Sturdevant v. First Security Bank

No. 14803
IN THE SUPREME COURT OF THE STATE OF MONTANA
1980
HAROLD LEE STURDEVANT, JR.,
Plaintiff and Appellant,
VS .
FIRST SECURITY BANK OF DEER LODGE,
a banking corporation, and FIRST
NATIONAL BANK OF HELENA, a nationally
chartered bank,
Defendants and Respondents.
Appeal from: District Court of the First Judicial District,
Honorable Gordon R. Bennett, Judge presiding.
Counsel of Record:
For Appellant:
Tipp, Hoven and Skjelset, Missoula, Montana
For Respondents:
~anielsand Mizner, Deer Lodge, Montana
Submitted on briefs: January 24, 1980
Decided: 'EB 1 3 ,980
Filed: ~'Ec 2
&
Mr. J u s t i c e J o h n C . Sheehy d e l i v e r e d t h e Opinion o f t h e C o u r t .
Appeal i s from a summary judgment g r a n t e d i n t h e D i s t r i c t
C o u r t , F i r s t J u d i c i a l D i s t r i c t , L e w i s and C l a r k County. The
D i s t r i c t C o u r t e n t e r e d summary judgment u p h o l d i n g t h e r i g h t
o f t h e r e s p o n d e n t b a n k s t o r e p o s s e s s a Mooney a i r c r a f t and
s e l l t h e same; t h e p r o c e e d s t o be a p p l i e d t o d e b t s owed by
H a r o l d Lee S t u r d e v a n t , S r . t o t h e banks.
The a c t i o n w a s f i l e d by Harold Lee S t u r d e v a n t , J r . on
O c t o b e r 31, 1978 when t h e p l a i n t i f f a l l e g e t h a t a Mooney
a i r c r a f t was w r o n g f u l l y r e p o s s e s s e d by t h e d e f e n d a n t b a n k s .
He p r a y e d f o r a p r e l i m i n a r y i n j u n c t i o n r e s t r a i n i n g t h e d i s p o s i n g
o f t h e a i r c r a f t and a s k e d t h a t he be g i v e n p o s s e s s i o n o f i t
d u r i n g t h e pendency o f t h e s u i t . The D i s t r i c t C o u r t i s s u e d a
temporary r e s t r a i n i n g o r d e r . The d e f e n d a n t banks f i l e d m o t i o n s
t o d i s m i s s on t h e ground t h a t t h e c o m p l a i n t f a i l e d t o s t a t e a
c l a i m upon which r e l i e f c o u l d be g r a n t e d . On November 21, 1978,
a h e a r i n g was h e l d o n t h e m o t i o n s t o d i s m i s s and a t t h e same
t i m e on a n o r d e r t o show c a u s e why a p r e l i m i n a r y i n j u n c t i o n
s h o u l d n o t be g r a n t e d t o g i v e p l a i n t i f f t e m p o r a r y p o s s e s s i o n
of t h e plane. Upon s t i p u l a t i o n by c o u n s e l , t h e m o t i o n s t o
d i s m i s s w e r e c o n v e r t e d t o m o t i o n s f o r summary judgment and
a f t e r p o s t h e a r i n g b r i e f s w e r e f i l e d and t h e m a t t e r s u b m i t t e d ,
t h e c o u r t g r a n t e d summary judgment i n f a v o r o f t h e banks.
The a g r e e d f a c t s a r e t h a t on August 4 , 1972, H a r o l d
Sturdevant, Sr. ( p l a i n t i f f ' s f a t h e r ) executed a s e c u r i t y
a g r e e m e n t w i t h F i r s t S e c u r i t y Bank o f D e e r Lodge s e c u r i n g
a n o t e f o r $15,069.62 t o p u r c h a s e a Mooney a i r c r a f t . The
p l a n e was l i s t e d a s c o l l a t e r a l on t h e s e c u r i t y agreement
which was r e c o r d e d w i t h t h e FAA on J a n u a r y 23, 1973.
