Opinion ID: 1717292
Heading Depth: 1
Heading Rank: 2

Heading: Security Agreement's Incorrect Description of Collateral's Location.

Text: The district court, relying on First National Bank in Creston v. Francis, 342 N.W.2d 468 (Iowa 1984), concluded that First State Bank maintained no security interest in crops located on the Zach farm because the description of the crop's location, contained in a 1982 security agreement, was incorrect. The security agreement described the collateral's location as section 22, township 69, range 44. In fact, the Zach farm crops were located in section 22, township 69, range 43. The 1982 instrument was the only one of First State Bank's security agreements that attempted to describe the location of the Zach farm crops. First State Bank, relying on certain language contained in Francis, argues that this case is distinguishable because the 1982 security agreement contains information which would alert a reasonable third party to the fact that the description was incorrect. We agree that Francis does not control the point, but distinguish the case on essentially legal, as opposed to factual, grounds. Iowa Code section 554.9203 (1983) provides, in pertinent part, that: [A] security interest is not enforceable against ... third parties with respect to the collateral and does not attach unless... the debtor has signed a security agreement which contains a description of the collateral and in addition, when the security interest covers crops growing or to be grown ... a description of the land concerned. Relatedly, Iowa Code section 554.9110 (1983) states that [f]or the purposes of this Article any description of ... real estate is sufficient whether or not it is specific if it reasonably identifies what is described. In Francis this court was presented with an inaccurate legal description contained in both a security agreement and a financing statement. We affirmed the district court's dismissal of a conversion action because the description failed to impart constructive notice of the security interest to a third-party buyer. Our precise conclusion was that the description was `seriously misleading' and [as a result] did not encumber the collateral at issue. 342 N.W.2d at 471. The rationale of the court is indicated by its application of the seriously misleading test. That test is taken from Iowa Code section 554.9402(8) which deals with the adequacy of financing statements. Financing statements serve the purpose of giving public notice to other creditors that a security interest is claimed in the debtor's collateral. In re Bollinger Corp., 614 F.2d 924, 926 (3d Cir.1980); Iowa Code § 554.9402 (1985), Uniform Commercial Code comment 2; J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code, § 23-3 at 910, § 23-16 at 961 (2d ed. 1980). The court's focus on the financing statement and the inadequacy of notice given thereby is reflected in the court's framing of the controlling analysis: Our decision must turn not on whether the description was sufficient to secure crops but on whether it was so specific that it could only reasonably be read to secure the crops on the described land. 342 N.W.2d at 470. The case at bar, however, does not present us with the concerns for proper notice which motivated the court in Francis. This is because here we deal only with a security agreement, an instrument which does not serve a notice function. Rather, the purposes served by a security agreement are those of providing signed evidence of an agreement and of obviating any statute of frauds problems with the debtor-creditor relationship. In re Bollinger Corp., 614 F.2d at 926; Iowa Code § 554.9203 (1985), Uniform Commercial Code comments 3, 5; J. White, Handbook § 23-3 at 910. Our cases have acknowledged the different functions of these two documents. See Murray v. Conrad, 346 N.W.2d 814, 819 (Iowa 1984). The statutory test for the sufficiency of a security agreement is only that of reasonable identification. Iowa Code §§ 554.9203; 554.9110 (1983). This test does not include the prohibition of seriously misleading statements which was our concern in Francis. This is, of course, because a security agreement does not purport to lead anyone to anything. See J. White, Handbook, § 23-3 at 904 (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.). Because a security agreement does not serve the function of supplying adequate notice to third parties, and because that is the function with which this court was concerned in Francis, we do not believe Francis is of controlling significance here. Neither do we think Percival Grain is entitled to strike down First State Bank's security interest by arguing that the Bank's security agreement fails to further a purpose which it was never meant to serve. We note parenthetically that Percival denies having ever seen the security agreement; much less can it support an argument of having been, in fact, misled by it. Therefore our analysis must be the inversion of that which guided us in Francis: our decision must turn not on whether the description was so specific that it could only reasonably be read to secure the crops on the described land but on whether the description was sufficient to secure the crops. Cases addressing the sufficiency of a security agreement's description of land upon which collateral is located uniformly turn on whether the description is overbroad or vague. Compare In re Byrd, 66 B.R. 261, 268 (Bankr.N.D.Miss.1986) (extraordinarily vague, overly broad and, as such ... insufficient to create a security interest ...); Gold Kist, Inc. v. Farmers & Merchants Bank, 425 So.2d 452, 453-54 (Ala.1983) (too vague); Landen v. Production Credit Ass'n of the Midlands, 737 P.2d 1325, 1329-30 (Wyo.1987) (too vague) with In re Younce, 56 B.R. 232, 233-35 (E.D.Wis.1985) (sufficient description); In re Frazier, 16 B.R. 674, 680 (M.D.Tenn. 1981) ([a]ll of the above described crops are or will become located on the farm land owned (rented) by Edward Frazier and all various farms in DeKalb County, Tennessee held to have satisfied reasonable identification standard); see also United States v. Newcomb, 682 F.2d 758, 762 (8th Cir.1982) (upheld, as not clearly erroneous, district court's finding that reasonable identification test had been satisfied). Vagueness is not an issue in this case, however. The description at issue, though incorrect, is specific. A security agreement is a contract between the secured party and the debtor, specifying what the security interest is. Landen, 737 P.2d at 1329. Unless displaced by particular provisions of the Iowa Commercial Code, general principles of law and equity are fully applicable to security agreements. Iowa Code § 554.1103; F.S. Credit Corp. v. Shear Elevator, Inc., 377 N.W.2d 227, 231 (Iowa 1985). The Code does not specifically treat the legal effect of a scrivener's error such as that involved here. That this is the type of error with which we are dealing is clear from the testimony of Jan Zach that he intended to give First State Bank security interest in the crops located on the land he was, in fact, farming. In addition, all parties to this appeal concede, and base their respective arguments upon, the fact the description is incorrect. As the Code does not cover this contingency, we fall back upon the common law of contracts. See F.S. Credit Corp., 377 N.W.2d at 231. An error in expressing an agreement reached by parties, such as the erroneous reduction to writing of a term agreed upon, is a mistake as to a basic assumption underlying the contract. Restatement (Second) of Contracts § 155, comment b at 408 (1981); Akkerman v. Gersema, 260 Iowa 432, 437, 149 N.W.2d 856, 859 (1967). Such a mistake does not, however, render a contract void; it only renders the contract voidable by the adversely affected party to the contract. Restatement (Second) of Contracts § 152 at 385. In the present case, neither party to the security agreement seeks to avoid its effect. Against the rest of the world, including Percival Grain, the agreement is valid. See Poole v. Poole, 219 Iowa 70, 74, 257 N.W. 305, 307 (1934) (voidable contract is void only at the election of the injured party and not otherwise.); Restatement (Second) of Contracts § 7. We have noted above that the purposes of a security agreement's description requirement are limited to the satisfaction of evidentiary and statutes of frauds concerns. This appeal raises questions as to neither of these concerns. There is no question but that the parties to the security agreement knew exactly where the collateral was located and failed only in their attempt at exactitude. The agreement is valid according to general principles of contract law. Given these facts, we conclude the description reasonably identifies the location of the crops and, as such, is sufficient to create a security interest in them enforceable against third parties.