Title: Franklin v. First Nat. Bank of Morrill, Neb.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Franklin v. First Nat. Bank of Morrill, Neb.1993 WY 30848 P.2d 775Case Number: 92-132Decided: 03/10/1993Supreme Court of Wyoming
Lee 
FRANKLIN, Individually, and d/b/a Auto Brokers, 

Appellant 
(Defendant),

v.

FIRST 
NATIONAL BANK OF MORRILL, NEBRASKA,

 Appellee 
(Plaintiff).

Appeal 
from District Court, Goshen County, J.T. Langdon, J.

Michael 
E. Warren (argued), Sawyer, Warren & Kautz, Torrington, for 
appellant.

Gregory 
C. Dyekman (argued) and W. Perry Dray, Dray, Madison & Thomson, Cheyenne, 
James A. Eddington, Jones, Eddington & Weaver, Torrington, and Richard A. 
Douglas, Scottsbluff, NE, for appellee.

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

CARDINE, 
Justice.

[¶1]      This appeal is 
from an order giving the appellee First National Bank's lien priority and 
awarding the Bank the proceeds from the sale of two vehicles. We must determine 
whether the sale of either or both of the vehicles was in the ordinary course of 
business and therefore the claim of the purchaser superior to the Bank's secured 
interest under Wyoming's Uniform Commercial Code.

[¶2]      We affirm in part 
and reverse in part.

[¶3]      Appellant raises 
these issues:

I. 
Does a purchaser in the ordinary course of business who purchases a motor 
vehicle from a car dealer purchase the motor vehicle free of a validly perfected 
security interest?

II. 
May a person place a lien on property that he does not legally 
own?

III. 
Was the plaintiff a third party beneficiary to the dissolution agreement between 
the defendant and Russ Surdez?

In 
contrast, appellee raises this issue:

Does 
the record contain support for the trial court's holding that appellee's 
perfected security interests in motor vehicles and proceeds were superior to the 
rights of appellant in those vehicles?

FACTUAL 
BACKGROUND

[¶4]      Lee Franklin 
(appellant) entered into a partnership with Russ Surdez under which they 
operated a used car lot called Auto Brokers. Their short-lived partnership began 
on April 1, 1990, and ended on July 10, 1990. During the partnership the 
business purchased a 1989 Oldsmobile.

[¶5]      After termination 
of their partnership, Russ Surdez opened his own separate used car lot called 
"Wyoming Auto Rebuilders." Franklin continued to operate Auto Brokers. The 
partnership dissolution agreement provided that Surdez was to receive title to 
the 1989 Oldsmobile. Franklin refused to release the title to Surdez because he 
claimed that Surdez still owed debts to their former 
partnership.

[¶6]      When Surdez began 
his new business, he entered into a loan contract with the First National Bank 
of Morrill, Nebraska (appellee). Under the Bank's financing agreement with 
Surdez, the Bank had a floor plan lien on the cars on Surdez's lot. The Bank 
also filed specific security interests in each individual 
car.

[¶7]      On November 27, 
1990, about four months after their partnership was dissolved, Franklin bought 
two vehicles, a 1984 Bronco II and a 1985 Ford four-wheel drive pickup, from 
Wyoming Auto Rebuilders - the car lot Surdez now operated. Franklin testified 
that he did not know of the Bank's security interest in the Bronco when he 
purchased it from Surdez.

[¶8]      Surdez next filed 
for Chapter Seven bankruptcy. Franklin appeared at the bankruptcy creditor's 
meeting. Franklin talked with Surdez on the record about the Bronco sale. 
Franklin indicated that he was having trouble getting the title to the Bronco 
even though he had paid Surdez $3,000.00 for it. The Bank had possession of the 
title pursuant to the lien Surdez had given the Bank.

[¶9]      The Bank filed a 
replevin action against Franklin for the vehicles. The parties entered into a 
stipulation which permitted the Bank, after posting a replevin bond, to take 
possession of the vehicles. Franklin also consented to the Bank's selling of the 
vehicles with the proceeds to be retained and paid to the party entitled 
thereto. This suit concerns who is entitled to the proceeds of that 
sale.

[¶10]   After a trial, the district court 
held that the Bank was entitled to the proceeds from the sale of the vehicles. 
Franklin filed a timely notice of appeal from the district court's 
order.

