Court Opinion

ID: 9623021
Source: CourtListenerOpinion
Date Created: 2023-08-22 06:26:44.538189+00
Date Added: 2024-06-11T09:43:15.060450
License: Public Domain

BISTLINE, Justice,
dissenting.
Shakespeare might lay out the plot for this litigation in two lines:
(Whitworth): I fear that thou has sold off cattle mine.
(Cammack): Pear not, the court may yet make Krueger’s thine.
The Court, bedazzled by the titanic beauty of “The Code,” should observe itself to be playing the role of Bottom the Weaver. The Kruegers’ cows are to be awarded to Whitworths because, it is said, such a result is required by the law. I fear that Mr. Bumble, in his monthly law commentaries, will again find reason to say, “The law is an ass.” For what the majority does today is to reach a decision that would have been intolerable under the pre-Code law of Idaho, that is palpably unjust, and that was not even within the contemplation of the winning party; it is a decision that finds no support in the Code itself.
In order to award the proceeds from the sale of Kruegers’ cattle-collateral to the Whitworths, the majority must find established these three propositions:
1) The Whitworths have a validly perfected security interest.
2) The Whitworths’ perfected security interest reaches out to cover after-acquired cattle.
3) The Kruegers do not have a purchase money security interest in these cattle.
The majority accepts the first point as having been stipulated by the parties, totally omits any analysis of the second, and uncritically adopts plaintiffs’ contention and the trial court’s unsubstantiated conclusion with regard to the third. In my view, the majority is wrong on all three premises, keeping in mind, however, that a failure to establish any one of the three is necessarily fatal to the Whitworths’ claim against the proceeds of Kruegers’ cattle.
I. THE WHITWORTHS MUST FAIL IN ANY CONFLICT WITH OTHER SECURED PARTIES BECAUSE THEIR SECURITY AGREEMENT DOES NOT PROVIDE AN ADEQUATE DESCRIPTION OF COLLATERAL.
The conditions determining the “Validity of Security Agreement and Rights of Parties Thereto” are found in Part 2, Chapter 9, Title 28 of the Idaho Code. According to I.C. § 28 — 9—203(l)(b), a security interest is not enforceable “unless the debtor has signed a security agreement which contains a description of the collateral.”
The test for “sufficiency of description,” in turn, is spelled out in I.C. § 28-9-110:
“For the purposes of this chapter, any description of personal property or real estate is sufficient whether or not it is *77specific if it reasonably identifies what is described; . .
On the matter of identifying the collateral, the two agreements before us are materially different. While the Krueger agreement describes the collateral only as “cows,” it goes on to identify the same as to age and brand. Indeed, the Krueger agreement described its collateral with such sufficiency that the parties were later able to agree, and did agree, that it was identifiably cattle which were initially Kruegers that are the focal point of this controversy.
By contrast, the Whitworth agreement describes the collateral as Holstein cows and heifers, but identifies only the heifers, and these but as to age. Entirely absent is any identification by brand.
Under the provisions of I.C. § 25-1201 and I.C. § 25-1202, the Whitworths were required to have used a brand on their dairy livestock. Under the provisions of I.C. § 25-1208, a recorded brand is personal property, and, as such, is subject to sale, assignment, transfer, devise and descent. Under I.C. § 25-1204, brands are required to be recorded with the state brand inspector, failure to do so resulting in a prohibition of using the brand as evidence of ownership. I.C. § 25-1211 makes further provision that in court proceedings involving the title or right of possession of an animal, the brand, earmark, or ear tag shall be prima facie evidence that the animal belongs to the owner of the brand, earmark, or ear tag, conditioned upon recording. Proof of the right to the use of the brand, earmark, or ear tag is made by production of a certified copy of the recording.
It is abundantly clear that, until today, Idaho has recognized branding as both proper and necessary to identification of livestock. Undoubtedly, it was for this reason that the state brand inspector refused to turn over the proceeds from the sale of the “leased” cattle to anyone but the registered brand owners, the Kruegers, without their permission or without a court order. While the majority opinion declares that it does not implicitly repeal the state brand laws, two sentences later, however, follows this: “a brand, is immaterial in determining the rights of the parties because their rights are determined solely by the nature of their security interest and the priority of their security interest.”
In short, the state brand laws are not repealed; they are just irrelevant. I would hold rather that the state brand laws and the U.C.C. complement one another, and that the two can blend harmoniously by incorporating pre-Code methods of identification of cattle as the preferred “sufficiency of description” demanded by the Code whenever the collateral happens to be cattle.
