Case Title: New Oil, Inc. v. First Interstate Bank of Commerce

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1995-05-24T00:00:00Z

Document:
New Oil, Inc. v. First Interstate Bank of Commerce1995 WY 75895 P.2d 871Case Number: 93-262Decided: 05/24/1995Supreme Court of Wyoming

NEW 
OIL, INC., a Wyoming corporation; and Ben R. Doud, Appellants (Defendants),

v.

FIRST INTERSTATE BANK OF COMMERCE, Appellee 
(Plaintiff).

 

Appeal 
from District Court, Campbell County, Dan R. Price, II, 
J.

Georg Jensen, Cheyenne, for appellants.

Dan B. Riggs, Haultain E. 
Corbett, and Jonathan A. Botten of Lonabaugh & Riggs, Sheridan, and James P. 
Schermetzler, Gillette, for 
appellee.

Before GOLDEN, C.J., and THOMAS, MACY, LEHMAN, JJ., 
and ROONEY, J., Retired.

THOMAS, 
Justice.

[¶1]      The only issue in 
this case is whether First Interstate Bank of Commerce (Bank) held a valid 
security interest in an oil field pumping unit superior to any interest claimed 
by New Oil, Inc. and its president, Ben R. Doud (New Oil). The resolution of the 
case is controlled by the provisions of the Uniform Commercial Code (UCC) which 
govern the perfection of a security interest. The trial court determined there 
was no genuine issue of material fact and ruled, under applicable law, the Bank 
had a perfected security interest in the pumping unit superior to any interest 
of New Oil. The trial court granted partial summary judgment to the Bank, ruling 
it was entitled to possession of the pumping unit and the proceeds of any sale 
of the unit. The record demonstrates the trial court correctly determined there 
was no genuine issue of material fact; the Bank complied with the applicable 
provisions of the UCC in perfecting its security interest; and the trial court 
correctly applied the law to the facts. The Partial Summary Judgment by the 
trial court is affirmed.

[¶2]      New Oil, in its 
Brief of the Appellant, states the only issue to be:

1.         Did 
the district court err in concluding that the Plaintiff had a valid and 
perfected security interest in the pumping unit which was entitled to priority 
over the interests of the Defendant, New Oil, Inc.?

The Bank, in its Brief of 
Appellee, presents this statement of the issues:

A.        Have the 
claims of New Oil and Doud become moot by reason of their settlement with the 
remaining parties wherein New Oil and Doud were paid for the value of the 
disputed pumping unit?

B.        Did the 
court err in ruling on cross-motions for summary judgment that First Interstate 
had a valid security interest in Lufkin Pumping Unit Model # C640D-356-144, 
Serial # F-28456-F?

C.        Did the 
court err in ruling on cross-motions for summary judgment that First 
Interstate's security interest in the Lufkin Pumping Unit was superior to any 
interest claimed by New Oil, and that any interest of New Oil in the Lufkin 
Pumping Unit was subject to the security interest of First 
Interstate?

D.        Did the 
court err in ruling that First Interstate Bank was entitled to possession of the 
Lufkin Pumping Unit, and that the counterclaims of Doud and New Oil should be 
dismissed?

E.        Is First 
Interstate entitled to an award of the costs for this appeal because the 
Appellants have no reasonable cause for an appeal in accordance with Rule 10.05, 
W.R.A.P.?

[¶3]      The material 
facts are straightforward. In November of 1988, three individuals formed a 
partnership under the name of Century Energy (Partnership). The business purpose 
of the Partnership was to produce oil and gas and, in carrying out that business 
purpose, the Partnership acquired oil field drilling equipment, including two 
Lufkin 640 Pumping Units with Serial Nos. F-28456-F (F pump) and E-27892-F (E 
pump). The serial number for a pumping unit is located on the Sampson Post, 
which consists of the base and the upright post of the unit.1

[¶4]      In June of 1989, 
the Partnership applied for, and received, a loan from the Bank. A security 
agreement was executed, which created a security interest in favor of the Bank 
with respect to both the F pump and the E pump. Various other assets of the 
Partnership were also subject to the security interest. The Bank filed a 
corresponding financing statement with the Campbell County clerk on July 5, 
1989. The financing statement was executed by all three partners and covered 
"the following type (or items) of property:"

All rights and interest that debtor has arising out 
of the attached Exhibit "A." Also secured by all machinery and equipment, 
furniture and fixtures, accessions, inventory, accounts, instruments, documents, 
chattel paper, and general intangibles, now owned or hereafter acquired and 
wherever located.