STANDARD 
OF REVIEW

[¶11]   In reviewing the district court's 
decision, we employ the following standard of review:

  This court presumes the district court's 
findings of fact are correct and will not disturb such findings on appeal unless 
they are inconsistent with the evidence, clearly erroneous, or contrary to the 
great weight of the evidence. * * * To determine whether evidence presented at 
trial was sufficient to support the judgment this court first of all gives 
deference to the trial court's determination because it was able to judge the 
demeanor of the witnesses. We then accept the evidence of the prevailing party 
as true and give that party the benefit of all favorable inferences that can 
fairly be drawn from its evidence, while disregarding conflicting 
evidence.

Narans 
v. Paulsen, 803 P.2d 358, 360 (Wyo. 1990) (citations 
omitted).

[¶12]   In his brief, appellant admits that 
he paid no monies for the 1985 Ford pickup, and he claims no interest in that 
vehicle for purposes of this appeal. Therefore, only the Oldsmobile and Bronco 
are before us. Because the facts are unique to each vehicle and the legal issues 
vary, we address the legal issues as they relate to each 
car.

THE 
1989 OLDSMOBILE

[¶13]   Franklin and Surdez purchased the 
Oldsmobile during their partnership. The partnership dissolution agreement 
provided that Surdez would receive the Oldsmobile.  partnership dissolution agreement 
provided that Surdez would receive the Oldsmobile. When it came time to transfer 
the Oldsmobile title from the partnership to Surdez alone, Franklin refused to 
sign. Franklin contended that Surdez owed him money for partnership transactions 
that Surdez told him were paid but in fact were not paid.

[¶14]   Since he was unable to obtain 
Franklin's signature on the title, Surdez resorted to self help. Surdez's wife, 
Minnie Surdez, took the title to the Goshen County Clerk's Office. Under the 
clerk's supervision, Minnie Surdez crossed out the name on the title (Auto 
Brokers) and wrote in Wyoming Auto Rebuilders.

[¶15]   Franklin did not consent or know of 
the title alteration that Minnie Surdez had performed until later. Since 
Franklin was not receiving satisfaction for what he claimed he was owed, he too 
resorted to self help. Franklin physically seized the Oldsmobile when he found 
it parked with the keys in it.

[¶16]   Franklin contends that the Bank's 
lien on the Oldsmobile is not valid because Surdez placed a lien on property 
that he did not own. Franklin also argues that no legal transfer of ownership 
took place from Auto Brokers to Surdez because Franklin did not sign the title, 
and Minnie Surdez improperly transferred the title without his 
consent.

[¶17]   Franklin cites W.S. 
34.1-9-203(a)(iii) for the proposition that a person cannot use property they do 
not own as collateral and create a valid lien. While Franklin is correct in a 
general sense, the peculiar and hopefully not repeated facts in this case 
warrant further examination than simple application of the general statute 
Franklin cites.

[¶18]   With respect to the Oldsmobile, 
Franklin did not have ownership under the terms of the partnership dissolution 
agreement. It is true that Surdez, through his wife, accomplished an 
unauthorized title switch. However we agree with the district court that 
although the means of switching the paper title was improper, Surdez's ownership 
of the title was not. He was entitled to the Oldsmobile under the parties' prior 
agreement. The district court also found that, as a general partner, Surdez's 
winding up powers allowed him to sign the title over although he did so in an 
unauthorized fashion. We agree with the district court. Surdez did own the 
Oldsmobile for purposes of placing a valid lien on it; and his transfer of 
title, although unusual and not condoned by this court, was permissible under 
the partnership dissolution agreement and W.S. 17-13-609 (1989). See also Schunk 
v. Thickman, 436 P.2d 542, 546 (Wyo. 1968). Since both parties resorted to self 
help, Franklin's claim of prejudice from the self help is unpersuasive. The 
district court found that the terms of the partnership dissolution agreement 
controlled. We agree with that determination.

[¶19]   Franklin argues that the Bank 
should not be allowed to step into Surdez's shoes and enforce the partnership 
dissolution agreement. We need not address this argument because the district 
court upheld the title transfer on the grounds of legitimate partnership winding 
up powers, not on the grounds of the Bank being an incidental beneficiary to the 
partnership dissolution agreement.

THE 
1984 FORD BRONCO

[¶20]   Surdez gave the Bank a security 
interest in the 1984 Ford Bronco. The Bank filed the security agreement and the 
financing statement with the Goshen County Clerk and thereby recorded its 
security interest. On October 30, 1990, the Goshen County Clerk's office issued 
a title for the 1984 Bronco to Wyoming Auto Rebuilders. The title noted the lien 
of appellee First National Bank of Morrill, Nebraska.