A recent collateral-identification case in point is United States of America v. Mid-States Sales Company, 336 F.Supp. 1099 (D.Neb.1971). The United States was the institution lender, financing one Vencill under its Farmers Home Administration program. The United States secured itself by taking a lien on “All livestock now owned or hereafter acquired by Debt- or, together with all increases, replacements, substitutions, and additions thereto . ” The requisite financing statements were filed.
Thereafter, Mid-States made two sales to Vencill, both by purchase money mortgages. The ensuing controversy revolved around the description of the collateral set forth in Mid-States’ security agreement, and its later attempt to identify the collateral against which it claimed its security interest. The United States agreed that its general lien would be subordinate to the purchase money security interest of Mid-States, providing the latter’s identification passed muster.
Mid-States’ first security agreement described its collateral simply as “fifty one (51) head of Holstein heifers with increase.” The second agreement claimed as collateral “twenty four Holstein heifers with increase.” The descriptions are remarkably similar to those used by the Whitworths in describing their collateral as, “85 Holstein cows, 14 heifers, 1 to 2!4 years of age.”
The court declined to rule that the description was so inexact as to render the *78security agreement void. But the descriptions were “sufficiently uncertain” as to cast “a substantial burden” upon Mid-States to be able “clearly” to identify its collateral in order to prevail over the government. Mid-States was unable to meet this burden and thus was required to suffer the consequences of its doing “nothing at the time of the making of the security agreement with Vencill to assure future ability to identify the specific cattle being mortgaged.”
The point was that a party intending to create a security interest in certain cattle, necessarily must realize that one day he may be in the position of having to identify the cattle against which he claims the lien of his security agreement operates. Unless a given Holstein dairy cow has two heads, or some other recognizable identifying feature, later picking that cow out of a herd of one thousand or even out of one hundred is just not realistic.
In reaching a decision on the sufficiency of description of Whitworth’s collateral, a decision which is to be made as of the time of filing, I would hold that ordinary business prudence dictates that security agreement descriptions involving cattle should include setting forth the brand, and/or earmarks, and/or ear tags, thereby fulfilling the requirement of reasonable identification. Since the Whitworths failed to provide such reasonable identification, I would hold that they do not possess a security agreement which is enforceable as against third parties.
II. EVEN IF THE WHITWORTHS’ SECURITY AGREEMENT IS VALID, THEIR CLAIM MUST STILL FAIL BECAUSE IT LACKS AN AFTER-ACQUIRED PROPERTY CLAUSE.
The Whitworths argue that their transaction with the Cammaeks gave rise to two types of security interests: a purchase money security interest in the animals transferred, and “an interest in the subsequent cattle purchased to keep the herd up to 98 head.” It is not entirely clear whether the majority simply accepts this contention of the Whitworths, or, perhaps, fails to note that two analytically distinct claims are being made. In language that I find troubling, the majority concludes:
“Both parties agree that the Whitworths had a perfected security interest in the cattle.”
This, I believe, is erroneous. What the Kruegers stipulated to was only that the Whitworths “filed a Financing Statement as Instrument Number 457961.” The Kruegers' did not agree that the Whitworths had thereby perfected a security interest — much less one that could reach out to all after-acquired cattle from whatever source, and at whatever time acquired, perhaps, even when Cammaeks may have had on hand more than 98 head of original Whitworth cattle, or their increase.
The majority’s use of the phrase, “the cattle,” blurs these distinctions and becomes all-inclusive as to any cattle which happened to be on the Cammack ranch at the time of the bankruptcy, irrespective of whether the same were initially Whitworths’, or Kruegers’, or some other person’s or persons’. This, I believe, begs the very question under consideration here, namely, did any lien which may have been created by the Whitworth security agreement attach to cattle which were after-wards acquired by the Cammaeks from the Kruegers?
The specific wording of the lien-granting provision of the Whitworth agreement is this:
“Buyers agree to grant t (sic) Sellers alien upon said property and upon the replacements therefor, if any.” (Emphasis supplied.)
The not insignificant problem with the Whitworth contention is that nothing in the record shows, or even infers, that the Krueger cattle, or any portion thereof, were in actuality “replacements” for any of the Whitworth cattle. This being a crucial element of the Whitworth case, it is reasonably inferred that Krueger cattle were not replacement cattle, or that the Whitworths were unable to develop any evidence to show that they were, if, in fact, such were *79the case. Had the Krueger cattle been replacement cattle, it would seem to have been an easy matter for Whitworths to have said so, and better yet, to have obtained from the Cammacks an affidavit to that effect.
What the Whitworths would have this Court do, and what the majority is doing, is to elevate the narrow and specific replacement clause into a general after-acquired property clause. With this I can not agree; no other court appears to have ever done so; the two are not synonymous, but have entirely different meanings.