The F pump and the E pump 
were listed by serial number in Attachment "A."

[¶5]      In October of 
1991, two of the partners agreed to purchase the third partner's interest in the 
Partnership, and the third partner released his interest as of January 1, 1992. 
The surviving members of the Partnership, in June of 1992, formed a second 
business entity. It was a limited liability company, created by filing articles 
of organization with the secretary of state, and it was known as Century Energy, 
Ltd. (Limited). The surviving members of the Partnership intended Limited would 
continue the business of the original Partnership. They did not convey to 
Limited their Partnership interests in the F pump and the E pump and, so far as 
the record discloses, the Partnership and Limited continued as separate business 
entities.

[¶6]      Later in 1992, 
Limited became indebted to New Oil in the amount of $21,250. On February 26, 
1993, Limited signed an agreement with New Oil which purported to transfer the F 
pump to New Oil in "full and final satisfaction of all monies owed by Century 
[Limited] to New Oil * * * and New Oil hereby accepts the same `where is, as 
is.'" New Oil then stored the F pump in the yard of Cyclone Drilling. 

[¶7]      Sometime in the 
next two months, Limited sold the E pump to another firm. That firm had notice 
of the Bank's security interest in the E pump, and it tendered the purchase 
price for that pump to the Bank. The Bank applied the proceeds to the debt of 
the Partnership and released its security interest in the E pump by a partial 
release filed with the county clerk on March 3, 1993. In April, the Bank became 
aware the F pump was stored in Cyclone Drilling's yard, and New Oil claimed 
ownership. New Oil advised the Bank it intended to sell the F pump, regardless 
of any claim on the part of the Bank. Acting on advice of its attorney, the Bank 
then caused a notice of its security interest to be welded to the F 
pump.

[¶8]      The Bank brought 
this declaratory judgment action to have its rights to the F pump determined. 
New Oil counterclaimed, seeking a declaratory judgment to establish its interest 
in the pump and also claiming damages for trespass, interference with contract, 
slander of title, negligence, malicious prosecution, abuse of process, and 
outrageous conduct. The parties filed their respective motions for summary 
judgment, and a hearing was held by the district court. The district court then 
entered the Partial Summary Judgment, ruling the Bank had a valid security 
interest in the F pump that was superior to any claim by New Oil. The court also 
ruled the Bank was entitled to possession of the F pump and dismissed counts I 
through VII of the counterclaim of New Oil. This appeal is from the Partial 
Summary Judgment.

[¶9]      Both the Bank and 
New Oil argued the effect of provisions found in Article 2 of the UCC relating 
to sales. This case, however, is controlled by the provisions of Article 9 of 
the UCC which govern secured transactions. Limited's agreement to convey the F 
pump to New Oil was made to satisfy Limited's antecedent debt to New Oil. That 
debt was incurred prior to the transfer on February 26, 1993. That transaction 
was not a sale of goods from one merchant to another as contemplated by Article 
2 of the UCC. The provisions of Article 9 of the UCC establish the Bank's 
interest, created by the security agreement from the Partnership and perfected 
by the filing of that security interest.

[¶10]   The record reveals New Oil obtained 
a consent judgment from the district court against the Partnership, the 
surviving partners, and Limited for $23,250 on January 7, 1994. It appears the 
claims of New Oil and Doud had become moot because of a settlement with the 
surviving partners. The argument with respect to mootness was not made in the 
trial court, however, and we do not address claims presented for the first time 
on appeal.

