Shaffer v. Davidson, s. 3655

• Decision Date: 10 September 1968
• Docket Number: Nos. 3655,3656,s. 3655
• Citation: Shaffer v. Davidson, 445 P.2d 13, 5 UCC Rep. 772 (Wyo. 1968)
• Parties: 5 UCC Rep.Serv. 772 Chad SHAFFER, d/b/a Rawlins Finance Co., Appellant, (Plaintiff below), v. Margaret A. DAVIDSON, Appellee (Defendant below). Margaret A. DAVIDSON, Appellant, (Defendant below), v. Chad SHAFFER, d/b/a Rawlins Finance Co., Appellee (Plaintiff below).
• Court: Wyoming Supreme Court

Page 13

445 P.2d 13

5 UCC Rep.Serv. 772

Chad SHAFFER, d/b/a Rawlins Finance Co., Appellant, (Plaintiff below), v.Margaret A. DAVIDSON, Appellee (Defendant below).

Margaret A. DAVIDSON, Appellant, (Defendant below), v.Chad SHAFFER, d/b/a Rawlins Finance Co., Appellee (Plaintiff below).

Nos. 3655, 3656.

Supreme Court of Wyoming.

Sept. 10, 1968.

K. W. Keldsen, Rawlins, for Chad Shaffer.

Harold M. Johnson, Rawlins, for Margaret A. Davidson.

Before HARNSBERGER, C. J., and GRAY, McINTYRE and PARKER, JJ.

Mr. Chief Justice HARNSBERGERdelivered the opinion of the court.

Both parties have appealed from a district court judgment finding Margaret Davidson indebted to Shaffer for the balance of $199.70 due upon a $200 promissory note, plus interest thereon in the sum of $55.92, and attorney fees of $60.00, but setting off against those amounts totalling $315.62, the sum of $200 as the value of an automobile mortgaged to Shaffer as security for the payment of the note and giving judgment in favor of Shaffer for the net difference of $115.62.

Mr. Shaffer's appeal will be considered first.

The facts as determined by the trial court, either upon undisputed evidence or substantial evidence favorable to the successful party, may be summarized as follows.

Mrs. Davidson was an accommodation or co-maker of the note which was signed by the borrower, one Russell Nank.Nank as owner, together with Mrs. Davidson, executed and delivered to Shaffer as security for payment of the note a chattel mortgage upon an automobile being purchased by Nank with the proceeds of the loan from Shaffer to Nank.

Nank borrowed from Shaffer the $200, for which the note was given, in order to pay off an existing chattel mortgage against the automobile and procured Mrs. Davidson as an accommodation or comaker of the note.Nank gave Shaffer his chattel mortgage upon the car, which mortgage Mrs. Davidson also signed.Thereupon Nank procured the vehicle's certificate of title from the holder of the preexisting chattel mortgage, and Nank delivered that certificate of title to Shaffer.Shaffer neither filed the chattel mortgage upon the car nor did he deliver the certificate of title to the proper officer to enable endorsement of the chattel mortgage being placed thereon.

Nank sold the car and disappeared, and neither he nor the car could be found.

With the absence of notice to Nank's purchaser of the vehicle's being subject to any mortgage or other lien, Mrs. Davidson was deprived of the security she would have if the chattel mortgage had been timely filed, the certificate of title of the automobile delivered to the proper public officer, and a notation of the existence of the chattel mortgage encumbrance endorsed upon it.Had this been done, and then Mrs. Davidson required to pay the note, she could have received reimbursement from any monies obtained through foreclosure and sale of the mortgaged vehicle.

Under these facts, the questions presented to the trial court were (1) Was Shaffer required to afford Mrs. Davidson the protection of whatever security the chattel mortgage provided her? and (2) Was Shaffer's failure to record the chattel mortgage and deliver the certificate of title of the mortgaged vehicle to the proper officer for notation of that mortgage upon the certificate of title such an impairment of collateral as discharged her liability as accommodation or co-maker of the $200 note?

