Court Opinion

ID: 9549753
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:24:29.634842+00
Date Added: 2024-06-11T15:20:53.342072
License: Public Domain

*646THOMAS, Justice.
Upon the rehearing which the court granted in this case, the majority became convinced that the original opinion of the court was in error.1 The issue now to be resolved is whether a secured party must set forth in a security agreement or financing statement with specificity the amount of any antecedent indebtedness that the instrument secures or yield priority to a subsequent creditor if it fails to do so. The court has concluded that, so long as a security interest is properly perfected, priority is not lost under such circumstances because the subsequent creditor has the notice required by law which permits it to ascertain the facts relative to the antecedent indebtedness In the original opinion of the court, the conclusion was reached that the subsequent creditor could prevail, with the court primarily relying upon precedent which requires that, in situations involving the mortgage of real estate, the intent of the parties is controlling. The prior opinion of the court in this case now is vacated, and the judgment of the district court is affirmed.
In the initial briefs filed in this case, the respective parties articulated certain issues to be addressed. The appellant, First National Bank, Cortez, Colorado (Cortez Bank), stated the issues to be reviewed as:
“A. Will aircraft collateral used to secure a promissory note which is recorded with the FAA in the form of a security agreement also serve to secure a separate antecedent debt which has not been recorded with the FAA to the detriment of a third party who also claims pursuant to a properly perfected security agreement?
“B. Should a properly recorded security agreement have priority over an antecedent debt which has not been properly recorded where the antecedent debt is not specifically set forth in a security agreement?
“C. Did the Lower Court err in holding in favor of an antecedent debt without considering the intent of the parties?”
As appellee, the First Interstate Bank of Riverton, N.A. (Riverton Bank), offered this statement of issues:
“1.1 Whether federal law or state law determines the effect of filing.
“1.2 Whether First Interstate held a prior perfected and superior security interest in the aircraft with regard to that security interest held by Cortez.
“1.3 Whether Cortez can raise the issues set forth in its brief or in the alternative, has standing with regard to those issues.”
In its Brief in Support of Appellee’s Petition for Rehearing, the Riverton Bank then articulated the following issues:
“3.1 The District Court in and for Fremont County, Wyoming, Ninth Judicial District will not be able upon remand to conduct proceedings in accord with the majority opinion of this Court in that the aircraft in question was sold with other collateral by First Interstate, in bulk, for a price of $70,000.00, and therefore, there is no method by which to determine what portion of the $70,000.00 received by First Interstate is attributable to the aircraft.
“3.2 The decision of the majority opinion is contrary to the intent of the drafters of the Uniform Commercial Code, settled opinion of learned authorities, and to the intent of the legislature of the State of Wyoming in adopting the Uniform Commercial Code.
“3.3 Whether the opinion of the majority violates Section 6 of the Wyoming Constitution, that being the protection of due process of law in that the same is an unreasonable restraint upon the freedom of contract.
“3.4 Whether the majority opinion usurps the authority of the legislature with a consequent and adverse impact upon banking and commerce in the State of Wyoming to the detriment of its citizens.”
The Cortez Bank does not articulate issues on rehearing but, instead, summarizes its position with these statements:
*647I. Appellee s security agreement was inaccurate and therefore misleading. It was ineffective to perfect appellee’s interest in the airplane and FNBC is entitled to the sale proceeds.
“II. The other arguments raised in the petition for rehearing are without merit.”
There is no need to consider constitutional arguments in this case. The other issues are resolved adequately by the disposition of the case in accordance with a standard application of the Uniform Commercial Code. In summary, that application leads to the conclusion that the security agreement was adequate to secure antecedent indebtedness as between the parties to it and, therefore, was binding upon them and their successors in interest with notice. The security agreement was perfected in accordance with the Uniform Commercial Code, and the Cortez Bank is presumed to have had notice of it. The notice was sufficient to put the Cortez Bank upon inquiry, and nothing in the record suggests that it could not have discovered that antecedent indebtedness was secured, and the amount thereof, had it made an appropriate inquiry as the Uniform Commercial Code contemplates.