[¶21]   On November 27, 1990, Franklin 
bought the 1984 Ford Bronco from Surdez's Wyoming Auto Rebuilders. Franklin 
agreed to a $3,700.00 purchase price for the vehicle. Franklin paid Surdez 
$3,000.00, and they agreed that the remaining $700.00 would cancel a debt owed 
to Franklin.

[¶22]   In its replevin complaint, the Bank 
claimed that since Franklin's purchase of the Bronco was subsequent to the 
Bank's perfected lien and security interest, any interest Franklin could claim 
was subject to the Bank's prior lien and security interest. Franklin argued that 
purchasers of cars from car dealers take free of a Bank's security 
interest.

[¶23]   The district court found that the 
Bank's lien was prior and that the Bank was entitled to the proceeds from the 
sale of the Bronco. The district court relied on the motor vehicle registration 
code rather than on the Uniform Commercial Code. The district court noted a 
conflict between buyer-in-the-ordinary-course sections, W.S. 34.1-9-307 and 
34.1-1-201(a)(ix), of the Uniform Commercial Code. Therefore, the district court 
looked to the Wyoming Motor Vehicle Registration Act, W.S. 31-2-103 
(1989).

[¶24]   The court reasoned that the lien 
notation on the title should prevail over any purchase in the ordinary course of 
business. The district court order asked rhetorically: "Of what purpose are the 
requirements in this motor vehicle transfer provision if the lien or encumbrance 
is voided by a transfer `in the regular course of business?'" Reliance upon the 
Motor Vehicle Registration Act rather than the Uniform Commercial Code was 
incorrect as a matter of law. 

[¶25]   The Motor Vehicle Registration Act 
sets out the procedure for noting a lien on a title but does not resolve 
priority claims. See W.S. 31-2-103 (1989). The majority of courts which have 
considered whether their motor vehicle registration act applies instead of the 
Uniform Commercial Code have held that the Uniform Commercial Code governs 
priority questions. North Carolina Nat'l Bank v. Robinson, 78 N.C. App. 1, 336 S.E.2d 666, 672 (1985); Cunningham v. Camelot Motors, Inc., 138 N.J. Super. 489, 
351 A.2d 402, 405 (1975); Correria v. Orlando Bank & Trust Co., 235 So. 2d 20, 24 (Fla.App. 1970); Chrysler Credit Corp. v. Sharp, 56 Misc.2d 261, 288 N.Y.S.2d 525, 529 (N.Y.Sup. 1968); Sterling Acceptance Co. v. Grimes, 194 Pa. 
Super. 503, 168 A.2d 600, 602-03 (1961).

[¶26]   The Uniform Commercial Code 
promotes smooth commerce, and it makes more sense for it to cover these types of 
commercial transactions rather than motor vehicle registration acts which vary 
from state to state. Therefore, it was error to rely on the Motor Vehicle 
Registration Act as a basis for decision in this case.

BUYER 
IN THE ORDINARY COURSE

[¶27]   The Bank contends that because 
Franklin and Surdez had previously been partners, the transactions between them 
should be looked at differently than other transactions which occur in the 
ordinary course of business. The Bank also contends that transactions they 
entered into should be viewed with skepticism because of Surdez's improper 
business practices. Testimony in the record describes Mr. Surdez as a "slick 
operator." Other testimony indicates that Mr. Surdez had deprived persons of 
property through fraud. However, the district court expressly found that 
Franklin was not a party to Surdez's duplicity, and we accept the court's 
resolution of these fact matters.

[¶28]   Franklin contends that he was a 
buyer in the ordinary course of business who is entitled to the protection of § 
9-307 of the Uniform Commercial Code. Section 9-307 of Wyoming's Uniform 
Commercial Code provides:

(a) 
A buyer in ordinary course of business (section 34.1-1-201(a)) other than a 
person buying farm products from a person engaged in farming operations takes 
free of a security interest created by his seller even though the security 
interest is perfected and even though the buyer knows of its 
existence.

W.S. 
34.1-9-307(a) (1991).

[¶29]   Based on § 9-307, appellant 
Franklin claims that he takes the Bronco free of the Bank's security interest. 
In response, appellee contends that Franklin acted in bad faith and was not a 
buyer in the ordinary course. Since Franklin is not a buyer in the ordinary 
course, the argument goes, he cannot claim the protection of § 
9-307.

