Case Title: M. C. WAILES AND MARILYN WAILES v. ROCKY MOUNTAIN PRE-MIX CONCRETE

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1989-11-22T00:00:00Z

Document:
M. C. WAILES AND MARILYN WAILES v. ROCKY MOUNTAIN PRE-MIX CONCRETE1989 WY 204783 P.2d 1138Case Number: 89-151Decided: 11/22/1989Supreme Court of Wyoming
M. C. WAILES AND MARILYN 
WAILES, HUSBAND AND WIFE, APPELLANTS 
(DEFENDANTS/CROSS-CLAIMANTS),

v.

ROCKY MOUNTAIN PRE-MIX 
CONCRETE, APPELLEE (DEFENDANT).

Appeal from the District 
Court, FremontCounty, Robert B. Ranck, 
J.

Norman E. Young 
of Hill, Young & Barton, P.C., Riverton, for appellants.

Arnold B. 
Tschirgi, Lander, for 
appellee.

Before CARDINE, C.J., and THOMAS, URBIGKIT, MACY 
and GOLDEN, JJ.

URBIGKIT, 
Justice.

[¶1.]     This is a second stage 
controversy which follows from a judgment approved by this court in Miles v. CEC 
Homes, Inc., 753 P.2d 1021 (Wyo. 1988), with appellate issues now presented of 
priorities in that judgment between a third-party creditor who executed on the 
successful litigant's interest in the judgment and another creditor who held a 
chattel security interest in the receivable which had been the subject of the 
original litigation.1 

[¶2.]     In the original 
litigation, CEC Homes, Inc. (obviously itself insolvent) obtained a September 8, 
1986 judgment in the amount of $31,789.02 against customer Meadowbrook 
Development, Inc. (Meadowbrook) and also against Maurice Miles, principal 
shareholder of Meadowbrook, by piercing the corporate veil. Miles, 753 P.2d  at 
1022-23. Meadowbrook itself was apparently also without creditable assets. 
Appellee here, Rocky Mountain Pre-Mix Concrete (RockyMountain), had in 1984 obtained judgment 
against CEC Homes, Inc. in the corrected amount of $18,236.31. Execution and 
garnishment proceedings against Meadowbrook proved fruitless and RockyMountain then accepted a security 
agreement from CEC Homes, Inc. which included tangible chattel property items 
and also the receivable due from Meadowbrook then not yet resolved in 
litigation.

[¶3.]     In April 1986, 
appellants M.C. Wailes and Marilyn Wailes obtained a judgment against CEC Homes, 
Inc. in the amount of $45,043. A year later, they executed on the judgment and 
served notice of levy on CEC Homes, Inc. in order to secure a sheriff's sale of 
the Meadowbrook/Miles judgment asset which lawsuit was here on appeal. Sale was set for April 27, 
1987, at which time the attorney for CEC Homes, Inc., in its behalf and as 
attorney in behalf of his law firm, objected to the sale. An application for 
injunction was made in the Wailes/CEC Homes, Inc. proceeding from which the 
execution sale was scheduled. Obviously, no order was granted and the sale 
proceeded. The executing creditor, Wailes, having then received notice of the 
assignment by the chattel security account receivable which was the basis of the 
judgment by CEC Homes, Inc. against Meadowbrook, proceeded with the sheriff's 
sale of the judgment separately obtained against Maurice Miles only. Wailes, as 
creditor, bid in that judgment asset for $32,000, settled with Miles and issued 
a release of judgment as execution sale purchaser. The judgment which CEC Homes, 
Inc. obtained from Meadowbrook, encumbered by underlying account assignment to 
RockyMountain, remains 
unsatisfied and obviously without present value to anyone.2

[¶4.]     The present judgment 
amount of $19,150.39 from which this appeal is taken is not clarified in method 
of computation in this record and the amount Miles paid for a satisfaction of 
his judgment after execution by Wailes is similarly undisclosed. 

