National Ropes, Inc. v. National Diving Service, Inc.
| Decision Date | 16 May 1975 |
| Docket Number | No. 74-1258,74-1258 |
| Citation | 513 F.2d 53 |
| Parties | 16 UCC Rep.Serv. 1376 NATIONAL ROPES, INC., Plaintiff-Appellant, v. NATIONAL DIVING SERVICE, INC., et al., Defendants, First National Bank in Little Rock, Intervenor-Appellee-Appellant, National Electric Coil, Intervenor-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Donald F. Geffner, Richard F. Ralph, Miami, Fla., for plaintiff-appellant.
J. Kirk Wood, Clifford B. Wentworth, Miami, Fla., for 1st Natl. Bank in Little Rock.
John N. Moore, III, Key West, Fla., for Natl. Electric Coil.
George D. Gold, Miami, Fla., for Natl. Diving Service.
Appeals from the United States District Court for the Southern District of Florida.
Before BROWN, Chief Judge, and BELL and MORGAN, Circuit Judges.
This appeal comes to us for a determination of the interests of competing parties in certain wire rope and electric lifting magnets which were sold by two of the parties on appeal to an enterprise known as National Diving Service, Inc. (NDS), not a party to this appeal. It was argued before us as a contest between a secured party who had an interest in the rope and magnets as collateral under an after-acquired property clause, and the two vendors who sold the respective items to NDS. The district court awarded the wire rope to the secured party, but found that the magnet vendor's claim to the magnets was superior to the interest of the secured party. For the reasons set forth more fully below, we reverse the judgment of the district court and the case is remanded.
The two vendors who now claim an interest in the goods sold by each to NDS are National Electric Coil ("Coil"), a division of McGraw-Edison Company, an Ohio corporation, and National Ropes, Inc. ("Ropes"), a New York corporation. During July and August 1972, Coil sold two sets of lifting magnets to NDS, and Ropes filled two orders for wire rope from NDS. The magnets and rope were to be used in an operation to salvage steel from a vessel sunk in the Caribbean. The salvage operation was being organized in Key West, Florida; hence the magnets and rope were shipped there and placed upon the vessel "Real Gold." NDS was incorporated in Arkansas, however, and maintained its principal place of business in Little Rock, Arkansas.
All sales to NDS by Coil and Ropes were on an open account basis. Neither vendor took a purchase money security interest in the goods sold. Both, however, made routine credit checks in Arkansas before extending credit to NDS. In the course of checking NDS' credit references both vendors made telephone calls to the First National Bank in Little Rock ("Bank"), the other party to this appeal. Both Ropes and Coil were informed by a Bank officer that NDS had outstanding loans from the Bank. Neither vendor was told by the Bank of any existing security agreements between NDS and the Bank. Nor did either vendor check the Arkansas public records to find out whether the Bank had filed notice of any security agreements.
There was at least one security agreement between the Bank and NDS at the time Ropes and Coil made their phone calls to the Bank, a "General Pledge Agreement" dated June 9, 1972. Contemporaneously with the signing of this agreement, a standard financing statement 1 was filed in Arkansas, noticing a security interest in certain equipment owned or thereafter acquired by NDS. An identical financing statement was filed in Florida on January 30, 1973, after the commencement of this litigation.
The litigation over possession of the equipment sold by Coil and Ropes began November 29, 1972, when Ropes filed a complaint in admiralty against NDS and the vessel "Real Gold," asserting a maritime lien over the reels of wire rope. Shortly thereafter the Bank filed a motion to intervene as a defendant, asserting a security interest in the wire rope. Subsequently, Coil also moved to intervene, asserting a right to possession of the magnets which were on board the "Real Gold." The Bank claimed that the magnets also fell under its security interest.
As for the wire rope sold by Ropes, the district court directed a verdict against Ropes on its maritime lien claim 2 and also concluded, "Its only position is that of an open account creditor which has no right to the possession of goods in which (Bank) has a superior security interest."
Coil claimed that its sale to NDS was made in reliance on written misrepresentations of solvency by the officers of NDS, giving rise to a right of reclamation under Fla.Stats.Ann. § 672.2-702(2). It also claimed to have made a demand for adequate assurance of performance under Fla.Stats.Ann. § 672.2-609, which assurance had not been given, thereby repudiating the sale under Fla.Stats.Ann. § 672.2-609(4). Coil asserted that it had elected to void the sale. Further, Coil showed that it had filed suit in the Florida state courts against NDS and the owner of the "Real Gold" for a writ of replevin.
