Case Title: John Deere Co. v. Butler County Implement, Inc.

Citation: 232 Kan. 273, 655 P.2d 124

Docket Number: 53,898

State: kansas

Court: Kansas Supreme Court

Date: 1982-12-03T00:00:00Z

Document:
232 Kan. 273 (1982)
655 P.2d 124
JOHN DEERE COMPANY, A Delaware Corporation, Appellee,
v.
BUTLER COUNTY IMPLEMENT, INC., A Kansas Corporation; UNITED STATES OF AMERICA; FIRST NATIONAL BANK AND TRUST COMPANY; BORG-WARNER ACCEPTANCE CORPORATION, A Delaware Corporation; AUSTIN PRODUCTS, INC., A Texas Corporation; KUBOTA TRACTOR CORPORATION, Appellees, and STATE OF KANSAS, DEPARTMENT OF HUMAN RESOURCES; STATE OF KANSAS, DEPARTMENT OF REVENUE, Appellants.
No. 53,898

Supreme Court of Kansas.
Opinion filed December 3, 1982.
H. Dean Cotton, attorney, Kansas Department of Human Resources, argued the cause and was on the briefs for appellant, Kansas Department of Human Resources.
Michael G. Coash, of Bond, Bond & Coash, of El Dorado, argued the cause and was on the brief for appellee, First National Bank and Trust Company.
Alan F. Alderson, general counsel, Kansas Department of Revenue, argued the cause, and Craig A. Kreiser, attorney, Kansas Department of Revenue, was on the brief for appellant, Kansas Department of Revenue.
Terry L. Fredricks, attorney, United States Department of Justice, argued the cause, and Glenn L. Archer, Jr., assistant United States attorney general, Michael L. Paup, and Richard Farber, attorneys, United States Department of Justice, were with him on the brief for appellee, United States of America.
The opinion of the court was delivered by
McFARLAND, J.:
This is an interpleader action brought by *274 plaintiff John Deere Company. The subject matter of the action is excess proceeds from the sale of repossessed inventory of farm equipment. Said inventory had been repossessed by John Deere under a floor-plan agreement after defendant Butler County Implement, a John Deere dealer, defaulted on payments due John Deere. The dispute at trial and before us is among the various defendants, each of which has asserted a competing claim for the funds. The Kansas Departments of Revenue and Human Resources appeal from the judgment of the district court entered in favor of the defendant First National Bank and Trust Company. No appeal has been taken by any party from the award to defendant United States of America of two other accounts and an insurance premium refund which were also interpleaded. Hence only the award to the Bank is before us.
The $4,359.40 claim of the Department of Human Resources is based upon contributions, penalty and interest due under the employment security law, K.S.A. 44-701 et seq. The $14,905.20 claim of the Department of Revenue is based upon unpaid sales and withholding taxes. The claim of the Bank is upon security agreements and exceeds the fund herein. The interpleaded proceeds are in the amount of $67,954.69. Clearly the proceeds are insufficient to satisfy all claims. The question is one of priority.
The issues raised herein divide into two categories: (1) those relating to whether K.S.A. 44-717 grants the Department of Human Resources a preemptive priority for collection of delinquent unemployment contributions under the circumstances herein; and (2) whether the Bank's security agreements granted it security interests in the after-acquired inventory from which the proceeds were derived.
We shall first determine the issues relative to K.S.A. 44-717. The initial point to be considered is whether K.S.A. 44-717(c) is applicable to interpleader actions. The statute provides:
Human Resources contends that K.S.A. 44-717(c) applies to interpleader actions and grants it a preemptive priority over all other claims including those of secured creditors. Is K.S.A. 44-717(c) applicable to interpleader actions? We believe not.
State v. Mauritz-Wells Co., 170 S.W.2d 625 (Tex. Civ. App.), aff'd 141 Tex. 634, 175 S.W.2d 238 (1943), involves a statute remarkably similar to K.S.A. 44-717(c). Humble Oil and Refining Company was holding $14,887.06 which it owed to Tyler Construction Company. Thirty Tyler creditors made conflicting claims to the money being held. Among these parties was the State of Texas which asserted a claim for unpaid contributions under the Texas unemployment compensation act. Humble Oil filed a bill of interpleader seeking to have all such parties interpleaded so that their rights to participate in the fund might be determined and thereby avoid the risk of double liability.
In Mauritz-Wells the Texas Court of Civil Appeals reasoned:
