(478 P.2d 718)
No. 70-360 (Supreme Court No. 23577)Colorado Court of Appeals.
Decided December 29, 1970.
Secured transactions case under the Uniform Commercial Code and involving transactions occurring in New Mexico wherein competing claims to two pieces of construction equipment were asserted. Adverse jury verdict suffered by intervenor in bank’s replevin action appealed.
Affirmed
1. SECURED TRANSACTIONS — UCC — New Mexico — Amendment — Financing Statement — Demand Obligation — Effective Five Years — No Change — Clarification. A 1967 amendment to New Mexico Uniform Commercial Code, 9-403(2), providing that, “A filed financing statement which states that the obligation secured is payable on demand is effective for five years from the date of filing,” did not change the meaning of the provision as it existed on the date of the transactions, but rather clarified it and removed an ambiguity.
Error to the District Court of Montezuma County, Honorable Willard W. Rusk, Jr., Judge.
Parga, Dyer Buck, Guy B. Dyer, Jr., for plaintiff in error.
Dilts and Wilson, George E. Dilts, Jr., Gelt Grossman, Sidney Grossman, Achtenberg, Sandler Balkin, Bernard L. Balkin, for defendant in error.
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Division II.
Opinion by JUDGE ENOCH.
This case was originally filed in the Supreme Court of the State of Colorado and subsequently transferred to the Court of Appeals under authority vested in the Supreme Court.
This is a secured transactions case under the Uniform Commercial Code involving the competing claims of William F. Hagerty, dba Construction Equipment Co., (Hagerty) and the Merchants-Produce Bank of Kansas City (Bank) over two pieces of construction equipment.
Hagerty claims title to the equipment by virtue of an alleged purchase and sale between himself and Edward H. Frazee. The Bank claims ownership and right to possession by virtue of an alleged security interest in the machines.
In December of 1963, Edward H. Frazee applied for a loan from the Bank. Frazee was doing business as a general contractor and at that time was completing work on a job in Socorro County, New Mexico. The Bank loaned $100,000 to Edward H. Frazee, Jacqueline M. Frazee and Western Equipment Leasing Co. on December 17, 1963. In return, the borrowers gave their demand note in the amount of $100,000 and a security interest in certain construction equipment. Included in the collateral were two Euclid Model TS 24 scrapers which were being used by Frazee on the Socorro job. The right to possession of these machines is at issue in this case.
In January of 1964, the Bank acquired some construction equipment through
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the bankruptcy of another customer which was in the construction business. This equipment was sold to the Frazees and Western Equipment Leasing Co. for $291,000. The purchasers gave the seller Bank their demand note in the full amount of the purchase price as well as a security interest in the newly acquired equipment. As additional collateral for the new note, an additional security interest was given on the equipment already covering the December 1963 note.
At the time that the above transactions took place, the scrapers were located in Socorro County, New Mexico. Consequently, the Bank filed financing statements there with the Clerk of the County Court, covering the equipment. Both financing statements indicated that the maturity date of the respective obligations was “demand.”
Hagerty alleged that on September 29, 1964, while in Grandview, Missouri, he and Frazee entered into a contract whereby Hagerty bought the scrapers from Frazee for $30,000. At that time, the scrapers were still in Socorro County, New Mexico, but were subsequently moved to Colorado by Frazee in January of 1965 without Hagerty’s knowledge.
The Bank initiated a replevin action on March 15, 1965, after the notes given by the Frazees and Western Equipment Leasing Co. fell into default. This action resulted in issuance of a writ of replevin for a number of items of construction equipment including the two Euclid scrapers. The Bank obtained a judgment for possession by default against the Frazees and Western Equipment Leasing Co. on June 18, 1965. Three days prior to entry of this judgment, on June 15, 1965, Hagerty filed a motion to intervene, claiming title to the scrapers. The trial court granted his motion on July
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21, 1965. The case was tried to a jury on December 11, 1967, which returned a verdict for the Bank.
The law of the State of New Mexico is applicable to the issues presented.
At the close of the Bank’s case and upon Hagerty’s motion to dismiss the Bank’s complaint, the trial court ruled that the financing statement relative to the $291,000 loan was defective in that it failed to include a description of the collateral as required by New Mexico Statute 50A-9-403; and further, that the Bank’s priority must stand or fall on the security documents filed with regard to the $100,000 note. The court then ruled that the financing statement on the $100,000 note was properly filed but that such filing lapsed on February 20 or 21, 1964.
This ruling left the Bank with an unperfected security interest. The question to be resolved at this point was whether this unperfected security interest of the Bank had priority over that of Hagerty as purchaser of the scrapers. This question was decided by the jury in favor of the Bank. We agree with the results, but for other reasons as discussed hereinafter.
The errors alleged by Hagerty on this appeal deal with the jury trial in the resolution of the priority of the interests of the respective parties. However, we find them moot inasmuch as we hold that the trial court erred in ruling that the financing statement filed on the $100,000 note became unperfected. The financing statement was in full force and effect and the Bank should have been given priority to the collateral as a matter of law.
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The basis of the trial court’s ruling that the Bank’s security interest became unperfected was that the filed financing statement showed the secured obligation as being a demand obligation. The court then held that the stated maturity of a demand obligation was the date of issue and that under New Mexico Statute 50A-9-403(2) the Bank’s financing statement became unperfected 60 days after filing.
New Mexico enacted the Official Text of the Uniform Commercial Code as promulgated in 1958 on January 1, 1962. At that time, 9-403(2) read as follows:
“(2) A filed financing statement which states a maturity date of the obligation secured of five years or less is effective until such maturity date and thereafter for a period of sixty days. Any other filed financing statement is effective for a period of five years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of such sixty day period after a stated maturity date or on the expiration of such five year period, as the case may be, unless a continuation statement is filed prior to the lapse. Upon such lapse the security interest becomes unperfected.”
In 1961 the American Law Institute and the National Conference of Commissioners on Uniform State Laws established a Permanent Editorial Board to consider possible amendments to the Uniform Commercial Code. This body submitted its Report No. 1 on October 31, 1962, recommending amendments to the Official Text of the Code as promulgated in 1958. One such amendment was the addition of the following sentence to the end of 9-403(2):
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“* * * A filed financing statement which states that the obligation secured is payable on demand is effective for five years from the date of filing.”
The Editorial Board notes accompanying the amendment stated the reason for the amendment to be as follows:
“This amendment * * * makes no change from the intended result, but clarifies a point as to which there is sufficient ambiguity to make the amendment desirable.”
The State of New Mexico adopted the above amendment in 1967 after date of the transactions, but prior to trial of the case.
[1] We concur with the comment of the Editorial Board accompanying the amendment. The amendment did not change the existing provision, but clarified it and removed an ambiguity. This interpretation is consistent with the usual intention of parties entering into a demand transaction i.e., that the obligation will be in effect for an indefinite period of time and will not be paid on the date of issue.Inasmuch as the Bank prevailed in the trial court, the error in interpretation of the Code was harmless. We therefore affirm the judgment of the trial court.
JUDGE DWYER and JUDGE PIERCE concur.
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