Court Opinion

ID: 9640615
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:09:52.28995+00
Date Added: 2024-06-11T18:05:08.363782
License: Public Domain

Steele Hays, Justice, dissenting. The majority declines to address the question of whether appellant Lawhon has stated a cause of action because it finds Lawhon had no enforceable security interest in the crops of Mr. Good. I disagree. Before addressing the validity of the security agreement I would point out that on a 12(b)(6) motion, only the pleadings are to be looked at. If matters outside the complaint are presented on the motion it is treated as a motion for summary judgment. D. Newbern, Arkansas Civil Procedure § 11-7 (Sec. Ed. 1993). Further, for purpose of deciding the motion, the factual allegations in the complaint are accepted as true. Id. This complaint alleges that the plaintiff held a properly filed security interest. That should be the end of the inquiry. Lawhon is not required to prove in a complaint that all the prerequisites for the security agreement have been met. That is a matter of proof, for trial. Even so, if the majority insists on going beyond the complaint to decide the 12(b)(6) motion, Lawhon has still met the requirements of pleading a valid security interest. First the majority finds there is not a sufficient description, relying on Piggott State Bank v. Pollard Gin Co., 243 Ark. 159, 419 S.W.2d 120 (1967) and People’s Bank v. Pioneer Food Industries, Inc., 253 Ark. 277, 486 S.W.2d 24 (1972). Those cases are distinguishable from this one, as they also were from United States v. Oakley, 483 F. Supp. 762 (E.D. Ark. 1980). Oakley pointed out that in Piggott, there was a segregation of acreage involved that was not otherwise identified in the description of the land where the crops were located. In contrast, the description in Oakley read “all crops to be grown on the land in question.” The description in this case is like the one in Oakley, not in Piggott. As to Pioneer, the Oakley court said: In Pioneer Food, the description in question contained a general description of crops and a specific legal description as to three tracts. The legal description was erroneous in that three additional tracts were omitted. In holding that the description was inadequate as to the crops grown on the omitted tracts, the Arkansas Supreme court expressly stated that the question as to the sufficiency of the general description standing alone would remain unanswered. In Oakley, the description stated that the collateral consisted of “all the crops” on the “farm of Alois Ledwig,” consisting of “260 acres,” “located in White County, Arkansas” and “approximately 3 1/2 miles southeast of McRae.” The court, after examining all the relevant Arkansas law, concluded: Nothing in the Arkansas statutes or case law indicates that a full legal description of real estate is required in a financing statement covering crops. The information in the financing statement, together with inquiry suggested therein, would enable a stranger to the transaction...to identify the crops. The court found that the description was sufficient. Other jurisdictions have adopted the test laid down in Oakley. See In the Matter of Robert Younce, 56 BR 232 (E.D. Wisc. 1985), where the court stated the Oakley test required four things: 1) name of the record owner, 2) approximate number of acres on which the crops are grown; 3) the county in which the land is located and 4) the distance of the real estate from the nearest city or town. However, the courts have taken a liberal approach and interpretation of that test and found the description sufficient if it puts a third party on notice and gives enough information from which the third party can, upon inquiry, determine the precise location. The court in Younce, for example, found the first and fourth factors missing in the description, but that the description was nevertheless sufficient. There was some reference to townships and sections, and even though it was not a legal description the court found it was sufficient to locate and identify the collateral. A real estate description is not intended to serve as the sole means by which a third party could locate and identify the collateral. Its purpose is to put an interested third party on notice of the existence of a claim. The obligation then runs to the third party to conduct further inquiries suggested by the description of the collateral and real estate upon which it governs to determine the precise location. Id. at 235. In this case we have the number of acres involved and the county and state where they are located. The description also lists (K180 and K13) numbers which Lawhon contends are identifying numbers with the A.S.C.S. office and that by reference to these A.S.C.S. farm numbers, a specific metes and bounds description of the land is obtainable. As in