ("Case"), and Case properly filed a financing statement covering the tractor. The security agreement prohibited Crites from selling or transferring the tractor without the consent of the seller. As a result of the assignment, the authority to consent to a sale of the collateral was transferred to Case.

In June, 1982, Crites offered the tractor for sale at a public auction. Rodney Timm, the appellant here, bid on the tractor, but his bid was not accepted. Shortly after the auction, however, Timm purchased the tractor from Crites for $35,000.00 cash. After the sale, Timm had some repair work and some warranty work done by Jensen's. Although Jensen's knew that Timm was in possession of the tractor, there is a dispute over whether Jensen's knew that Crites had sold the tractor to Timm. Case became involved when the $10,000.00 payment due from Crites on October 1, 1983 was not received. In December, 1983, Case accepted a partial payment of $2,000.00 and executed an extension agreement with Crites for the remaining balance on the tractor. Gary Murdock, the credit representative for Case, testified that he was not aware of the sale to Timm when the extension agreement was signed. Murdock testified that he first learned of the sale in April 1984, after Crites had missed the next scheduled payment under the extension agreement. In August 1984 Case filed a complaint seeking to replevy the tractor from Timm. ¹ Shortly after the complaint was filed Crites filed bankruptcy, thereby staying further proceedings against him.

On November 21, 1985, following a one-day trial to a jury, the district court directed a verdict for Case, holding that, as a matter of law, Case had established a valid security interest in the tractor and Timm had failed to submit sufficient evidence to support his claimed affirmative defenses.

II.

The standard of review in assessing whether a trial court properly directed a verdict is essentially the same standard applied by the trial court in passing on the directed verdict motion, i.e. whether the evidence is sufficient to create an issue for the jury. Motive Parts Warehouse v. Facet Enterprises, 774 F.2d 380, 385 (10th Cir.1985) (citing Swearngin v. Sears Roebuck & Co., 376 F.2d 637, 639 (10th Cir.1967)); see also Black v. Hieb's Enterprises, Inc., 805 F.2d 360, 364 (10th Cir.1986). "In a diversity case, federal courts are bound by Rule 50, Fed.R.Civ.P., in granting a directed verdict. Under the federal standard, 'a directed verdict is justified "only if the proof is all one way or so overwhelmingly preponderant in favor of the movant as to permit no other rational conclusion." ' " McKinney v. Gannett Co., Inc., 817 F.2d 659, 663 (10th Cir.1987) (quoting Kiner v. Northcutt, 424 F.2d 222, 223 (10th Cir.1970) (quoting Fischer Construction Co. v. Fireman's Fund Ins. Co., 420 F.2d 271, 275 (10th Cir.1969))); see also Motive Parts, 774 F.2d at 386. In other words, "the trial judge may grant a motion for directed verdict only when all the inferences to be drawn from the evidence are so in favor of the moving party that reasonable persons could not differ in their conclusions." Federal Deposit Ins. Corp. v. Palermo, 815 F.2d 1329, 1335 (10th Cir.1987) (citing Hidalgo Properties, Inc. v. Wachovia Mortgage Co., 617 F.2d 196, 198 (10th Cir.1980)); see also McKinney, 817 F.2d at 663 ("If reasonable men could differ as to the inferences drawn from facts in evidence, a motion for a directed verdict should be denied.")

With these principles in mind, we review the trial court's decision. Under Oklahoma law, a secured party normally retains a security interest in collateral following the sale or transfer of that property. Okla.Stat.Ann. tit. 12A, Sec. 9-306(2) provides:

"Except where this article otherwise provides, a security interest continues in collateral, notwithstanding sale, exchange or other disposition thereof, unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor."

