Opinion ID: 1298626
Heading Depth: 4
Heading Rank: 1

Heading: Based on Security Agreement and Financing Statement

Text: As a general rule, a valid security interest follows the collateral into the hands of the purchaser. Alaska Statute 45.09.201 provides: Except as otherwise provided by this chapter, a security agreement is effective according to its terms ... against purchasers of the collateral.... The trial court, however, held that as a matter of law NC had authorized the sale from Cobb to Mallard, thus excepting Mallard from this general rule. Alaska Statute 45.09.306(b) states that if the sale was authorized by the secured party the security interest does not continue in the collateral: (b) Except where this chapter otherwise provides, a security interest continues in collateral notwithstanding sale, exchange, or other disposition of it unless the disposition was authorized by the secured party in the security agreement or otherwise ... . (Emphasis added) The trial court found that NC had impliedly authorized the sale of the loader by omitting from the security agreement any language which would have prohibited resale without NC's permission and by retaining an interest in proceeds. The court stated: The parties' respective arguments on the issue of authorization by consent are irrelevant where the security agreement on the loader does not restrict disposition. Also, the U.C.C. financing statements for both pieces of equipment expressly provide that N.C. retains a security interest in the proceeds of sale in the event that Cobb resells the equipment. The question presented is therefore whether the court properly concluded on the basis of this evidence that NC impliedly authorized the sale of the loader. The trial court erred in basing its decision on the above facts. Alaska Statute 45.09.306 is an adaptation of the Uniform Commercial Code, section 9-306. The Official Code Comment [2] to that section expressly distinguishes between a retained right to proceeds and an authorization to sell the collateral. The right to proceeds ... under specific mention thereof in a security agreement or financing statement does not in itself constitute an authorization of sale. Official Code Comment, reprinted in 9 R. Anderson, Anderson on the Uniform Commercial Code § 9-306:1, at 132 (3d ed. 1985) (hereinafter Anderson). Such a provision exists merely as a precautionary measure so that should a sale occur, the creditor is expressly protected by the terms of the agreement. [3] See Vermilion County Prod. Credit Ass'n v. Izzard, 111 Ill. App.2d 190, 249 N.E.2d 352, 354 (1969) (It is a clause inserted to protect the security holder as to third parties  not one of permission or consent to the borrower.). The court's decision was thus improper insofar as it concluded that a retained right to proceeds indicates an implied authorization to sell the loader. Similarly, the mere absence of a restriction on sale in the security agreement does not constitute implied authorization to sell. Alaska law places no burden on a secured party to restrict resale in the security agreement. The question of implied authorization is more properly viewed as a question of fact, with absence of a restriction considered only a factor in that determination. See, e.g., Platte Valley Bank of Brighton v. B & J Constr., Inc., 44 Colo. App. 21, 606 P.2d 455, 457 (1980) (Implied authorization to be determined by circumstances of parties, nature of collateral, course of dealing, and usage of trade); Poteau State Bank v. Denwalt, 597 P.2d 756, 760 (Okla. 1979). Consent to sale must consist of more than mere absence of restrictions. Implied agreement to sale should be found with extreme hesitancy and should generally be limited to the situation of a prior course of dealing with the debtor permitting disposition. Anderson, § 9-306:44, at 169. Moreover, a transferee of collateral should bear the burden of showing that the sale was authorized. Id., § 9-306:9, at 141. In short, the trial court could not properly have reached its decision based only on the absence of affirmative restrictions on sale and on NC's reservation of a security interest in proceeds. The question remains, however, whether other facts exist which render the trial court's decision proper. [4]