It should be noted "stakeholder's suit" and "interpleader action" are interchangeable terms for the same type of proceeding. See Black's Law Dictionary 1259 (5th ed. 1979).
The Texas Supreme Court, in affirming the Court of Civil Appeals, reasoned:
....
A like result was reached under similar facts and statute in the Pennsylvania case of Reconstruction Finance Corp. v. Fallston Co., 53 Pa. D. & C. 226 (1944).
81 C.J.S., Social Security § 202, p. 389, states:
We find the rationale of the Texas courts compelling. We therefore conclude an interpleader action is not ejusdem generis with, i.e., does not belong to the same general class as, proceedings contemplating the winding up of affairs of a business such as distributions in receiverships, assignments for benefit of creditors, adjudicated insolvency, composition, and similar proceedings referred to in K.S.A. 44-717(c). K.S.A. 44-717(c) is therefore held to be inapplicable to interpleader actions. Accordingly the Department of Human Resources' claim, based on unpaid employment security contributions, is entitled to no priority under K.S.A. 44-717(c).
The next point is whether K.S.A. 44-717(c) grants Human Resources a simple priority or preemptive priority herein. Or, put in other words, does the priority so granted extend only to other unsecured claims or to all claims whether secured or unsecured? By virtue of having just concluded that K.S.A. 44-717(c) is inapplicable to the interpleader action before us, we do not reach this question.
The final point raised by Human Resources relative to K.S.A. 44-717 is whether the trial court erred in reading K.S.A. 44-717(c) and (e) together. Section (e) of the statute provides a detailed procedure whereby Human Resources may perfect a lien for unpaid contributions, said lien being entitled to priority over subsequently filed liens. Human Resources has, in fact, perfected a lien under K.S.A. 44-717(e) but said lien is later in time to that of the Bank. Human Resources concedes any liens filed prior to its lien are prior in right. In order to take priority over the Bank, Human Resources is asserting it has a wholly separate preemptive priority under K.S.A. 44-717(c).
Human Resources' contention that the trial court erroneously "read" the two statutes together is predicated upon the following language from the trial court's memorandum decision:
It appears highly appropriate for the trial court to consider both sections of the statute. The contention of Human Resources that K.S.A. 44-717(c) afforded it a preemptive priority over even secured creditors without regard to any time sequence is quite inconsistent with K.S.A. 44-717(e) which requires Human Resources to comply with rather complex procedures before it may assert a lien that only takes priority as to subsequently perfected liens.
In any event, our conclusion that K.S.A. 44-717(c) is not applicable to interpleader actions disposes of any issue which may or may not have been involved on this point. The trial court reached the right result in concluding K.S.A. 44-717(c) was inapplicable to the action herein. Reversible error therefore cannot be predicated on what the trial court did or did not consider or read together in reaching said legal conclusion. See Taylor v. Department of Health & Environment, 230 Kan. 283, 286, 634 P.2d 1075 (1981), and Farmers State Bank v. Cooper, 227 Kan. 547, 608 P.2d 929 (1980). We need not delve further into this rather obscure claim of error.
We turn now to the issue raised by both appealing state departments which, by virtue of their united front on this issue, shall henceforth be referred to as the "Departments." The issue is whether the security interests of defendant Bank attached to after-acquired inventory proceeds under the Uniform Commercial Code.
There were two security agreements, executed in 1973 and 1977 respectively. There is no claim the earlier agreement merged into or was superseded by the later agreement. In fact, the 1973 agreement was renewed subsequent to the execution of the 1977 agreement. There is no claim that either agreement is defective for lack of following proper filing procedures. Each agreement utilizes different terminology in describing the collateral.
Resolution of this issue involves the application of the following two statutes:
....
....
and in K.S.A. 1981 Supp. 84-9-110:
The Departments contend the language utilized in both security agreements is legally insufficient pursuant to K.S.A. 1981 Supp. 84-9-110 to include after-acquired inventory and that the trial court erred in holding otherwise. By virtue of the different terminology employed in describing the collateral in each security agreement, we must give separate consideration to each agreement.