The word “replacement” is not one peculiarly adapted to the legal profession. It is riot to be found in the law dictionaries, but is a word of common usage. According to Webster’s Third International Dictionary (1967), “replacement” is defined as something which replaces, a substitute, a new fixed asset or portion of an asset that takes the place of a discarded one. The word “replace,” as most appropriate to the use here made of that word, implies supplying a substitute or equivalent for something lost, worn out, destroyed, or no longer usable. The Whitworths’ own gloss on the term, taken from their security agreement, is as follows:
“Buyers shall have the right to sell cows that cease to be productive, or to otherwise cull the herd, but they shall at all times retain a sufficient number of replacement heifers, or otherwise provide satisfactory replacements, to maintain a herd not smaller than that being now purchased by said Buyers, hereunder.”
The obvious contemplation of the parties, as manifest in their signed agreement, was that such “replacements” would be heifers “retained” from the calf crop which a dairy operation necessarily produces each year. Almost as an after-thought, if particular replacements were provided otherwise, a lien was also granted as to these.
By contrast, “after-acquired property” is a technical phrase, one that has acquired technical precision through decades of use in the Idaho courts. Liens on after-acquired property were not unknown in Idaho m pre-Code days, Idaho did not share the deep-seated antipathy of other jurisdictions to after-acquired property clauses. Such jurisdictions adhered to this rule as stated in American Jurisprudence:
“A mortgage which purports to cover all the property which the mortgagor may thereafter acquire, without any restriction as to its amount, character, or the uses and purposes for which, or the time within which, it is to be acquired, or as to the locality where it is to be placed, is void for indefiniteness.” 15 Am.Jur.2d, Chattel Mortgages, After-Acquired Property, § 67, at 261 (1964).
The Idaho case of Poage v. Co-operative Pub. Co., 57 Idaho 561, 66 P.2d 1119 (1937) is a leading case. It is cited in the above section of American Jurisprudence Second, for the proposition that such mortgages, on after-acquired property, will be upheld where there is found a clear expression of the “intention of the mortgagor to cover such property.”
Whatever the law may have been in other jurisdictions, it is thus clear that in Idaho after-acquired property provisions of chattel mortgages were held valid. It is equally clear, and beyond question, that whether or not personal property afterwards acquired was subject to the lien of the mortgagee was to be determined according to the intention of the parties as “manifest from the language of the instrument.’’ Poage v. Cooperative Pub. Co., supra, 57 Idaho at 582, 66 P.2d at 1128. While the advent of the Code has drastically changed the law in many jurisdictions as to the validity of such after-acquired property provisions — See, “Comment” to I.C. § 28-9-204(3) — the Code in this respect wreaks no such havoc in Idaho. The Code recognizes only that which Idaho has long recognized in the field of institution financing, to wit: if the parties expressly manifest their intention to encumber assets which the borrower will later acquire, Idaho courts will enforce the agreement expressing that manifestation.
Thus the Code does not require any departure whatever from the rule of the Poage case. If the Whitworths and the *80Cammacks actually intended that the Whitworths should have a lien on personalty which the Cammacks would thereafter acquire, it would have been a simple matter for them to have used language appropriate for that purpose. This they did not do.
The recent case of In re Middle Atlantic Stud Welding Co., 503 F.2d 1133 (3rd Cir. 1974), is very much on point. In this case, a borrowing situation was involved. Both the referee and the district court made the specific finding that the lender and the debtor intended the agreement to establish a security interest in after-acquired accounts receivable. Nonetheless, both held, and the circuit court affirmed, that, such intention notwithstanding, absence of explicit reference to after-acquired accounts defeated the lender’s claim of a security interest against accounts which were in fact after-acquired.
Involved was the law of Delaware, which at that time had adopted the Code, with a provision identical to our I.C. § 28-9-204(3):
“. . .a security agreement may provide that collateral, whenever acquired, shall secure all obligations covered by the security agreement.”
The security agreement in Middle Atlantic granted a security interest in “all Receivables and proceeds thereof as security for the Liabilities,” and defined “receivables” as “all of Debtor’s Accounts Receivable.” “Liabilities” was defined to mean “any and all indebtedness of Debtor to Secured Party of every kind and description, now existing or hereafter arising.” Arguably, such language should suffice to alert readers of the security agreement to the fact that after-acquired accounts were intended to be included. The Court of Appeals of the Third Circuit rejected the argument:
“Although it may be true that many, perhaps most, prospective lenders, on reading the present agreement, would obtain an unambiguous explanation of its full meaning from the secured party, some might be misled and proceed without inquiry. The ease with which a secured party could eliminate the danger of misleading any reasonable subsequent lender suggests that in administering the Code the courts should require him to do so. A requirement that intended inclusion of after-acquired accounts receivable be unambiguously expressed will not significantly conflict with any important Code policies, and will support some. It will produce simpler, clearer and more certain law for all parties.