The district court found that these provisions of the Uniform Commercial Code relied upon by Coil gave Coil "the right to repudiate or rescind the sale and reclaim the goods." It also concluded:
The goods sold by (Coil) to (NDS) did not attach to the security interest given by (NDS) to (the Bank) because
(a) that security interest covered equipment located only in Little Rock, Arkansas;
(b) it was of a type which is not used normally in more than one jurisdiction;
(c) (Bank) did not disclose to, and in fact willfully withheld from (Coil), the fact that it, the bank, had a security agreement covering after-acquired property, thereby breaching its obligation of good faith; and
(d) the security interest held by (the Bank) had not been perfected in any of the states where the magnets and accessory equipment were stored at the time of attachment of the security interest.
Ropes has appealed the award of possession of the wire rope to the Bank, and the Bank has appealed the award of the lifting magnets to Coil.
The concepts of attachment and perfection of security interests, and the documents which relate to those concepts, have often been confused and intertwined in the litigation of this case. The arguments of some of the parties and the district court's findings of fact indicate an assumption that the Bank's security interest, if it existed at all, arose by virtue of the financing statements filed in the Arkansas public records. The function of such financing statements, however, is not to create a security interest but to perfect an interest that has already attached. Fla.Stats.Ann. §§ 679.9-302, -303.
The only security agreement between the Bank and NDS admitted into evidence is a General Pledge Agreement. The financing statement executed the same day covered "All Equipment now owned by, or hereafter acquired, located at, and pertinent to the National Diving Service, Inc., 3006 S. University, Little Rock, Arkansas." The vendors, Ropes and Coil, have vigorously argued that this financing statement's description does not include goods shipped directly to Key West, Florida from their plants or warehouses, located variously in Ohio, New York or Louisiana, because those goods were never "located at, and pertinent to" the Arkansas place of business of NDS. 3 This argument would be relevant only if we were concerned with determining whether the Bank's security interest were perfected or unperfected. The more critical issue is whether the underlying General Pledge Agreement provides a basis for the attachment of a security interest to the magnets and rope upon their acquisition by NDS. 4
Set forth in the margin are the portions of the General Pledge Agreement upon which the Bank bases its claim that the magnets and rope became collateral for the Bank's loans and advances to NDS as soon as they came into the possession of NDS' Key West operation. 5 The Bank relies particularly upon that part of paragraph two of the Agreement which states: "the said Bank shall also have a lien . . . upon all property of the undersigned of every name and nature whatsoever, delivered to the Bank for safekeeping or otherwise . . . ." The Bank invites us to interpret this phrase as comprehending a security interest in all property of NDS, including after-acquired goods, regardless of whether such property is in the Bank's possession or retained in the possession of NDS.
Unfortunately, the posture of this litigation is not ideal for construing the Agreement. One of the parties to it, the pledgor NDS, was not involved in the trial, and there was no testimony from any of its principals as to its intent in making the contract. The Bank has offered no evidence of a course of dealing or usage of trade which would establish under Fla.Stats.Ann. § 671.1-205(4) that the General Pledge Agreement means anything other than what it says on its face. We have only a conclusion in the testimony of one Bank officer that the General Pledge Agreement covers the goods involved here, and the fact that a financing statement which was executed simultaneously notices a security interest in "Equipment," 6 including after-acquired equipment. Although the execution of the financing statement is some indication that NDS intended to assign goods such as the rope and magnets as collateral, the financing statement itself is insufficient to make that assignment. Moreover, the Bank has not contended that the two documents should be read together. Rather, it asserts that under the notice filing system established by the Uniform Commercial Code, Fla.Stats.Ann. § 679.9-402, the financing statement is "only a simple notice which indicates merely that the secured party may have a security interest in the collateral described." (Emphasis in the Bank's brief, p. 24.)
Applying Arkansas state law principles regarding rules for the construction of contracts, 7 we must read the General Pledge Agreement as a whole, with the purpose of effectuating the intent of the...
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