We shall first consider the security agreement executed August 19, 1977, which provides in relevant part:
"All new equipment per attached Exhibit `A'
"All used equipment per attached Exhibit `A'"
Exhibit "A" consists of a list of 29 pieces of farm equipment captioned "Paid for Goods (New) as of August 15, 1977." Following said list are three pages of itemized pieces of farm equipment captioned "Used Equipment as of August 15, 1977." Exhibit "B" is a handwritten list of innumerable lower valued items such as tires, attachments for farm equipment, hose kits, brackets, etc.
Looking at the 1977 description of collateral including exhibits "A" and "B" there is nothing included therein which even inferentially indicates that after-acquired inventory is to be included in the collateral. Rather, the contrary is evinced  that the *280 collateral consisted solely of specifically listed goods then physically in the possession of the debtor implement dealer.
We have no hesitancy in concluding that the collateral designated in the 1977 security agreement does not include after-acquired farm equipment inventory. Accordingly the trial court erred in awarding the Bank a priority in the interpleaded fund based on the 1977 security agreement.
The description of the collateral in the 1973 security agreement is considerably different, providing in relevant part:
Exhibit "A" is set forth in full except for values and serial numbers, as follows:
Notably absent from Exhibit "A" is any mention of the implement company's inventory of new farm equipment.
It should be observed before proceeding further that the opening paragraphs of both the 1973 and 1977 security agreements are identical by virtue of the fact that this particular paragraph was printed on the form used for both agreements.
Clearly the new John Deere farm equipment which defendant implement company was in the business of selling at retail properly should have been classified as "inventory" rather than "equipment" to be in conformity with K.S.A. 84-9-109. Is this misclassification fatal to the Bank's claim of a secured claim herein? We believe not.
For convenience the description of the 1973 collateral is repeated as follows:
In determining whether the collateral description is sufficient to include after-acquired inventory of John Deere farm equipment *282 despite a technical misclassification under K.S.A. 84-9-109, a reasonable approach should be utilized. K.S.A. 1981 Supp. 84-9-110 provides that the description is sufficient if it reasonably identifies what is described.
The Kansas Comment following K.S.A. 84-9-110 states:
The debtor herein was a retail dealer in farm equipment. "Equipment" is a term commonly utilized to describe the type of product an implement dealer normally sells at retail. "Now owned and hereafter acquired" obviously refers to all four categories preceding the phrase  not just to "accounts receivable." The security interest of the Bank was expressly made "subject only to present and future liens in favor of John Deere on John Deere Floor planned equipment and/or John Deere parts inventory." "Floor plan" is a term used to describe a method of financing the purchase of inventory  not equipment as that term is used in K.S.A. 84-9-109. The collateral description acknowledges the Bank's security interest is subject to "future liens in favor of John Deere." This is wholly consistent with the concept of the collateral being inventory which, by its very nature, is always in a state of change.
Although not condoning the careless draftsmanship giving rise to this issue, we conclude that the description of the collateral in the 1973 Security Agreement is sufficient to include the after-acquired John Deere farm equipment inventory whose repossession and sale resulted in the creation of the stake interpleaded herein. There is indication in the record that the Bank's claim based on the 1973 secured transaction is, by itself, in excess of the interpleaded fund. If so, then the decision herein will not alter the trial court's award of the entire fund to the First National Bank and Trust Company. If, however, on remand the trial court determines that the Bank's secured claim is actually less than the *283 entire interpleaded fund, then the trial court must determine how the balance should be distributed.
The judgment is affirmed in part, reversed in part, and remanded with directions.