Oakley and Younce, this description would be sufficient because it would “enable third persons, aided by inquiries which the instrument itself suggests, to identify the property.” Oakley, supra, quoting from Security Tire & Rubber Co. v. Hlass 246 Ark. 1113, 441 S.W.2d 91 (1969). Under our case law, like that of other jurisdictions, the description in this case is sufficient. See 2 White, Summers, Uniform Commercial Code, § 24-4 (3rd ed. 1988). The majority also finds the security agreement deficient because it is not signed by the debtor as required by Ark. Code Ann. § 4-9-203(1) (1987). The question of the debtor’s signature is not raised by either party, below or on appeal, nor is it noted by the trial court in its order of dismissal. In a civil proceeding the allegations in a complaint are presumed to be true. Carter v. F.W. Woolworth Co., 287 Ark. 39, 696 S.W.2d 318 (1985). Carter also states that a presumption that the allegations are true does not mean that a bare allegation can overcome an accompanying exhibit which plainly refutes the allegation. In this case Lawhon alleged it had a security agreement that was properly filed. The record on appeal contains a copy of that agreement which bears no signature of the debtor. However, the copy clearly reflects that it is the “Debtor Copy,” and there is no reason the debtor would sign his own copy. This exhibit, unlike the exhibit in Carter, does not “plainly refute the allegation.” Lawhon’s allegation of a valid security agreement remains unchallenged for purposes of gauging the sufficiency of the pleading. The only remaining problem is Lawhon’s theory for its cause of action based on negligence. I find no direct authority supporting a cause of action for negligence in the context of this case, but the allegations otherwise clearly assert a cause of action for conversion. Under Ark. Code Ann. § 4-9-201 (1987) it is stated in part: Except as otherwise provided by this act a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors. [My emphasis.] The rights of a secured party against a purchaser of the collateral are stated in 2. White, Summers, Uniform Commercial Code, § 27-7 (3rd ed. 1988). When a debtor sells collateral to subject to a perfected security interest, the secured party may proceed (1) against the debtor. ... or (2) against the purchaser (a) by replevin or (b) by an action in trespass for conversion of the collateral. [My emphasis.] Here, as clearly alleged in the complaint, Hayes, with knowledge of Lawhon’s security interest, purchased the collateral in violation of that security interest. While this may not be an action for negligence, that does not mean the pleading is fatally deficient. ARCP 12(b)(6) only requires that sufficient facts to state a claim be pled, and not a correct theory of action. We have stated: The statement of facts constitutes the cause of action .... All that is necessary is that the complaint state a cause of action within the jurisdiction of the court. C.R.I.&P. v. Lockwood, 244 Ark. 122, 424 S.W.2d 158 (1968). To the same effect see 61A Am. Jur. 2d, Pleadings §§ 75, 77 (1981). One question remains: What is the result if Lawhon failed to properly file the financing statement but the purchaser had knowledge of its interest? While we did not reach this question in Affiliated Food Stores, Inc. v. Farmers & Merchants Bank, 300 Ark. 450, 780 S.W.2d 20 (1989), we nevertheless acknowledged it in theory: The bank argues that, due to its first filing with the circuit clerk, Affiliated had knowledge of its security interest in the inventory and thus the filing with the circuit clerk was sufficient, citing In re Davidoff, 351 F. Supp. 440 (S.D.N.Y. 1972). In that case, in which New York law was applied, it was held that a creditor who had actual knowledge of a prior security interest could not defeat the prior interest on the basis that the prior interest was filed improperly. In the case now before us there is no evidence that Affiliated had actual knowledge of the bank’s interest. There is sound authority for the view that knowledge of a security interest will overcome a misfiling of the financing statement. See Hillman, McDonnel, Nicies, Common law and Equity Under the Uniform Commercial Code (1985), § 24.05 [1]; 2 G. Gilmore, Security Interests in Personal Property § 34.2 (1965). I think the approach is persuasive and in this case there is no dispute that Hayes had knowledge of Lawhon’s security interest. Therefore, under the aforementioned authorities, any misfiling of the financing statement is irrelevant and it will be deemed to have been properly filed with regard to a third party with actual knowledge. In that case Lawhon has pled a properly perfected security interest and stated a cause of action, and may proceed against the buyer. Ark. Code Ann. § 49-9-201 (1987); Ark. Code Ann. § 4-9-306(2) (1987).