Permian Anchor Services, Inc., Matter of, s. 79-1916

• Decision Date: 11 May 1981
• Docket Number: Nos. 79-1916,79-1983,s. 79-1916
• Citation: 31 U.C.C. Rep. Serv. 356,649 F.2d 763
• Parties: 31 UCC Rep.Serv. 356 In the Matter of PERMIAN ANCHOR SERVICES, INC., d/b/a Permian Foundation and Drilling Company, Bankrupt, FIRST NATIONAL BANK OF LEA COUNTY, Appellant/Cross-Appellee, v. Forrest NICCUM and Marvel Engineering Company, Appellees/Cross-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 763

649 F.2d 763

31 UCC Rep.Serv. 356

In the Matter of PERMIAN ANCHOR SERVICES, INC., d/b/a

Permian Foundation and Drilling Company, Bankrupt, FIRST NATIONAL BANK OF LEA COUNTY, Appellant/Cross-Appellee, v. Forrest NICCUM and Marvel Engineering Company,

Appellees/Cross-Appellants.

Nos. 79-1916, 79-1983.

United States Court of Appeals, Tenth Circuit.

Submitted March 20, 1981.

Decided May 11, 1981.

Mark B. Thompson, III, Modrall, Sperling, Roehl, Harris & Sisk, Albuquerque, N. M. (Arthur D. Melendres, Modrall, Sperling, Roehl, Harris & Sisk, Albuquerque, N. M., with him on brief), for appellant/cross-appellee.

Marian Matthews, Matthews & Crider, Albuquerque, N. M., for appellees/cross-appellants.

Before SETH, Chief Judge, DOYLE, Circuit Judge, and THOMPSON, United States District Judge ^*.

WILLIAM E. DOYLE, Circuit Judge.

This is an appeal from a bankruptcy judgment rendered in New Mexico. Permian Anchor Services, Inc. is the bankrupt. It was adjudged a bankrupt following the filing of an involuntary petition. The adjudication occurred on March 17, 1976. The judgment awarded first priority to the First National Bank of Lea County for its security interest in certain assets. The award fully satisfied the debt to the bank. It received payment of the debt, interest and attorneys' fees. Marvel Engineering and Niccum appealed the judgment to the United States District Court for the District of New Mexico. That court affirmed the judgment in all respects except two. One particular was perfection of one of the security interests and the other concerned the amount of attorneys' fees. The cause was remanded for correction of these two matters and was returned and affirmed. The appeal is by the bank on the two matters which it lost in the partial remand. Marvel has cross-appealed the judgment in favor of the bank.

The issue is concerned with the relative priorities of the two creditors, the bank and Marvel, and the award to those creditors after sale of the Permian assets. A secondary issue pertains to the amount of the award for attorneys fees.

The loans by the bank to Permian began September 24, 1973. To secure that loan, Permian gave security interests in equipment, inventory, accounts receivable and motor vehicles. The first of these security agreements is dated April 15, 1974. Additional security agreements were given in 1974 and 1975. Niccum, the president of Marvel personally guaranteed Permian's debts to the bank at the time of the first loan, Sept. 24, 1973.

Subsequently Niccum made loans to Permian in the total amount of $77,444.99. Permian gave a security agreement to Niccum in connection with those loans. Both the note and the security agreement were subsequently assigned to Marvel.

Demand was made on the bank's note after payment on the $31,411.26 loan became delinquent April 3, 1975. The bank also notified the attorney for Marvel and Niccum of Permian's default by means of a letter dated July 18, 1975.

In July 1975 Niccum sought a settlement with the bank. He offered $18,000.00 to the bank in settlement of his obligation growing out of the personal guaranty. The bank rejected the offer. The bank undertook to locate and repossess the collateral from Permian beginning in July 1975. Later, on July 28, 1975, Niccum and Marvel joined in a federal suit against the bank for breach of the guaranty agreement and to restrain the bank from repossessing Permian's assets. The motion for a restraining order was denied August 6, 1975. On that same day Marvel once again offered to settle with the bank. The offer was again refused.

On August 7, 1975, Marvel with the cooperation of Permian started repossessing the collateral. The bank filed two suits in state courts seeking restraining orders against this activity, but Marvel already had the assets in its possession.

Another effort was made to settle, but was again rejected. Meanwhile a federal suit had been commenced by Marvel. This was the July 1975 suit which is shown above. The bank counterclaimed on its note seeking return of the collateral. The motion was denied and the assets were ordered seized and sold by the U.S. Marshal. This sale took place in November 1975. The amount of $94,382 was realized. The proceedings in bankruptcy were filed November, 1975. This, of course, halted the district court proceedings. Marvel, Niccum and the bank filed their respective claims. This appeal is from the final judgment in those proceedings.

