Title: M. C. WAILES AND MARILYN WAILES v. ROCKY MOUNTAIN PRE-MIX CONCRETE
Citation: 1989 WY 204, 783 P.2d 1138
Docket Number: 
State: Wyoming
Issuer: Wyoming Supreme Court
Date: November 22, 1989

M. C. WAILES AND MARILYN WAILES v. ROCKY MOUNTAIN PRE-MIX CONCRETE Annotate this Case M. C. WAILES AND MARILYN WAILES v. ROCKY MOUNTAIN PRE-MIX CONCRETE 1989 WY 204 783 P.2d 1138 Case Number: 89-151 Decided: 11/22/1989 Supreme Court of Wyoming M. C. WAILES AND MARILYN WAILES, HUSBAND AND WIFE, APPELLANTS (DEFENDANTS/CROSS-CLAIMANTS), v. ROCKY MOUNTAIN PRE-MIX CONCRETE, APPELLEE (DEFENDANT). Appeal from the District Court, FremontCounty, Robert B. Ranck, J. Norman E. Young of Hill, Young & Barton, P.C., Riverton, for appellants. Arnold B. Tschirgi, Lander, for appellee. Before CARDINE, C.J., and THOMAS, URBIGKIT, MACY and GOLDEN, JJ. URBIGKIT, Justice. [¶1.] This is a second stage controversy which follows from a judgment approved by this court in Miles v. CEC Homes, Inc., 753 P.2d 1021 (Wyo. 1988), with appellate issues now presented of priorities in that judgment between a third-party creditor who executed on the successful litigant's interest in the judgment and another creditor who held a chattel security interest in the receivable which had been the subject of the original litigation.1 [¶2.] In the original litigation, CEC Homes, Inc. (obviously itself insolvent) obtained a September 8, 1986 judgment in the amount of $31,789.02 against customer Meadowbrook Development, Inc. (Meadowbrook) and also against Maurice Miles, principal shareholder of Meadowbrook, by piercing the corporate veil. Miles, 753 P.2d at 1022-23. Meadowbrook itself was apparently also without creditable assets. Appellee here, Rocky Mountain Pre-Mix Concrete (RockyMountain), had in 1984 obtained judgment against CEC Homes, Inc. in the corrected amount of $18,236.31. Execution and garnishment proceedings against Meadowbrook proved fruitless and RockyMountain then accepted a security agreement from CEC Homes, Inc. which included tangible chattel property items and also the receivable due from Meadowbrook then not yet resolved in litigation. [¶3.] In April 1986, appellants M.C. Wailes and Marilyn Wailes obtained a judgment against CEC Homes, Inc. in the amount of $45,043. A year later, they executed on the judgment and served notice of levy on CEC Homes, Inc. in order to secure a sheriff's sale of the Meadowbrook/Miles judgment asset which lawsuit was here on appeal. Sale was set for April 27, 1987, at which time the attorney for CEC Homes, Inc., in its behalf and as attorney in behalf of his law firm, objected to the sale. An application for injunction was made in the Wailes/CEC Homes, Inc. proceeding from which the execution sale was scheduled. Obviously, no order was granted and the sale proceeded. The executing creditor, Wailes, having then received notice of the assignment by the chattel security account receivable which was the basis of the judgment by CEC Homes, Inc. against Meadowbrook, proceeded with the sheriff's sale of the judgment separately obtained against Maurice Miles only. Wailes, as creditor, bid in that judgment asset for $32,000, settled with Miles and issued a release of judgment as execution sale purchaser. The judgment which CEC Homes, Inc. obtained from Meadowbrook, encumbered by underlying account assignment to RockyMountain, remains unsatisfied and obviously without present value to anyone.2 [¶4.] The present judgment amount of $19,150.39 from which this appeal is taken is not clarified in method of computation in this record and the amount Miles paid for a satisfaction of his judgment after execution by Wailes is similarly undisclosed. [¶5.] What we have is a litigative challenge and demand for payment by RockyMountain against Wailes to recover whatever Miles paid for his judgment satisfaction. In legal principle, we are faced with an inquiry whether a corporate collateral encumbrance of a receivable provides similar collateral security to the creditor against rights that the assignor might realize to pierce the corporate veil of the account debtor in reaching the debtor's principal shareholder. The briefing presented provides no comparable cases. It is apparent in trial court proceeding that the litigated issues included the identifiable proceeds provision of W.S. 34-21-935(b) (UCC § 