[¶30]   Both sides cite cases which involve 
other objects of commerce such as livestock and farm crops. We decline to rely 
on those cases. Several of those cases interpret § 9-306(2) rather than § 9-307. 
Section 9-307 expressly excludes farm products. The Uniform Commercial Code 
imposes a greater burden on the purchaser of farm products to check for existing 
liens. First Nat'l Bank and Trust Co. v. Iowa Beef Processors, Inc., 626 F.2d 764, 768 (10th Cir. 1988). See also Richard L. Epling, Priorities Disputes in 
Motor Vehicles and in Other Certificated Goods, 41 The Business Lawyer 361, 373 
(1986). With farm products, buying in good faith does not automatically cut off 
a security interest as it does under § 9-307. Iowa Beef Processors, 626 F.2d  at 
768.

[¶31]   In Cherry Creek Dodge, Inc. v. 
Carter, 733 P.2d 1024 (Wyo. 1987), we held that an innocent consumer's interest 
would cut off the interest of an unsecured dealer. That decision does not 
directly address the problem we have here. In this situation, unlike Cherry 
Creek Dodge, the creditor is secured and the buyer is a dealer in the same kind 
of business. Cherry Creek Dodge, 733 P.2d  at 1026. Therefore, we examine 
additional case law interpreting § 9-307.

[¶32]   General case law supports the 
notion that a car buyer in the ordinary course takes free of a perfected 
security interest whether it is a security interest noted on the title or a 
floor plan lien. See e.g., North Carolina Nat'l Bank v. Robinson, 78 N.C. App. 
1, 336 S.E.2d 666, 670 (1985); Whitworth v. Dodd, 435 So. 2d 1305, 1307 (Ala. 
Civ. App. 1983); Cunningham v. Camelot Motors, Inc., 351 A.2d 402; Community 
Bank v. Jones, 278 Or. 647, 566 P.2d 470, 488 (1977); Correria v. Orlando Bank 
& Trust Co., 235 So. 2d  at 22; Chrysler Credit Corp. v. Sharp, 288 N.Y.S.2d  
at 533; Sterling Acceptance Co. v. Grimes, 168 A.2d  at 603. See also Richard L. 
Epling, supra at 365-66, 374-75. The policy behind this rule is that a buyer in 
the ordinary course should not have to do a title search in order to purchase a 
car. When a car is on a lot for sale, a buyer in the ordinary course may rely 
upon the dealer's apparent authority to sell. See e.g., Sterling Acceptance Co. 
v. Grimes, 168 A.2d  at 603; Chrysler Credit Corp. v. Sharp, 288 N.Y.S.2d  at 533; 
Cunningham v. Camelot Motors, Inc., 351 A.2d  at 405; Whitworth v. Dodd, 435 So. 2d  at 1307.

[¶33]   In support of their position that 
Franklin was not a buyer in the ordinary course, the Bank argues that Franklin 
was himself a dealer and he would have known about the financing arrangement. 
Although the Bank's claim may be correct, it is also true that Franklin would 
not have known that Surdez was not remitting the proceeds to the Bank as the 
security agreement required. Mere knowledge of the type of financing likely to 
be in use would not defeat Franklin's status as a buyer in the ordinary course 
of business, even if such knowledge were clearly established. Frank Davis Buick 
AMC-Jeep, Inc. v. First Alabama Bank of Huntsville, N.A., 423 So. 2d 855, 858 
(Ala. Civ. App. 1982).

[¶34]   There is no support in the record 
for appellee's position that Franklin acted with specific knowledge that Surdez 
was going to violate the security agreement with respect to that sale. The 
district court specifically found that Franklin was not a party to Surdez's 
duplicity. In order to defeat Franklin's buyer-in-the-ordinary-course status, 
Franklin must have specifically known that the sale would violate the security 
agreement. Frank Davis Buick, 423 So. 2d  at 858-59. See also First Nat'l Bank v. 
Atlanta Classic Cars, Inc., 184 Ga. App. 784, 363 S.E.2d 16, 18 (1987) (citing 
the 1972 Official Comment No. 2 to § 9-307 of the Uniform Commercial 
Code).

[¶35]   The evidence in the record supports 
the district court's finding that Franklin did not act with Surdez to violate 
the security agreement. Franklin's questions at the meeting of Surdez's 
creditors indicate that he did not expect to encounter any problems receiving 
the title.

