Opinion ID: 2459497
Heading Depth: 1
Heading Rank: 3

Heading: appeal of smith

Text: As noted above, Oakes pledged numbers one through seven of the Goldman notes to Smith, a holder in due course, to secure a prior obligation owed to Smith by Oakes. Oakes defaulted on his obligation to Smith on June 1, 1970. The dispute between Smith and Bierschwale concerns ownership of the payments made on these notes into the court's treasury prior to June 1, 1970. Smith held a perfected security interest in the Goldman notes by virtue of possession, so Smith's right to the notes themselves is not in question. Tex.Bus. & Comm.Code Ann. § 9.304(a), V.T.C.A. (Tex.UCC 1968) (hereinafter cited by section). Bierschwale claims that Smith is not entitled to the proceeds of the notes arising prior to default because Smith's financing statement did not cover proceeds. Section 9.306(a) defines proceeds to include whatever is received when collateral or proceeds is sold, exchanged, collected or otherwise disposed of. Undoubtedly the payments made by Goldman into the treasury of the court are proceeds. Section 9.306(b) states, [e]xcept where this chapter otherwise provides, a security interest ... continues in any identifiable proceeds including collections received by the debtor. Section 9.306(c), on which Bierschwale relies, continues, [t]he security interest in proceeds ... ceases to be a perfected security interest and becomes unperfected ten days after receipt of the proceeds by the debtor unless (1) a filed financing statement covering the original collateral also covers proceeds; ... [6] Bierschwale argues that Smith's financing statement was improperly filed and thus his security interest in the proceeds of the notes ceased to be perfected ten days after the proceeds were paid into the registry of the court. A security agreement, meeting the formal requirements for a financing statement and describing the notes in question, was filed in the mortgage records of Harris County. This security agreement contained the following language, [a] mutation of collateral notes by foreclosure of lien or the acceptance of payment or substitution of collateral shall inure to the benefit of Secured Party [Smith] and a security interest in the same shall arise by subrogation in favor of the Secured Party herein. This language would seem to claim the proceeds of the Goldman notes as required by Section 9.306(c). However, this security agreement was filed in Harris County; it should have been filed in the Secretary of State's office. See Section 9.401(a)(3). A financing statement filed in the wrong place does not protect the secured party against a lien creditor who becomes a lien creditor without knowledge of the security interest. See Section 9.301(a)(2) [7] and Section 9.401(b). See also White and Summers, Handbook of the Law Under the Uniform Commercial Code at 832 (1972); and Hawkland, A Transactional Guide to the Uniform Commercial Code, Vol. 2 at 618 (1964). Bierschwale is a lien creditor by virtue of his equitable right to a constructive trust on the Goldman proceeds. Section 9.301(c). The constructive trust arises when legal title passes, in the instant case when the apartment complex was transferred to Oakes. Lotus Oil Co. v. Spires, 240 S.W.2d 357 (Tex.Civ. App.El Paso 1950, writ ref'd n.r.e.); Elbert v. Waples-Platter Co., 156 S.W. 2d 146 (Tex.Civ.App.Fort Worth 1941, writ ref'd w.o.m.). When property subject to a constructive trust is transferred, a constructive trust fastens on the proceeds. Smith v. Green, supra . Bierschwale's right arose prior to and without knowledge of Smith's right. Therefore, Bierschwale's claim to the proceeds in question takes precedence over the claim of Smith. Sections 9.301(a)(2); 9.401(b); 9.401(a)(3). That part of the court of civil appeals' judgment awarding Bierschwale the proceeds from notes one through seven is approved. [8] The judgment of the court of civil appeals is reversed and the cause is remanded to the trial court for entry of judgment consistent with this opinion.