Title: Longtree, Ltd. v. Resource Control Intern., Inc.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Longtree, Ltd. v. Resource Control Intern., Inc.1988 WY 65755 P.2d 195Case Number: 87-45Decided: 05/05/1988Supreme Court of Wyoming
LONGTREE, LTD., A 
DELAWARE LIMITED PARTNERSHIP CONSISTING OF DIEHL LUMBER PRODUCTS, INC., AND 
TRICON U.S.A., AS GENERAL PARTNERS, APPELLANT (DEFENDANT), PACIFIC STAR, INC., A 
WASHINGTON CORPORATION, DBA STAR STUDS COMPANY; BIO-MASS SUPPLY, INC., A 
WASHINGTON CORPORATION; DIEHL LUMBER COMPANY, A UTAH CORPORATION; DARRELL JONES, 
AKA DARRELL M.B. JONES, AKA DARRELL M. JONES, INDIVIDUALLY; TERRY DIEHL, 
INDIVIDUALLY; LARRY BECK, INDIVIDUALLY; AND MERCEDES TIMBER, INC., A UTAH 
CORPORATION (DEFENDANTS),

v.

RESOURCE CONTROL 
INTERNATIONAL, INC., APPELLEE (PLAINTIFF).

Appeal from the District 
Court, LincolnCounty, John D. Troughton, 
J.

Harry L. Harris 
of Harris & Harris, Evanston, and Thomas F. 
Dailey (argued), Princeton, 
N.J., for appellant.

Dennis L. 
Sanderson, Afton, for appellee.

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

CARDINE, 
Justice.

[¶1.]     Appellee Resource 
Control International (RCI) filed this action against Longtree, Ltd. (Longtree) 
and various other defendants for conversion of a quantity of logs in which it 
had an interest. Following a bench trial, the district court found that RCI had 
an unperfected security interest in the logs and that Longtree, which claimed a 
superior security interest in the logs, was a buyer not in the ordinary course 
of business which purchased the logs with knowledge of RCI's security interest. 
The court entered judgment for RCI, and Longtree now appeals, asserting that the 
district court erred in the following respects: (1) in ruling that Longtree's 
perfected security interest in the logs was unenforceable; (2) in ruling that 
RCI's unperfected security interest was enforceable; (3) in ruling that RCI's 
unperfected security interest was entitled to priority over Longtree's perfected 
interest; (4) in failing to strike hearsay testimony concerning statements made 
by Darrell Jones; (5) in ruling that a cash bond posted by Longtree was not 
subject to the Bank of California's perfected security interest in proceeds from 
the logs; (6) in ruling that RCI's continued delivery of logs to Pacific Star on 
credit did not constitute future advances; and (7) in awarding RCI the full 
value of the logs rather than the value of RCI's unperfected security interest 
in the logs.

[¶2.]     We affirm the judgment 
of the district court.

FACTS

[¶3.]     In 1980, Darrell Jones 
obtained a loan in the amount of $1,620,000 guaranteed by the Farmers' Home 
Administration and another loan in the amount $180,000, both from the Star 
Valley State Bank in Afton, Wyoming. The loans were secured by a mortgage on the 
real estate upon which a sawmill was located and by a security interest in the 
mill equipment and machinery. The proceeds of the loan were used to acquire the 
sawmill in Afton, Wyoming. The assets of the sawmill were held 
in the name of Star Development, a trade name used by Jones. The sawmill assets 
were in turn leased to Pacific Star, which operated the sawmill under the trade 
name Star Studs Company.

[¶4.]     In October 1981, 
Pacific Star and Jones executed two notes in favor of the Bank of California, 
one a simple promissory note in the sum of $1,000,000, and the other a revolving 
credit note in the sum of $1,500,000. These notes were secured by a mortgage on 
the sawmill and by security agreements covering equipment and 

"[a]ll inventory, raw 
materials, equipment including but not limited to * * * sawmill supplies, work 
in progress and materials used or consumed in Debtor's business, now owned or 
hereafter acquired, and all accounts, contract rights, chattel paper, 
instruments, general intangibles and rights to payment of every kind, now or 
hereafter arising in favor of Debtor out of Debtor's business and all Debtor's 
right in returned or repossessed goods."

The security 
agreement also covered proceeds of such collateral. The Bank of California 
perfected its security interest by filing.

[¶5.]     In December 1981, 
Pacific Star and Jones defaulted on the Star Valley State Bank and Bank of 
California loans. In 1982, the Bank of California shut down the mill and worked 
out an agreement so that Jones could run the mill long enough to mill the logs 
already on hand. After those logs had been processed and the lumber had been 
sold and removed from the mill site, the mill was again shut down and the 
equipment was auctioned.

