Title: STURDEVANT v FIRST SECURITY BANK
Citation: N/A
Docket Number: 14803
State: Montana
Issuer: Montana Supreme Court
Date: February 13, 1980

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, Judge presiding. 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 1 3 ,980 Filed: ~ ' E c & 2 M r . J u s t i c e John C . Sheehy d e l i v e r e d t h e Opinion of t h e Court. Appeal i s from a summary judgment granted i n t h e D i s t r i c t Court, F i r s t J u d i c i a l D i s t r i c t , L e w i s and Clark County. The D i s t r i c t Court e n t e r e d summary judgment upholding t h e r i g h t of t h e respondent banks t o repossess a Mooney a i r c r a f t and s e l l t h e same; t h e proceeds t o be a p p l i e d t o d e b t s owed by Harold Lee Sturdevant, S r . t o t h e banks. The a c t i o n w a s f i l e d by Harold Lee Sturdevant, Jr. on October 31, 1978 when t h e p l a i n t i f f a l l e g e t h a t a Mooney a i r c r a f t was wrongfully repossessed by t h e defendant banks. He prayed f o r a preliminary i n j u n c t i o n r e s t r a i n i n g t h e d i s p o s i n g of t h e a i r c r a f t and asked t h a t he be given possession o f it during t h e pendency of t h e s u i t . The D i s t r i c t Court issued a temporary r e s t r a i n i n g o r d e r . The defendant banks f i l e d motions t o dismiss on t h e ground t h a t t h e complaint f a i l e d t o s t a t e a claim upon which r e l i e f could be granted. On November 21, 1978, a hearing was held on t h e motions t o dismiss and a t t h e same t i m e on an order t o show cause why a preliminary i n j u n c t i o n should n o t be granted t o g i v e p l a i n t i f f temporary possession of t h e plane. Upon s t i p u l a t i o n by counsel, t h e motions t o d i s m i s s w e r e converted t o motions f o r summary judgment and a f t e r posthearing b r i e f s w e r e f i l e d and t h e matter submitted, t h e c o u r t granted summary judgment i n favor of t h e banks. The agreed f a c t s a r e t h a t on August 4 , 1972, Harold Sturdevant, S r . ( p l a i n t i f f ' s f a t h e r ) executed a s e c u r i t y agreement with F i r s t S e c u r i t y Bank of D e e r Lodge s e c u r i n g a note f o r $15,069.62 t o purchase a Mooney a i r c r a f t . The plane was l i s t e d as c o l l a t e r a l on t h e s e c u r i t y agreement which was recorded with t h e F A A on January 23, 1973. -1- On August 21, 1975, t h e loan had been paid down by t h e f a t h e r b u t t h e n o t e w a s renewed by him f o r a t o t a l sum of $10,970. There i s no evidence t h a t any s e c u r i t y agreement i n connection with t h i s loan w a s f i l e d with any o f f i c e . On A p r i l 7, 1977, t h e f a t h e r executed a s e c u r i t y agreement with F i r s t S e c u r i t y Bank of D e e r Lodge f o r a loan of $32,249.40 t o purchase a Cessna a i r p l a n e which was t o be i t s c o l l a t e r a l . There i s no evidence t h a t t h i s s e c u r i t y agreement w a s f i l e d w i t h any o f f i c e . On October 25, 1977, Harold Sturdevant, Jr. purchased t h e Mooney plane from h i s f a t h e r . N o n o t i c e of t h i s s a l e was given t o t h e secured bank and t h e r e i s no evidence t h a t t h e s a l e w a s authorized by t h e Bank. Harold Sturdevant, Jr. knew of t h e e x i s t i n g s e c u r i t y i n t e r e s t i n t h e plane when he purchased it. On October 4 , 1978, payments t o t h e bank on t h e Cessna plane and t h e Mooney plane w e r e delinquent. P l a i n t i f f ' s f a t h e r mailed a check t o t h e Bank t o s a t i s f y t h e o b l i g a t i o n on t h e Mooney plane. O n October 6, 1978, F i r s t S e c u r i t y Bank of Deer Lodge i n conjunction with F i r s t National Bank o f Helena repossessed t h e Mooney plane f o r delinquency of t h e payments on t h e second Mooney loan. On October 9, 1978, t h e Bank received t h e payment on t h e Mooney d e b t t h a t had been mailed by t h e f a t h e r on October 4 . A f t e r t h e repossession, t h e son p e r s o n a l l y tendered payment of $1,632.54 and $47.79 ( s t o r a g e c o s t s ) , t h e f u l l amount of t h e remaining Mooney o b l i g a t i o n , i n an attempt t o redeem t h e Mooney plane, pursuant t o s e c t i o n 87A-9-506, R.C.M. 1947 (now s e c t i o n 30-9-506, MCA). The t e n d e r was r e f u s e d by t h e defendant banks. The