Tustian v. Schriever

• Citation: 34 P.3d 755,2001 UT 84
• Decision Date: 05 October 2001
• Docket Number: No. 20000245.,20000245.
• Parties: W. TUSTIAN, Trustee, Snowbird Trust, Plaintiff, v. KAREN H. SCHRIEVER, Defendant and Appellant, and Deere Credit Services, Inc., and Brent Madsen, First District Court, Defendants and Appellee.
• Court: Supreme Court of Utah

34 P.3d 755

2001 UT 84

W. TUSTIAN, Trustee, Snowbird Trust, Plaintiff, v. KAREN H. SCHRIEVER, Defendant and Appellant, and Deere Credit Services, Inc., and Brent Madsen, First District Court, Defendants and Appellee.

No. 20000245.

Supreme Court of Utah.

October 5, 2001.

Alyson Draper, Ogden, for plaintiff.

William D. Marsh, Salt Lake City, for defendant Karen H. Schriever.

Paul M. Werner, Mark E. Hindley, Salt Lake City, for defendant Deere Credit Services.

DURRANT, Justice:

¶ 1 Deere Credit Services, Inc., had a perfected security interest in a dealer's inventory of manufactured homes. The dealer affixed one of the manufactured homes to land owned by the dealer and deeded this realty into a trust as security for a loan. Karen H. Schriever later placed a judgment lien on the trust realty; William Tustian also obtained a deed to the realty. When the dealer defaulted on its loan obligations, the trustee sold the land and the affixed manufactured home. After using part of the sale proceeds to pay the dealer's loan balance, the trustee deposited the excess sale proceeds with the First District Court. Deere, Schriever, and Tustian claimed first priority in the excess proceeds in cross-motions for summary judgment. The First District Court granted Deere's motion and awarded Deere first priority. Schriever appeals this ruling. We reverse and remand, concluding that, under the former Article 9 of the Uniform Commercial Code, which governs this case,¹ Deere's security interest in the affixed manufactured home did not continue in the sale proceeds of realty encompassing the home.

BACKGROUND

¶ 2 Pinnacle Financial Services, Inc., sold mobile and manufactured homes in Weber County, Utah, under the name Outlook Homes, Inc. In April 1996, Deere agreed to finance Pinnacle's acquisition of manufactured homes. Under the agreement, Deere received a purchase money security interest in Pinnacle's inventory and proceeds. On April 15, 1996, Deere filed a UCC-1 financing statement evidencing its security interest with the Utah Division of Corporations and Commercial Code ("Division of Corporations").

¶ 3 In October 1996, Deere advanced funds to Pinnacle under the security agreement so Pinnacle could purchase a manufactured home. Pinnacle moved the manufactured home to a one-acre lot it owned in Tremonton, Box Elder County, Utah (the "Tremonton property"). At approximately the same time, Pinnacle executed a trust deed for the Tremonton property in favor of Sodberry Ltd. (the "Sodberry trust") as security for a $35,000 loan.

¶ 4 In October 1997, Pinnacle defaulted on its security agreement with Deere in the approximate amount of $42,000. Pinnacle also defaulted on its obligations under the Sodberry trust. After recording a notice of default in November 1997, the Sodberry trustee began taking steps to sell the Tremonton property.

¶ 5 In January 1998, Schriever won a civil judgment against Pinnacle in the amount of $71,168. In March 1998, acting under a writ of execution Schriever had obtained the previous day, the Box Elder County Sheriff attached the Tremonton property.

¶ 6 In February 1998, Tustian filed a mechanic's lien on the Tremonton property, but later abandoned this claim. Tustian also claimed an ownership interest in the Tremonton property based on his acceptance of a quitclaim deed in January 1998 and an assignment of an interest in the entirety in October 1998.

¶ 7 On April 1, 1998, Schriever bought the Tremonton property for $70,000 at a trust deed foreclosure sale administered by the Sodberry trustee. After paying the sale expenses and Pinnacle's loan balance, the trustee deposited $25,155.56 in excess proceeds with the clerk of the First District Court of Box Elder County. The trustee also submitted a letter listing Deere, Schriever, and Tustian among those who might claim an interest in the proceeds. On April 20, 1998, Tustian filed a complaint for the excess proceeds in the First District Court against Schriever and Deere. The district court ruled that it would consider the parties' pleadings as cross-motions for summary judgment.

¶ 8 Finding no genuine issue as to any material fact, the district court resolved the priority dispute as a matter of law. In denying Tustian's motion, the court adopted the "rationale articulated in Schriever's memoranda" that Tustian never acquired a legal interest in the property because of defects in his deed. Having found that Tustian could not claim the proceeds, the court focused on the conflicting claims of Schriever and Deere.