[¶6.]     In an effort to reopen 
the mill, Jones sought to establish a cogeneration facility next to the mill 
which would utilize wood, wood waste, and residue to produce steam which would 
in turn be used in the mill's dry kilns and would also generate electricity for 
sale to Idaho Power and Light. Jones contacted Jerry Harmon, manager of RCI, in 
an effort to obtain a supply of logs to process in the mill. Because of the Bank 
of California's outstanding security interest covering raw materials, Harmon was 
reluctant to sell logs to Jones on credit. Consequently, RCI and Jones agreed 
that RCI would borrow operating funds from the American National Bank of 
Afton, and the funds would be secured by 
Pacific Star's log deck and the fuel pile for the cogeneration plant. The 
agreement provided that title to the logs would remain in RCI until the logs 
were introduced into the manufacturing process. Although RCI was to retain title 
to all logs delivered to the mill, no financing statement was filed to perfect 
RCI's security interest in the logs.

[¶7.]     During 1983 and the 
first half of 1984, RCI supplied logs to Pacific Star under their agreement. In 
June of 1984 Jones met with Harmon and the American National Bank of Afton. It was agreed that the parties would continue under 
the log purchase agreement for another year. During this meeting, Jones 
indicated that he was exploring a new source of credit. The new source was 
Longtree, Ltd.

[¶8.]     Longtree, Ltd. is a 
limited partnership comprised of Diehl Lumber Products Company and Commodities 
Corporation. The president and major stockholder of Diehl Lumber Products is 
Terry Diehl. Longtree's other principal agent in this scenario was Larry Beck, a 
self-described "trader" working for Commodities Corporation. As described by Mr. 
Diehl and Mr. Beck, Longtree wanted to contract with Pacific Star for lumber 
products for the best possible price which they intended to sell approximately 
one year in the future. Longtree knew that Pacific Star had been experiencing 
financial problems.

[¶9.]     On June 22, 1984, 
Longtree entered into an agreement with Pacific Star which provided that 
Longtree would purchase, on a month-to-month basis, all logs delivered to the 
sawmill but not consumed or converted to lumber during the month. The agreement 
further provided that Pacific Star would repurchase the logs beginning in 
February 1985 by providing Longtree with finished lumber. The total value of 
logs to be purchased was $1,250,000. The agreement contemplated that Longtree's 
logs would be segregated, and Pacific Star would provide proof of payment to 
loggers. After the agreement was executed, it was reviewed by R. Dale Potter, 
counsel for Diehl Lumber, and by Tom Daily, counsel for Commodities Corporation. 
On July 17, 1984, Pacific Star executed a security agreement granting Longtree a 
security interest in Pacific Star's log deck. The agreement stated that the 
security interest was granted to secure the performance by Pacific Star of its 
obligations under its June 22, 1984 agreement with Longtree. Pacific Star also 
executed a financing statement which was filed on August 17, 
1984.

[¶10.]  After the 1984 Longtree agreement was 
executed, RCI continued to deliver logs to Pacific Star, and Longtree commenced 
making payment to Pacific Star. Longtree failed or neglected to demand proof 
that Pacific Star's loggers were being paid. Initially, the parties attempted to 
segregate Longtree's logs from Pacific Star's logs, but the mill could not 
operate under that arrangement. Consequently, the logs were commingled, and 
Longtree had Pacific Star post notices upon the logs which stated that the logs 
were owned by Longtree. Harmon, the manager of RCI, saw the notices, became 
alarmed that someone was claiming ownership of his company's logs, and made 
inquiry of Mr. Jones. Jones told Harmon that Longtree was aware of his 
ownership, that Longtree was helping Jones with his finances, and that the 
notices were a temporary maneuver to satisfy lenders. Harmon accepted this 
explanation.

[¶11.]  In January 1985, Longtree decided to 
explore a possible acquisition of the Pacific Star sawmill. A meeting between 
Pacific Star and Longtree was scheduled in January 1985 at O'Hare Airport in 
Chicago. Jones 
mailed a packet of materials to Mr. Beck and Mr. Diehl which provided an 
overview of Star Studs' financial condition. At the meeting, the relationship 
between Pacific Star and RCI was discussed. Following the meeting, Longtree 
concluded that Pacific Star was insolvent and that it did not want to purchase 
the sawmill. Longtree did not tell Darrell Jones that it had decided not to 
purchase the mill, and Jones continued with the hope and expectation of closing 
a sale. On January 21, 1985, Longtree offered to take over operation of the 
mill, but the offer was apparently declined.

[¶12.]  Ultimately, Pacific Star failed to 
perform its obligations under the 1984 Longtree agreement, and on April 22, 
1985, Longtree, acting through a wholly-owned subsidiary, Mercedes Timber, Inc., 
took control of the Afton sawmill. In doing so, Longtree took possession of the 
unsawed logs as well as some work in progress and finished lumber. Longtree 
refused to permit RCI to remove any logs, refused to acknowledge that RCI had 
any interest in the logs, and announced its intention to saw the 
logs.