amount is p r e s e n t l y deposited with t h e c o u r t pending t h e - 2- outcome of t h e s u i t . It i s c l e a r t h a t t h e defendant banks intend t o s e l l t h e Mooney plane t o s a t i s f y t h e delinquent o b l i g a t i o n s on t h e Cessna loan. On t h a t statement of f a c t s , t h e son phrases t h e i s s u e as whether a bank may hold property f o r t h e payment of a debt of another when t h a t property i s no longer owned by t h e borrower and is n o t described i n t h e s e c u r i t y agreement. W e r e s t a t e t h e i s s u e s a s follows: (1) Does t h e s e c u r i t y agreement of August 4 , 1972 i n which t h e Mooney a i r c r a f t i s l i s t e d a s c o l l a t e r a l include a s e c u r i t y i n t e r e s t f o r t h e l a t e r incurred Cessna debt of t h e f a t h e r ? ( 2 ) What e f f e c t does s e c t i o n 30-9-311, MCA, have on t h e s a l e of t h e Mooney a i r c r a f t by t h e f a t h e r t o t h e son? (3) What a r e t h e redemption r i g h t s of t h e son under t h e s e f a c t s and under s e c t i o n 30-9-506, M C A ? Each s e c u r i t y agreement executed i n t h i s case contained t h e following language, described by t h e D i s t r i c t Court a s a "dragnet clause": "The undersigned ( h e r e i n a f t e r c a l l e d Borrower) hereby g r a n t s t o t h e secured p a r t y i n t h e above note ( h e r e i n a f t e r c a l l e d 'Bank') a s e c u r i t y i n t e r e s t i n t h e following described property ( h e r e i n a f t e r c a l l e d ' C o l l a t e r a l ' ) including proceeds and products: [herein i s s p e c i f i c property d e s c r i p t i o n ] together with a l l p a r t s , accessories, r e p a i r s , improvements and acces- s i o n s t h e r e t o now o r h e r e a f t e r a t any time made o r acquired; and A l l property of every kind and d e s c r i p t i o n i n which t h e Borrower has o r may acquire any i n t e r e s t now o r h e r e a f t e r a t any time i n t h e possession o r c o n t r o l of t h e Bank f o r any reason including without l i m i t a t i o n , property d e l i v e r e d t o t h e Bank as c o l l a t e r a l f o r safekeeping, o r f o r c o l l e c t i o n o r exchange f o r o t h e r property, and a l l dividends and d i s - t r i b u t i o n s on and o t h e r r i g h t s i n connection with such property t o secure payment t o t h e Bank a t its banking house a t t h e address s t a t e d on t h i s note and a l l o t h e r notes given h e r e a f t e r i n renewal thereof, and a l l o t h e r notes of Borrower concurrently herewith, heretofore o r h e r e a f t e r delivered t o o r purchased o r otherwise acquired by t h e Bank and a l l o t h e r l i a b i l i t i e s and indebted- ness of Borrower t o Bank due o r t o become due, d i r e c t o r i n d i r e c t , absolute o r con- t i n g e n t , j o i n t o r s e v e r a l , howsoever c r e a t e d , a r i s i n g o r evidenced, now e x i s t i n g o r here- a f t e r a t any time c r e a t e d , a r i s i n g o r incurred, ( h e r e i n a f t e r c a l l e d 'Secured O b l i g a t i o n s ' ) . " The D i s t r i c t Court found t h a t t h e foregoing c l a u s e was c l e a r , unambiguous and t h e r e f o r e it must be upheld. I n Re R i s s Tanning Corporation (2nd C i r . 1972), 468 F.2d 1211; Kenneally v. Standard E l e c t r o n i c s Corporation ( 8 t h C i r . 1966), 364 F.2d 642; I n Re I r e d a l e ' s Ltd. ( 9 t h C i r . 1973) , Nothing i n t h e Uniform Commercial Code t h a t we a r e a b l e t o f i n d p r o h i b i t s such a c l a u s e a s w a s used i n t h e s e s e c u r i t y instruments. Therefore, t h e e f f e c t of t h e execution of t h e s e c u r i t y i n t e r e s t i n t h e Mooney a i r c r a f t instrument, being very broadly s t a t e d , extends t o and covers t h e debt incurred i n connection with t h e Cessna a i r c r a f t , even though a s e p a r a t e s e c u r i t y agreement was executed f o r t h a t purchase. The broad language used i n t h e f i r s t Mooney s e c u r i t y agree- ment meant t h a t t h e Mooney a i r c r a f t was c o l l a t e r a l n o t only f o r t h e f i r s t note, b u t f o r t h e renewal note, and f o r any o t h e r subsequent loans made by t h e bank t o Harold Sturdevant, S r . The s e c u r i t y agreement f o r t h e Mooney a i r c r a f t had a f u r t h e r provision