Opinion ID: 1275069
Heading Depth: 1
Heading Rank: 1

Heading: Should F.S. Credit's security interest be limited to $20,000?

Text: Shear argues on appeal that trial court erred in holding F.S. Credit was secured to the extent of $25,000. The security agreement, it asserts, purported to secure an indebtedness only in the amount of $20,000. It was not amended, and the notes could not enlarge the scope of the debts for which the agreement provided security. The court of appeals agreed, holding the oral agreement to extend the additional $5000 in credit, absent a signed modification to the security agreement, was inadequate to create the additional secured interest in the crop collateral. The court reasoned that if it were to allow the secured interest to include the $5000, [it] would introduce an element of uncertainty to commercial law that the Uniform Commercial Code was designed to eliminate, citing Safe Deposit Bank & Trust Co. v. Berman, 393 F.2d 401, 404 (1st Cir.1968). F.S. Credit responds by contending it was secured to the full $25,000 and interest because the security agreement was orally modified in July 1977, when the additional credit was extended. Iowa Code section 554.9203 [4] sets out the minimum requirements for a valid security agreement. [5] Shear does not dispute the description of the collateral, the description of the land, that value had been given by F.S. Credit, [6] or that the Kettwigs had rights in the collateral. The basics of a security agreement are (1) a writing manifesting an intent to create or provide for a security interest, (2) signed by the debtor, and (3) containing a description of the collateral, further identified, if crops or timber, by describing the land concerned. See In re Bollinger Corp., 614 F.2d 924, 926 (3d Cir. 1980); Morey Machinery Co. v. Great Western Industrial Machinery Co., 507 F.2d 987, 990 (5th Cir.1975); In re Numeric Corp., 485 F.2d 1328, 1331 (1st Cir.1973); Crete State Bank v. Lauhoff Grain Co., 195 Neb. 605, 608, 239 N.W.2d 789, 791 (1976). There is no requirement that the amount secured or a maturity date be shown: those are essential contents of the underlying debt instrument. See In re Cooley, 624 F.2d 55, 57 (6th Cir.1980). Because identification of the consideration is not a basic of the security agreement, a modification in that regard need not be in writing, but may be effected orally. [I]t should follow that a modification of any of the agreement's basic terms, such as a change in the description of the collateral, must also meet the basic requirements of a signed writing.... On the other hand, terms other than basic required terms might well be modified by a subsequent oral agreement under the general law of contracts. 69 Am.Jur.2d Secured Transactions § 309, at 144 (1973) (footnotes omitted). Iowa Code section 554.1103 provides that [u]nless displaced by the particular provisions of this chapter, the principles of law and equity ... supplement its provisions. The Uniform Commercial Code does not specifically treat the subject of modification of a security agreement. Thus we may follow Iowa contract law, which permits oral modification of a written contract if adequate consideration is provided. See Recker v. Gustafson, 279 N.W.2d 744, 759 (Iowa 1979); DeWaay v. Muhr, 160 N.W.2d 454, 456 (Iowa 1968). In this case substantial evidence supported trial court's finding that the agreement had been orally modified to expand the security interest to $25,000. Kettwigs requested the additional $5000 credit. They were notified of the additional extension by letter from F.S. Credit, which subsequently advanced the additional funds. In these circumstances the modified security agreement was valid and enforceable as between the parties to it. See Restatement (Second) of Contracts § 89 (1981). There is no apparent reason why it should not bind Shear. Shear did not even check the filed financial statement and surely was not misled by the written security agreement. See J. White & R. Summers, Uniform Commercial Code § 23-3, at 904 (2d ed. 1980) (Generally, only a third-party who can prove that he in fact relied on misleading documents in concluding that no competing claim exists should succeed against the secured creditor with estoppel arguments under 1-103. We suspect that it will be rare indeed when a third party has so much as looked at much less been misled by another's security agreement.). The reliance of Shear and the court of appeals on Berman, 393 F.2d 401, is misplaced. The security agreement in Berman was limited specifically to securing a debt evidenced by a promissory note executed on the same date. No provisions were made for future advances. Id. at 402-03; see In re Cantrill Construction Co., 418 F.2d 705, 708 (6th Cir.1969), cert. denied, 397 U.S. 990, 90 S.Ct. 1124, 25 L.Ed.2d 398 (1970); 4 R. Anderson, Uniform Commercial Code § 9-203:9, at 161 (2d ed. 1971) (Where the security agreement refers to a particular debt which is secured thereby, the security agreement does not cover subsequent loans....). In Berman the referenced note, executed with the security agreement, was paid. Subsequent notes were claimed to be secured by the collateral described in the agreement. In the case before us future advances were covered by a specific provision of the security agreement: [A]ny indebtedness of Debtor to Secured Party, whether now existing or hereafter incurred, of every kind and character, direct or indirect.... None of Kettwigs' indebtedness was paid. Berman has no application in the circumstances presented here. We hold the court of appeals erred in holding F.S. Credit was secured only to the extent of $20,000 and not $25,000 with accrued interest, and in so modifying the district court judgment.