The material facts, which are not disputed by the parties, can be readily summarized. On August 7, 1981, Richard and Yerlene Walker (Walkers) borrowed about $93,000 from the Riverton Bank. They gave the Riverton Bank a promissory note on that occasion which was secured by property identified as “Rigs.” That note was renewed on July 27, 1982, at which time the Walkers owed the Riverton Bank about $77,000, and was secured by “2 Drilling Rigs.” The next transaction is the critical one. On April 6, 1984, the Walkers asked to borrow an additional sum which was loaned by the bank upon a security agreement which encumbered the Walkers’ 1979 Cessna airplane. The security agreement showed the principal amount as $7,328.35, but it also included the following statement:
“(Check and initial if applicable X /s RW VW.) In addition to the Note, this security agreement secures all amounts I owe to the Bank, whether now or later. This means that every loan I have now or get later is secured by this security agreement, as well as any other amount I may owe to the Bank (such as an overdraft on my checking account).”
This statement was checked in the appropriate place and initialed by each of the Walkers. At that time, the Walkers owed the Riverton Bank $77,605.63, which was the balance due on the previous promissory note.
The Riverton Bank filed its security agreement with the County Clerk and Ex-Officio Register of Deeds in and for Fremont County, Wyoming on April 12, 1984. On May 9, 1984, the security agreement was also filed with the Federal Aviation Administration (FAA).
On August 7, 1984, Richard Walker, d/b/a R & R Drilling, obtained a loan from the Cortez Bank. That loan, in the amount of $58,836.73, was secured by the same Cessna airplane. The record is silent as to any investigation made by the Cortez Bank prior to making the loan even though the district court found that the Cortez Bank relied upon a title search of the airplane before making the loan to Walker. In November, an examination was made of the FAA title record by Federal Aviation Title Company which reflected the situation as of November 23, 1984. It indicated that the original amount secured by the River-ton Bank’s security agreement was $7,328.35, but made no reference to the clause that secured all amounts owed. The title examination also reflected the fact that the Cortez Bank recorded its security agreement with the FAA on September 14, 1984.
Subsequently, having obtained peaceful possession, the Riverton Bank sold the Cessna airplane. The sale was made in bulk with other collateral in the possession of the Riverton Bank for $70,000. The Riverton Bank retained the entire proceeds of the sale.
This action then was instituted by the Cortez Bank seeking a declaratory judgment that it was entitled to the proceeds from the sale of the aircraft in excess of *648the sum of $7,328.35 specified in the security agreement recorded with the FAA on May 9, 1984 by the Riverton Bank. The district court ruled that the substantive effect of the recordings which perfected the respective security interests was controlled by state law. It held that the security agreement should be given effect according to its terms between the parties to it and any subsequent purchasers, if it had been properly perfected. It applied a presumption of notice to subsequent purchasers resulting from the proper filing of a security agreement and ruled that, having notice, the Cortez Bank could have obtained the appropriate information necessary for making its loan to the Walkers. The court then ordered that the declaratory judgment be granted to the Riverton Bank against the Cortez Bank, and this appeal was taken from that judgment.
The essence of the dispute, as presented in this court, is found in the claim of the Cortez Bank that it was misled by the amount recited in the security agreement and that, consequently, the security agreement is not effective with respect to any indebtedness other than that amount. The Riverton Bank argues that this is not a proper construction of the Uniform Commercial Code and the applicable authorities; that it gave value for the security interest it acquired in the Cessna airplane; that it properly perfected its security interest; and that it was properly entitled to priority with respect to its security interest.
If collateral is not in the possession of the secured party, it is necessary that the debtor sign a written security agreement containing a description of the collateral and manifesting the intention of the parties to create a security interest in that collateral. WYHY Federal Credit Union v. Burchell, 643 P.2d 471 (Wyo.1982); 8 R. Anderson, Uniform Commercial Code § 9-203:17 at 669-70 (3d ed. 1985). If value has been given, and the debtor has rights in the collateral, the security interest attaches and becomes enforceable against the debtor with respect to the collateral as soon as all of the minimal requirements have been met. Section 34-21-922, W.S. 1977; Uniform Commercial Code (U.L.A.) § 9-203, Comment 1, 1972 Official Comment (rev. 1981). As defined by § 34-21-120(a)(xliv)(B), W.S.1977, value includes total or partial satisfaction of a preexisting claim.
