Production Credit Ass'n of West Cent. Minnesota v. Bartos, C1-88-719
| Decision Date | 11 October 1988 |
| Docket Number | No. C1-88-719,C1-88-719 |
| Citation | 430 N.W.2d 238 |
| Parties | 8 UCC Rep.Serv.2d 1200 PRODUCTION CREDIT ASSOCIATION OF WEST CENTRAL MINNESOTA, formerly Production Credit Association of Alexandria, Appellant, v. Anthony C. BARTOS, et al., Respondents, Lowry State Bank, Lowry, Minnesota, third-party Plaintiff, Respondent. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. The description of collateral in appellant's 1980 financing statement was sufficient to perfect a security interest in a backhoe and trailer.
2. Appellant's failure to file a financing statement with the Minnesota Secretary of State does not defeat appellant's security interest in the backhoe and trailer.
3. Appellant's security interest in the backhoe and trailer has priority over respondent's security interest.
Gary I. Syverson, Swenson, Grover, Lervick, Syverson & Battey, Ltd., Alexandria, for appellant.
Robert V. Maki, Alexandria, for Bartos, et al.
Scott T. Johnston, Alexandria, Robert J. Walter, Krass & Monroe, Shakopee, for Lowry State Bank.
Considered and decided by FOLEY, P.J., and CRIPPEN and SHORT, JJ., without oral argument.
Appellant Production Credit Association of West Central Minnesota (PCA) and respondent Lowry State Bank (Lowry) both claim to have security interests in a backhoe and trailer owned by respondents Anthony and Anita Bartos (Bartos). The trial court ruled that Lowry has a perfected security interest in the backhoe and trailer, and that PCA does not. We disagree and reverse.
On April 21, 1980, PCA loaned Bartos $52,633.10. To secure the loan, Bartos and PCA entered into a security agreement giving PCA a security interest in the following property, "whether now owned or hereafter acquired":
All equipment, motor vehicles and fixtures, all accessions thereto, and all spare parts and special tools for such equipment.
All livestock and poultry and the young of such livestock and poultry.
The following products of livestock and poultry: Milk.
All accounts arising from the sale, lease or other disposition of other Collateral * * *.
All crops growing or to be grown by Debtor, and the products of all such crops * * *.
All harvested and processed crops not covered under other sections of this Agreement (whether or not produced by Debtor); feed; seed; fertilizer, insecticides, herbicides and other agricultural chemicals; and other supplies.
PCA filed a financing statement with the Pope County Recorder's Office on April 25, 1980, covering:
All farm machinery, equipment, supplies, feed and livestock now owned or hereafter acquired.
PCA filed a continuation of this financing statement with the Pope County Recorder on March 13, 1985.
In July 1981, Lowry State Bank made a loan to Bartos, and obtained a security interest in a backhoe and a tractor. Lowry filed a financing statement at the Pope County Recorder's Office on July 6, 1981, covering:
1969 Drott Back Hoe on Tracks S# 50EC140
On February 27, 1984, Lowry loaned Anthony Bartos money to buy a Lo-Boy trailer, and entered into a security agreement giving Lowry a security interest in the trailer. However, Lowry did not file a financing statement covering the trailer until after this action was commenced.
On April 2, 1987, after Bartos defaulted on their loan payments, PCA began a replevin action to take possession of its collateral, including the backhoe and the Lo-Boy trailer. After a hearing on April 23, 1987, the trial court entered an order for seizure giving PCA immediate possession of the collateral.
Bartos refused to comply with the seizure order. On August 25, 1987, PCA brought a motion to hold Bartos in contempt. At that time, it was discovered that Lowry might have a competing security interest in the backhoe and trailer. The trial court ordered Bartos to turn the backhoe and trailer over to the Pope County Sheriff, pending a determination of which security interest had priority. PCA stipulated that Lowry should be made a party to the proceedings.
On September 22, 1987, Lowry filed a financing statement at the Minnesota Secretary of State's Office, covering:
1962 3-axle lo-boy trailer
1969 Drott Backhoe, on tracks, S# 50EC140
After a court trial on September 24, 1987, the trial court ruled that PCA had not perfected a security interest in the backhoe and trailer. The court interpreted PCA's financing statements to cover only farm equipment, "not equipment used in nonfarm business." The trial court found that Bartos used the backhoe and trailer for "nonfarm business" and that they were outside of the scope of PCA's financing statement. The trial court found that Lowry had perfected a security interest in the trailer and backhoe when it filed its financing statement with the Secretary of State.
PCA argues on appeal that it perfected a security interest in the backhoe and trailer in 1980 when it filed its financing statement with the Pope County Recorder, and that its security interest has priority over Lowry's. PCA contends that the description of collateral in the financing statement is sufficiently broad to put future creditors on notice that it had a security interest in the backhoe and trailer.