[¶5.]     What we have is a 
litigative challenge and demand for payment by RockyMountain against Wailes to recover 
whatever Miles paid for his judgment satisfaction. In legal principle, we are 
faced with an inquiry whether a corporate collateral encumbrance of a receivable 
provides similar collateral security to the creditor against rights that the 
assignor might realize to pierce the corporate veil of the account debtor in 
reaching the debtor's principal shareholder. The briefing presented provides no 
comparable cases. It is apparent in trial court proceeding that the litigated 
issues included the identifiable proceeds provision of W.S. 34-21-935(b) (UCC § 
9-306). That discussion and the one case now cited of First Interstate Bank of 
Denver, N.A. v. Arizona Agrochemical Co., 731 P.2d 746 (Colo. App. 1986) have a 
different factual basis and do not completely satisfy our review. This is 
genuinely a case of first impression in this jurisdiction and, for cases found, 
in any American appellate jurisdiction.

[¶6.]     Our analysis leads to 
the concept that the Miles obligation when the corporate veil was pierced by 
affirmed judgment created something in the nature of a guarantee or secondary 
liability. Had RockyMountain sued or garnished Miles on its 
unsatisfied judgment against Meadowbrook, an occurrence not presented, we could 
be presented with a traced identifiable asset upon which a competitive priority 
could be claimed. Clearly, at the time the chattel security and assignment of 
receivable was given, no vested claim against the debtor's shareholder existed 
and nothing in the nature of the document indicated an intended reliance on the 
third-party's obligation as an asset to be encumbered.

[¶7.]     In First Interstate 
Bank of Denver, 
N.A., 731 P.2d 746, debtor sold the secured assets at an auction and then used 
the funds to satisfy the third-party judgment for which he received a 
satisfaction. The appellate court held, at the time the secured creditor 
attempted to enforce any security interest it had in the proceeds, that the only 
identifiable proceeds remaining to the debtor consisted of a satisfaction of 
judgment with a value only to the debtor. Consequently, that factual situation 
is of little help where a third-party and differentiated asset were involved 
here.

[¶8.]     Determination of this 
case presents two facets. First, we analyze whether the original February 8, 
1985 filed security agreement including "balance due on account & agreement 
with Meadowbrook Development, Inc." created an encumbrance thereafter realized 
against that part of the judgment entered September 8, 1986 which found Maurice 
Miles to be "personally liable for monies due and owing the plaintiffs." If it 
is determined the shareholder claim was not encumbered by the security 
agreement, the further question remains whether settlement of the Miles judgment 
debt constituted recoverable proceeds by the creditor who held the assignment of 
the Meadowbrook debt.

[¶9.]     We answer both 
questions in the negative. Although we are not informed when the lawsuit was 
filed by CEC Homes, Inc. as originally or thereafter including Miles as a 
defendant, it is clear the contingent collection was not defined in secured 
document which was given to Rocky Mountain in a fashion sufficient to constitute 
reasonable identification of the collateral. W.S. 34-21-910 (UCC § 9-110); 
Landen v. Production Credit Ass'n of Midlands, 737 P.2d 1325 (Wyo. 1987). This case 
with after-determined shareholder liability is comparable to the indemnity 
agreement found in State Bank of Wheatland v. Bagley Bros., 44 Wyo. 307, 11 P.2d 592 (1932) for which filing a recording was necessary to preserve priority. In 
similar result, the case of Matter of Binning, 45 B.R. 9, 11-12 (S.D.Ohio 1984) 
(quoting Ray v. City Bank and Trust Co. of Natchez, Mississippi, 358 F. Supp. 630, 639 (S.D.Ohio 1973)) did not extend crop collateral to the agricultural 
payment-in-kind diversion payments and observed that the code sections "do not 
require slavish delineation of the collateral secured. But they do require a 
reasonable identification of the collateral so that `reasonable further inquiry 
will disclose the complete state of affairs.'"

