Court Opinion

ID: 9528475
Source: CourtListenerOpinion
Date Created: 2023-08-07 03:41:28.662994+00
Date Added: 2024-06-11T13:26:54.139725
License: Public Domain

CARDINE, Justice,
dissenting.
This is a case in which a debtor refused to pay a promissory note, refused to demand payment, refused to accept return of worthless collateral, claiming conversion to defeat the creditor. I must, dissent from the unjust result of the majority decision which holds that there was a conversion by appellees of appellants’ pledged stock. For two reasons there was no conversion. First, appellees had a continuing security in the pledged stock for unpaid interest, a lawful right to retain the stock and therefore no conversion. Second, there was no demand for return of the stock and, therefore, as a matter of law no conversion. The majority’s opinion deprives appellees of the full benefit of their secured status. It charges appellees with conversion while ignoring appellants’ own failure to request return of their stock.
I turn first to the problem of interest payments under the note. The majority admits that the promissory note signed by appellants called for interest payments in case of default. It correctly notes that the stock was given to serve as security for “sums due under the note.” Because interest was due only in case of default, however, the majority concludes that, although default had occurred and interest was owed, once the principal only was paid, the stock could not serve as security for the interest due. This conclusion is not supported by citations to any authority.
The question to be answered here is what obligation was secured by the shares of stock. Interest payments on a secured debt are generally considered part of the obligation secured by the collateral:
“On default the amount of what the Code calls the ‘obligation secured’ becomes of importance from two points of view. It determines the extent of the secured party’s claim against the collateral and also determines the amount which the debtor must pay or tender in order to redeem the collateral or reinstate the security transaction. The basic obligation is the loan or debt which the transaction originally secured plus interest.” 2 Gilmore, Security Interests in Personal Property § 43.6 at 1199 (1965) (emphasis added).
Here, however, the majority appears to distinguish interest which is payable only on default from interest which is part of the basic obligation. As mentioned, the majority cites no authority for this distinction. However, the answer becomes clear if we begin from a basic principle of the Uniform Commercial Code that parties are free to contract for their own remedies except where they conflict with the Code. The agreement was made in California. The California Commercial Code provides that in the event of default
“a secured party has the rights and remedies provided in this chapter and * * * those provided in the security agreement.” Cal. Commercial Code § 9501 (West 1990) (emphasis added).
A similar provision is found in our statutes.
“(a) When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in this part and except as limited by subsection (c) of this section those provided in the security agreement. * * * A secured party in possession has the rights, remedies and duties provided in section 34.1-9-207. The rights and remedies referred to in this subsection are cumulative.
*817“(b) After default, the debtor has the rights and remedies provided in this part, those provided in the security agreement and those provided in section 34.1-9-207.
“(c) To the extent that they give rights to the debtor and impose duties on the secured party, the rules stated in the subsections referred to below may not be waived or varied except as provided with respect to compulsory disposition of collateral (sections 34.1-9-504(c) and 34.1-9-505) and with respect to redemption of collateral (section 34.1-9-506) but the parties may by agreement determine the standards by which the fulfillment of these rights and duties is to be measured if such standards are not manifestly unreasonable.” W.S. 34.1-9-501 (emphasis added).
The security agreement and pledge executed by appellants in this case stated that “[t]he Collateral constitutes and will constitute continuing security for the prompt payment, as and when due and payable, of all amounts owing to Assignee with respect to the Secured Note, now and hereafter outstanding.” (emphasis added) It further gave the creditor the right on default
“to apply the Collateral, the proceeds thereof, and all monies representing the connection with the enforcement of the rights hereunder (including counsel fees) in the manner set forth in the Secured Note * * (emphasis added)
The “interest-due-on-default” provision of the note was included in a paragraph concerning lender’s remedies on default. Lender provided himself with two explicit remedies in case of default: (1) acceleration of the debt, and (2) accumulation of interest so long as the debt remained unpaid. This provision of the note read as follows:
“6. The whole of the principal sum of this Note shall immediately become due and payable, at the option of Lender, upon the failure of the Maker to pay any payment required hereunder within ten (10) days if the payment is made to a foreign account and within two (2) business days if a United States account has been designated. Notwithstanding the preceding sentence, a default in the payment of any amount due hereunder may be cured within ten (10) days after the due date thereof by the payment of the amount so due. The outstanding principal balance hereof shall bear interest at the lesser of two (2) percent over the LIBOR Rate or the highest lawful rate per annum during the period in which this Note is in default. The LIBOR Rate shall be the six (6) month London Interbank Offered Rate as quoted to the London Branch of The Bank of America N.T. & S.A. at 11:00 A.M. London time on the date of default. The failure of Lender to exercise this option to accelerate the maturity of the principal sum hereof shall not constitute a waiver of such option, which option shall remain continuously in force.”
Since these remedies were provided for by the security agreement, and since the security agreement stated that it was security for “all amounts owing * * * with respect to the Secured Note, now and hereafter outstanding” (emphasis added), it is plain from the language of the agreement that appellees were entitled to enforce the interest provision as part of the security interest on default.
The majority opinion deprives appellees of the benefit of secured status by improperly converting the accrued interest into an unsecured debt. It closes the secured party’s door and sends a secured creditor away to our enforcement of judgment statutes for a remedy. The majority’s decision will have negative results on the commercial practices of this state. Parties drafting promissory notes secured by collateral may be reluctant to defer interest accrua-ble or provide for interest on default since the creditor may not hereafter look for payment to the collateral. We deprive the parties of flexibility in their financing arrangements, and for no reason.
Since I would include interest in the obligation secured by the stock, I must also disagree with the majority’s conclusion that Article 9 of the Uniform Commercial Code does not apply to this case. The majority *818claims that the underlying obligation has been satisfied by the foreclosure and therefore the security interest has ceased to exist and the stock is no longer collateral. However, since interest is included in the underlying obligation, and since the interest obligation has not been satisfied, the stock is still subject to a security interest for payment of the unpaid interest and of any other unpaid portions of the deficiency judgment. Appellees thereafter had a lawful right to retain the Wyomivest stock.
With respect to the conversion claim for failure to return the pledged stock, we have stated that an essential element of this claim, where the alleged tortfeasor acquired possession of the subject property lawfully, is that the claimant must allege and prove that he made demand for the return of the property and that the defendant in possession of the property refused to comply with his demand. Satterfield v. Sunny Day Resources, Inc., 581 P.2d 1386, 1388 (Wyo.1978), cert. denied 441 U.S. 938, 99 S.Ct. 2153, 60 L.Ed.2d 1040 (1979). California law contains a similar requirement. Minsky v. City of Los Angeles, 11 Cal.3d 113, 113 Cal.Rptr. 102, 520 P.2d 726, 732 n. 7 (1974). Appellants failed to allege in their complaint that demand had been made. Therefore, the trial court properly dismissed their claim for conversion.
The failure of appellants to make demand for return of the stock is undisputed. In this case, the Albrechts made no demand for return of the Wyomivest stock throughout the statutory redemption period after the ranch foreclosure. In fact, counsel for appellees mailed the stock certificate and stock power back to Albrechts’ counsel, but Donald Albrecht would not accept the stock, except to suggest that it be paid into the court for judicial disposition. Appellants waited until the day before the redemption period expired, not to request return of the stock, but to notify appellees that their “improper retention of the Wyo-mivest stock constituted full satisfaction” of appellees’ claims. It would seem that Albrechts were interested in this stock only as a “bargaining chip” to use against ap-pellees. It is patently unjust that appellees should be charged with conversion when appellants cared not enough about the stock to bother to ask for its return.
I would affirm the decision of the trial court.