[¶11]   The requirements for attachment of 
a security interest set out in WYO. STAT. § 34.1-9-203(a) (1991) 
are:

(i) The collateral is in the possession of the 
secured party pursuant to agreement, or the debtor had signed a security 
agreement which contains a description of the collateral and in addition, when 
the security interest covers crops growing or to be grown or timber to be cut, a 
description of the land concerned; and

(ii) Value has been given; and

(iii) The debtor has rights in the 
collateral.

The Bank received a security 
agreement, rather than possession of the F pump. The security agreement and a 
promissory note were signed by all of the original partners on June 23, 1989. 
Value was given to the Partnership when the Bank disbursed the loan proceeds. At 
that time, the Partnership had the rights of owners in the 
collateral.

[¶12]   WYO. STAT. § 34.1-9-110 (1991) also 
requires a description of the collateral:

For purposes of this article any description of 
personal property or real estate is sufficient whether or not it is specific if 
it reasonably identifies what is 
described. (Emphasis added.)

We have held a generic 
description of collateral is sufficient if that description makes it possible to 
identify the items with reasonable effort and inspection. Eggeman v. W. Nat'l 
Bank, 596 P.2d 318 (Wyo. 1979). The security agreement given by the Partnership 
to the Bank not only includes an adequate generic description, but the F pump 
and the E pump specifically are referred to by the Sampson Post serial numbers 
in the description of the collateral offered by the Partnership. A description 
of an item by its serial number identifies that collateral for purposes of WYO. 
STAT. § 34.1-9-203(a), even though WYO. STAT. § 34.1-9-110(a) might not insist 
upon the specific description. See the Official Comment following WYO. STAT. § 
34.1-9-110. The security interest of the Bank attached to the F pump in 
accordance with the statutory requirements.

[¶13]   The requisites of a financing 
statement are set forth in WYO. STAT. § 34.1-9-402 (1991):

A 
financing statement is sufficient if it gives the names of the debtor and the 
secured party, is signed by the debtor, gives an address of the secured party 
from which information concerning the security interest may be obtained, gives a 
mailing address of the debtor and contains a statement indicating the types, or 
describing the items, of collateral. * * * A copy of the security agreement is 
sufficient as a financing statement if it contains the above information and is 
signed by the debtor.

After obtaining a security 
interest that attached in accordance with the statute, the Bank was required to 
perfect the security interest by filing a financing statement with the Campbell 
County clerk. WYO. STAT. § 34.1-9-402. The Bank could have perfected the 
security interest by filing the security agreement itself. Instead, it filed a 
financing statement, which met the statutory requirements.

[¶14]   The financing statement identified, 
in addition to other items, all machinery and equipment as secured collateral. 
This description gave the minimum information necessary to put New Oil on 
inquiry notice. Daly v. Shrimplin, 610 P.2d 397 (Wyo. 1980). See also Sec. Bank 
& Trust Co. v. Blaze Oil Co., 463 P.2d 495 (Wyo. 1970). New Oil did not 
examine the records of the Campbell County clerk under the name of "Century 
Energy" prior to the time it entered into its contract with Limited. Had it done 
so, New Oil would have discovered the Bank's security interest relating to the 
Partnership machinery and equipment. New Oil also would have found the surviving 
partners, two of the individuals who signed the financing statement filed of 
record, were the same persons as members of Limited. New Oil then would have had 
sufficient information to make inquiry of the Bank with respect to specific 
equipment the Bank claimed as collateral. New Oil not only could have but, 
inevitably would have, discovered the security interest of the Bank in the F 
pump.

[¶15]   The parties agree the Partnership 
and Limited are distinct business entities. It also is clear the Partnership 
never made a formal conveyance of the F pump to Limited. Even if we assume the 
Partnership had transferred ownership of the F pump to Limited, the Bank's 
perfected security interest would still attach to the F pump. WYO. STAT. § 
34.1-9-402(g) (1991) provides in the last sentence:

[A] filed financing statement remains effective with 
respect to collateral transferred by the debtor even though the secured party 
knows of or consents to the transfer.