The security agreement between the Riverton Bank and the Walkers met the requirement for value, and we understand that there is no dispute about that. The security agreement specifically provided, as between the Walkers and the Riverton Bank, that all amounts owed to the bank, whether then existing or later advanced, were covered by the security agreement. The Cessna aircraft was described specifically as the collateral. Section 34-21-120(a)(iii), W.S.1977, sets forth a definition of agreement, which provides that the bargain of the parties may be found either in the language used or by implication from other circumstances. At the time the security agreement was made, the Walkers owed the Riverton Bank money on a previous promissory note made August 7, 1981. The agreement clearly manifests the intention of the parties that the aircraft served as collateral to secure the pre-existing debt. Clovis National Bank v. Harmon, 102 N.M. 166, 692 P.2d 1315 (1984). The Walkers had the rights of ownership in the Cessna airplane, and the security interest of the Riverton Bank attached when the security agreement was signed on April 6, 1984.
The security interest was perfected, according to law, on April 23, 1984 when the Riverton Bank filed the security agreement with the FAA. Title 49 U.S.C.App. § 1403 (1981) establishes a recording system with respect to conveyances of aircraft. This filing system was adopted in order to provide a central source of information from which notice of transactions could be obtained through an indexing system. See Philko Aviation, Inc. v. Shacket, 462 U.S. 406, 103 S.Ct. 2476, 76 L.Ed.2d 678 (1983). The function of this system is very similar to the notice provided through local filing systems for secured transactions. See In re Gelking, 754 F.2d 778 (8th Cir.1985), cert. denied sub nom. Armstrong v. State Bank of Towner, 473 U.S. 906, 105 S.Ct. *6493529, 87 L.Ed.2d 653 (1985); Bank of Oklahoma, City Plaza v. Martin, 744 P.2d 218 (Okla.App.1987); Uniform Commercial Code (U.L.A.) § 9-302, Comment 8, 1972 Official Comment.
While, in this instance, the Riverton Bank recorded the security agreement, it was filed as a financing statement, as defined in § 34-21-951, W.S.1977. In a number of instances, this court has recognized the difference between a financing statement and a security agreement and has articulated the requirements and functions of a financing statement. See, e.g., Landen v. Production Credit Association of Midlands, 737 P.2d 1325 (Wyo.1987); Sannerud v. First National Bank of Sheridan, 708 P.2d 1236 (Wyo.1985); Daly v. Shrimplin, 610 P.2d 397 (Wyo.1980); American National Bank of Riverton v. First National Bank of Lander, 446 P.2d 968 (Wyo.1968). In Shrimplin, we emphasized the proposition that a financing statement is filed to give constructive notice of a security interest in property. We there noted that the formal requisites for financing statements are articulated in § 34-21-951, W.S.1977, and we quoted the following language with approval:
“ ‘ * * * The purpose of the filed statement or agreement , is to give the minimum information necessary to put a searcher on inquiry. The section contemplates that the complete state of affairs will be learned only after such inquiry. * * * ’ Bank of America v. Bank of Nutley, 94 N.J.Super. 220, 227 A.2d 535, 539 (1967).” Shrimplin, 610 P.2d at 404.
There is no question that the filed document in this section satisfied the requirements of § 34-21-951.
We again emphasize the notice theory with respect to financing statements. Pri- or decisions of this court are entirely consistent with the application of the Uniform Commercial Code as understood by its drafters and respected authorities in this area of the law. Uniform Commercial Code (U.L.A.) § 9-402, Comment 2, 1972 Official Comments, says in pertinent part:
“This section adopts the system of ‘notice filing’ which proved successful under the Uniform Trust Receipts Act. What is required to be filed is not, as under chattel mortgage and conditional sales acts, the security agreement itself, but only a simple notice which may be filed before the security interest attaches or thereafter. The notice itself indicates merely that the secured party who has filed may have a security interest in the collateral described. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs. Section 9-208 provides a statutory procedure under which the secured party, at the debtor’s request, may be required to make disclosure. Notice filing has proved to be of great use in financing transactions involving inventory, accounts and chattel paper, since it obviates the necessity of refiling on each óf a series of transactions in a continuing arrangement where the collateral changes from day to day. Where other types of collateral are involved, the alternative procedure of filing a signed copy of the security agreement may prove to be the simplest solution. Sometimes more than one copy of a financing statement or of a security agreement used as a financing statement is needed for filing. In such a case the section permits use of a carbon copy or photographic copy of the paper, including signatures. “However, even in the case of filings that do not necessarily involve a series of transactions the financing statement is effective to encompass transactions under a security agreement not in existence and not contemplated at the time the notice was filed, if the description of collateral in the financing statement is broad enough to encompass them. Similarly, the financing statement is valid to cover after-acquired property and future advances under security agreements whether or not mentioned in the financing statement.”