-1-
On August 21, 1975, t h e l o a n had been p a i d down by t h e
f a t h e r b u t t h e n o t e w a s renewed by him f o r a t o t a l sum o f
$10,970. There i s no e v i d e n c e t h a t any s e c u r i t y a g r e e m e n t
i n c o n n e c t i o n w i t h t h i s l o a n w a s f i l e d w i t h any o f f i c e .
On A p r i l 7, 1977, t h e f a t h e r e x e c u t e d a s e c u r i t y a g r e e m e n t
w i t h F i r s t S e c u r i t y Bank o f D e e r Lodge f o r a l o a n o f $32,249.40
t o p u r c h a s e a Cessna a i r p l a n e which was t o be i t s collateral.
T h e r e i s no e v i d e n c e t h a t t h i s s e c u r i t y a g r e e m e n t w a s f i l e d w i t h
any o f f i c e .
On O c t o b e r 25, 1977, H a r o l d S t u r d e v a n t , Jr. p u r c h a s e d t h e
Mooney p l a n e from h i s f a t h e r . N n o t i c e o f t h i s s a l e was g i v e n
o
t o t h e s e c u r e d bank and t h e r e i s no e v i d e n c e t h a t t h e s a l e w a s
a u t h o r i z e d by t h e Bank. H a r o l d S t u r d e v a n t , Jr. knew o f t h e
e x i s t i n g s e c u r i t y i n t e r e s t i n t h e p l a n e when h e p u r c h a s e d it.
On O c t o b e r 4 , 1978, payments t o t h e bank on t h e Cessna p l a n e
and t h e Mooney p l a n e w e r e d e l i n q u e n t . Plaintiff's father
m a i l e d a check t o t h e Bank t o s a t i s f y t h e o b l i g a t i o n on t h e
Mooney p l a n e .
On O c t o b e r 6 , 1978, F i r s t S e c u r i t y Bank o f Deer Lodge i n
c o n j u n c t i o n w i t h F i r s t N a t i o n a l Bank o f Helena r e p o s s e s s e d t h e
Mooney p l a n e f o r d e l i n q u e n c y o f t h e payments on t h e s e c o n d
Mooney l o a n .
On O c t o b e r 9 , 1978, t h e Bank r e c e i v e d t h e payment on t h e
Mooney d e b t t h a t had been m a i l e d by t h e f a t h e r on O c t o b e r 4 .
A f t e r t h e r e p o s s e s s i o n , t h e s o n p e r s o n a l l y t e n d e r e d payment
o f $1,632.54 and $47.79 ( s t o r a g e c o s t s ) , t h e f u l l amount o f t h e
r e m a i n i n g Mooney o b l i g a t i o n , i n a n a t t e m p t t o redeem t h e Mooney
p l a n e , p u r s u a n t t o s e c t i o n 87A-9-506, R.C.M. 1947 (now s e c t i o n
30-9-506, MCA). The t e n d e r was r e f u s e d by t h e d e f e n d a n t banks.
The amount i s p r e s e n t l y d e p o s i t e d w i t h t h e c o u r t p e n d i n g t h e
- 2-
outcome o f t h e s u i t . I t i s c l e a r t h a t t h e d e f e n d a n t banks
i n t e n d t o s e l l t h e Mooney p l a n e t o s a t i s f y t h e d e l i n q u e n t
o b l i g a t i o n s on t h e Cessna l o a n .
On t h a t s t a t e m e n t o f f a c t s , t h e son p h r a s e s t h e i s s u e
as whether a bank may h o l d p r o p e r t y f o r t h e payment o f a
d e b t of a n o t h e r when t h a t p r o p e r t y i s no l o n g e r owned by
t h e borrower and i s n o t d e s c r i b e d i n t h e s e c u r i t y agreement.
W r e s t a t e t h e i s s u e s a s follows:
e
(1) Does t h e s e c u r i t y agreement of August 4 , 1972 i n
which t h e Mooney a i r c r a f t i s l i s t e d a s c o l l a t e r a l i n c l u d e a
s e c u r i t y i n t e r e s t f o r t h e l a t e r i n c u r r e d Cessna d e b t of t h e
father?
