Smiley v. Wheeler, 51355

CourtSupreme Court of Oklahoma
Citation602 P.2d 209
Docket NumberNo. 51355,51355
PartiesFlossie J. SMILEY, Appellee, v. Leroy WHEELER and Richard E. Buettner, Appellants.
Decision Date16 October 1979

Page 209

602 P.2d 209
Flossie J. SMILEY, Appellee,
Leroy WHEELER and Richard E. Buettner, Appellants.
No. 51355.
Supreme Court of Oklahoma.
Oct. 16, 1979.

Page 210

Appeal from District Court of Oklahoma County; Joe Cannon, Trial judge.

Defendants appeal from a judgment in favor of plaintiff-creditor in a suit on a note wherein defendants sold collateral to a third party subject to the security interest who subsequently disposed of the collateral and became insolvent resulting in an action in bankruptcy.


Bay, Hamilton, Lees, Spears & Verity, Oklahoma City, for appellee.

Lucas & Cate, Norman, for appellants.

DOOLIN, Justice:

This is a suit on a note. In 1970, plaintiff sold laundry equipment to defendants for use in their business. Plaintiff took a promissory note and a security interest in the equipment. The security agreement contained an after acquired property clause.

Page 211

Plaintiff perfected her interest by filing a financing statement.

Defendants made payments on the note until 1973, when they sold the equipment to Straughn. Plaintiff agreed to the sale and assumption of the debt by Straughn. This contract of sale provided Straughn "would assume and pay to (plaintiff) the balance due her on a financing statement filed of record in the County Clerk's office of Oklahoma County, Oklahoma, covering the aforesaid equipment . . ." It further provided "(i)n the event that buyer elects to replace any and all fixtures and equipment, that it will in no way effect (sic) the lien of (plaintiff)."

Straughn continued to make payments to plaintiff but later replaced the equipment with new, financing the purchase through a note and purchase money security interest given a local bank. He made his last payment to plaintiff in March of 1976. Later that year Straughn filed bankruptcy. Defendants attempted to assert a claim against Straughn's assets. It was disallowed by trustee in bankruptcy court. Soon thereafter plaintiff filed the present action against defendants seeking judgment on the note.

Under 12A O.S.1971 § 9-403(2) plaintiff's financing statement was effective for only five years unless a continuation statement was filed prior to its lapse. Plaintiff filed no such continuation statement and the security interest became unperfected. As a defense to the suit, defendants claimed under the Uniform Commercial Code 12A O.S.1971 § 3-606 they were discharged on the note by reason of plaintiff's failure to keep the security interest in Straughn's equipment alive. Under their theory the failure to file a continuation statement impaired the collateral. Trial court gave judgment to plaintiff for balance due on the note plus interest and attorney's fees. Defendants appeal.

Under defendants' theory, the 1973 contract of sale to Straughn made Straughn the principal debtor and altered defendants' position to that of sureties, citing American Liberty Life Insurance Co. v. Baird, 176 Okl. 132, 57 P.2d 829 (1936) and Scott v. Metropolitan Life Insurance Co., 398 P.2d 822 (Okl.1964). Accordingly, plaintiff was under an obligation to protect them, as sureties, against Straughn's default, by not impairing defendants' right of recourse on the collateral. Plaintiffs failure to file the continuation statement resulted in defendants' allegedly losing a prior claim on Straughn's assets in the bankruptcy proceeding. Because plaintiff so impaired the collateral, they argue, § 3-606 1 relieves them of liability on the note.

The trial court did not accept their theory, finding defendants did not become sureties as a result of the sale of the equipment. It found plaintiff neither impaired the collateral nor waived the Primary obligation of defendants on the note. It further found a maker of a note could not take advantage of the discharge provisions of § 3-606. Trial court believed this section to be applicable only to subsequent parties with a right of recourse.

Section 9-311 allows a debtor to transfer his rights in collateral. But the interest so transferred is still subject to the creditor's security interest If it is properly perfected. 2 This is true of after-acquired property or inventory. A debtor cannot destroy a perfected security interest by transferring the collateral. An after-acquired property clause in a security agreement covers not only equipment of original debtor but also that obtained by transferee

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who is also bound by original terms of the agreement. 3

As long as it remained perfected, plaintiff had a security interest in Straughn's after-acquired equipment. But when the financing statement lapsed, the security interest became unperfected and thus was lost under § 9-311. No security interest remained in Straughn's assets under the 1970 agreement.

Straughn defaulted on his payments. At his point under § 9-501 a creditor normally has an option to proceed in...

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11 cases
  • Hemenway v. Miller, 21962-6-I
    • United States
    • Court of Appeals of Washington
    • July 31, 1989 a result of the sale and assumption by Sturtz. The trial court based the summary judgment on the rule set forth in Smiley v. Wheeler, 602 P.2d 209 (Okla.1979), that "an original debtor who pays a debt, assumed by another, becomes subrogated to the creditor's rights because the original d......
  • Schmuckie v. Alvey, 87-SC-670-DG
    • United States
    • United States State Supreme Court (Kentucky)
    • October 6, 1988
    ...W.Va. 170, 209 S.E.2d 573 (1974); Wohlhuter v. St. Charles Lumber and Fuel Co., 62 Ill.2d 16, 338 N.E.2d 179 (1975); Smiley v. Wheeler, 602 P.2d 209 (Okla.1979); and United States v. UNUM Inc., 658 F.2d 300 (5th 7 D. Leibson and R. Nowka, The Uniform Commercial Code of Kentucky § 3.3(F)(1) ......
  • Bissonnette v. Wylie, 92-406
    • United States
    • Vermont United States State Supreme Court of Vermont
    • June 3, 1994
    ...(allowing maker to assert § 3-606 defense where creditor had consented to assumption of debt by third party); Smiley v. Wheeler, 602 P.2d 209, 212 (Okla.1979) (§ 3-606 does not discharge makers unless they have become sureties on the note); Hemenway v. Miller, 116 Wash.2d 725, 807 P.2d 863,......
  • Fed. Deposit Ins. Corp. v. Blue Rock Shop. Center, Civ. A. No. 80-398.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Delaware)
    • June 29, 1983
    ...Cir.1981), reh. denied, 664 F.2d 289 (5th Cir.1981). Accord Hooper v. Ryan, 581 S.W.2d 237, 238 (Tex.Civ.App. 1979); Smiley v. Wheeler, 602 P.2d 209 (Okl.Supr.1979). See also Wohlhuter v. St. Charles Lumber & Fuel Co., 62 Ill.2d 16, 338 N.E.2d 179, 182 (Ill.1975); Common Wealth Insurance Sy......
  • Request a trial to view additional results

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