In his work on the U.C.C., Anderson says:
“When a proper filing is made, third persons are presumed to have notice of and are subject to the provisions of the security agreement. A person is charged with *650possessing the information that could have been discovered had he made the inquiry suggested by the filing.
* * * * * *
“The financing statement only gives notice that a security interest is claimed in certain described collateral. There is no requirement that the financing statement identify the obligation that is secured by the secured transaction nor to state the terms of such obligation. As there is no requirement that the financing statement identify the debt, there is no requirement that the financing statement set forth the amount of the debt, that future advances may be made, or the maximum amount of the debt.
“Because the financing statement does not identify any particular debt as underlying the secured transaction, the one financing statement may cover many successive obligations of the debtor with respect to the described collateral, without regard to the fact that different obligations are involved, or that there has been a refinancing of the obligation underlying the original secured transaction. Thus one filing of a financing statement may cover all secured transactions between the debtor and creditor and there is no requirement that a new financing statement be filed every time that a later secured transaction is entered into.” 9 R. Anderson, Uniform Commercial Code, §§ 9-402:6, 9-402:22 at 448 and 462 (3d ed. 1985) (footnotes omitted).
Section 34-21-951, setting forth the requisites of a financing statement, does not require any statement of the amount secured. The same thing is true with respect to a security agreement. The law does not require that a security agreement recite the amount of the debt secured. Section 34-21-922, W.S.1977 (U.C.C. § 9-203); Clovis, 692 P.2d 1315; 8 R. Anderson, Uniform Commercial Code, § 9-203:27 at 676. These statutes contain minimal requirements with respect to the enforceability of and the attachment of the security interest and, if those requirements are met, nothing more need be done.
We find, in this instance, no question that the Walkers and the Riverton Bank intended that the Cessna aircraft serve as security for previously existing indebtedness. The intent of the parties controls, and that is true whatever the form or designation of the instrument might be. Frantz v. First National Bank & Trust Company of Wyoming, 687 P.2d 1159 (Wyo.1984). In this latter case, we said:
“ * * * A security agreement is effective according to its terms between the parties and subsequent purchasers if properly perfected by filing. The subsequent purchasers are presumed to have notice and are, therefore, subject to the provisions of the agreement.” Frantz at 1162.
As the trial court perceptively noted, that is exactly the situation in this instance. The Cortez Bank was chargeable with this notice. The record does not disclose that it had actual notice of the prior security agreement in favor of the Riverton Bank. In its trial brief, the Cortez Bank argued that it had relied upon an FAA title search, but the stipulated facts do not include the fact of reliance. So far as the record evidence demonstrates, which is the only information this court has, the Cortez Bank had no information about the principal amount of $7,328.35 prior to making its loan to Walker. If the Cortez Bank had actual knowledge of the security agreement, then its duty to inquire is even more clear.
Under these circumstances, the Riverton Bank did everything that the law requires to perfect its security interest in the aircraft. The Cortez Bank had constructive, and perhaps actual, knowledge of the existence of a security interest in that aircraft. The theory of the Uniform Commercial Code is that, given that information, further inquiry is required in order to disclose the other facts that may be material to a subsequent purchaser or lender. Proper analysis and application of the Uniform Commercial Code leads to a conclusion that the judgment of the district court in this declaratory judgment suit be affirmed.
*651The judgment of the district court in this case is affirmed, and the opinion of this court filed in First National Bank, Cortez v. First Interstate Bank, Riverton, 758 P.2d 1026 (Wyo.1988), is vacated.
URBIGKIT, J., filed a dissenting opinion in which MACY, J., joined.

. First National Bank, Cortez v. First Interstate Bank, Riverton, 758 P.2d 1026 (Wyo.1988).