(2) What e f f e c t d o e s s e c t i o n 30-9-311, MCA, have on t h e
s a l e o f t h e Mooney a i r c r a f t by t h e f a t h e r t o t h e son?
(3) What a r e t h e redemption r i g h t s of t h e son under t h e s e
f a c t s and under s e c t i o n 30-9-506, MA
C?
Each s e c u r i t y agreement e x e c u t e d i n t h i s c a s e c o n t a i n e d
t h e f o l l o w i n g l a n g u a g e , d e s c r i b e d by t h e D i s t r i c t C o u r t a s a
"dragnet clause":
"The u n d e r s i g n e d ( h e r e i n a f t e r c a l l e d Borrower)
h e r e b y g r a n t s t o t h e s e c u r e d p a r t y i n t h e above
note ( h e r e i n a f t e r c a l l e d 'Bank') a s e c u r i t y
i n t e r e s t i n t h e following described property
(hereinafter called 'Collateral') including
p r o c e e d s and p r o d u c t s : [herein i s specific
property description] together with a l l p a r t s ,
a c c e s s o r i e s , r e p a i r s , improvements and a c c e s -
s i o n s t h e r e t o now o r h e r e a f t e r a t any t i m e made
o r a c q u i r e d ; and A l l p r o p e r t y o f e v e r y k i n d and
d e s c r i p t i o n i n which t h e Borrower h a s o r may
a c q u i r e any i n t e r e s t now o r h e r e a f t e r a t any
t i m e i n t h e p o s s e s s i o n o r c o n t r o l o f t h e Bank
f o r any r e a s o n i n c l u d i n g w i t h o u t l i m i t a t i o n ,
p r o p e r t y d e l i v e r e d t o t h e Bank as c o l l a t e r a l
f o r s a f e k e e p i n g , o r f o r c o l l e c t i o n o r exchange
f o r o t h e r p r o p e r t y , and a l l d i v i d e n d s and d i s -
t r i b u t i o n s on and o t h e r r i g h t s i n c o n n e c t i o n
w i t h s u c h p r o p e r t y t o s e c u r e payment t o t h e
Bank a t i t s banking house a t t h e a d d r e s s
s t a t e d on t h i s n o t e and a l l o t h e r n o t e s g i v e n
h e r e a f t e r i n renewal t h e r e o f , and a l l o t h e r
n o t e s o f Borrower c o n c u r r e n t l y h e r e w i t h ,
heretofore o r hereafter delivered t o o r
p u r c h a s e d o r o t h e r w i s e a c q u i r e d by t h e
Bank and a l l o t h e r l i a b i l i t i e s and i n d e b t e d -
n e s s of Borrower t o Bank due o r t o become
due, d i r e c t o r i n d i r e c t , a b s o l u t e o r con-
t i n g e n t , j o i n t o r s e v e r a l , howsoever c r e a t e d ,
a r i s i n g o r e v i d e n c e d , now e x i s t i n g o r h e r e -
a f t e r a t any t i m e c r e a t e d , a r i s i n g o r i n c u r r e d ,
( h e r e i n a f t e r c a l l e d 'Secured O b l i g a t i o n s ' ) . "
The D i s t r i c t Court found t h a t t h e f o r e g o i n g c l a u s e was
c l e a r , unambiguous and t h e r e f o r e it must be upheld. I n Re
R i s s Tanning C o r p o r a t i o n (2nd C i r . 1 9 7 2 ) , 468 F.2d 1211;
Kenneally v. S t a n d a r d E l e c t r o n i c s C o r p o r a t i o n ( 8 t h C i r .
1 9 6 6 ) , 364 F.2d 642; I n Re I r e d a l e ' s L t d . (9th C i r . 1973) ,
Nothing i n t h e Uniform Commercial Code t h a t we a r e a b l e
t o f i n d p r o h i b i t s s u c h a c l a u s e a s w a s used i n t h e s e s e c u r i t y
instruments. T h e r e f o r e , t h e e f f e c t of t h e e x e c u t i o n of t h e
s e c u r i t y i n t e r e s t i n t h e Mooney a i r c r a f t i n s t r u m e n t , b e i n g
v e r y b r o a d l y s t a t e d , e x t e n d s t o and c o v e r s t h e d e b t i n c u r r e d
i n c o n n e c t i o n w i t h t h e Cessna a i r c r a f t , even though a s e p a r a t e
s e c u r i t y agreement was e x e c u t e d f o r t h a t p u r c h a s e .