9-306). That discussion and the one case now cited of First Interstate Bank of Denver, N.A. v. Arizona Agrochemical Co., 731 P.2d 746 (Colo. App. 1986) have a different factual basis and do not completely satisfy our review. This is genuinely a case of first impression in this jurisdiction and, for cases found, in any American appellate jurisdiction. [¶6.] Our analysis leads to the concept that the Miles obligation when the corporate veil was pierced by affirmed judgment created something in the nature of a guarantee or secondary liability. Had RockyMountain sued or garnished Miles on its unsatisfied judgment against Meadowbrook, an occurrence not presented, we could be presented with a traced identifiable asset upon which a competitive priority could be claimed. Clearly, at the time the chattel security and assignment of receivable was given, no vested claim against the debtor's shareholder existed and nothing in the nature of the document indicated an intended reliance on the third-party's obligation as an asset to be encumbered. [¶7.] In First Interstate Bank of Denver, N.A., 731 P.2d 746 , debtor sold the secured assets at an auction and then used the funds to satisfy the third-party judgment for which he received a satisfaction. The appellate court held, at the time the secured creditor attempted to enforce any security interest it had in the proceeds, that the only identifiable proceeds remaining to the debtor consisted of a satisfaction of judgment with a value only to the debtor. Consequently, that factual situation is of little help where a third-party and differentiated asset were involved here. [¶8.] Determination of this case presents two facets. First, we analyze whether the original February 8, 1985 filed security agreement including "balance due on account & agreement with Meadowbrook Development, Inc." created an encumbrance thereafter realized against that part of the judgment entered September 8, 1986 which found Maurice Miles to be "personally liable for monies due and owing the plaintiffs." If it is determined the shareholder claim was not encumbered by the security agreement, the further question remains whether settlement of the Miles judgment debt constituted recoverable proceeds by the creditor who held the assignment of the Meadowbrook debt. [¶9.] We answer both questions in the negative. Although we are not informed when the lawsuit was filed by CEC Homes, Inc. as originally or thereafter including Miles as a defendant, it is clear the contingent collection was not defined in secured document which was given to Rocky Mountain in a fashion sufficient to constitute reasonable identification of the collateral. W.S. 34-21-910 (UCC § 9-110); Landen v. Production Credit Ass'n of Midlands, 737 P.2d 1325 (Wyo. 1987). This case with after-determined shareholder liability is comparable to the indemnity agreement found in State Bank of Wheatland v. Bagley Bros., 44 Wyo. 307, 11 P.2d 592 (1932) for which filing a recording was necessary to preserve priority. In similar result, the case of Matter of Binning, 45 B.R. 9, 11-12 (S.D.Ohio 1984) (quoting Ray v. City Bank and Trust Co. of Natchez, Mississippi, 358 F. Supp. 630 , 639 (S.D.Ohio 1973)) did not extend crop collateral to the agricultural payment-in-kind diversion payments and observed that the code sections "do not require slavish delineation of the collateral secured. But they do require a reasonable identification of the collateral so that `reasonable further inquiry will disclose the complete state of affairs.'" [¶10.] We hold the security interest terminology encumbered the account and a cost sharing agreement executed with a corporation, but then fails to meet the reasonable identification requirements of W.S. 34-21-910 to also encumber an inchoate claim that the debtor might obtain in litigation directed to enforce obligation of the corporation upon its shareholders or officers by a thesis of indemnity, guaranty or piercing of the corporate veil. This follows case law that the security interest is not attributable to the third-party claim as identifiable proceeds. In re Hix, 9 UCC Rep.Serv. 925 (S.D.Ohio 1969); Hoffman v. Snack, 2 UCC Rep.Serv. 862 (Pa. 1964). Compare In re Stone, 52 B.R. 305 (W.D. Ky. 1985), as the only tort case of converse authority found where, as the result of a civil action against