This statutory language 
would protect the Bank even had there been a valid transfer from the Partnership 
to Limited.2

[¶16]   If we were to assume the 
Partnership simply changed its name to Limited, and there was only one entity 
involved, we reach the same result under the second sentence of WYO. STAT. § 
34.1-9-402(g) (1991):

Where the debtor so changes his name or in the case 
of an organization its name, identity or corporate structure that a filed 
financing statement becomes seriously misleading, the filing is not effective to 
perfect a security interest in collateral acquired by the debtor more than four 
(4) months after the change, unless a new appropriate financing statement is 
filed before the expiration of that time.

If we assume the shift from 
the Partnership to Limited was such a change in "identity or corporate 
structure" causing the filed financing statement to become "seriously 
misleading," Limited did not acquire the F pump within the four-month period 
after the change. The security interest of the Bank was acquired and perfected 
long before Limited was formed. Under the statute, the security interest of the 
Bank followed the F pump even if the shift from the Partnership to Limited were 
perceived as "seriously misleading."

[¶17]   Perhaps the problem in this case is 
attributable to the interchange in the gear boxes on the F pump and the E pump. 
While the record is not clear in this regard, the position of New Oil becomes 
rational only if a conclusion were reached that, because the F pump had the gear 
box with E pump serial number on the gear box, the Bank released from its 
security interest the pump in which New Oil claims its interest. The general 
practice and methods within the industry are contrary to that position. The 
record demonstrates the pump transferred to New Oil was the F pump, clearly 
subject to the security interest of the Bank. Even though the surviving members 
of the Partnership made the transfer of the pump to New Oil, acting for Limited, 
Limited could not transfer anything more than it owned. New Oil took the pump 
subject to the valid perfected security interest of the 
Bank.

[¶18]   Under Article 9 of the UCC, that 
perfected security interest had priority over an unsecured interest or any 
transfer with actual or constructive notice of the Bank's security interest. 
WYO. STAT. § 34.1-9-312 (1991). The Bank is entitled to possession of the F pump 
and can dispose of it in satisfaction of the Partnership 
debt.

[¶19]   The Bank seeks the imposition of 
sanctions under WYO.R.APP.P. 10.05, which provides in pertinent 
part:

If the court certifies there was no reasonable cause 
for the appeal, a reasonable fee to be fixed by the appellate court shall also 
be taxed as part of the costs in the case. The fee shall not be less than one 
hundred dollars ($100.00) nor more than five thousand dollars ($5,000.00) to the 
counsel of appellee; and damages to appellee, in such sum as may be reasonable, 
shall not exceed two thousand dollars ($2,000.00) * * *.

While the appeal by New Oil 
is determined to be without merit, the certification required by this rule is 
not appropriate in this instance. Consequently, we do not award attorney fees or 
damages to the Bank, pursuant to WYO.R.APP.P. 10.05.

[¶20]   We affirm the Partial Summary 
Judgment entered by the district court.

FOOTNOTES

1 The serial number is also imprinted on 
the gear box of a pumping unit. It appears that, in this case, the gear boxes on 
the F pump and the E pump were interchanged. Because gear boxes wear out and do 
have to be replaced or changed periodically, the permanent serial number on 
pumping units is located on the Sampson Post.

2 Official Comment 8 to this portion of 
WYO. STAT. § 34.1-9-402(g) (Supp. 1994) states that this 
subsection:

[D]eals with a 
different problem, namely whether a new filing is necessary where the collateral 
has been transferred from one debtor to another. * * * This Article now answers 
the question in the negative. Thus any person searching the condition of the 
ownership of a debtor must make inquiry as to the debtor's source of title, and 
must search in the name of a former owner if circumstances seem to require 
it.

* * * * * 
*

The last 
sentence * * * deals with the continued effectiveness of a filed financing 
statement to perfect any security interest that continues in the collateral 
following its disposition.