In the bankruptcy court it was determined that the bank had a valid lien on proceeds from the sale of collateral and this amounted to a total of $61,307.30, including costs and attorneys fees. The security involved vehicles, equipment and drilling units which were attached to trucks.

The appeal is by the bank which maintains that the trial court erred in reversing the judgment of the bankruptcy judge.

There are a number of points which appear to be in issue in the case but it boils down to the following:

1. That the trial court erred in reversing the bankruptcy judge who had awarded to the bank the proceeds of sale of the collateral which was generally described as miscellaneous equipment and consisted of various sized rock augers, items sold to Mutual Drilling Co. and items sold to various other persons. The sale proceeds of this equipment amounted to $7,930.00. A large part of this, $3,269.22, was originally awarded by the bankruptcy judge to Marvel. The priority of this security interest was reversed by Judge Mechem. This resulted in virtually the entire proceeds of the miscellaneous equipment, $7,930.00, being awarded to Marvel.

2. Alleged inadequacy of attorneys' fees awarded to the Bank.

Appeal of the Bank

The claim of the bank is based on exhibit P, a security agreement, and exhibit R, a financing agreement. Exhibit P, the security agreement, is dated January 8, 1975. It was filed the following day. But that security agreement is devoid of any collateral description. Exhibit R, the financing statement and the companion document to the security agreement, does have a description of equipment-collateral. This financing statement omits the address of the debtor. The security agreement does have the address but not the description. Both documents were properly filed.

Exhibits O and Q were filed January 10, 1975 with the New Mexico Secretary of State. The security agreement, exhibit O, exhibits inventory both existing and after acquired, accounts receivable existing and after acquired and proceeds of both. Equipment is not listed on O, but like R, it is listed on the financing statement Q. All of these documents are printed forms. The security agreement has boxes to be checked. Included are inventory, accounts receivable and proceeds. The boxes provide the sole description of collateral on exhibit O. The checking of the boxes was seemingly overlooked on exhibit P.

How are the security agreement and financing agreement to be construed in a situation of this kind? Will one of the documents fulfill the requirement of description of collateral? Under the law of New Mexico it will not. Where an unsigned financing statement has a broader list of collateral than the security agreement has, the security agreement controls. Jones and Laughlin Supply v. Dugan Production Corp., 85 N.M. 51, 508 P.2d 1348 (1973). The Bank seeks to distinguish Jones and Laughlin on the basis that in the present case the financing statement is signed by the debtor; a further reason advanced for the attempted distinguishing is that the New Mexico authority is said not to have considered the question which is here presented, namely whether a signed financing statement and a signed security agreement are to be construed together. The approach which is urged by the bank seems to be more sensible but the language of Jones and Laughlin does not support the Bank's position:

A security agreement is effective according to its terms * * * A security interest is not effective against third parties unless the debtor has signed a security agreement which contains a description of the collateral. The disputed items cannot be within the security agreement by the "outside evidence" relied on by plaintiff because the disputed items are not described in the security agreement.

It is true, as the trial court found, that the filing of the financing statement was sufficient to put defendants on inquiry as to plaintiffs' security interest. This avails plaintiff nothing when the security agreement did not cover the disputed items. We held that the security agreement did not cover the two disputed items.

508 P.2d at 1351 (emphasis supplied).

There are no degrees of invalidity. A financing statement is as invalid because of a lack of a debtor's signature as it is for lack of the debtor's address. Jones being the extent of New Mexico authority on this problem, this court is obliged to give full effect to it.

As between security agreement O and financing statement Q, New Mexico would in all likelihood find the security agreement to be controlling. Since O shows no adequate security agreement in the equipment, and since Q will not fill the gap the Bank's contention must be rejected. This reasoning applies to security agreement P and financing statement R as well. Q is invalid for the same reason that R is. There is no debtor's address. The only valid financing statement is the filed security agreement O, but it does not cover equipment.

Due to the deficiency, there is no security agreement on equipment and hence no security interest has attached. (55-9-204, 9-203, N.M.S.A. 1978). Parol evidence cannot be offered to establish a valid security agreement, 9-203 and Comment 5, and an unattached security interest cannot be perfected, 9-303; 9-203. A security agreement is sufficient as a financing statement if it contains all the information required of a valid financing statement, even though there are minor errors in the information. 9-402. Leaving out the address of...