Court Opinion

ID: 9540280
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:14:14.233198+00
Date Added: 2024-06-11T14:59:48.586898
License: Public Domain

McInturff, C.J.
(dissenting)—I respectfully dissent from the views expressed by the majority. Although there is no language in the contract to support Harvester's "on approval." argument, I will, for the sake of argument, assume that parol evidence plus the foregoing facts of this case describe a sale on approval. Thus, two questions are *919presented: (a) When did PBI become a "debtor", and (b) as a "debtor", when did PBI possess the "collateral"? The answer to these questions determines whether Harvester can take advantage of the PMSI priority outlined in RCW 62A.9-312(4).14
In answer to the first question, the majority maintains PBI became a debtor only after making the first down payment. The parol evidence relative to a sale on approval does not purport to establish the date upon which PBI became obligated to perform under the written contract.15 Rather, it merely establishes the condition which must be set aside before the written contract legally obligates PBI to perform. Harvester admits the conditions were satisfied and that the contract became legally binding. The determination of the date PBI became obligated to perform, once the contract became legally binding, should be made by reference to the written contract.
The April 8, 1976, contract provides in pertinent part:
7. Unpaid Balance (Amount Financed) (Total of 5 and 6) 21,151.76
8. Finance Charge 5,708.68
Annual Percentage Rate 12%
*9209. Total of Payments 26,860.44 (Total of 7 and 8)
10. Deferred Payment Price (Total of 3, 6 and 8)
Date Finance Charge Begins To Accrue / / (If different than contract date)
(Italics mine.) From the foregoing, the date the finance charge began to accrue was the date of the contract, not acceptance. Hence, I would recognize PBI as the "debtor" within the purview of RCW 62A.9-105(l)(d),16 as of April 8, 1976, the date the contract was signed.
With regard to the second question, the majority maintains the tractor could not become "collateral" until PBI indicated its approval by making the down payment. I differ from this reasoning and conclude Harvester failed to come within the requirements of RCW 62A.9-312(4), by not filing within 10 days of the date PBI received possession.
When goods are sold "on approval", the seller retains title. RCW 62A.2-327(l)(a).17 The retention or reservation of title to goods by the seller, notwithstanding delivery of goods to the buyer, constitutes the reservation of the security interest. RCW 62A.1-201(37).18 From a commercial viewpoint, it seems clear that Harvester retained an interest in the tractor to secure PBI's performance of an obligation which existed legally on the date PBI took possession of the tractor. RCW 62A. 1-201(37). When the parties agreed to a "sale on approved", PBI was then legally obli*921gated to: (1) use the tractor only in a manner consistent with the utilization thereof; (2) approve or disapprove of the tractor within a reasonable period of time; and (3) either (a) approve the tractor and perform the terms of written contract, or (b) disapprove the tractor and return it to Harvester. RCW 62A.2-327(l)(a)-(c).,Hence, Harvester's reservation of title was a device to secure PBI's obligation to return the tractor should the tractor not be approved. While it is true that RCW 62A.2-326(2) provides that goods held on approval are not subject to the claims of the buyer's creditors, this only assures the creditor if there is no sale, (which is not the case here) but has no applicability to extend the time period of RCW 62A.9-312(4).19 Thus, the tractor was "collateral" within the meaning of RCW 62A.9-105(1)(c)20 from the date of its delivery.
The majority relies upon Brodie Hotel Supply, Inc. v. United States, 431 F.2d 1316 (9th Cir. 1970), as favorable to its position. However, the Ninth Circuit held that Brodie had fulfilled the demands of the exception provided in section 9-312(4) because "Although Lyon might have been liable for the reasonable rental of the equipment ... he did not owe performance of an 'obligation secured' by the collateral in question until" the agreement had been executed. Brodie, supra at 1319. But Brodie is inapposite on the facts. Here, the executed agreement called for the obligation of interest on the contract to begin to accrue from the date of the contract. Thus, PBI is considered a debtor as of April 8, 1976.
In James Talcott, Inc. v. Associates Capital Co., 491 F.2d 879 (6th Cir. 1974), the court decided a similar issue. There, Getz, a heavy construction contractor, executed a promissory note to Talcott giving a security interest in all *922after-acquired property. Subsequently, Getz negotiated with Highway Equipment Co. (Highway) for the purchase of two Caterpillar tractors. One tractor was delivered to Getz on February 17, 1969; an agreement was signed on February 25, 1969, and Highway filed on March 3, 1969. Getz failed to make payments and a priority dispute arose. The court resolved the issue in favor of Talcott by stating:
The only question that remains is when did Getz receive possession of the collateral as a "debtor" . . .
The District Court answered this ... by noting that "Getz's obligation was owed ... on the date that he received possession . . . Perhaps the most telling exposure of the flaw in Highway's analysis was delivered by the District Court.
"It would be a frustration of this purpose [certainly in commercial transactions under the U.C.C.] to hold that a purchase money secured party can deliver goods to his debtor, delay indefinitely before entering into a security agreement which binds the debtor retroactively as of the delivery date, and still obtain a perfected security interest by filing within ten days of the agreement."
(Italics mine.) James Talcott, Inc., supra at 882-83. The court reasoned that regardless of when the agreement was entered into, Getz possessed the equipment as a debtor for more than 10 days prior to the filing of the statement. See also Sunshine v. Sanray Floor Covering Corp., 64 Misc. 2d 780, 783, 315 N.Y.S.2d 937, 941 (1970).
A similar result was reached in North Platte State Bank v. Production Credit Ass'n, 189 Neb. 44, 200 N.W.2d 1 (1972). There Gerald Tucker received an operating loan from Production Credit Association (PCA) and granted a security interest in all after-acquired livestock. He took delivery of some cattle from a third party with an agreement that payment and transfer of a bill of sale were to take place after the date of possession. He later borrowed funds from North Platte State Bank (to make payment). The bank took a security interest in the cattle. A priority dispute arose when Tucker defaulted on his payments to *923PCA. The Nebraska Supreme Court held that PCA had priority since the bank had failed to satisfy the requirements of section 9-312(4) by not filing within 10 days after Tucker took possession. North Platte State Bank, 189 Neb. at 52, 200 N.W.2d at 6. The court noted: " [Although [the bank] filed its statement within 10 days after it made its loan, the filing occurred almost 2 months after the cows had been delivered ..." Id. Although the code does not define the term "possession" priority rules turn on the time of receipt of possession and not upon the time the debtor obtained rights in the collateral. See 2 P. Coogan, Secured Transactions Under the Uniform Commercial Code § 19.02(3)(a) (1979). The rationale behind this approach was eloquently stated as follows:
We observe that the 10-day grace period in itself allows for a permissible flexibility in the practical aspects of consummating a purchase money transaction. By their nature grace periods must have a fixed time limit, or they become meaningless. We cannot extend judicially another grace period over the Code grace period. We cannot pile .flexibility upon flexibility. The purchase money priority is an exception to the first to file rule, and it should be applied only in accordance with the limitations established by the Code. To interpret section 9-312 (4), U. C. C., in the manner the Bank urges would not only be contrary to the plain meaning of the language used in the statute but would expose an original lender to such serious practical risks that the whole structure of the Code would be impaired or endangered, because the original lender could never feel sure that he could rely on his collateral in his future dealings with the debtor.
North Platte State Bank, 189 Neb. at 54, 200 N.W.2d at 7. Moreover, the court in distinguishing Brodie, supra, stated:
The language and the reasoning of the Brodie case . . . have been seriously criticized. . . . see 27 the Business Lawyer, Kennedy, Secured Transactions, 755 at p. 768 (1972); and Comment, 49 No. C. L. Rev. 849 (1971).
Id. at 55, 200 N.W.2d at 7.
The code's general purpose is to create a precise guide for commercial transactions under which businessmen can con*924fidently predict the results of their dealings. Harvester merely had to file the agreement within 10 days of the tractor's delivery into possession of PBI for the protection of its interest pursuant to RCW 62A.9-312(4). Its failure to take this simple, reasonable step should have resulted in the loss of its PMSI priority to the Bank of California.
For these reasons and for the rationale expressed in Rainier Nat'l Bank v. Inland Mach. Co., 29 Wn. App. 725, 631 P.2d 389 (1981) (Mclnturff, C.J., dissenting) I would affirm the judgment of the Superior Court.

