Universal C.I.T. Credit Corp. v. Prudential Inv. Corp., 4

• Decision Date: 25 August 1966
• Docket Number: No. 4,4
• Parties: , 3 UCC Rep.Serv. 696 UNIVERSAL C.I.T. CREDIT CORPORATION v. PRUDENTIAL INVESTMENT CORPORATION et al. Appeal
• Court: Rhode Island Supreme Court

Page 571

222 A.2d 571

101 R.I. 287, 3 UCC Rep.Serv. 696

UNIVERSAL C.I.T. CREDIT CORPORATION v. PRUDENTIAL INVESTMENT CORPORATION et al.

Appeal No. 4.

Supreme Court of Rhode Island.

Aug. 25, 1966.

Gallogly, Beals, Tiernan & Sweeney, Robert O. Tiernan, Providence, for complainant

[101 R.I. 296] Kiernan, Connors, Kenyon & Wiley, James E. Pitochelli, Jr., Providence, for respondent, Prudential Investment Corp.

Armstrong, Gibbons & Lodge, Joseph G. Kinder, Providence, for respondent, United Truck and Bus Service Co.

OPINION

KELLEHER, Justice.

This is a bill of interpleader wherein the respondents Prudential Investment Corporation and United Truck and Bus Service Company each claim certain proceeds of an insurance policy which had been issued on a certain motor vehicle, to wit, a 1964 Diamond T Tractor. ¹ The complainant was the loss payee on the insurance policy. Its claim having been satisfied, it has deposited in the registry of the superior court the balance of the insurance proceeds. The cause has been certified to us pursuant to G.L.1956, § 9-24-25, as amended, on an agreed statement of acts submitted jointly by both respondents.

The pertinent facts are as follows: On or about March 7, 1964, Eugene Tourtellot (hereinafter called the debtor) of Scituate, Rhode Island, executed with respondent Prudential Investment Corporation (hereinafter called Prudential) a security agreement, a promissory note and a financing statement under the appropriate provisions of the uniform commercial code as set forth in G.L.1956, title 6A. These documents gave Prudential a security interest in four pieces of automotive equipment owned by the debtor, one of which was a 1961 International tractor. On the face of the finacing statement it is designated that the 'Proceeds of Collateral are also covered.' The financing statement was recorded pursuant to law in the office of the secretary of state on March 11, 1964.

At the time of the filing of this document there was on record in the secretary of state's office a financing statement wherein the debtor had given a security interest in the same 1961 International tractor to Mack Financial Corporation (hereinafter called Mack). The financing statement, however, did not designate that 'Proceeds of Collateral are also covered.' If is agreed by respondents that Mack's security interest was prior to that of Prudential.

On June 8, 1964, the debtor purchased from respondent United Truck and Bus Service Company (hereinafter called United) a new 1964 Diamond T tractor for the sum of $17,300. As part payment of the purchase price the debtor traded in the 1961 International and received as an allowance therefor the sum of $6,300. At this time United had no knowledge of the two outstanding security interests in the 1961 tractor. The balance of the purchase price was financed by a conditional sales contract which was assigned to complainant Universal C.I.T. Credit Corporation (hereinafter called C.I.T.) for the sum of $15,190.92. This figure represented the balance of the purchase price together with financing and insurance charges. C.I.T. perfected its security interest by filing a financing statement with the secretary of state.

Collision insurance was placed on the 1964 Diamond T in an amount equal to the 'actual cash value of the vehicle at the time of the loss, if any * * * .' The policy listed C.I.T. as loss payee.

On or about August 29, 1964, the debtor was involved in an accident and the 1964 Diamond T was completely demolished. It had only an undetermined salvage value. As a result thereof, the insurance carrier some months later paid C.I.T. $15,494.25. This represented the value of the tractor under the terms of the insurance policy.

Sometime between August 29 and September 8, 1964, Mack informed United of its security interest in the 1961 International. United summoned the debtor to its office and he acknowledged Mack's outstanding security interest in the vehicle. He did not mention Prudential's interest and at United's insistence made an assignment to it of his interest to the extent of $6,300 in the insurance proceeds covering the loss. This instrument was dated September 8, 1964, and a copy thereof was received by the insurance carrier on September 16, 1964.

In October 1964, Prudential discovered that the debtor had traded in the International and summoned him to its office. He told Prudential that he had traded the International for the Diamond T and had borrowed the money from C.I.T. to complete the purchase. He thereupon executed a new financing statement covering the 1964 Diamond T which was duly recorded. This instrument also covered the proceeds of the collateral. He did not, however, tell Prudential that he had assigned his interest in the insurance proceeds to United nor did he tell Prudential that the 1964 tractor was in fact a complete wreck.

On October 28, 1964, pursuant to Mack's demand, United surrendered possession of the 1961 International.

It was in early November 1964 that respondents became aware of each other's interest in the balance of the insurance policy. C.I.T., having satisfied its claim of $11,306.14, instituted the present proceedings and deposited the balance of the insurance moneys in the registry of the superior court.

The respondents have, as a result of their framing of the agreed statement of facts, submitted for our determination certain issues. In brief and succinct terms they are as follows:

1. Did the security agreement between debtor and Prudential dated March 7, 1964, create such a continuing security interest that it can be traced to and embrace the moneys paid by the insurance carrier § a result of the demolition of the 1964 Diamond T tractor?

2. Does the unrecorded assignment of the insurance proceeds take precedence over the secuity interests of Prudential, one of which arose prior to the assignment and one of which arose after the assignment?

For the reasons which appear hereafter we answer the first question in the negative and the second question in the affirmative.

The definition of the term 'Proceeds' as used in the uniform commercial code is found in § 6A-9-306(1). It reads in part as follows: "Proceeds' includes whatever is received when collateral or proceeds is sold, exchanged, collected or otherwise disposed of.'

If the security holder wishes to obtain a security interest in 'Proceeds,' he checks the box on the financing statement opposite the phrase 'Proceeds of Collateral are also covered.' Prudential did check the box in this case when it took as security for the payment of its loan of $3,450 an interest in the four pieces of automotive equipment of debtor. When the 1961 International was traded in, Prudential obtained a security interest in the new Diamond T to the extent of the original obligation due it from the debtor. See Girard Trust Corn Exchange Bank v. Warren Lepley Ford, Inc., 25 Pa.Dist. & Co.R.2d 395, and Howarth v. Universal C.I.T. Credit Corp., D.C., 203 F.Supp. 279.

Here, however, Prudential attempts to extend its ability to trace 'Proceeds' and establish a security interest in the moneys under a contract of insurance entered into between the insurer and the debtor.

While moneys paid by an insurance carrier to reimburse one for a loss which is covered under the insurance contract are many times referred to as insurance proceeds, they are not proceeds as that term is defined in §...