[¶13.]  On April 23, 1985, RCI filed a complaint 
alleging that Pacific Star was indebted to it in the amount of $1,104,000 for 
logs, labor and materials purchased on account, and that RCI was the owner of 
the logs it had delivered to Pacific Star's sawmill. RCI also petitioned for, 
and obtained, a writ of attachment covering the logs. On April 24, 1985, RCI 
agreed to release its attachment covering the logs if a suitable bond were 
posted. RCI and Longtree then entered a stipulation providing that Longtree 
would post a bond and would be permitted to saw the logs and, if RCI won the 
lawsuit, it would be paid the value of the logs from the bond. After the 
stipulation was entered, the attachment was released, and the logs were sawed by 
Longtree.

[¶14.]  In July 1985, three months after the 
commencement of RCI's lawsuit, Longtree purchased the notes and associated 
mortgages and security interests from Star Valley State Bank and the Bank of 
California. Longtree began foreclosure proceedings and was awarded a decree of 
foreclosure. Longtree was the sole bidder at a foreclosure sale held on February 
20, 1987. The amount that Longtree bid for the property was less than the debt 
owed to Star Valley State Bank and the Bank of California. None of Pacific 
Star's other creditors received any funds from the sale.

THE LONGTREE 
AGREEMENT

[¶15.]  The parties agree that by virtue of its 
title retention contract, RCI became the holder of a security interest in the 
logs it delivered to Pacific Star.1 But RCI took no steps to perfect 
its security interest. An unperfected security interest is subordinate to a 
perfected security interest in the same collateral. Sections 34-21-930(a)(i) and 
34-21-941(e), W.S. 1977. An unperfected security interest is superior, however, 
to the interest of a buyer not in the ordinary course of business who takes with 
knowledge of the unperfected security interest. Section 34-21-930(a)(iii), W.S. 
1977.

[¶16.]  Longtree asserted a superior right to the 
logs under three alternative theories. First, it contended that it was a buyer 
not in the ordinary course of business without knowledge of RCI's unperfected 
security interest. Second, it contended that it held a perfected security 
interest in the logs which was superior to RCI's unperfected interest. Third, it 
argued that it was both a buyer not in the ordinary course of business and a secured 
party.

[¶17.]  The district court took the view that 
Longtree's status under its log purchase agreement with Pacific Star was that of 
a buyer not in the ordinary course of business. The court concluded that 
Longtree's security agreement with Pacific Star, which was executed one month 
after the log purchase agreement, was unenforceable because it was merely an 
"afterthought of Mr. Daily" which was taken "just in case a Court would rule 
that the transaction was a loan not a sale." The court found that Longtree had 
knowledge of RCI's security interest and consequently ruled that RCI had the 
superior right to the logs.

[¶18.]  Longtree now argues that the district 
court erroneously held that Longtree could not be both a buyer and a secured 
party.2 In our view, however, the critical 
determination made by the district court was a factual one - whether Longtree 
intended to create an article 9 security interest to secure the payment or 
performance of an obligation.

[¶19.]  As we stated in WYHY Federal Credit Union 
v. Burchell, Wyo., 643 P.2d 471, 474 (1982), the principal test for determining 
whether a transaction is to be treated as a secured transaction is whether the 
transaction was intended to have effect as security. The record contains 
undisputed evidence which demonstrates a good deal of ambivalence on the part of 
Longtree concerning whether the transaction should be structured as a straight 
purchase of inventory, an article 9 secured financing arrangement, or some 
combination of the two. The Pacific Star-Longtree agreement describes the 
transaction as a "log purchase-lumber sale agreement." The agreement contains 
the following footnote:

"Star Studs agrees to 
cooperate with Longtree Limited Partnership in Longtree's filing of any 
appropriate security documents necessary, in Longtree's sole discretion, to 
perfect its interest in the log deck."

[¶20.]  Although the log purchase agreement was 
executed on June 22, 1984, a security agreement was not executed until July 17, 
1984, and a financing statement was not filed until August 17, 1984. On 
September 8, 1984, R. Dale Potter, attorney for Diehl Lumber Products, wrote a 
letter to Terry Diehl, Larry Beck, and Darrell Jones in which he stated: 

"I have reviewed the 
letter agreement dated June 22, 1984, together with the Security Agreement and 
UCC-1 financing statement you provided. In addition to a review of these 
documents, I have discussed the purpose, nature, and the specifics of the 
transactions between Longtree Limited and Pacific Star, Inc. with each of you. 
My understanding is that Longtree will purchase log deck from Pacific Star and 
hold it as inventory. The log deck will be processed by Pacific Star for a fee 
and the product will be held by Longtree Limited for sale and distribution to 
its customers.

"In my opinion, the 
transaction as outlined is a purchase of inventory and there is no need for a 
security agreement nor a financing statement between Pacific Star and Longtree. 
In fact, you may want to avoid entering into any such Security Agreement in that 
it may create confusion about the nature of the transaction and give rise to an 
argument on behalf of the Bank of California that the transaction is actually a 
loan by Longtree Limited to Pacific Star rather than a purchase of log deck 
inventory.