[¶10.]  We hold the security interest terminology 
encumbered the account and a cost sharing agreement executed with a corporation, 
but then fails to meet the reasonable identification requirements of W.S. 
34-21-910 to also encumber an inchoate claim that the debtor might obtain in 
litigation directed to enforce obligation of the corporation upon its 
shareholders or officers by a thesis of indemnity, guaranty or piercing of the 
corporate veil. This follows case law that the security interest is not 
attributable to the third-party claim as identifiable proceeds. In re Hix, 9 UCC 
Rep.Serv. 925 (S.D.Ohio 1969); Hoffman v. Snack, 2 UCC Rep.Serv. 862 (Pa. 1964). Compare In re 
Stone, 52 B.R. 305 (W.D. Ky. 1985), as the only tort case of converse authority 
found where, as the result of a civil action against a veterinarian and others, 
the debtors settled the lawsuit and recovered a large sum of money from the 
negligence claim.

[¶11.]  The next question then to be addressed is 
whether the proceeds statute, W.S. 34-21-935(b) (UCC § 9-306), would maintain a 
lien on amounts realized after execution sale of the judgment asset as a claim 
against the account debtor's shareholder or officer. Although an identical 
factual situation was not found, a number of recent bankruptcy proceedings 
relevant to the proceeds issue are available for consideration where recovery 
was made by a lawsuit against a third party. In In re Jones, 19 B.R. 293 
(E.D.Va. 1982), the court did not extend chattel coverage on a car to the 
proceeds of a lawsuit against an insurance agent for failure to obtain insurance 
for the customer. Similarly, a check obtained to satisfy a judgment based on a 
breach of warranty did not constitute proceeds created by liquidating the asset 
held by the creditor as a security interest in a check in In re Continental 
Trucking, Inc., 16 UCC Rep.Serv. 526 (M.D.Fla. 1974).

[¶12.]  In the absence of statute or explicit 
provisions and security agreement requiring insurance, a like result has 
obtained non-inclusion of fire casualty insurance proceeds upon loss of the 
secured chattel. Quigley v. Caron, 247 A.2d 94 (Me. 1968); In re Boyd, 658 P.2d 470 (Okla. 1983). In accord, 
see Peoples State Bank of Ellinwood, Kan. v. Marlette Coach Co., 336 F.2d 3 
(10th Cir. 1964) and Bank of New York v. Margiotta, 99 Misc.2d 423, 416 N.Y.S.2d 493 (1979). Cf. Universal C.I.T. Credit Corp. v. Prudential Inv. Corp., 101 R.I. 
287, 222 A.2d 571 (1966) and In re Territo, 32 B.R. 377 (E.D.N.Y. 
1983).

[¶13.]  A somewhat more attenuated controversy is 
created where the recovery is from a third-party tort feasor rather than by 
virtue of property damage insurance. Even the exceptional cases are inapplicable 
since the judgment against the corporation, Meadowbrook, remained undisturbed 
and only the unassigned separate liability of the shareholder was sold at 
execution. The term identifiable3 "presumably requires that the 
secured party show that the cash or noncash items were actually received upon 
the sale, exchange, collection or other disposition of the collateral of 
proceeds." 9 Hawkland, Lord & Lewis UCC Series § 9-306:03 at 23 
(1986).

[¶14.]  In denying extension as unidentifiable 
proceeds, we also consider the nature of the judgment against Miles. "A 
corporation is recognized as a separate entity, distinct from the individuals 
comprising it, even though all of its stock is owned by a single individual." 
Atlas Const. Co. v. Slater, 746 P.2d 352, 355 (Wyo. 1987). See also Amfac Mechanical Supply 
Co. v. Federer, 645 P.2d 73, 77 (Wyo. 1982). Whether the process utilized to 
create liability of the shareholder is disregard of corporateness, H. Henn & 
J. Alexander, Laws of Corporations § 146 at 344 (3d ed. 1983); piercing the 
corporate veil, Atlas Const. Co., 746 P.2d 352; disregard of corporate entity, 
Amfac Mechanical Supply Co., 645 P.2d 73; or one which denies interposition of 
corporate entity, In re Clarke's Will, 204 Minn. 574, 284 N.W. 876 (1939), the 
litigative claim process involves, as in this case, finding an entity liable for 
the obligation of the corporation as a result of the process by which the 
corporation was created or operated.