a veterinarian and others, the debtors settled the lawsuit and recovered a large sum of money from the negligence claim. [¶11.] The next question then to be addressed is whether the proceeds statute, W.S. 34-21-935(b) (UCC § 9-306), would maintain a lien on amounts realized after execution sale of the judgment asset as a claim against the account debtor's shareholder or officer. Although an identical factual situation was not found, a number of recent bankruptcy proceedings relevant to the proceeds issue are available for consideration where recovery was made by a lawsuit against a third party. In In re Jones, 19 B.R. 293 (E.D.Va. 1982), the court did not extend chattel coverage on a car to the proceeds of a lawsuit against an insurance agent for failure to obtain insurance for the customer. Similarly, a check obtained to satisfy a judgment based on a breach of warranty did not constitute proceeds created by liquidating the asset held by the creditor as a security interest in a check in In re Continental Trucking, Inc., 16 UCC Rep.Serv. 526 (M.D.Fla. 1974). [¶12.] In the absence of statute or explicit provisions and security agreement requiring insurance, a like result has obtained non-inclusion of fire casualty insurance proceeds upon loss of the secured chattel. Quigley v. Caron, 247 A.2d 94 (Me. 1968); In re Boyd, 658 P.2d 470 (Okla. 1983). In accord, see Peoples State Bank of Ellinwood, Kan. v. Marlette Coach Co., 336 F.2d 3 (10th Cir. 1964) and Bank of New York v. Margiotta, 99 Misc.2d 423, 416 N.Y.S.2d 493 (1979). Cf. Universal C.I.T. Credit Corp. v. Prudential Inv. Corp., 101 R.I. 287, 222 A.2d 571 (1966) and In re Territo, 32 B.R. 377 (E.D.N.Y. 1983). [¶13.] A somewhat more attenuated controversy is created where the recovery is from a third-party tort feasor rather than by virtue of property damage insurance. Even the exceptional cases are inapplicable since the judgment against the corporation, Meadowbrook, remained undisturbed and only the unassigned separate liability of the shareholder was sold at execution. The term identifiable3 "presumably requires that the secured party show that the cash or noncash items were actually received upon the sale, exchange, collection or other disposition of the collateral of proceeds." 9 Hawkland, Lord & Lewis UCC Series § 9-306:03 at 23 (1986). [¶14.] In denying extension as unidentifiable proceeds, we also consider the nature of the judgment against Miles. "A corporation is recognized as a separate entity, distinct from the individuals comprising it, even though all of its stock is owned by a single individual." Atlas Const. Co. v. Slater, 746 P.2d 352 , 355 (Wyo. 1987). See also Amfac Mechanical Supply Co. v. Federer, 645 P.2d 73 , 77 (Wyo. 1982). Whether the process utilized to create liability of the shareholder is disregard of corporateness, H. Henn & J. Alexander, Laws of Corporations § 146 at 344 (3d ed. 1983); piercing the corporate veil, Atlas Const. Co., 746 P.2d 352 ; disregard of corporate entity, Amfac Mechanical Supply Co., 645 P.2d 73 ; or one which denies interposition of corporate entity, In re Clarke's Will, 204 Minn. 574, 284 N.W. 876 (1939), the litigative claim process involves, as in this case, finding an entity liable for the obligation of the corporation as a result of the process by which the corporation was created or operated. [¶15.] In this case, the chattel security identified the contractual interest between CEC Homes, Inc. and the account debtor, Meadowbrook, who were the two parties in the cost sharing contract. It did not include the further right that CEC Homes, Inc. might have to supplement its contractual interest by invalidation of any corporate entity defense if claim was to be made against the shareholder also. Under these circumstances, we hold, in addition to judgment on the mortgaged contractual obligation, that CEC Homes, Inc., in final resolution, obtained an independent and unencumbered judgment against Maurice Miles, president of the account debtor. Consequently, as this case has unfolded, we find no claim of RockyMountain against Miles with an established superior priority sufficient to defeat the title obtained by Wailes through their purchase at the sheriff's execution sale. [¶16.] Reversed and remanded for entry of a judgment in favor of appellants on appellee's cross-claim. FOOT