"To assure that no such 
confusion is created, the log deck inventory should be segregated from any log 
deck belonging to Pacific Star. This could be accomplished by leasing property 
from Pacific Star and segregating all log deck belonging to Longtree Limited. 
Accurate accounting records should also be kept to help support the fact that 
the log deck inventory has been purchased and paid for by Longtree 
Limited.

"After the log deck has 
been processed, the product should be segregated and kept separate from any 
product belonging to Pacific Star. If possible, Longtree Limited should lease 
premises from Pacific Star for the purpose of storing its products. Accurate 
accounting records should also be kept to document that Pacific Star is being 
paid only for processing the inventory and that Pacific Star has no interest in 
the product. Periodic reconciliations between the accounting records and the log 
deck and product inventory on hand should be made by employees or officers of 
Longtree Limited."

On September 17, 
Darrell Jones wrote the following reply to Mr. Potter:

"I agree with you that 
the transaction outlined in the Pacific Star-Longtree letter agreement is a log 
purchase arrangement and not a loan to or advance on logs of Pacific Star. The 
only reason we considered the UCC-1 filing and subordination agreement was to 
help make Longtree's lenders more comfortable with the transaction. However, in 
the event of a dispute, I concur with you that these documents might confuse the 
issue of rightful ownership.

"As you requested, a 
lease is being prepared and all logs belonging to Longtree will be stored on the 
leased premises."

[¶21.]  In his opening statement at trial, 
Longtree's attorney stated:

"Longtree anticipated 
that this was nothing more than a purchase of inventory. But to be on the safe 
side and again knowing the Bank of California had a valid, perfected security 
interest in logs and in order to protect themselves in case somebody were to 
find or characterize this log purchase as a security arrangement or financing 
arrangement, they perfected a security interest, if such there was, by filing a 
financing statement in the Secretary of State's office in July of 
1984."

Near the end of 
the trial, he told the court:

"As we started out in 
this case, we - my opening statement was that we originally intended to enter 
into a log purchase agreement but if it wasn't that, then we had a security 
interest and we claimed a security interest in those 
logs."

Larry Beck 
testified as follows:

"Q. All right. Now Mr. 
Beck, I'm somewhat curious about this. Do you maintain that your transaction 
here is what would be construed as a purchase of logs?

"A. Yes, I 
do.

"Q. You don't maintain it 
would be a loan or a financing arrangement? 

"A. 
No.

* * * * * 
*

"Q. So that I've got 
everything clear now, you are claiming you - you were purchasing the logs, not 
financing them; is that correct?

"A. That's 
correct."

Longtree had 
Pacific Star post signs on the logs which read:

"LOG 
DECK

Owned 
By

LONGTREE 
LIMITED

Spokane, Washington"

Finally, Tom 
Daily's testimony indicates that the only reason the parties entered the 
security agreement was to protect Longtree in case a court "recharacterized" the 
transaction as a financing arrangement rather than a purchase of 
inventory:

"We were also concerned 
about a subsequent recharacterization of our purchase as it being a financing 
arrangement and we wanted to make certain that if it, in fact, were 
recharacterized, that it would be recharacterized as a secure financial 
arrangement or a secured loan to the extent of trying to get it characterized as 
a purchase money security and to take priority over even the Bank of 
California's lien."

[¶22.]  In the face of this evidence, Longtree 
now contends that it should be treated as a "financing buyer" with an article 9 
security interest rather than an unsecured buyer not in the ordinary couse of 
business. A financing buyer is a buyer who "advances money to [a] seller and 
acquires an interest in the goods to be supplied which secures the supplier's 
`alternative' duty either to deliver the goods or repay the advance." (Footnote 
omitted.) J. White and R. Summers, Uniform Commercial Code § 22-2 at 876 (2nd 
ed. 1980).

[¶23.]  In support of its argument that it was a 
financing buyer, Longtree cites In re Bristol Industries Corp., 38 
U.C.C.Rep.Serv. 989 (Bankr.Ct., D.Conn. 1981). In that case, General Motors 
supplied scrap metal to Bristol, a metals processor which was to 
convert the metal into bronze strip that was to be sold back to General Motors. 
General Motors purported to retain title to the scrap metal throughout the 
conversion process. Bristol owed substantial sums 
to a secured creditor who held a perfected security interest in Bristol's inventory. 
Before Bristol could convert the scrap metal 
supplied by General Motors under the title retention agreement into bronze 
strip, Bristol 
became insolvent and filed for bankruptcy. A dispute arose between General 
Motors and Bristol's secured lender as to which was 
entitled to the unprocessed scrap metal. The court found that the transaction by 
which General Motors provided scrap metal to Bristol was a sale and that General Motors' 
attempted retention of title was limited to the reservation of a security 
interest in the metal. The court further found that because General Motors 
failed to file a financing statement, its security interest was subordinate to 
the perfected security interest held by Bristol's lender. The court noted that General 
Motors' security interest was intended to secure Bristol's obligation to convert metal under its 
agreement with General Motors. The court stated:

"General Motors' 
relationship with Bristol is that of a financing buyer, that is, 
`the buyer who pays in advance to enable his seller to manufacture the very 
goods for which he has contracted.' Jackson & Cronman, A Plea For The 
Financing Buyer, 85 Yale L.J. 1, 3 (1975). While General Motors did not advance 
cash to aid in Bristol's acquisition of the raw 
material, General Motors did advance the raw material itself, here toll metal, 
from which Bristol manufactured the finished 
goods, alloy strip, which General Motors had contracted to purchase from 
Bristol. The 
arrangement has aspects of both a security device and a sale, and falls within 
the filing provisions of Article Nine." Id. at 998.