t h a t prevented s a l e of t h e Mooney unless t h e proceeds of t h e s a l e were paid t o t h e bank. That provision s t a t e d : "Borrower w i l l n o t s e l l , t r a n s f e r , l e a s e o r otherwise dispose of t h e C o l l a t e r a l , o r attempt o r o f f e r t o do any of t h e foregoing without t h e p r i o r w r i t t e n consent of t h e Bank, and unless t h e Proceeds of any such s a l e , t r a n s f e r , l e a s e , o r o t h e r d i s p o s i t i o n a r e paid d i r e c t l y t o t h e 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 collateral may 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 agreement prohibiting 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 collateral under 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 dis- pose 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 des- troy 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. I n f a c t s e c t i o n 30-9-311, MCA is intended t o p r o t e c t t h e secured c r e d i t o r ' s i n t e r e s t by assuring t h a t any s a l e of t h e c o l l a t e r a l o r t r a n s f e r by operation of law i s s u b j e c t t o t h e s e c u r i t y i n t e r e s t . Earthmovers, Inc. v. Clarence L. Boyd Company, Inc. (Okla. App. 1976), 554 P.2d 877, 879. I r r e s p e c t i v e of t h e s e c t i o n , a s e c u r i t y agreement may d e c l a r e t h a t t h e debtor commits a d e f a u l t when he makes a t r a n s f e r of t h e c o l l a t e r a l because t h e c r e d i t o r has a r i g h t t o determine who s h a l l be t h e debtor i n possession. Poydan, Inc. v. Agia K i r i a k i , Inc. ( N . J . 1974), 130 N . J . Super. Therefore, t h e f a t h e r had t h e r i g h t t r a n s f e r h i s i n t e r e s t i n t h e Mooney a i r p l a n e t o h i s son where t h e s e c u r i t y instrument i s perfected, and he i s n o t i n d e f a u l t ; b u t t h e c r e d i t o r , without knowledge of t h e t r a n s f e r and under t h i s agreement, not having received t h e proceeds, could under t h e s e c u r i t y agreement consider such a t r a n s f e r a d e f a u l t . I n any event, the s e c u r i t y i n t e r e s t of t h e c r e d i t o r here f o l - lowed t h e c o l l a t e r a l though t h e t r a n s f e r occurred under s e c t i o n 30-9-311, MCA. The r i g h t s of redemption of t h e son a r e found i n s e c t i o n 30-9-506, MCA. That s e c t i o n provides: "At any time before t h e secured p a r t y has disposed of c o l l a t e r a l o r entered i n t o a c o n t r a c t f o r i t s d i s p o s i t i o n under 30-9-504 o r before t h e o b l i g a t i o n has been discharged under 30-9-505(2), t h e debtor o r any o t h e r secured p a r t y may u n l e s s otherwise agreed i n w r i t i n g a f t e r d e f a u l t redeem t h e c o l l a t e r a l by tendering f u l f i l l m e n t of a l l o b l i g a t i o n s secured by t h e c o l l a t e r a l as w e l l a s t h e expenses reasonaSly incurred by t h e secured p a r t y i n r e t a k i n g , holding and preparing t h e c o l l a t e r a l f o r d i s p o s i t i o n , i n arranging f o r t h ~ s a l e , and t o t h e e x t e n t provided i n t h e agreement and n o t prohibited by law, h i s reasonable a t t o r n e y s ' f e e s and l e g a l expenses." Here t h e agreed f a c t s a r e t h a t t h e f a t h e r mailed a check f o r t h e balance of t h e Mooney debt before t h e repossession b u t t h e check w a s received by t h e bank a f t e r t h e repossession. Also t h e sum tendered covered only t h e amount of t h e Mooney debt and storage c o s t s . In t h i s case, s e c t i o n 30-9-506, MCA, required more: t h e debtor o r any o t h e r secured p a r t y should tender " f u l f i l l m e n t of a l l o b l i g a t i o n s secured by t h e col- l a t e r a l . " I n t h i s case t h a t included t h e f u r t h e r d e b t on t h e Cessna a i r p l a n e . Since t h a t f u l l tender was n o t made, t h e tender o f f e r e d by t h e son i n t h i s case d i d n o t f u l f i l l t h e requirements of s e c t i o n 30-9-506, MCA. N o questions a r e r a i s e d a s t o t h e i d e n t i t y of t h e a i r c r a f t , o r t h e propriety of t h e repossession, except a s we have discussed foregoing. Accordingly, we a f f i r m t h e ~ i s t r i c t Court. y - - ~ - % z J u s t i c e -.-.- W e Concur: m i e f J u s t i c e