Shaffer contends the methods of discharge of an accommodation maker provided under the Uniform Commercial Code are exclusive and that it contains no provision for the discharge of an accommodation maker under the circumstances of this case because the term 'collateral' as used in the code refers to the mortgaged vehicle itself and not to a 'security interest' in the vehicle, citing § 34-3-606, W.S.1957 (1967 Cum.Supp.), which reads:

'Impairment of recourse or of collateral.-(1) The holder discharges any party to the instrument to the extent that without such party's consent the holder

* * * * * *

(b) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he had a right of recourse.'

Referring further to the code, this appellant also sets forth the official code comment as set forth in 1 Anderson's Uniform Commercial Code, § 3-606:1, pp. 745,746 (1961), regarding the above-quoted portion of the code, which reads as follows:

'5.Paragraph (b) of subsection (1) is new.The suretyship defense stated has been generally recognized as available to indorsers or accommodation parties.As to when a holder's actions in dealing with collateral may be 'unjustifiable', the section on rights and duties with respect to collateral in the possession of a secured party(Section 9-207) should be consulted.'(Emphasis supplied.)

Section 34-9-207, W.S.1957 (1967 Cum.Supp.), Supp.), reads:

'Rights and duties when collateral is in secured party's possession.-(1) A secured party must use reasonable care in the custody and preservation of collateral in his possession.In the case of an instrument or chattel paper reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.'(Emphasis supplied.)

In our view, § 34-9-207 is of assistance to Mrs. Davidson.She was entitled to have Shaffer exercise reasonable care in his custody and possession of the chattel mortgage and certificate of title and to take the steps necessary to preserve her rights.This would include the proper filing of the chattel mortgage and the delivery of the mortgaged property's certificate of title to the proper official in order that notation of the mortgage encumbrance be endorsed thereon.

We fail to find in Article 3 of the code, of which § 34-3-606 is a part, any definition of the term 'collateral' either expressly stated or included by reference.Although counsel quotes § 34-9-105(1)(c), W.S.1957 (1967 Cum.Supp.), which reads:

'(c)'Collateral' means the property subject to a security interest, and includes accounts, contract rights and chattel paper which have been sold,'

as justifying his thesis that under the code 'collateral' means the property, i. e., the thing itself as distinguished from only a 'security interest' in such property, the basic error in this premise and conclusion is twofold: first, because § 34-9-105(1) is limited in its application to Article 9, inasmuch as its prefatory sentence says explicitly 'In this article unless the context otherwise requires'(emphasis supplied); and second because, even though that definition be deemed applicable, it definitely says collateral includes 'chattel paper.'The fact that this is followed by the words 'which have been sold' may not fairly be interpreted to be a limitation upon 'chattel paper' which was initially given as security for the repayment of a debt.

Appellant Shaffer's counsel admits being unable to find any authority for his attempted distinction between collateral in the sense of being the physical thing itself and a security or encumbrance interest in that property.This is itself indicates the doubtful quality of his theory.

In the absence of a clear statutory definition in the code to the contrary, the plain, ordinary, and usual meaning of that word is to be accepted.Ballentine's, Law Dictionary With Pronunciations(2d Ed.1948), p. 229, defines 'collateral' in these words:

'There is no technical legal definition of the word distinct from its common signification.It is an additional security for the performance of the principal obligation, and, on the discharge of the latter, it is to be surrendered.SeeSeanor & Bierer v. McLaughlin, 165 Penn. 150, 32 L.R.A. 467, 472, 30 Atl.Rep. 717.'

Baldwin's Century Edition of Bouvier's Law Dictionary(1926), p. 183, calls it 'That which is by the side, and not in direct line.That which is additional to or beyond a thing.'

In similar kind, Ballentine, at page 231, defines 'collateral security,' as:

'A concurrent security for another debt, whether antecedent or newly created, and is designed to increase the means of the creditor to realize the principal...