“This appeal involves a question as yet infrequently adjudicated. Hence, our decision here cannot disturb any generally understood judicial interpretation of the Code. Affirmance will not require a return to the law of magic words. Neither will it go to the opposite extreme of flexibility urged by the appellant. It will be in keeping with the observation in the Comment to* section 1-102, supra, that a degree of strictness in construction, as well as flexibility has proper application under the Code.
“Last, this decision respects reasonable commercial need and expectation. The validity of after-acquired property clauses is recognized. Only the implication of such a clause through ambiguous language is rejected. It is hard to see how such implication would promote satisfactory conduct of business affairs.” (Emphasis added.) In re Middle Atlantic Stud Welding Co., supra, 503 F.2d at 1137.
Middle Atlantic, of course, dealt with accounts receivable. This context has for years been the particular province of the “floating lien” concept. Obviously, such a lien must float if it is to be secured by the ever-changing stream of inventory or accounts receivable. Still, the court insisted upon strict compliance because,
“. . . it is neither onerous nor unreasonable to require a security agreement to make clear its intended collateral.”
A fortiori, this court should insist upon an adequate description of collateral and an explicit claim on after-acquired property when the collateral in question is dairy cows.
*81III. EVEN WERE THE WHITWORTHS TO POSSESS A VALID SECURITY AGREEMENT AND A VALID AFTER-ACQUIRED PROPERTY CLAUSE, THEIR CLAIM MUST STILL FAIL BECAUSE THE KRUEGERS PERFECTED A PURCHASE MONEY SECURITY INTEREST.
It is the policy of the Code, as also of pre-Code law, to prevent a secured party., with an after-acquired property claim from exercising a strangle-hold upon the debtor. The debtor’s credit would dry up entirely if all subsequent creditors had to subordinate their advances to a prior floating lien. Thus, corresponding to the pre-Code conditional sales contract, the Code creates the category of the “purchase money security interest,” which is defined in part as follows:
“A security interest is a ‘purchase money security interest’ to the extent that it is
“(a) taken or retained by the seller of the collateral to secure all or part of its price; ...” I.C. § 28-9-107.
Inclusion in this privileged category assures the party with the purchase money security interest that his collateral is safe from the grasp of all prior creditors. This policy is enunciated in I.C. § 28-9-312(4):
“A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within ten (10) days thereafter.”
The all important question thus becomes: Do the Kruegers have a perfected purchase money security interest? If they do, they are entitled to all proceeds from the sale of their collateral, regardless of any interest the Whitworths may have.
Analysis may properly begin by observing that there is no question that the Kruegers have “the three basic prerequisites to the existence of a security interest: agreement, value, and collateral.” I.C. § 28-9-204, Comment 1. The only issue is whether or not the Kruegers have met the Code’s requirement that a financing statement be filed to perfect a security interest. I.C. § 28-9-302(1). The “formal requisites” may be summarized as follows:
(1) The filing of a financing statement.
(2) The signatures of the debtor and of the secured party.
(3) The addresses of the debtor and of the secured party.
(4) A description of the collateral.
See, I.C. 28 — 9—402(1).
As noted earlier, condition (4) — i. e., the description of collateral in the Kruegers’ security agreement — is fully satisfied. It is equally clear that the agreement contains the signatures of both the Kruegers and the Cammacks, thus fulfilling condition (2). If the majority is to hold that the Krueger’s security agreement is unperfected, then, it must either be
(1) because the Kruegers’ security agreement cannot take the place of a financing statement; or
(3) because the addresses of the debtor and of the secured party might be said to be substantially insufficient.
Neither challenge can withstand close analysis.
(1) The Code itself provides that the secured party may file a financing statement, as such, or he may file a signed copy of the security agreement — so long as the latter contains at least the same information as is required in a financing statement:
“A copy of the security agreement is sufficient as a financing statement if it contains the above information and is signed by both parties. I.C. § 28-9-402(1).”
The accompanying Comment by the drafters of the Code reiterates their approval of this practice:
“A copy of the security agreement may be filed in place of a separate financing statement, if it is signed by both parties and contains the required information.”
Given this clear language of the Code and the Comment, it needs must follow as the night the day that Kruegers’ security agreement suffices to serve in place of the *82financing statement required by I.C. § 28-9-402(1).