The b r o a d language used i n t h e f i r s t Mooney s e c u r i t y a g r e e -
ment meant t h a t t h e Mooney a i r c r a f t was c o l l a t e r a l n o t o n l y
f o r t h e f i r s t n o t e , b u t f o r t h e renewal n o t e , and f o r any o t h e r
s u b s e q u e n t l o a n s made by t h e bank t o Harold S t u r d e v a n t , S r .
The s e c u r i t y agreement f o r t h e Mooney a i r c r a f t had a f u r t h e r
p r o v i s i o n t h a t p r e v e n t e d s a l e of t h e Mooney u n l e s s t h e p r o c e e d s
o f t h e s a l e were p a i d t o t h e bank. That provision s t a t e d :
"Borrower w i l l n o t s e l l , t r a n s f e r , l e a s e o r
o t h e r w i s e d i s p o s e of t h e C o l l a t e r a l , o r a t t e m p t
o r o f f e r t o do any of t h e f o r e g o i n g w i t h o u t
t h e p r i o r w r i t t e n c o n s e n t of t h e Bank, and u n l e s s
t h e P r o c e e d s o f any s u c h s a l e , t r a n s f e r , l e a s e ,
o r o t h e r d i s p o s i t i o n a r e paid d i r e c t l y t o the
Bank. 'I
The bank had no knowledge of, and did not receive the
proceeds of the sale. Harold Lee Sturdevant, Jr. argues
however, that he was within his rights to purchase from
the father under section 30-9-311, MCA, of the Uniform
Commercial Code, which provides as follows:
"The debtor's rights in collateral may be
voluntarily or involuntarily transferred (by
way of sale, creation of a security interest,
attachment, levy, garnishment or other judicial
process) notwithstanding a provision in the
security agreement prohibiting any transfer or
making the transfer constitute a default."
It is incorrect to assume that section 30-9-311, MCA,
permits a transfer by a debtor of collateral under a security
agreement free of the security interest of the creditor in
the collateral. Sturdevant, Jr. refers us to the official
Code Comment under section 9-311, Uniform Commercial Code,
apparently to the language regarding the purpose of that
section whichstates that it is "[tlo make clear that in all
security transactions under this Article, the debtor has an
interest (whether legal title or an equity) which he can dis-
pose of and which his creditors can reach".
The body of a law developing with respect to this section
indicates that the interest of the debtor in the collateral
may be transferred by him even though the security agreement
purports to prohibit such transfer and makes the transfer a
default. Production Credit, Etc. v. Equity Coop, Etc. (Wis.
1978), 261 N.W.2d 127. However, the fact that the collateral
may be transferred voluntarily or involuntarily does not des-
troy or adversely affect a prior perfected security interest,
without the consent of the secured party. Am. Heritage Bank
' A p t ',
& Trust Co. v. 0 & E., Inc. (Cola.!1978), 576 P.2d 566, 568.
I n f a c t s e c t i o n 30-9-311, MCA i s i n t e n d e d t o p r o t e c t t h e
s e c u r e d c r e d i t o r ' s i n t e r e s t by a s s u r i n g t h a t any s a l e of
t h e c o l l a t e r a l o r t r a n s f e r by o p e r a t i o n of law i s s u b j e c t
t o the security interest. Earthmovers, I n c . v. C l a r e n c e L .
Boyd Company, I n c . (Okla. App. 1 9 7 6 ) , 554 P.2d 877, 879.
I r r e s p e c t i v e of t h e s e c t i o n , a s e c u r i t y agreement may
d e c l a r e t h a t t h e d e b t o r commits a d e f a u l t when he makes
a t r a n s f e r of t h e c o l l a t e r a l b e c a u s e t h e c r e d i t o r h a s a
r i g h t t o d e t e r m i n e who s h a l l be t h e d e b t o r i n p o s s e s s i o n .