Longtree 
contends that it occupies the same position in this case as General Motors in 
Bristol Industries, except that Longtree filed a financing statement to perfect 
its security interest. 

[¶24.]  While we have no quarrel with the 
financing buyer concept, we conclude that it is not applicable to the facts of 
this case. Longtree is in a very different position than General Motors in the 
Bristol Industries case. In Bristol Industries, General Motors supplied the 
scrap metal to Bristol and the court 
characterized the transaction as a title retention sale from General Motors to Bristol. In the 
present case, Longtree bought the 
logs from Pacific Star outside Pacific Star's ordinary course of business. In 
addition, in this case the court found that Longtree bought them with knowledge 
of RCI's preexisting security interest. Because these facts did not exist in 
Bristol Industries, the case is distinguishable. We do not think Bristol 
Industries stands for the proposition that a buyer not in the ordinary course of 
business who purchases with knowledge of another party's unperfected security 
interest can improve its position and absolve itself of the effect of its 
knowledge by executing a security agreement and filing a financing statement, 
especially when the intent of the parties to create a security interest is 
doubtful.

[¶25.]  The question of whether Longtree's 
purchase of logs was intended to be an outright purchase of inventory or a 
secured financing arrangement was a question of fact for the trial court. Even 
though a security agreement and financing statement were executed, the record 
contained sufficient evidence for the district court's conclusion that Longtree 
intended the transaction to be an outright sale and purchase of logs. If 
Longtree wanted to be treated as a financing buyer, it could easily have 
structured the transaction to clearly reflect that desire. Moreover, although 
Longtree now insists that it should not be treated as a buyer not in the 
ordinary course of business, Longtree itself pursued that theory. A party who 
advances alternative theories at trial does so at the risk that one of them will 
be be accepted. The trial court did not err in concluding that Longtree should 
be treated as a buyer not in the ordinary course of business rather than the 
holder of an enforceable perfected security interest.

KNOWLEDGE

[¶26.]  The question of whether Longtree had 
knowledge of RCI's security interest is a question of fact. Section 
34-21-120(a)(xxv)(C) provides that

"[a] person `knows' or 
has `knowledge' of a fact when he has actual knowledge of 
it."

Knowledge may be 
proved by circumstantial evidence. See In re County Green Limited Partnership, 
438 F. Supp. 693, 697 (W.D.Va. 1977). When reviewing a trial court's 
determination of actual knowledge under the U.C.C., the trial court's findings 
of fact will not be set aside unless clearly erroneous, and "due regard shall be 
given to the trial court's opportunity to judge the credibility of the 
witnesses." Broadway National Bank v. G & L Athletic Supplies, Inc., 10 
Kan. App. 2d 
43, 691 P.2d 400, 402 (1984).

[¶27.]  The record contains sufficient evidence 
to support an inference that Longtree had actual knowledge of RCI's security 
interest. Longtree knew that RCI was virtually the only logger supplying logs to 
Pacific Star. The quantity of logs supplied and to be supplied by RCI was 
enormous. Mr. Diehl knew that Pacific Star had experienced financial 
difficulties in the past. He also knew that Pacific Star had been closed by 
creditors in 1984. Both Mr. Diehl and Mr. Beck knew that Jones did not have 
funds to satisfy his obligations to the Bank of California yet logs were still 
being supplied. Mr. Diehl and Mr. Beck sought to avoid the Bank of California's 
claim to the logs by structuring its transaction with Pacific Star as a purchase 
and sale rather than a financing arrangement, which was the same approach used 
by RCI. Mr. Diehl and Mr. Beck sought to avoid claims by loggers against the 
winter log deck by requiring that Longtree's logs be kept separate and by 
requiring loggers' invoices and evidence that previously received logs had been 
paid for. Finally, Mr. Jones told Jerry Harmon that Longtree was aware of RCI's 
claim to the logs.

[¶28.]  Although Longtree's witnesses denied 
actual knowledge of RCI's security interest, the trial court found these denials 
"preposterous" in light of their demonstrated expertise and experience in such 
affairs. The court observed that

"Wyoming people may be 
simple, trusting and generous but under the circumstances described, it is 
simply beyond belief that even the most gullible country hick would still be 
supplying logs on an open, unsecured account (or that his banker would let him). 
Correspondingly, it is beyond belief that these exceedingly intelligent, 
sophisticated, knowledgeable, successful and somewhat cynical and contemptuous 
businessmen would believe there would be a logger in this world trusting, 
gullible, rich or stupid enough to not only allow such an open and unsecured 
account, but in addition, to keep expanding it."