RCW 62A.9-312(4) provides:
"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 days thereafter(Italics mine.)

The contract contained the following provisions:
"Purchaser hereby purchases, and seller hereby sells, subject to all terms, conditions and agreements contained herein, . . . the following described property, delivery, inspection and acceptance of which are hereby acknowledged by purchaser:
"13. Security Interest: In order to secure payment of the indebtedness contained herein, seller hereby retains, and purchaser hereby grants, a purchase money security interest under the Uniform Commercial Code in and to the above described property sold hereunder,. . .
"14. Entire Agreement: Purchaser agrees that this contract. . . which he has read and to which he agrees, contains the entire agreement relating to the installment sale of said property ..." (Italics mine.)

The term "debtor" is defined by the code as: "the person who owes payment or other performance of the obligation secured,..." RCW 62A.9-105(l)(d).

RCW 62A.2-327(l)(a) states:
"(1) Under a sale on approval unless otherwise agreed
"(a) although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance;..."

RCW 62A.1-201(37) states in part: "The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (RCW 62A.2-4Ó1) is limited in effect to a reservation of a 'security interest'."

This approach is also consistent with the fact that the risk of loss remains with the seller until acceptance.

RCW 62A.9-105(1)(c) states:
"'Collateral' means the property subject to a security interest, and includes accounts, contract rights and chattel paper which have been sold;"