(3) The adequacy of the addresses of the secured party and of the debtor alone remains at issue. Case law on this question is about evenly divided, with some courts adhering to the literal requirement of addresses and other courts dispensing with this requirement. Mid-America Dairymen, Inc. v. Newman Grove Cooperative Creamery Co., 191 Neb. 74, 214 N.W.2d 18 (1972).
The inquiry to be made in deciding between the vying authorities, finds its guide in I.C. § 28-9-402(5) which qualifies all the preceding “formal requisites”:
“A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.”
The Comment provides further assistance:
“Subsection (5) is in line with the policy of this Article (Chapter) to simplify formal requisites and is designed to discourage the fanatical and impossibly refined reading of such statutory requirements in which courts have occasionally indulged themselves.”
The question, then, is properly treated as one of fact. What is seriously misleading in inventory financing may not be so in cattle sales; what is seriously misleading in dealings among lending institutions may not be so between dairy farmers; what is seriously misleading in Ada County, may not be so in less populous Owyhee County. Each case must be determined on its own facts.
In Rooney v. Mason, 394 F.2d 250 (10th Cir.1968), the appellant contended that the “Notice of Agreement” there filed was defective because it did not give the mailing address of either the debtor or the secured party. The Circuit Court took note of the Code provisions cited above and held that:
“. . . the purpose of § 34-9-402 is to establish a notice system of recording and that the notice may be such as to require a creditor to make further inquiry. The Wyoming Courts might reasonably hold that a creditor examining the records is put on notice to make further inquiry upon seeing the notice of agreement. Further, the fact that the addresses of both parties were readily available and known by virtually all creditors could reasonably be found sufficient to make unnecessary the listing of the addresses of the parties.” 394 F.2d at 253.
This approach to the question of omitted addresses is applauded by Wright and Summers in their treatise, Uniform Commercial Code, 843 (1972). See also, In re Bankrupt Estate of Smith, 508 F.2d 1323 (5th Cir. 1975); Silver v. Gulf City Body & Trailer Works, 432 F.2d 992 (5th Cir. 1972); In re Bennett, 6 U.C.C. Rept. Serv. 551 (W.D.Mich.1969); In re Bengston, 3 U.C.C. Rept. Serv. 283 (D. Conn. 1965).
In the Rooney case, a complete omission of both addresses was held to be a minor error, not seriously misleading. The Krueger agreement is much more informative: it narrows the location of both parties to Bannock County; it provides the name of the notary who declares to know both parties; it gives also the name and address of the attorney who was hired by one or both of the parties to draft the agreement; and it gives a four page metes and bounds description of the ranch of the Cammacks.
One final citation. In In re French, 317 F.Supp. 1226 (E.D.Tenn.1970), the court was faced with a situation the equities of which are profoundly similar to those facing us here. Like the Kruegers, the petitioner there had a questionably adequate filing. The general creditors in bankruptcy there, like the Whitworths here, argued that a defective filing rendered the security agreement unperfected. The result, if their argument had won the day, would have been a windfall to parties who had never relied to their detriment upon the defective filing. The court declined to rule the security interest unperfected, in language most applicable here:
“The Gourt is unable to find any prejudice to creditors. It is admitted that none of the general creditors made inquiry of the Secretary to ascertain what property of the bankrupt was subject to any liens. Invalidating petitioner’s security interest would create a windfall for the general *83creditors solely because of this slight dereliction. This would be an unjust result. The failure to include the addresses would, at most, have inconvenienced a creditor.” In re French, supra. 317 F.Supp. at 1228.
******
The majority opinion correctly starts by addressing the question of
“. . . whether the Kruegers were required to file a financing statement pursuant to Art. 9 of the Uniform Commercial Code in order to protect their interest in the cattle.”
The majority concludes, also correctly, that the Kruegers were required to perfect their security interest by filing within ten days after possession passed to the Cammacks. Inexplicably, and with no supporting analysis, no case law citations, and no Code references, the majority then concludes that the Kruegers did not perfect their security interest by filing. The reason, apparently, is to be found in the Court’s facile reliance on the stipulation of the parties,
“That the Defendants, Herman W. and Josie R. Krueger, did not file a Financing Statement under the Uniform Commercial Code covering any of the animals subject to their Lease with the Cam-macks.”
In short, the parties have stipulated that the Kruegers did not make the U.C.C.-l filing, as it is commonly called. But this, as we have seen, is only the start of the inquiry. To jump immediately to the conclusion that the Kruegers’ security agreement was not perfected under the requirements of the Uniform Commercial Code is to accept not a stipulation of the parties, but a contention of the plaintiff. The Kruegers themselves made no such stipulation, but rather request the court:
“That even if it should be found that the Defendants’ Lease is subject to the provisions of the Uniform Commercial Code, . the Court should make a determination as to whether or not under the facts as given, the Lease would as a matter of fact be a security transaction.”