It has been 
stated that

"as a practical matter, 
the trier of fact may well conclude that where ignorance could not reasonably 
exist a person did in fact have knowledge in spite of his assertion to the 
contrary." 1 Anderson, Uniform Commercial Code § 1-201:360, 
p. 365 (3rd ed. 1981).

RCI did not 
introduce any direct evidence which showed that Longtree had actual, precise 
knowledge of the title retention arrangement between RCI and Pacific Star. 
Nevertheless, the circumstantial evidence described above and the trial court's 
observations concerning the credibility of Longtree's witnesses when they denied 
knowledge, when viewed in a light most favorable to RCI, are sufficient to 
support an inference that Longtree had knowledge of RCI's security interest in 
the logs.

ADEQUACY OF 
DESCRIPTION

[¶29.]  Longtree next contends that RCI did not 
obtain an enforceable security interest in the logs delivered after March 1984 
because it failed to obtain a signed security agreement covering those logs. The 
1983 log purchase agreement between RCI and Pacific Star, in which RCI retained 
title, created a security interest in favor of RCI as a matter of law. Section 
34-21-120, supra. The extent of RCI's security interest is determined by the 
applicable provisions of article 9:

"This article applies to 
security interests created by contract including * * * title retention 
contract." Section 34-21-902(b), W.S. 1977, Cum.Supp. 
1987.

Section 
34-21-922(a), W.S. 1977, Cum.Supp. 1987, provides:

"(a) [A] security 
interest is not enforceable against the debtor or third parties with respect to 
the collateral and does not attach unless:

"(i) The collateral is in 
the possession of the secured party * * * or the debtor has signed a security 
agreement which contains a description of the collateral * * 
*."

The RCI-Pacific 
Star log purchase agreement described the collateral as 
follows:

"RCI shall sell to 
Pacific Star and Pacific Star shall purchase from RCI, the logs which shall be 
made available to Pacific Star at its Star Studs Mill pursuant to the Logging 
Plan, a copy of which is attached hereto and made a part hereof. The parties 
recognize that the Logging Plan is subject to revision from time to time by RCI, 
with the reasonable consent of Pacific Star. The logs to be purchased and sold 
pursuant to the terms of this Agreement shall be delivered to Pacific Star's 
Star Studs Mill and stored at such location at the Mill site as Pacific Star 
shall designate from time to time."

The agreement 
was signed by Darrell Jones for Pacific Star. The logging plan attached to the 
agreement covered logs to be delivered between May 1983 and March 1984. The logs 
claimed by RCI in this action were delivered after March 1984. Although these 
logs were not identified in the 1983-1984 logging plan, they were identified in 
subsequent revisions.

[¶30.]  Longtree asserts that the revisions to 
the logging plan cannot serve as a description of the collateral because they 
were not signed by the debtor, Pacific Star. We disagree. In 8 Hawkland, Uniform 
Commercial Code Series § 9-110:04 (1986), the author 
states:

"One question that has 
arisen is the extent to which more than one document may qualify as a security 
agreement, when one document contains the debtor's signature (and perhaps a 
description of some collateral) and another document contains a description of 
additional collateral. The majority rule appears to be that so long as the 
documents express some internal connection with one another, they may be read 
together for purposes of including the collateral described in the second 
document within the security agreement's umbrella. This, or even a more liberal 
application of the statute of frauds function of the security agreement is 
certainly in keeping with the liberality evidenced by section 9-110. Some 
courts, however, would probably require more than mere internal consistency or 
connection, instead demanding that there be a reference within one document to 
the other." (Footnote omitted.) (See also WYHY Credit Union v. Burchell, supra, 
643 P.2d 471.)

In this case, 
the log purchase agreement and the revised logging plan express an internal 
connection with one another. As a result, the absence of a signature on the 
revised logging plan does not render RCI's security interest unenforceable. RCI 
obtained a security agreement signed by the debtor describing the collateral and 
its security interest.

[¶31.]  Longtree next argues that the parol 
evidence rule bars introduction of the logging plan revisions. This contention 
is meritless. In discussing the parol evidence rule, Calamari and Perillo 
state:

"The parol evidence rule 
has been stated in many ways but the basic notion is that a writing intended by 
the parties to be a final embodiment of their agreement may not be contradicted 
by certain kinds of evidence. A writing that is final is at least a partial 
integration. If the writing is final and also complete, it is a total 
integration and may not only not be contradicted by the type of evidence in 
question but may not even be supplemented by consistent (non-contradictory) 
additional terms. If it is final and incomplete it may be supplemented by 
consistent additional terms." J. Calamari and J. Perillo, Law of Contracts § 3-2 
at 135-36 (3rd ed. 1987).