See also 9 Anderson, Uniform Commercial Code, Sec. 9-306:6 (1985) ("When a sale or any other disposition is made of the collateral without consent or authorization by the secured party, the right of the secured person in the collateral continues despite the sale or disposition."). No transfer was authorized in the security agreement; in fact, the security agreement prohibited sale or transfer of the collateral. In Oklahoma, however, authorization for the sale of collateral may be found in the secured party's conduct or actions. Under certain circumstances, the secured party may ratify a prior sale or waive the interest in the collateral. "Section 9-306(2) contemplates extinguishment of a security interest if disposition of collateral is authorized by a secured party 'in the secured agreement or otherwise.' The italicized language cannot be considered as mere surplusage and, in fact, the connective 'or' gives it at least as much substantive value as the express terms of a security agreement." Nat'l Livestock Credit Corp. v. Schultz, 653 P.2d 1243, 1247 (Okla.App.1982) (emphasis in original). ² This court addressed the same question in First Nat'l Bank v. Iowa Beef Processors, 626 F.2d 764, 766 (10th Cir.1980):

"Section 9-306(2) authorization can be given 'in the security agreement or otherwise.' The security agreement here contained no reference to sales and therefore, of course, gave no authorization for sales. Thus, we must look elsewhere for authorization. Under Oklahoma law, authorization to sell collateral can be both express and implied. See Poteau State Bank v. Denwalt, 597 P.2d 756, 760 (Okla.1979)."

See also 9 Anderson, Uniform Commercial Code Sec. 9-306:8 (1985).

Timm's defense was that Case, through its conduct, had impliedly authorized the sale of the tractor through ratification, waiver or estoppel and had therefore lost any security interest in the tractor. Specifically, Timm argued that Jensen's was Case's agent for the purpose of collecting Crites' payments for the tractor; that Jensen's learned of the sale and that knowledge was imputed to Case (or, alternatively, that Case had actual knowledge of the sale); and that the negotiation and execution of the extension agreement constituted an authorization of the sale of the tractor, thereby cutting off Case's security interest. Each of these questions is normally an issue of fact. See Poteau State Bank v. Denwalt, 597 P.2d 756, 760 (Okla.1979) ("What act is sufficient to constitute an implied authorization to sell collateral under Sec. 9-306(2) is an issue of fact.").

Our review of the record demonstrates factual disputes on three issues: (1) whether Jensen's was Case's agent for purposes of collection; (2) whether Jensen's had knowledge of the sale of the tractor prior to the extension agreement; and (3) whether Case had actual knowledge of the sale prior to the extension agreement. However, even were we to assume that Case had actual or constructive knowledge that the tractor had been sold to Timm prior to the execution of the extension agreement with Crites, we can find nothing in the record to support Timm's assertion that Case impliedly authorized the sale of the tractor. For that reason, we affirm the directed verdict in favor of Case.

Timm advanced three separate, but related, theories to support an implied authorization of the sale by Case: ratification, waiver and estoppel. ³ Although some of the analysis will be repetitive, we will review each in turn.

Initially, we note that "[s]ince Sec. 9-306(2) does not require a secured party to take any action to preserve his security interest, inaction alone may not lead to a finding of an implied authorization." Poteau, 597 P.2d at 761 (emphasis added). Thus, without more, the fact that Case took no action to recover the tractor until August, 1984 is not an implied authorization of the sale. Because Case committed only one relevant act--the execution of the extension agreement with Crites--the focus of our analysis is clear: Assuming that Case had actual or constructive knowledge that Crites sold the tractor to Timm, did the execution of an extension agreement constitute an implied authorization of the sale?

First, the extension agreement alone cannot be construed as a ratification of the prior sale. Under Oklahoma law, "[r]atification requires intent to ratify plus full knowledge of all material facts." Eustler v. First Nat'l Bank, 639 P.2d 1245, 1247 (Okla.1982) (citing 2 Anderson, Uniform Commercial Code, Sec. 3-404:7 (1971); Restatement (Second) of Agency (1958)). The Oklahoma court has adopted the same requirement in connection with Sec. 9-306(2). "A secured party will have impliedly authorized a sale of his collateral when, from the circumstances, general language and conduct of the parties, it...