[¶15.]  In this case, the chattel security 
identified the contractual interest between CEC Homes, Inc. and the account 
debtor, Meadowbrook, who were the two parties in the cost sharing contract. It 
did not include the further right that CEC Homes, Inc. might have to supplement 
its contractual interest by invalidation of any corporate entity defense if 
claim was to be made against the shareholder also. Under these circumstances, we 
hold, in addition to judgment on the mortgaged contractual obligation, that CEC 
Homes, Inc., in final resolution, obtained an independent and unencumbered 
judgment against Maurice Miles, president of the account debtor. Consequently, 
as this case has unfolded, we find no claim of RockyMountain against Miles with an established 
superior priority sufficient to defeat the title obtained by Wailes through 
their purchase at the sheriff's execution sale.

[¶16.]  Reversed and remanded for entry of a 
judgment in favor of appellants on appellee's cross-claim.

FOOTNOTES

1 Appellee did not file a 
brief and resort to briefs filed in the district court is required to even 
understand the scope of the litigation as originally instituted. Actually, the 
litigation first developed between the attorney and judgment creditor as 
declaratory judgment petitioners suing both present appellant and appellee. CEC 
Homes, Inc. was actually a pro forma party and the real conflict was between CEC 
Homes' attorney claiming a lawyer's lien and M.C. and Marilyn Wailes and Rocky 
Mountain Pre-Mix Concrete claiming interest variously by assignment of the 
receivable and by judgment execution. Both attorney and judgment creditor, CEC 
Homes, Inc., were removed from the litigation by summary judgment and the case 
continued on cross-claim complaints between Wailes and Rocky Mountain Pre-Mix 
Concrete.

Since this court finds an 
issue of significance presented, we have undertaken a comprehensive factual 
review and legal analysis without any assistance of appellee briefing. In 
sternest terms, we would warn that summary reversal without extended review 
could realistically be expected in future cases where an appellee does not file 
an appellate brief. This court cannot properly or fairly assume the 
responsibility of analysis and review in behalf of one litigant where that 
litigant does not assist by advocacy briefing.

The case portrays a real 
tragedy which is not now presented on appeal. The lawyer representing CEC Homes, 
Inc., after a very credible performance showing diligence and ingenuity, lost 
his lawyer's charging lien by omission of claim notice. Attention to this detail 
comes highly recommended with knowledge to be gained from this unfortunate 
occurrence. Good law firm business practices need not be considered to be 
overbearing or presumptive. See W.S. 29-1-102.

2 After the opinion in 
this case had been circulated within this court for final preparation, a 
document signed by appellee was filed entitled "Notice of Satisfaction of 
Judgment" which states that appellee's judgment against CEC Homes, Inc. had been 
paid in full. Neither a stipulation nor a motion to dismiss the appeal pursuant 
to W.R.A.P. 18 has since been filed. The instrument now first filed in this 
court does not constitute satisfaction of the district court judgment entered 
June 2, 1989, if that was what was intended. If appellee makes no further claim 
against appellants, the case is still not moot since without a stipulated 
settlement, appellants are entitled to costs upon reversal pursuant to W.R.A.P. 
10.04.

3 It is noted that 
consideration of the shareholder claim as identifiable initially achieves 
pertinence whether first encumbered under W.S. 34-21-910 and, if not, then 
whether identifiable as proceeds under W.S. 34-21-935(b). The word does not mean 
exactly the same thing for application in each statute. In first use, it means 
to be reasonably designated or described and, in second statute, traceability 
appears to be the concept presented. In one usage, the asset is encumbered and, 
in second context, it is traced as "proceeds." The proceed traceability inquiry 
appears as the basis for trial court decision and not sufficiency of encumbrance 
identification.