[¶36]   Courts have refused to give 
buyer-in-the-ordinary-course protection when indicia of a phony or fraudulent 
sale appears in the record. For example, when a dealer obtained an incredibly 
good price and drove the cars off the lot at night after buying them in bulk, 
the court refused to give that party buyer-in-the-ordinary-course protection. 
Community Bank v. Jones, 566 P.2d  at 488; see also First Nat'l Bank and Trust 
Co. v. Ford Motor Credit Co., 646 P.2d 1057, 1061 (Kan. 1982) (indicia of a 
phony sale included the cars remaining on the lot, not sold at fair market 
value, dealers double financing the cars in knowing violation of the security 
agreement). As the district court found, this case does not present facts 
similar to these as would indicate a fraudulent sale.

[¶37]   Also, Franklin's status as a used 
car dealer does not defeat his protection under § 9-307. Several courts have 
found that so long as the transaction was made in good faith, status as a dealer 
alone will not defeat a claim of good faith under § 9-307. Associates Discount 
Corp. v. Rattan Chevrolet, Inc., 462 S.W.2d 546, 549 (Tex. 1970); Frank Davis 
Buick AMC-Jeep, Inc. v. First Alabama Bank, 423 So. 2d 855; Sherrock v. 
Commercial Credit Corp., 290 A.2d 648, 651 (Del.Super. 
1972).

[¶38]   Holding that Franklin is entitled 
to a portion of the proceeds from the Bronco sale makes the most sense 
practically and is most consistent with the Code. White and Summers, two noted 
authorities on the Uniform Commercial Code, state:

   Although we have found no case 
which squarely holds that the rights of a purchaser of a used car from a dealer 
are superior to those of a secured party who has recorded his security interest 
under a certificate of title act, the trend favors the purchaser. In this 
situation the purchaser's position is supported by sound technical and policy 
arguments. In the first place the misconduct of the dealers in these cases is 
normally more susceptible to control by the secured party than by a purchaser 
who has neither the leverage nor the opportunity to exercise control over a 
dealer. Secondly, the purchaser in such cases falls squarely within the class of 
persons section 9-307(1) is designed to protect.

James 
J. White & Robert S. Summers, Uniform Commercial Code, § 24-17, 1178 (3rd 
ed. 1988). We hold that Franklin was a buyer in the ordinary course of business 
when he gave Surdez $3,000.00 to purchase the Bronco.

[¶39]   However, Franklin is not a buyer in 
the ordinary course with respect to the $700.00 setoff for preexisting debt. The 
Code definition of buyer in the ordinary course is as 
follows:

(ix) 
"Buyer in the ordinary course of business" means a person who in good faith and 
without knowledge that the sale to him is in violation of the ownership rights 
or security interest of a third party in the good buys in the ordinary course 
from a person in the business of selling goods of that kind but does not include 
a pawnbroker. "Buying" may be for cash or by exchange of other property or on 
secured or unsecured credit and includes receiving goods or documents of title 
under a preexisting contract for sale but does not include a transfer in bulk or 
as security for or in total or partial satisfaction of a money 
debt.

W.S. 
34.1-1-201(a)(ix) (1991). This definition expressly excludes setoffs of 
preexisting debt. Commentators who have interpreted this definition have said 
that one of the conditions of being a buyer in the ordinary course of business 
and taking free of a prior perfected security interest is that the 
buyer

does 
not take his interest as security for or in total or partial satisfaction of a 
preexisting debt (that is, he must give some form of "new" 
value)[.]

James 
J. White & Robert S. Summers, Uniform Commercial Code, § 24-13, 1165 (3rd 
ed. 1988).

[¶40]   Setoffs for preexisting debt are 
expressly excluded because:

     To permit a general 
creditor to extinguish a perfected security interest by "purchasing" some of the 
debtor's inventory in return for canceling the debt owed to it would eviscerate 
the priorities established by Article 9 and the safeguards accorded inventory 
financers with perfected security interests. That is why "buying" does not 
include transfers in satisfaction of a money debt.

Walter 
E. Heller Western, Inc. v. Bohemia, Inc., 61 Or. App. 57, 655 P.2d 1073, 1077 
(1982). Because it recognized the potential danger that allowing "buying" to 
include a setoff for a preexisting debt would present, the court in Heller 
Western would not allow buyer-in-the-ordinary-course status for a portion of a 
transaction that was a transfer in satisfaction of a preexisting debt. Heller 
Western, 655 P.2d  at 1078. Franklin cannot be a buyer in ordinary course with 
respect to the $700.00. The issue then becomes whether the loss of 
buyer-in-the-ordinary-course status applies to the whole transaction or can be 
"fractionalized" with respect to specific portions of the 
transaction.