1. Was the description of collateral in PCA's 1980 financing statement sufficient to perfect a security interest in the backhoe and trailer?
2. Did PCA properly perfect a security interest in the backhoe and trailer by filing a financing statement with the Pope County Recorder rather than the Minnesota Secretary of State?
3. Does PCA's security interest in the backhoe and trailer have priority over Lowry's security interest?
The trial court's ruling is based on its interpretation of the security agreements and financing statements at issue. This court is entitled to make its own analysis of the documentary evidence, and need not defer to the trial court's findings. See In re Trust Known as Great Northern Iron Ore Properties, 308 Minn. 221, 225, 243 N.W.2d 302, 305 (Minn.), cert. denied 429 U.S. 1001, 97 S.Ct. 530, 50 L.Ed.2d 612 (1976).
The first issue presented is whether the description of collateral in PCA's 1980 financing statement was sufficient to perfect a security interest in the backhoe and trailer. A security interest "attaches" when the debtor signs a valid security agreement which covers the collateral. See Minn.Stat. Sec. 336.9-203(1)(a) (1986). A security interest is generally "perfected" by filing a financing statement including a description of the collateral. See Minn.Stat. Sec. 336.9-302(1) (1986). A security interest cannot be perfected unless both the security agreement and the financing statement contain an adequate description of the collateral subject to the interest. World Wide Tracers, Inc. v. Metropolitan Protection, Inc., 384 N.W.2d 442, 447 (Minn.1986).
Minn.Stat. Sec. 336.9-110 (1986) provides generally that a "description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described." Case law makes clear that this "reasonable identification" standard is applied more strictly to collateral descriptions in security agreements than it is to collateral descriptions in financing statements. This is because the purpose of a description in a financing statement is different from the purpose of the description of collateral in a security agreement.
The description in a security agreement must be sufficiently specific for the parties to identify the collateral subject to the agreement. See James Talcott, Inc. v. Franklin National Bank of Minneapolis, 292 Minn. 277, 286-87, 194 N.W.2d 775, 782 (Minn.1972). "The principal function of a description of the collateral in a security agreement is to enable the parties themselves or their successors in interest to identify it, particularly if the secured party has to repossess the collateral or reclaim it in a legal proceeding." Id. 194 N.W.2d at 782. 1
In contrast, the financing statement serves the purpose of putting nonparties such as other subsequent creditors on notice that the debtor's property is encumbered. "The description of collateral in the financing statement does not function to identify the collateral and define property which the creditor may claim, but rather to warn other subsequent creditors of the prior interest." Thorp Commercial Corp. v. Northgate Industries, Inc., 654 F.2d 1245, 1248 (8th Cir.1981) (applying Minnesota law).
Since the financing statement is designed only to provide general notice or warning that certain collateral might already be encumbered, the statement need only describe the type of collateral in which the creditor claims an interest. See Minn.Stat. Sec. 336.9-402(1) (1986); World Wide Tracers, 384 N.W.2d at 447; Thorp Commercial Corp., 654 F.2d at 1249. Subsequent creditors are expected to make their own inquiry to determine whether specific items of collateral are already subject to a prior security interest. See Minn.Stat.Ann. Sec. 336.9-402, U.C.C. Comment 2 (1966); World Wide Tracers, 384 N.W.2d at 447; James Talcott, Inc., 292 Minn. at 290, 194 N.W.2d at 783. Thus, a financing...
To continue reading
Request your trial
-
Regions Bank v. Bric Constructors, LLC
... ... The defendant LLC obtained a line of credit from the plaintiff bank. The LLC borrowed against ... Credit Ass'n v. Bartos, 430 N.W.2d 238, 240 (Minn.Ct.App.1988). Given ... ...
-
In re Johnson
... ... United States Bankruptcy Court, D. Minnesota, Third Division ... March 24, 1992. 139 BR ... development of the Holiday Inn Minneapolis West in St. Louis Park ("the hotel"). The parties ... , 286-287, 194 N.W.2d 775, 782 (1972); Production Credit Assoc. of West Central Minn. v. Bartos, ... ...
-
First Bank v. Eastern Livestock Co., Civ. A. No. J92-0469(L)(C).
... ... See Oxford Production Credit Ass'n v. Dye, 368 So.2d 241 (Miss. 1979); ... Bartos, 430 N.W.2d 238, 241 (Minn.Ct.App.1988), the ... ...
-
Regions Bank v. Bric Constructors, LLC
... ... The defendant LLC obtained a line of credit from the plaintiff bank. The LLC borrowed against ... 1974)); Prod. Credit Ass'n v. Bartos, 430 N.W.2d 238, 240 (Minn. Ct. App. 1988) ... ...