In the present 
case, the express language of the contract indicates that it does not purport to 
be a complete expression of the parties' agreement. The contract expressly 
contemplates future revisions to the logging plan. These revisions, introduced 
by RCI at trial, were consistent additional terms to the agreement and were, 
therefore, admissable.

[¶32.]  Finally, Longtree asserts that the 
parties did not intend that the log purchase agreement would cover logs 
delivered after March 1984. In support of this assertion, Longtree relies upon 
deposition testimony of Darrell Jones. RCI has moved to strike any reference to 
this deposition testimony because it was not offered at trial. See Rule 32(a), 
W.R.C.P. We need not rule on RCI's motion to strike because, even if the 
deposition testimony could be relied upon at this stage of the proceedings, it 
is merely evidence which conflicts with evidence favoring the prevailing party. 
When reviewing factual findings, this court leaves such evidence out of 
consideration. Madrid v. Norton, Wyo., 596 P.2d 1108, 1117 
(1979).

BANK OF CALIFORNIA SECURITY 
INTEREST

[¶33.]  In 1981, Pacific Star granted the Bank of 
California a security interest in "[a]ll inventory, raw materials [and] 
equipment including but not limited to * * * sawmill supplies, work in process 
and materials used or consumed in Debtor's business, now owned or hereafter 
acquired * * *." This security interest, which was perfected in 1981, was broad 
enough to cover the logs delivered to Pacific Star by RCI.

[¶34.]  In July 1985, some three months after RCI 
filed this action, Longtree purchased the underlying debt owed by Pacific Star 
to the Bank of California and received an assignment of the Bank of California's 
perfected security interest. In April 1985, the parties had stipulated that 
Longtree could saw the logs upon posting a surety bond in the amount of 
$340,000, the estimated value of the logs. The court entered an order in 
accordance with this stipulation which provided:

"If the claim of the 
Plaintiff, Resource Control International, Inc., to the logs is upheld by this 
Court, the Defendants, Longtree Ltd, Diehl Lumber Company and Mercedes Timber, 
Inc., will pay to the Plaintiff the value of the logs now in the deck claimed by 
Resource Control International, Inc."

Longtree now 
contends that the security interest which it obtained from the Bank of 
California continued in "any identifiable proceeds" of the collateral under § 
34-21-935(b), W.S. 1977, Cum.Supp. 1987, and that the surety bond constitutes 
proceeds of the collateral.

[¶35.]  Section 34-21-935(a), W.S. 1977, Cum. 
Supp. 1987, defines proceeds as follows:

"`Proceeds' includes 
whatever is received upon the sale, exchange, collection or other disposition of 
collateral or proceeds."

The district 
court concluded that the bond posted by Longtree did not fall within this 
definition. We agree. The bond simply did not comprise something received upon 
the sale, exchange, collection or other disposition of the logs. Instead, the 
posting of the bond allowed Longtree to dispose of the logs. Presumably, they 
sold the logs as lumber and received "proceeds" from those 
sales.

FUTURE 
ADVANCES

[¶36.]  Longtree next contends that RCI's 
unperfected security interest is rendered unenforceable by the future advances 
provision in § 34-21-936(c), W.S. 1977, Cum. Supp. 1987, which 
states:

"A buyer other than a 
buyer in ordinary course of business (subsection (a) of this section) takes free 
of a security interest to the extent that it secures future advances made after 
the secured party acquires knowledge of the purchase, or more than forty-five 
(45) days after the purchase, whichever first occurs, unless made pursuant to a 
commitment entered into without knowledge of the purchase and before the 
expiration of the forty-five (45) day period."

Longtree argues 
that RCI's continued sales of logs to Pacific Star on credit constituted future 
advances, at least a portion of which were made with knowledge of Longtree's 
purchase and/or more than forty-five days after Longtree's 
purchase.

[¶37.]  While Longtree's argument is perhaps 
vulnerable on several grounds, we conclude, as did the district court, that 
RCI's continued delivery of logs to Pacific Star did not constitute future 
advances under § 34-21-936. Although the U.C.C. does not define the term "future 
advance," the reason for protecting buyers against future advances is to prevent 
a secured party from "squeezing out" a buyer who takes subject to a security 
interest by merely making additional advances to the debtor which enlarge the 
secured party's security interest in the collateral. See Draftsmen's Statement 
of Reasons for 1972 Changes in Official Text § 9-312, ¶¶ 2, 5. Thus it has been 
held that second loans which place an additional burden on collateral should be 
considered future advances under the section. Spector United Employees Credit 
Union v. Smith, 45 N.C. App. 432, 263 S.E.2d 319 (1980).

[¶38.]  Section 34-21-102, W.S. 1977, provides 
that the Uniform Commercial Code "shall be liberally construed and applied to promote its underlying purposes and 
policies." (Emphasis added.) The official comment to § 1-102 of the U.C.C. 
states:

"The text of each section 
should be read in the light of the purpose and policy of the rule or principle 
in question * * * and the application of the language should be construed 
narrowly or broadly, as the case may be, in conformity with the purposes and 
policies involved."

