### No. 14803 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980

HAROLD LEE STURDEVANT,JR.,Plaintiff and Appellant,

VS

# . FIRST SECURITY BANK OF DEER LODGE, a banking corporation, and FIRST NATIONAL BANK OF HELENA, a nationally chartered bank, Defendants and Respondents.

Appeal from: District Court of the First Judicial District, Honorable Gordon R. Bennett, Judgepresiding. Counsel of Record: For Appellant: Tipp,Hoven and Skjelset,Missoula, Montana For Respondents: ~aniels and Mizner, Deer Lodge,Montana

Submitted on briefs: January 24, 

### 1980 Decided: 

## 'EB 

## 13 

## ,980 Filed:

## ~'Ec &

## 2Mr. JusticeJohn C. Sheehy delivered the Opinion of the Court. Appeal 

### is from a summary judgment granted inthe District Court, FirstJudicial District, Lewis and Clark County. The DistrictCourt entered summary judgment upholding the right of the respondent banks torepossess a Mooney aircraft and sell the 

### same; the proceeds tobe applied todebts owed by Harold Lee Sturdevant, Sr. tothe banks. The action

### was filedby Harold Lee Sturdevant, 

### Jr. on October 31, 1978when the plaintiff allege that a Mooney aircraftwas wrongfully repossessed by the defendant banks. He prayed for a preliminary injunction restraining the disposing of the aircraftand asked that he be given possession of it during the pendency of the suit. The District Court issued a temporary restraining order. The defendant banks filedmotions todismiss on the ground that the complaint failed to state a claim upon which relief could be granted. On November 21, 1978,

a hearing was held on the motions 

### todismiss and atthe 

### same timeon an order to show cause why 

### a preliminary injunction should not be granted togive plaintiff temporary possession of the plane. Upon stipulationby counsel, the motions 

### to dismiss

### were converted tomotions for summary judgment and afterposthearing briefs

### were filed and the matter submitted, the court granted summary judgment in favor of the banks. The agreed facts are that on August 4, 1972, Harold Sturdevant, Sr. (plaintiff's father) executed a security agreement with First SecurityBank of Deer Lodge securing

a note for $15,069.62 topurchase a Mooney aircraft. The plane was listed as collateral on the security agreement which was recorded with the FAA on January 23, 1973. -1-On August 21, 1975, the loan had been paid down by the father but thenote 

### was renewed by him for 

### a total sum of $10,970. There 

### isno evidence that any security agreement inconnection with this loan 

### was filedwith any office. On April 7, 1977, the father executed 

### a security agreement with First SecurityBank of DeerLodge for a loan of $32,249.40 topurchase a Cessna airplane which was tobe 

### its collateral. There 

### isno evidence that this security agreement

### was filedwith any office. On October 25, 1977, Harold Sturdevant, Jr. purchased the Mooney plane from his father. No notice of this salewas given tothe securedbank and there 

### isno evidence that the sale

### was authorized by the Bank. Harold Sturdevant, Jr. knew of the existing security interest intheplane when he purchased 

### it. On October 4, 1978, payments tothebank on the Cessna plane and theMooney plane 

### were delinquent. Plaintiff's father mailed a check tothe Bank tosatisfythe obligation on the Mooney plane. On October 6, 1978, First Security Bank of Deer Lodge in conjunction with FirstNational Bank of Helena repossessed the Mooney plane for delinquency of the payments on the second Mooney loan. On October 9, 1978, the Bank received the payment on the Mooney debt thathad been mailed by the father on October 4. After the repossession, the son personally tendered payment of $1,632.54 and $47.79 (storagecosts), the full amount of the remaining Mooney obligation, inan attempt toredeem the Mooney plane, pursuant to section 87A-9-506, R.C.M. 1947 (now section 30-9-506, MCA). The tender was refused by the defendant banks. The amount 

### ispresently deposited with the court pending the



## -2-outcome of the suit. It isclear that the defendant banks intend tosellthe Mooney plane tosatisfy the delinquent obligations on the Cessna loan. On that statement of facts, the son phrases the issue



### as whether a bank may hold property for the payment of a debt of anotherwhen thatproperty 

### isno longer owned by the borrower and 

### is not described inthe security agreement. We restate the issues asfollows: (1) Does the security agreement of August 4, 1972 in which the Mooney aircraft

### is listed ascollateral include a security interest for the later incurred Cessna debt of the father? (2) What effectdoes section 30-9-311, MCA, have on the saleof theMooney aircraftby the father to the son? (3) What arethe redemption rights of the son under these facts and under section 30-9-506, MCA? Each security agreement executed in this case contained the following language, described by the District Court asa "dragnet clause": "The undersigned (hereinaftercalled Borrower) hereby grants tothe secured party in the above note (hereinafter called 'Bank') a security interest in the following described property (hereinaftercalled 'Collateral') including proceeds and products: [herein

### is specific property description] together with allparts, accessories, repairs, improvements and accessions thereto now or hereafter atany time made or acquired; and Allproperty of every kind and description inwhich the Borrower has ormay acquire any interest now or hereafter atany time in the possession or control of the Bank for any reason includingwithout limitation, property delivered to the Bank as collateral for safekeeping, or for collection or exchange for other property, and alldividends and distributions on and other rights inconnection with such property to secure payment tothe Bank 