[¶41]   In Heller Western, the court of 
appeals found that the portion of the transaction that was for a preexisting 
debt would not nullify the buyer-in-the-ordinary-course status with respect to 
the whole transaction. Heller Western, 655 P.2d  at 1078. The court found that 
the transaction could be fractionalized or divided for purposes of analyzing 
whether the buyer was a buyer in the ordinary course of business. Heller 
Western, 655 P.2d  at 1078-79.

[¶42]   The court said that for the part of 
the transaction in which the buyer did in fact give new value for the inventory 
purchased,

the 
secured party's position is no different from what it would be with respect to 
any other buyer in the ordinary course of business: the secured party's debt can 
be paid off by the proceeds. If the proceeds are dissipated, or otherwise 
unavailable, when the secured creditor attempts to realize on its security, 
including proceeds from inventory, that is the risk that an inventory financer 
assumes as to all inventory sales: it is contemplated that inventory will be 
sold in order that the debt it secures can be paid off.

Heller 
Western, 655 P.2d  at 1078.

[¶43]   The court also found that 
fractionalizing a transaction is the best route since "fractionalizing the 
transaction grants the protection of ORS 79.3070 [9-307] to good faith 
purchasers who pay virtually all of the price in cash but also forgive a minor 
debt." Id. That is exactly the situation we have here. Franklin paid $3,000.00, 
nearly all of the purchase price in cash. He forgave a minor debt, $700.00, at 
the same time. The analysis of the court in Heller Western is persuasive. We 
hold that Franklin is a buyer in the ordinary course for the $3,000.00 paid as 
new value and is not a buyer in the ordinary course for the $700.00 preexisting 
debt setoff.

[¶44]   Heller Western cites one case which 
had rejected fractionalizing a transaction. Heller Western, 655 P.2d  at 1078 
(citing General Electric Credit Corp. v. R.A. Heintz Const. Co., 302 F. Supp. 958 (D.Or. 1969)). The Oregon Court of Appeals rejected the rationale used in 
General Electric because it relied on the definition of buyer in the ordinary 
course from the Uniform Trust Receipts Act which preceded the UCC and because it 
relied on a provision from Article 2 of the UCC instead of Article 9 which 
governs this situation. Heller Western, 655 P.2d  at 1078-79. We agree that 
fractionalizing balances the interest of the Code in not allowing preexisting 
debt setoffs to eviscerate security interests while at the same time allowing 
those who are deserving in rare situations to claim protection under § 9-307 to 
the extent they have given new value. Fractionalizing transactions for purposes 
of analyzing a buyer-in-the-ordinary-course question strikes an appropriate 
balance between competing goals in the Uniform Commercial 
Code.

[¶45]   The Bank argues that the district 
court's decision should be affirmed because if Franklin owes more on the Bronco, 
the Bank would be entitled to collect Surdez's accounts receivable under W.S. 
34.1-9-318(a) (1991). The record does not establish a balance remaining due on 
the Bronco. On the contrary, Franklin testified that he gave Surdez a check for 
the full $3,000.00 amount. The record shows that no balance on the Bronco 
remains. We therefore decline appellee's argument.

[¶46]   Since the $700.00 portion of the 
sale was to satisfy a preexisting debt, Franklin is not a buyer in the ordinary 
course with respect to that amount. We hold that Franklin was a buyer in the 
ordinary course with respect to the $3,000.00 he paid Surdez for the Bronco. The 
district court is reversed only with respect to the $3,000.00. Of the sum 
received by the Bank from the sale of the 1984 Ford Bronco, Franklin is awarded 
the first $3,000.00, plus interest.

CONCLUSION

[¶47]   Surdez was entitled to the 
Oldsmobile under the terms of the partnership agreement. The district court was 
correct in finding that the Bank was entitled to the proceeds from the sale of 
the Oldsmobile. The district court was not correct in relying on provisions of 
the Wyoming Motor Vehicle Registration Act rather than the Wyoming Uniform 
Commercial Code in resolving which party was entitled to the proceeds from the 
Bronco. Therefore, the district court's judgment with respect to the Bronco 
proceeds is reversed. Franklin was a buyer in the ordinary course with respect 
to the $3,000.00 cash payment he made to Surdez, but he was not a buyer in the 
ordinary course with respect to the $700.00 he set off against a preexisting 
debt. Judgment should be entered in Franklin's favor for $3,000.00 of the sale 
proceeds from the 1984 Bronco plus interest. The Bank is entitled to the 
remaining proceeds from the sale.

[¶48]   Affirmed in part, reversed in part, 
and remanded for entry of judgment consistent with this 
opinion.