¶ 9 To resolve this conflict, the court relied on U.C.C. Article 9's provisions concerning secured transactions, as implemented in Chapter 9, Title 70A of the Utah Code.² Since Deere based its claim to the proceeds on its security interest in the manufactured home, the court first considered whether Deere perfected its security interest in the home. To this end, the court turned to section 70A-9-302. Section 70A-9-302 specifies when a filing is required to perfect a security interest and lists the types of security interests to which the filing provisions of Article 9 apply. Subsection 70A-9-302(3)(b) requires holders of security interests in "inventory held for sale" to perfect under Article 9 instead of under certificate of title statutes. Relying on subsection 70A-9-302(3)(b), the court held that Deere perfected a purchase money security interest in the manufactured home on April 15, 1996, by filing a UCC-1 financing statement with the Division of Corporations.

¶ 10 Having determined that Deere was the first to perfect a security interest in the manufactured home, the court then offered two alternative reasons why Deere's security interest had priority over Schriever's judgment lien on the real estate. Under its first line of reasoning, the court recognized that if the mobile home became a fixture (a part of the real estate), Deere's security interest in the home would conflict with Schriever's judgment lien in the real estate. To determine whose interest had priority, the court turned to section 70A-9-313, the U.C.C. provision that reconciles conflicts between fixture financers and encumbrancers of the real estate. Relying on the conflict resolution provision specific to judgment liens, section 70A-9-313(4)(d), the court held that even if the home became a fixture, Deere did not have to record a financing statement in the real estate filing system (a "fixture filing") to maintain priority over Schriever's judgment lien; Deere's filing of the UCC-1 financing statement with the Division of Corporations sufficed.

¶ 11 In an alternative line of reasoning, the court ruled that Deere also would have retained priority in the manufactured home even if the home had remained a chattel instead of becoming a fixture. In support of its premise that the home did not become a fixture, the court interpreted section 59-2-602 as requiring the filing of an "affidavit of affixture" before a mobile or manufactured home becomes part of the real property. Since Deere had not filed this affidavit, the court concluded the home was not "legally affixed" to the Tremonton property. Under this line of reasoning, the manufactured home maintained its separate identity as a "pure" chattel, and thus no conflict arose between Deere's interest in the home and Schriever's interest in the real estate.

¶ 12 Under either alternative, reasoned the court, Deere's perfected security interest continued in the manufactured home until the Sodberry trustee sold it as part of the Tremonton property. To determine whether Deere's security interest continued in the proceeds of the trustee's sale, the court next turned to section 70A-9-306. Subsection 70A-9-306(3)(b) provides that a perfected security interest in collateral continues in the proceeds of the collateral if "a filed financing statement covers the original collateral and the proceeds are identifiable cash proceeds." Noting that Deere's financing statement covered the home, and characterizing the proceeds as "identifiable cash proceeds," the district court ruled that Deere's perfected security interest continued in the proceeds. As a result, the district court ruled that Deere has first priority in the excess proceeds of the trust sale and granted Deere's cross-motion for summary judgment. Citing the arguments in Schriever's motion, the court also summarily concluded that Schriever would have priority over Tustian in any proceeds that remain after Deere satisfies its claim against Pinnacle. Schriever appeals the district court's grant of summary judgment in favor of Deere; Tustian is not a party to the appeal.

STANDARD OF REVIEW

¶ 13 Summary judgment is appropriate when the evidence "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Utah R. Civ. P. 56(c). When reviewing a court's decision to grant summary judgment, we examine the court's legal conclusions for correctness. Dairy Prod. Servs. v. City of Wellsville, 2000 UT 81, ¶ 15, 13 P.3d 581.

ANALYSIS

¶ 14 In granting summary judgment in favor of Deere, the district court relied on two alternative lines of reasoning to conclude that Deere had priority in the excess proceeds of the trustee's sale. One alternative was premised on the manufactured home remaining chattel; the other was premised on the home becoming a fixture. Although Deere advanced arguments in favor of both alternatives in its appellate brief, at oral argument before this court, Deere expressly waived the alternative premised on the manufactured home remaining chattel.

¶ 15 Specifically, during oral argument, Deere's counsel stated the following:

The one disputed fact is whether or not the mobile home, the modular home, was affixed to the property. But for purposes of this proceeding, we are more than willing, we're happy, to stipulate that it was affixed, sure. We will give [Schriever] that, because it doesn't

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