These transactions, it should be remembered, were both made when the Code was as yet in its infancy here in Idaho. In laying out its authoritative interpretation of the Code, this Court should not feel bound by the erroneous contentions of the parties, any more than it is bound by the erroneous conclusions of law of a trial court.
IV. TO DIVEST THE KRUEGERS OF THEIR COLLATERAL FOR SUPPOSED NON-COMPLIANCE WITH A CODE PROVISION, IS TO EXACT A FORFEITURE FROM THE KRUEGERS AND TO UNJUSTLY ENRICH THE WHITWORTHS.
If it were clear that the Whitworths had a validly perfected security interest; and if it were clear that the Whitworths’ agreement contained a valid after-acquired property clause; and if it were clear that the Kruegers had not perfected a purchase money security interest . then the task of this Court would still not be at an end. We would still be faced with the final stark question: Under such facts, who should prevail? I would suggest that the answer is not simple.
The Florida Supreme Court was presented with precisely this dilemma in the case of International Harvester Credit Corporation, et al, v. American National Bank, 296 So.2d 32 (Fla.1974). The Bank had a security agreement with the debtor, Machek Farms, Inc., which agreement took as security all the debtor’s after-acquired property. The debtor later bought farm machinery pursuant to a retail installment contract which was eventually held by International Harvester Credit Corporation. I.H.C.C.’s interest, admittedly, would have been a purchase money security interest were it not for the fact that it was filed outside of the 10 day limit specified in the Code. The court of appeals ruled that because of this late filing the farm machinery was free and clear of I.H.C.C.’s lien and subject to the security interest of the Bank as after-acquired property. Judge Rawls, quoting from Mr. Bumble, dissented:
*84“The law is an ass. This aphorism is especially applicable to the instant facts for by detailing various provisions of the Uniform Commercial Code the majority has reached an illogical result. .
To permit the bank under these facts to replevy the subject farm machinery from (I.H.C.C.), in my opinion, constitutes legal larceny.” 269 So.2d 726, at 731-32.
On certification of the identical question, the Florida Supreme Court, agreeing with the Rawls dissent, amplified:
“It would be abhorrent to equity and justice that the earlier creditor should acquire the subsequent creditor’s property °or ‘interest’ in this manner.
“Logical and traditional equitable reasons preclude a result which would allow the bank as mortgagee to subject the after-acquired farm equipment as its collateral, while not changing its position and giving no “new value” because of the later sale of equipment; consequently, the bank was not misled by the failure of the seller of the equipment to record his purchase money security.
“To give the prior creditor the seller’s retained interest in such property simply because of such seller’s failure to record and to permit the original creditor to replevin the sold equipment would be to give to such earlier creditor a windfall not favored by the code (see § 679.108 and U.C.C. Comment 19C F.S.A. 198) contrary to established principles.” 296 So.2d at 34-35.
The Florida Supreme Court’s conclusion has been much maligned by the law reviews. The litany of objections was predictable. The court’s decision, it is said, diverges from the conclusions reached by other courts — thus undermining the uniformity of the Uniform Commercial Code. It resurrects such pre-Code archaisms as “title,” and “equitable interest,” etc. It shows disrespect for the Code by not penalizing those who fail to comply with the letter of its filing system. Finally, it tampers with the seamless web of the Code, threatens all other parties who may take the records at their face value only to find later that I.H.C.C. had a purchase money security interest in the collateral, and forces confused creditors into wasteful and duplicative expenditures in collecting according to the provisions of 9-501, et seq. See, Case Comment, 3 Fla. St. U.L.Rev. 150 (1975); 26 Case W.Res.L.Rev. 708 (1976).
Perhaps there is some validity to these criticisms. Surely, they would be valid if the contest were between I.H.C.C. and a subsequent creditor who had relied to his detriment upon the existing state of the records only later to be apprised of “Old MacDonald’s Secret Lien” — as it was called by one commentator. Note, 27 Univ. of Fla. L.Rev. 151 (1974). Moreover, it is hard to be sympathetic when an industrial giant such as I.H.C.C. fails to comply with the routine recording requirements of its own business.
