Court Opinion

ID: 9622649
Source: CourtListenerOpinion
Date Created: 2023-08-22 06:21:30.535664+00
Date Added: 2024-06-11T17:33:03.747728
License: Public Domain

CARDINE, Justice,
dissenting.
I dissent.
By promissory note dated August 7, 1981, Richard Walker and Verleen Walker borrowed from the First Interstate Bank of Riverton (FIBR) the sum of $77,605.63. By promissory note dated April 6, 1984, Richard Walker and Verleen Walker borrowed from FIBR the additional sum of $7,328.35, securing said loan with a security and pledge agreement upon a 1979 Cessna airplane. The security and pledge agreement, in addition to securing repayment of the contemporaneous loan, also secured repayment of all existing and future debts owed the bank by the following clause in the security agreement:
“(Check and initial if applicable X /s RW VW.) In addition to the Note, this security agreement secures all amounts I owe to the Bank, whether now or later. This means that every loan I have now or get later is secured by this security agreement, as well as any other amount I may owe to Bank (such as an overdraft on my checking account).”
As indicated, the box was checked with an “x,” and the initials “RW” and “VW” were signed in the blank space following: The security and pledge agreement was properly filed with the county clerk in Fremont County and with the Federal Aviation Administration on the 9th day of May, 1984. On the 17th day of August, 1984, First National Bank, Cortez, Colorado, loaned Richard Walker and Verleen Walker the sum of $58,836.73, taking a security agreement in the same airplane and properly filing and recording on the 14th day of September, 1984, that security agreement with the Federal Aviation Administration. The airplane has been repossessed and sold. It is agreed that each party has properly recorded its mortgage and that FIBR is first in time and first recorded. The sole question presented is whether the prior recorded mortgage of FIBR securing all debts owed the bank secures the prior existing debt of August 7, 1981, in the amount of $77,605.63.
The cases cited in the majority opinion are between a creditor and a borrowing *1040debtor who claims that the parties did not intend that the security instrument be security for past existing debts. In those cases the general rule is that the intent of the parties control, and that is true whatever the form or designation of the instrument might be. Wyoming Discount Corp. v. Lamar, Wyo., 444 P.2d 620 (1968). If the intent of the parties was to provide security for past debts, the security instrument is held valid as providing such security. Thus it is said:
“The guiding principle in the construction of a ‘dragnet’ clause in a mortgage is the determination of the intention of the parties. The question frequently resolves itself into whether, in view of the surrounding circumstances and the language employed in the mortgage, the parties intended the security of the mortgage to operate upon a pre-existing or subsequently created indebtedness not specifically described in the mortgage. Monroe County Bank v. Qualls (1929) 220 Ala. 499, 125 So. 615.” Annot., Debts included in provision of mortgage purporting to cover unspecified future or existing debts (“dragnet” clause), 172 A.L.R. 1079, 1080 (1948). See also 55 Am.Jur.2d Mortgages §§ 137 and 142 (1971).
In this case there can be no question but that the parties to the security agreement, FIBR and the Walkers, intended that the security and pledge agreement secure the $7,328.35 being loaned and all amounts owed the bank at that time. Such intent is evidenced by the “x” marked in the box acknowledging the paragraph as applicable and initialing by the parties indicating agreement that the airplane be security for debts owed the bank. The intent of the parties is apparent on the face of the agreement and could not have been made more clear. Between the parties it is effective. An overwhelming majority of courts have upheld these clauses except where a contrary intention appears. In Frantz v. First National Bank & Trust Co. of Wyoming, Wyo., 687 P.2d 1159, 1162 (1984), we said:
“A security agreement is effective according to its terms between the parties and subsequent purchasers if properly perfected by filing. The subsequent purchasers are presumed to have notice and are, therefore, subject to the provisions of the agreement.”
This court acknowledged the validity of a provision in a security instrument securing other indebtedness in Lammey v. Producers Livestock Credit Corporation, Wyo., 463 P.2d 491 (1970), wherein the mortgage agreement provided security for other indebtedness that might arise or be created, and we held that the extension of a previous note and a note given for payment by the mortgagee of taxes and assessments constituted other indebtedness secured by the mortgage agreement.
I would hold that the security and pledge agreement was effective between FIBR and the Walkers to provide a security interest in the airplane for past indebtedness because that was their intent; that the face of the security instrument clearly indicated the intent to secure a past indebtedness; that, as to third parties upon recording, the FIBR security agreement afforded a valid lien for past debts and, being first in time and first recorded, entitled FIBR to the first proceeds upon foreclosure.
I find it anomalous that the majority opinion can accept as valid a dragnet clause that secures future indebtedness but is unable to acknowledge within the same clause an agreement to secure past indebtedness. With respect to future indebtedness, § 34-21-923(c), W.S.1977 (§ 9-204(3), UCC), provides:
“(c) Obligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment * * *.”
The amount of future advances are unknown at the time the security instrument is executed. The amount of past debts owed are known. But what difference should that make? In this case, if instead of past indebtedness the debt had been a future advance, appellee would have prevailed. Appellant would have known no more about the amount of future debt *1041owed, would have had a second lien and received nothing on foreclosure.
“According to the generally prevailing doctrine, advances made under a recorded mortgage given to secure future optional advances will not be denied priority in lien merely because the intervening encumbrancer could not have determined from the mortgage, without extraneous inquiry, the true amount of the indebtedness of advances secured thereby.” 55 Am.Jur.2d Mortgages § 352 at 411 (1971).
In either case, a second lender can only know from an examination of the security instrument that past and future indebtedness is secured and cannot know without further inquiry whether or not there exists past or future indebtedness. If there is a disadvantage, it is the same; why we should treat future indebtedness any differently than past indebtedness is difficult to understand. That is so even though past indebtedness can be ascertained.
In passing, we must note that the filing with the federal aviation agency states:
“The security conveyance dated 4/6/84 covering the above collateral was recorded by the FAA Aircraft Registry on 5/8/84 as conveyance number H41379.”
Appellant could have examined FIBR’s mortgage on this airplane recorded with FAA and recorded in the Fremont County Clerk’s office. Had they examined that document, they would have known that it contained a clause “x”ed as applicable and initialed by the Walkers agreeing that the airplane was security for past and future indebtedness. They would have known that making the loan upon this airplane might result in their having a second lien subject to a first lien of FIBR for past debts. This Colorado bank would have known that their lien would be second behind the first lien of FIBR. The New Mexico Supreme Court has held this to be the case. Clovis National Bank v. Harmon, 102 N.M. 166, 692 P.2d 1315 (1984).
The rule now adopted by this court, which invalidates the provision in a mortgage providing security for past indebtedness, stands alone among all the cases that have considered this question. That is true even of the Arkansas cases cited as authority for the majority opinion, for these cases concern only the rights between parties to the mortgage itself and do not deal with the rights of third-party lenders. Hendrickson v. Farmers’ Bank & Trust Co., 189 Ark. 423, 73 S.W.2d 725 (1934); Security Bank v. First Nat. Bank, 263 Ark. 525, 565 S.W.2d 623 (1978); National Bank of Eastern Arkansas v. General Mills, Inc., 283 F.2d 574 (8th Cir.1960); Annot., Debts included in provision of mortgage purporting to cover all future and existing debts (dragnet clause)—modern status, 3 A.L.R.4th 690 (1981). The Arkansas cases give effect to the intent of the parties to the mortgage and secure past indebtedness if that intent is demonstrated by showing the amount of the past-due debt secured. I would hold the intent of the parties controlling, however demonstrated.
I would affirm the decision of the district court.