Court Opinion

ID: 9598554
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:09:51.950925+00
Date Added: 2024-06-11T18:01:42.027879
License: Public Domain

Holmes, J.,
dissenting. I must respectfully dissent. In my opinion the trial court reached the right conclusion in this case and I would adopt the rule and reasoning set forth by the Rhode Island Superior Court in Coin-O-Matic Service Co. v. Rhode Island Hospital Trust Co., 3 U.C.C. Rptr. Serv. 1112 (R. I. Super. Ct. 1966), cited and discussed in the majority opinion. The facts are adequately set forth by the majority and need not be repeated.
As noted by the majority, a basic theory behind the UCC is one of notice filing and that a notice when filed becomes a red flag to be heeded by all. However, the same applies to the filing made by defendant Cheney Investment, Inc. Their filing is also a red flag to all who might thereafter undertake dealings with the original debtor, Catlin. In the instant case it appears clear that the initial contract and obligation underlying the first filing by Allis-Chalmers was paid and satisfied at the time the second contract was entered into and a second financing statement filed. To say that, lacking a future advance clause as contemplated by the code, life could be breathed back into the first filing when the underly*14ing obligation upon which it was based has been satisfied is difficult to accept.
The majority chooses to follow the majority rule that no future advance clause was necessary in the initial security instrument but concedes that the meaning of the statute (84-9-312[5]), upon which this conclusion rests, was debatable. The UCC permanent editorial board recognized the deficiency and recommended the addition of 9-312(7) to the code. Kansas adopted this new provision, to cover situations like the one before this court, in 1975. However, this case must be determined under the “debatable” meaning of the code prior to that amendment.
Plaintiff could have protected its future advances and its second contract by the notice filed under the first contract, if it had desired to do so, by complying with former 84-9-204(5) and including an after-acquired property and future advance clause in the original security agreement. The official UCC comment to 84-9-204(5) states in part:
“8. Under subsection (5) collateral may secure future as well as present advances when the security agreement so provides. ... In line with the policy of this Article toward after-acquired property interests this subsection validates the future advance interest, provided only that the obligation be covered by the security agreement.” K.S.A. Vol. 7, page 352.
The majority concludes that 84-9-312(7) was passed by the legislature in 1975 “as a clarification of the original intent of the legislature” and that 84-9-312(5) really applied to future advances all along even though there was no compliance with 84-9-204(5). Such a conclusion may not be justified. The general rule is set forth in Curless v. Board of County Commissioners, 197 Kan. 580, 587, 419 P.2d 876 (1966), where this court stated:
“But when the legislature revises a prior existing law it will be presumed that the legislature intended to make some change in the law as it existed prior to the amendment. In the case of State, ex rel., v. Richardson, 174 Kan. 382, 256 P.2d 135, at page 386, this court said:
‘We will presume that the legislature in revising the mentioned statute intended to make some change in the existing law and we will, therefore, give effect to the amendment. A change in phraseology or a deleting of a phrase of the original act raises a presumption that the change of meaning was also intended. . . .’
“Any other construction would mean the legislature accomplished nothing by its revision. We must assume that a revision of a prior law was intended to supply some want and to fill some deficiency in existing legislation. (City of Emporia v. Norton, 16 Kan. 236; Brown v. Illinois Bankers Life Assur. Co., 144 Kan. 670, 63 P.2d 165; State, ex rel., v. Richardson, supra.)”
*15In Coin-O-Matic, the court, after quoting section 9-312(5)(a), states at 1115-1120:
“The defendant relies wholly upon what it considers the compelling literal meaning of the language of the section. That is to say, that having entered into a security transaction which covered the 1963 Chevrolet Greenbrier Station Wagon and having filed a financing statement it comes ahead of the plaintiff who had a security interest in the same collateral but whose filing of a financing statement was subsequent in time to the original filing and ahead of defendant’s second filing. Obviously with respect to the original transaction there is no dispute that the prior filing of the financial statement would govern. But the defendant carries its argument a step further and contends that the original financing statement is an umbrella which gives the defendant a priority with respect to its second security transaction notwithstanding that the plaintiff’s security interest was established in point of time prior to defendant’s second security transaction.
“The defendant contends that as long as there is a financing statement on file the whole world is given notice that the debtor is obligated; that there is a security interest in the particular collateral and that the debtor may at any time after the original transaction become further indebted and enter into an additional security agreement with respect to the collateral. . . .
“It will be observed as already noted that the original conditional sales agreement . . . has no provision for future advances.
“Section 6A-9-204, subsection (5) provides:
‘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.’
Defendant contends that this provision merely permits a lender to include a provision for future advances in the original security agreement and that when this is so provided it obviates the necessity of executing subsequent security agreements with respect to the collateral in question but that it does not in any way affect the priority with respect to future advances as long as the financing statement covering the collateral in question is prior in time and additional security agreements are obtained with each new loan. ... If this is so, it places a lender in an unusually strong position, vis-a-vis, the debtor and any subsequent lenders. In fact, it gives the lender a throttle hold on the debtor. For example, a debtor borrows $25,000.00 from a lender to be paid over a three-year period without any right of anticipation. The security is the equipment of the debtor. No provision is made for future advances. The financing statement is filed. The debtor reduces the obligation to $12,500.00 and now seeks to borrow an additional $5,000.00. The original lender is not interested in making a second loan. The debtor is in no position to pay off the loan without borrowing from another lender. The original lender does not desire to liquidate the obligation except in strict accordance with the agreement. Under the theory advanced by the defendant the original debtor cannot borrow from the second lender because no second lender can safely advance the money as long as there is a possibility that a future advance by the original lender would have priority in the collateral over the second lender. . . .
*16“Section 6A-9-312(5) deals with priority between conflicting security interests in the same collateral and gives a priority in the order of the filing but that obviously does not relate to separate and distinct security transactions. Moreover, a careful examination of 6A-9-312 and the other applicable provisions of the Code lead to the conclusion that the reasonable interpretation of 6A-9-312 is that a security agreement which does not provide for future advances is a single transaction and in the case of subsequent security agreements there is required a new financing statement. That is to say, a single financing statement in connection with a security agreement when no provision is made for future advances is not an umbrella for future advances based upon new security agreements, notwithstanding the fact that involved is the same collateral.”
In the instant case the parties appear to have considered the original transaction as a single transaction. No provision was made in the security agreement for future advances or after-acquired collateral. At the time of the second transaction a new combine was purchased, a new contract prepared, the old contract was paid off and cancelled. The case falls squarely within the rationale and holding of Coin-O-Matic and the opinion in that case is, in my opinion, a correct application of the UCC provisions as they existed prior to the 1975 amendment to the statute.
I would affirm the trial court with the proviso that any funds collected by Cheney Investment, Inc., in excess of the indebtedness due it together with appropriate costs, storage and other items properly included, be paid to plaintiff to apply on its claim against Catlin and the security.
Schroeder, C.J. and Herd, J., join the foregoing dissenting opinion.