But, it is much doubted that the draftsmen of the Code — preoccupied with the rights of competing banks, commercial lenders, and inventory financers — ever gave any thought to the possibility that one of two purchase money vendors would be awarded the other’s collateral because of the latter’s failure to file properly. No such example is set forth in the text or the Comments to I.C. § 28-9-312(3), (4), (5). Comment 3 to I.C. § 28-9-204 speaks only of the “commercial borrower” and it is undoubtedly in the world of the institutional lender that the after-acquired property device finds its proper setting.
The Whitworths were not a lender, but a seller; the Cammacks were not their borrower, but their buyer. Cammacks, as with all persons in business, undoubtedly had a commercial lender from whom they were “borrowers.” The agreement between Whitworths and Cammacks, by contrast, was obviously intended to be only a purchase money security agreement. It was to serve as a shield to protect the Whitworths, not as a sword with which to attack any later vendor’s cattle, other than mere “replacements” for their own. Hence it contains none of the after-acquired phraseology that invariably finds its way into commercial financing documents. If the par*85ties had bargained for such, the attorney would surely have written it in. Everyone seems to have recognized that it was not a situation properly calling for any such provision.
By surrendering the Kruegers’ collateral to satisfy Whitworths’ lien, the majority is exacting a forfeiture, a five-digit penalty, pure and simple. It is the long-standing policy of Idaho courts that forfeitures are not favored either in law or in equity. See, Graves v. Cupic, 75 Idaho 451, 272 P.2d 1020 (1954), its predecessors and its progeny. This policy has been expressly incorporated into the Code. I.C. § 28-1-106(1). If one asks in what manner the Kruegers offended the rights of the Whitworths so as to merit such a penalty, no answer is forthcoming. Indeed, the penalty could not arise out of any relationship of the Whitworths and the Kruegers; there was none. Rather, it is the result of an explicit balancing which concludes that one rancher should be sacrificed so that the nation’s Uniform Sacred Cow may remain whole.
Unfortunately, the majority is more in awe of the Code than were its drafters who, according to Professor Gilmore, never intended that its enactment would
“. . . announce the arrival of the millenium. The Code is, in my opinion, a good statute; it is not a perfect one. I see nothing to be gained, and much to be lost, by a pretense that it is either more or better than it is.”
I Gilmore, Security Interests in Personal Property, Preface, at x (1965).
Professor Gilmore notes that it is the explicit policy of the Code that it not be applied blindly and mechanically.
“The present point is that the Uniform Commercial Code, so-called, was not designed, as the European Codes may have been, to abolish the past, even on the level of semantics or vocabulary. In a provision which reproduces in slightly different form one found in all the earliest Uniform Acts in the commercial field, the Code says (1-103):
“‘Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.”
“Even on its own terms, then, the Code does not purport to contain all the law there is. .
“Answers will be provided to questions such as these. Many of the answers will come in the form of amendments to the present text of the Code. Others will come from the more leisurely process of judicial decision. Paradoxically, it is at this point — in devising appropriate solutions to problems that have only recently become identifiable — that a knowledge of the past becomes most helpful, both to the legislative draftsman and to the judge.” Ibid, at viii-ix.
If this principle of flexible application is valid for the Code as a whole, it is all the more important when dealing with the most controversial of all Code policies, namely, those which concern the “floating lien.” Again, Professor Gilmore is far less deferential than is the majority of this court:
“Therefore, rather than pretend, on the level of legal fiction, that things cannot be done which in fact and law can be done, sound analysis requires that the floating lien be recognized as valid and then cut down to size in situations where its unlimited and unrestricted application might lead to undesirable or unjust results.” (Emphasis added.) Gilmore, pp. 360, 361.
Where the Florida court was faced with a head-on collision between a prior creditor with a fully perfected security interest in after-acquired property and a later creditor who was guilty of a clear-cut failure to record his purchase money security interest, it could not bring itself to pronounce the inequitable decision others say is seemingly mandated by the Code.
This Court is faced with no such hard choice. We should hold here today, that, if it were necessary to reach the question, a *86prior purchase money secured vendor, even one with a valid after-acquired property clause, should take after a later purchase money secured vendor, even one with a defective filing. The defective filing has done nothing to mislead the prior creditor. To forfeit the second creditor’s collateral as a penalty for his defective filing is to unjustly enrich the prior vendor. In short, it is a windfall. Such an outcome may seem unobjectionable in the aseptic world of law review articles; it should otherwise be regarded in non-academic situations where real live parties are entitled to judicial determinations bottomed on justice and conscionability.
A lien on after-acquired property has no place in the ordinary purchase money security agreement; it is an institution lender’s device, and to such loan transactions I believe it should be properly confined.
V. ADDENDUM.
A brief comment with regard to the special concurring opinion of the Chief Justice. I was convinced when I wrote the foregoing dissent that the views I expressed therein were correct, and were wholly within the purview and intent of the Uniform Commercial Code; I am now more convinced than ever.