Longtree was not 
subjected to the type of unfairness which § 34-21-936(c) was designed to 
prevent. Each extension of credit was accompanied by a corresponding increase in 
the collateral. Longtree knew of the credit arrangement before agreeing to 
purchase the logs, and the continued deliveries of lumber did not increase the 
burden on the collateral beyond the terms of the original agreement. The trial 
court correctly ruled that § 34-21-936(c) did not render RCI's unperfected 
security interest unenforceable.

DAMAGES

[¶39.]  Upon finding that Longtree converted the 
logs to which RCI had the superior claim, the district court awarded RCI the 
full value of the logs. Longtree contends that RCI was only entitled to the 
value of its unperfected security interest in the logs, which was worth 
considerably less than the logs themselves.

[¶40.]  We find no error in the damage award. In 
Frantz v. First National Bank & Trust Company of Wyoming, Wyo., 687 P.2d 1159, 1162 (1984), we 
said:

"A secured party 
ordinarily may proceed against the debtor to either collect the debt or to 
obtain the proceeds from the transfer or maintain an action against the 
purchaser for repossession of the collateral or an action for conversion. 
American East India Corp. v. Ideal Shoe Co., 400 F. Supp. 141 (1975). Ordinarily 
one who acquires by purchase or otherwise is liable in trover or conversion for 
the value of the property or the amount paid. South Omaha Production Credit 
Ass'n v. Tyson's Inc., 189 Neb. 702, 204 N.W.2d 806 
(1973)."

The trial court 
applied the correct measure of damages by awarding RCI the value of the 
logs.

HEARSAY 
TESTIMONY

[¶41.]  Finally, Longtree asserts that the trial 
court erred in denying its motion to strike the hearsay testimony of Jerry 
Harmon. The motion to strike was remarkably broad in scope. It included "all of 
the testimony of Mr. Harmon and other witnesses as it related to any statements 
made by Mr. Darrell Jones * * *." We conclude that the trial court properly 
denied the motion to strike because it was untimely. Rule 103, W.R.E., 
provides:

"(a) Effect of erroneous ruling. - Error may 
not be predicated upon a ruling which admits or excludes evidence unless a 
substantial right of the party is affected, and

"(1) Objection. 
- In case the ruling is one admitting evidence, a timely objection or motion to 
strike appears of record, stating the specific ground of objection, if the 
specific ground was not apparent from the context * * *."

An objection or 
motion to strike is timely if made when the grounds for the motion first become 
apparent. 1 D. Louisell and C. Mueller, Federal Evidence § 8 (1977). Appellant 
argues that the grounds for objection to the disputed statements did not exist 
until it was determined that the declarant, Darrell Jones, would not be called 
as a witness by appellee. In support of this argument, Longtree cites Rule 
801(d)(1), W.R.E., which provides:

"A statement is not 
hearsay if * * * [t]he declarant testifies at the trial or hearing and is 
subject to cross-examination concerning the statement, and the statement is (A) 
inconsistent with his testimony * * *."

In order for a 
statement to fall within this section, it must be inconsistent with the 
declarant's testimony at trial. Because Darrell Jones had not testified at trial 
when the disputed statements were admitted, there was no way of knowing whether 
the statements were inconsistent with his testimony. At that point they were 
inadmissible hearsay and subject to a motion to strike. Because the grounds for 
objection appeared long before the motion to strike was made, the motion was 
untimely.

[¶42.]  Affirmed.

FOOTNOTES

1 Section 
34-21-120(a)(xxxvii), W.S. 1977, provides in pertinent 
part:

"The retention or 
reservation of title by a seller of goods notwithstanding shipment or delivery 
to the buyer (section 2-401 [§ 34-21-246]) is limited in effect to a reservation 
of a `security interest.'"

2 The code indicates that 
a buyer of goods can also hold an article 9 security interest in those goods. 
Section 34-21-902(a), W.S. 1977, Cum. Supp. 1987, states:

"[T]his article 
applies:

"(i) To any transaction 
(regardless of its form) which is intended to create a security interest in 
personal property * * *."

Section 
34-21-120(a)(xxxvii), W.S. 1977, defines a security interest in the following 
terms:

"`Security interest' 
means an interest in personal property or fixtures which secures payment or 
performance of an obligation."

The section goes 
on to provide that a buyer may acquire a security interest in the goods he is 
buying:

"The special property 
interest of a buyer of goods on identification of such goods to a contract for 
sale under section 2-401 [§ 34-21-246] is not a `security interest,' but a buyer may also acquire a `security interest' 
by complying with article 9." (Emphasis added.)

Moreover, 
article 9 makes it clear that the location of title to collateral is 
immaterial:

"Each provision of this 
article with regard to rights, obligations and remedies applies whether title to 
collateral is in the secured party or in the debtor." Section 34-21-921, W.S. 
1977.