### at

### itsbanking house atthe address stated on this note and allother notes givenhereafter inrenewal thereof, and allother notes of Borrower concurrently herewith, heretofore or hereafter delivered toor purchased or otherwise acquired by the Bank and allother liabilities and indebtedness of Borrower toBank due or tobecome due, direct or indirect, absolute or contingent, joint or several, howsoever created, arising or evidenced, now existing or hereafter at any time created, arising or incurred, (hereinaftercalled 'Secured Obligations')." The DistrictCourt found that the foregoing clausewas clear, unambiguous and therefore it must be upheld. In Re RissTanning Corporation (2nd Cir. 1972), 468 F.2d 1211; Kenneally 

### v. Standard Electronics Corporation (8thCir. 1966), 364 F.2d 642; In Re Iredale's Ltd. (9thCir. 1973)

## ,

Nothing inthe Uniform Commercial Code thatwe are able tofind prohibits such a clause as

### was used in these security instruments. Therefore, the effect of the execution of the security interest inthe Mooney aircraft instrument, being very broadly stated, extends toand covers the debt incurred in connection with the Cessna aircraft, even though a separate security agreement was executed for that purchase. The broad language used in the firstMooney security agreement meant that the Mooney aircraftwas collateral not only for the firstnote, but for the renewal note, and for any other subsequent loans made by the bank toHarold Sturdevant, Sr. The security agreement for the Mooney aircrafthad a further provision thatprevented saleof the Mooney unless the proceeds of the salewere paid tothe bank. That provision stated: "Borrower 

### willnot sell, transfer, lease or otherwise dispose of the Collateral, or attempt or offer todo any of the foregoing without the prior written consent of the Bank, and unless the Proceeds of any such sale, transfer, lease, or other disposition arepaid directly tothe Bank. 'I

### The bank had no knowledge of, and did not receive the proceeds of the sale. Harold Lee Sturdevant, Jr. argues however, that he was within his rights to purchase from the father under section 30-9-311, MCA, of the Uniform Commercial Code, which provides as follows: "The debtor's rights in collateralmay be voluntarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstanding a provision in the security agreementprohibiting any transfer or making the transfer constitute a default." It is incorrect to assume that section 30-9-311, MCA, permits a transfer by a debtor of collateralunder a security agreement free of the security interest of the creditor in the collateral. Sturdevant,Jr. refers us to the official Code Comment under section 9-311,Uniform Commercial Code, apparently to the language regarding the purpose of that section whichstates that it is "[tlo make clear that in all security transactions under this Article, the debtor has an interest (whether legal title or an equity) which he can dispose of and which his creditors can reach". The body of a law developing with respect to this section indicates that the interest of the debtor in the collateral may be transferred by him even though the security agreement purports to prohibit such transfer and makes the transfer a default. Production Credit, Etc. v. Equity Coop, Etc. (Wis. 1978), 261 N.W.2d 127. However, the fact that the collateral may be 

### transferred voluntarily or involuntarily does not destroy or adversely affect a prior perfected security interest, without the consent of the secured party. Am. 

### Heritage Bank 'Apt', & 

### Trust Co. v. 0 & 

### E., 

### Inc. 

## (Cola.! 1978), 576 P.2d 566, 568.In fact section 30-9-311, MCA 

### is intended toprotect the secured creditor's interestby assuring that any sale of the collateral or transfer by operation of law 

### is subject tothe security interest. Earthmovers, Inc. v. Clarence L. Boyd Company, Inc. (Okla. App. 1976), 554 P.2d 877, 879. Irrespective of the section, a security agreement may declare that the debtor commits a default when he makes

a transfer of the collateralbecause the creditor has a right todetermine who shall be the debtor in possession. Poydan, Inc. 

### v. Agia Kiriaki, Inc. (N.J. 1974), 130 N.J. Super.

Therefore, the father had the right transfer his interest inthe Mooney airplane tohis son where the security instrument 

### isperfected, and he 

### isnot in default; but the creditor, without knowledge of the transfer and under this agreement, not having received the proceeds, could under the security agreement consider such a transfer a default. In any event, the security interest of the creditor here followed the collateral though the transfer occurred under section 30-9-311, MCA. The rights of redemption of the son are found in section 30-9-506, MCA. That section provides: "At any time before the secured party has disposed of collateral or entered into a contract for 

### its disposition under 30-9-504 or before the obligation has been discharged under 30-9-505(2), the debtor or any other secured party may unless otherwise agreed inwriting afterdefaultredeem the collateralby tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonaSly incurred by the secured party inretaking, holding and preparing the collateral for disposition, inarranging for th~ sale, and tothe extent provided in the agreement and not prohibited by law, his reasonable attorneys' fees and legal expenses."Here the agreed facts are that the father mailed a check for thebalance of the Mooney debt before the repossession but the check 

### wasreceived by thebank after the repossession. Also the sum tendered covered only the amount of the Mooney debt and storage costs. In this case, section 30-9-506, MCA, required more: the debtor or any other secured party should tender "fulfillment of allobligations secured by the collateral." In this case that included the further debt on the Cessna airplane. Since that full tender was not made, the tender offered by the son in thiscase didnot fulfill the requirements of section 30-9-506, MCA. No questions areraised as

### to the identity of the aircraft,

or the propriety of the repossession, except aswe have discussed foregoing. Accordingly, we affirmthe ~istrict Court. 

# y--~-%zLy Justice 

### -.-.-

We Concur:

mief Justice