Court Opinion

ID: 9668049
Source: CourtListenerOpinion
Date Created: 2023-08-24 02:01:08.205055+00
Date Added: 2024-06-11T18:15:42.690318
License: Public Domain

DYKMAN, J.
(concurring). One of the purposes of the Uniform Commercial Code is to make uniform the law among the states adopting the Code. Section 401.102(2)(c), Stats. Uniform codes ought be inter*385preted uniformly by following decisions in other jurisdictions. House of Stainless v. Marshall & Ilsley Bank, 75 Wis.2d 264, 274, 249 N.W.2d 561, 567 (1977). The Code mandate of uniformity makes the decisions of other states "more than mere persuasive authority." Anderson, Uniform Commercial Code at 13, sec. 1-102:8.-Uniformity (2d Ed. 1970), quoting A.J. Armstrong, Inc. v. Janburt Embroidery Corp., 234 A.2d 737, 744 (N.J. Super. Ct. Law Div. 1967). Accordingly, when Wisconsin cases do not answer a question arising under the Uniform Commercial Code, we should examine other courts' decisions to be sure our result is consistent with theirs.
In Illinois, Ill. Rev. Stat. 1979, ch. 26, par. 9-205, a provision identical to sec. 409.205, Stats., has been interpreted to permit a debtor to use proceeds of accounts receivable with no obligation on the part of the creditor to police the use of the resulting bank account balances. In Farns Associates, Inc. v. South Side Bank, 417 N.E.2d 818, 823 (Ill. App. Ct. 1981), the court said:
[ch. 26, par. 9-205] eliminates any requirement upon the creditor to police strictly the collateral and the proceeds in the hands of the debtor. Putting such a duty on a secured creditor would severely undercut significant values of certainty, efficiency and reliance which are at the heart of the Codal emphasis on public filing. [Citations omitted.]
An interpretation of New Jersey law is similar. In In Re United Thrift Stores, Inc., 242 F.Supp. 714, 717 (D.N.J. 1965), aff'd, 363 F.2d 11 (3rd Cir. 1966), the court said:
However, the Code contains no requirements with regard to method of payment affecting the validity *386of a security interest. See N.J.S.A. § 12A:9-203 (1)(b). In fact, N.J.S.A. § 12A:9-205 provides that a "security interest is not invalid... by reason of the failure of the secured party to require the debtor to account for proceeds or replace collateral." Thus, under the Code, payment is not relevant to the question of validity of a security interest, and there is no requirement of "policing" of collateral by the secured party. [Emphasis added.]
In Community Bank v. Jones, 566 P.2d 470, 484-85 (Or. 1977), the Oregon Supreme Court said:
One of the purposes of the Code is to facilitate inventory financing by relaxing pre-Code rules requiring close supervision of a debtor's inventory by his secured creditor. Pre-Code decisions to the contrary are incompatible with modern high volume sales and accompanying quick inventory turnovers. See Lakin & Berger, A Guide to Secured Transactions 67-68, 107-110 (1970). Preservation of Code policy in this area forecloses the application of equitable defenses based upon plaintiff's alleged failure to supervise the inventory, or to supervise only those portions of the inventory upon which it held trust receipts. [Footnote omitted.]
An interpretation of Indiana law is consistent with the preceding cases:
[A] security interest . . . in . . . accounts receivable .... [i]s specifically authorized in Burns' Ind.Stat. § 19-9-204(3), which provides that, with exceptions not relevant here,"... a security agreement may provide that collateral, whenever acquired, shall secure all obligations covered by the security agreement." This provision from the Uniform Commercial Code validates what is sometimes called a "floating lien." Burns' Ind.Stat. § 19-9-205 *387[identical to sec. 409.205, Stats.] provides that a security interest may be valid notwithstanding power in the debtor to collect and apply the proceeds of accounts receivable without accounting to the secured party. Thus, the Uniform Commercial Code as adopted in Indiana provides for financing arrangements whereby a debtor may transfer a security interest in a stock of accounts receivable, but retain possession of the accounts, collect them, and create new ones. The security interest "floats" over the accounts receivable in existence at any given moment.
In re Grain Merchants of Indiana, Inc., 286 F.Supp. 597, 601 (N.D. Ind. 1968), aff'd, 408 F.2d 209 (7th Cir. 1969), cert. denied, 396 U.S. 827 (1969).
The heart of Article 9 of the Uniform Commercial Code is the filing system. A prospective secured creditor is required to ascertain whether prior secured creditors exist. A second-in-time secured creditor is given little protection under the Code, with limited exceptions, because it is easy to determine whether other creditors claim an interest in a debtor's property. Here, Miracle Feeds would have discovered the bank's floating lien covering Attica's bank deposits had it inquired. It could then have made arrangements for security, risked an unsecured advance, or refused to advance credit. Having ignored the warnings given by a filed financing statement, Miracle Feeds cannot now complain that it is unable to reach Attica's assets because of the bank's security agreement covering those assets.