Mammoth Cave Production Credit Ass'n v. York

• Decision Date: 08 March 1968
• Citation: 429 S.W.2d 26,5 UCC Rep.Serv. 11
• Parties: 5 UCC Rep.Serv. 11 MAMMOTH CAVE PRODUCTION CREDIT ASSOCIATION, Appellant, v. T. S. YORK and Commercial Credit Equipment Corporation, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 26

429 S.W.2d 26

5 UCC Rep.Serv. 11

MAMMOTH CAVE PRODUCTION CREDIT ASSOCIATION, Appellant, v. T. S. YORK and Commercial Credit Equipment Corporation Appellee.

Court of Appeals of Kentucky.

March 8, 1968.

As Modified on Denial of Rehearing June 28, 1968.

Walter A. Baker, Wilson, Baker, Herbert & Garmon, Glasgow, for appellant.

E. R. Gregory, John David Cole, Francis, Potter & English, Bowling Green, for appellee.

OSBORNE, Judge.

The controversy on this appeal is between Mammoth Cave Production Credit Association, appellant, and Commercial Credit Equipment Corporation, appellee. T. S. York, appellee, is a nominal party, and has taken no part in this appeal.

The parties have filed an 'Ageed Statement of Case on Appeal' from which we quote the pertinent facts:

'This appeal involves a determination of priority of liens under the Uniform Commercial Code.

'Mammoth Cave Production Credit Association (hereinafter referred to as PCA) has a judgment against the Appellee York for $3,460.05 with interest thereon at six percent from June 13, 1962. The judgment is subject to a credit of $1,252.25 for the proceeds from the sale of some cattle. Commercial Credit Equipment Corporation (hereinafter referred to as Commercial Credit) has a judgment against the Appellee York in the sum of $1,481.00. The proceeds from the sale of a tractor, $1,810.00, are claimed by both PCA and Commercial Credit.

'On June 13, 1962, the debtor, York, executed and delivered to PCA a financing statement and security agreement on his farm equipment. This agreement contained the following clauses:

'2. EQUIPMENT on the hereinafter described land:

All farm equipment.

'4. All property similar to that listed above, which at any time may hereafter be acquired by the Debtor including, but not limited to, all offspring of livestock, additions and replacements of livestock and poultry, and replacements of and additions to equipment and other personal property above described; * * *

'PCA did not file the security agreement at that time.

'On September 29, 1962, the Debtor York purchased a tractor from Commercial Credit's assignor under a conditional sales contract. The total sales price was.$2,770.70 and there was a cash down payment of $975.20. No trade-in allowance was given York for existing machinery or equipment. The Debtor took immediate possession of the tractor. The conditional sales contract was not filed.

'On April 4, 1963, PCA filed its security agreement and financing statement with the Franklin (sic) County Court Clerk. On September 10, 1964, Commercial Credit filed its conditional sales contract with the Franklin (sic) County Court Clerk. Neither PCA nor Commerical Credit had actual notice or knowledge of the existence of the security interest of the other at the time each filed with the clerk.

'The Simpson Circuit Court held the security interest of Commerical Credit to be first and superior to that of PCA in the proceeds from the sale of the tractor.'

There are several questions raised on this appeal. Basically, it involves a very common situation. One party, PCA, enters into a loan transaction with the debtor. As part of this agreement it attempts to obtain a security interest not only in what the debtor presently owns, but upon all property the debtor shall subsequently acquire of the same type. This practice is sanctioned and made valid by the code, KRS 355.9--108, KRS 355.9--204(3). The debtor later buys new equipment in which the vendor, Commerical Credit's assignor, retains a security interest for the payment of the price on the unpaid portion thereof. It would seem unjust for the first creditor to have a superior lien with regard to this property over the vendor who has not received the entire purchase price for the new item. However, the code makes special provisions to protect the seller in such situations, KRS 355.9--312(4), 'A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral if the purchase money security interest is perfected at the time the debtor receives the collateral or within ten days thereafter.' However here the vendor and his assignee failed to take advantage of these provisions. In such a situation the code provides that the purchase money security interest is to be treated as any other security interest in determining priority and if both are to be perfected by filing, the one filed first has priority. KRS 355.9--312(5). It is undisputed that PCA filed first and would prevail in the absence of other circumstances.

Commercial Credit makes three arguments: First, that the description in PCA's security agreement was not sufficiently clear to include the tractor; secondly, that the purchase money security interest in the tractor did not have to be filed to be perfected under KRS 355.9--302(1)(c); and thirdly, that the statutory scheme leads to an unjust result and should not be followed.

These issues will be discussed in reverse order. The first argument is based on the fact that at the time Commercial Credit's assignor sold the tractor to the debtor, PCA had nothing at all filed to show their security agreement. They, therefore, argue that principles of estoppel should be indulged in to prevent the unjust result of having a subsequently filed security agreement take priority over their reserved security interest. The code is very explicit on...