Poydan, I n c . v. Agia K i r i a k i , I n c . (N.J. 1 9 7 4 ) , 130 N . J . Super.
T h e r e f o r e , t h e f a t h e r had t h e r i g h t transfer his
i n t e r e s t i n t h e Mooney a i r p l a n e t o h i s s o n where t h e s e c u r i t y
i n s t r u m e n t i s p e r f e c t e d , and he i s n o t i n d e f a u l t ; b u t t h e
c r e d i t o r , w i t h o u t knowledge o f t h e t r a n s f e r and under t h i s
agreement, n o t h a v i n g r e c e i v e d t h e p r o c e e d s , c o u l d under t h e
s e c u r i t y agreement c o n s i d e r such a t r a n s f e r a d e f a u l t . In
any e v e n t , t h e s e c u r i t y i n t e r e s t o f t h e c r e d i t o r h e r e f o l -
lowed t h e c o l l a t e r a l though t h e t r a n s f e r o c c u r r e d under
s e c t i o n 30-9-311, MCA.
The r i g h t s o f redemption of t h e son a r e found i n s e c t i o n
30-9-506, MCA. That s e c t i o n provides:
"At any t i m e b e f o r e t h e s e c u r e d p a r t y h a s d i s p o s e d
of c o l l a t e r a l o r e n t e r e d i n t o a c o n t r a c t f o r
i t s d i s p o s i t i o n under 30-9-504 o r b e f o r e t h e
o b l i g a t i o n h a s been d i s c h a r g e d under 30-9-505(2),
t h e d e b t o r o r any o t h e r s e c u r e d p a r t y may u n l e s s
o t h e r w i s e a g r e e d i n w r i t i n g a f t e r d e f a u l t redeem
t h e c o l l a t e r a l by t e n d e r i n g f u l f i l l m e n t of a l l
o b l i g a t i o n s s e c u r e d b y t h e c o l l a t e r a l as w e l l a s
t h e e x p e n s e s r e a s o n a S l y i n c u r r e d by t h e s e c u r e d
p a r t y i n r e t a k i n g , h o l d i n g and p r e p a r i n g t h e
c o l l a t e r a l f o r disposition, i n arranging f o r t h ~
s a l e , and t o t h e e x t e n t p r o v i d e d i n t h e agreement
and n o t p r o h i b i t e d by law, h i s r e a s o n a b l e a t t o r n e y s '
f e e s and l e g a l e x p e n s e s . "
Here t h e a g r e e d f a c t s a r e t h a t t h e f a t h e r m a i l e d a
check f o r t h e b a l a n c e of t h e Mooney d e b t b e f o r e t h e r e p o s s e s s i o n
b u t t h e check w a s r e c e i v e d by t h e bank a f t e r t h e r e p o s s e s s i o n .
Also t h e sum t e n d e r e d c o v e r e d o n l y t h e amount of t h e Mooney
d e b t and s t o r a g e c o s t s . I n t h i s c a s e , s e c t i o n 30-9-506, MCA,
r e q u i r e d more: t h e d e b t o r o r any o t h e r s e c u r e d p a r t y s h o u l d
t e n d e r " f u l f i l l m e n t o f a l l o b l i g a t i o n s s e c u r e d by t h e c o l -
lateral." I n t h i s c a s e t h a t i n c l u d e d t h e f u r t h e r d e b t on
t h e Cessna a i r p l a n e . S i n c e t h a t f u l l t e n d e r was n o t made,
t h e t e n d e r o f f e r e d by t h e son i n t h i s c a s e d i d n o t f u l f i l l
t h e r e q u i r e m e n t s o f s e c t i o n 30-9-506, MCA.
No q u e s t i o n s a r e r a i s e d a s t o t h e i d e n t i t y o f t h e a i r c r a f t ,
o r t h e p r o p r i e t y o f t h e r e p o s s e s s i o n , e x c e p t a s we have d i s c u s s e d
foregoing. A c c o r d i n g l y , we a f f i r m t h e ~ i s t r i c C o u r t .
t
y- -
-~% z Justice - - -
. .
W e Concur:
m i e f Justice