It is important to remember what this case is all about. When the Whitworths sold to the Cammacks, they sought to retain a lien on the 98 head which they were selling, and the agreement specified that if any of these animals were disposed of, the lien should attach to the replacements. When the Cammacks ended up in the bankruptcy court, and all of the Whitworth herd was gone but three animals, the Whitworths turned to the Krueger cattle as a source from which to make good their loss.
Suggestively, the specially concurring opinion makes the statement that “the word ‘replacement’ appears to be commonly used in the creation of livestock after-acquired rights,” and cites three cases, beginning with United States v. Pete Brown Enterprises. These cases are not to that point; the “replacement” language in each of those cases occurs in and is encompassed by such all-inclusive after-acquired provisions as:
“All livestock . . . now owned or hereafter acquired by Debtor, together with all increase, replacements, substitutions and additions thereto.” U.S. v. Pirnie, 339 F.Supp. 702, 705 (D.C.Neb.1972). And see, U.S. v. Pete Brown Enterprises, Inc., 328 F.Supp. 600, 602 (N.D. Miss.1971); Erb v. Stoner, 1 UCC Rep. 469, 470 (Pa.Ct.Comm.Pl.1959); Burlington Nat. Bank v. Strauss, 50 Wis.2d 270, 184 N.W.2d 122, 123 (1971).
I have no quarrel with the adequacy of such language to give subsequent creditors full notice of a lien on after-acquired property. The absence of such language is precisely what I find objectionable in the present attempt to transform the Whitworth’s narrow replacement clause into the after-acquired property clause required by the Code.
I do not have any trouble agreeing with the following statements out of the specially concurring opinion:
“Replacement . . ‘means cattle brought in to maintain herd size, as opposed to additions.’
“ . . . cattle farmers do not buy 50 head of new cattle to replace lost friends. ‘Replacement’ as it is used in the livestock context more probably refers to stock acquired to maintain herd size when other stock is lost from the herd. .
“In this sense, it is important to realize that ‘after-acquired’ is not freely interchangeable with ‘replacement.’ ”
In this case, however, the record does not establish that the Krueger cattle were replacements for the Whitworth cattle. The record does not establish that the Cam-macks somehow “lost” 50 head of what had been initially Whitworth cattle, or that they somehow “lost” what would have been four years of new heifer increase out of that original 98 head, and, moreover, the increase of the increase. It is not a proper function of an appellate court to indulge in the assumption that the Cammacks ac*87quired the Krueger cattle as replacement for the Whitworth cattle, nor to assume in the first place that the original 98 head were lost, or even that 50 were lost, and that all of the increase were lost as well.
That all but three of the Whitworth cattle were gone is not open to question. It is also not open to question that the Whit-worth security agreement conferred upon the Cammacks the right to sell cows, heifers, and calves out of that herd. This constituted consent to sell in the ordinary course of business, and as to vendees purchasing from the Cammacks, the lien of the Whitworth agreement and filing statement was waived. I.C. § 28-9-306(2); Swift & Co. v. Jamestown National Bank, 426 F.2d 1099, (8th Cir. 1970). This, I submit, compounds the injustice being done to the Kruegers. Purchasers from the Cammacks, making off with almost the entire herd of the Whitworths, were wholly protected from suit by Whitworths for two reasons, one, the impossibility of identification, and two, the waiver of the lien — all of which suggests to my mind the unconscionability of allowing the Whitworths to then turn to the Krueger cattle, on a claim for which their agreement with Cammacks made no provision.
The specially concurring opinion is willing to make the further assumption “that the lease was not filed with financing statements, and a creditor looking for security interest by checking financing statements would not find the lease.” We don’t know that this is so. Not that it may not be so, and likely is so, but we do not know that from this record, and I wonder how far an appellate court should go in making assumptions, especially where the case comes before this Court on facts stipulated to by the parties involved.
We do know that the Code provides:
“Presentation for filing of a financing statement and tender of the filing fee or acceptance of the statement by the filing officer constitutes filing under this chapter.” (Emphasis added.) I.C. § 28-9-403(1)
And we know that Krueger document was presented, and the filing fee paid.
What is further known for certain is that anyone who contemplated dealing with the cattle on Cammack’s ranch, either as buyer, or lender, in checking the courthouse filings, in an exercise of ordinary prudence would check for leases as well as for security agreements. It should not be forgotten that there are leases which are not by law construed as security agreements, and any buyer from or lender to Cammacks, taking cattle as security, would thus be finding the Krueger agreement and the information it contains.