472 So. 2d 951 | Miss. | 1985
Lead Opinion
for the Court:
Peoples Bank of Indianola filed suit against Betty June Crosby and Ira Tal-madge Crosby, Jr. claiming the balance due on a certain promissory note from Century Mississippi Corporation, which balance was approximately one hundred eighty thousand dollars ($180,000). The Circuit Court of Sunflower County, Mississippi, sitting without a jury, found in favor of Peoples Bank and ordered that the note be surrendered to the Peoples Bank after satisfaction of Mrs. Crosby’s prior one hundred thousand dollar ($100,000) claim in it. The Crosbys have appealed to this Court.
The overriding question in this case is who had the superior interest in the balance of the note, viz, Betty Crosby or Peoples Bank?
Betty Crosby and Ira Talmadge Crosby, Jr., wife and husband, each owned an interest in a cable television corporation, i.e., Crosby Cable, Inc., which sold its assets to Century Mississippi Corporation in November, 1980, for the sum of two hundred eighty thousand dollars ($280,000), evidenced by a promissory note. Mrs. Crosby’s interest in Crosby Cable, Inc. was calculated to be one hundred thousand dollars ($100,000) from the sale, and Crosby Cable, Inc. executed and delivered to Mrs. Crosby its note for that amount on October 31, 1980. The $280,000 Century note, payable to Crosby Cable, Inc., was assigned to Mrs. Crosby as security November 15, 1980. Possession of the Century note and a security agreement were delivered to W. Dean Belk, attorney and agent for Mrs. Crosby, and has been retained by him since that time.
After selling the Crosby Cable, Inc. property, Crosby formed a new corporation, Mississippi Woodworks, Inc. That business was designed to manufacture raw lumber into pallets and Crosby obtained financing from the Peoples Bank for the purchase of machinery and for operating the business. Notes were executed in the name of Mississippi Woodworks, Inc., in the joint names of Mississippi Woodworks, Inc. and Crosby, and some individually in Crosby’s name. The business did not do well and Crosby had to obtain a renewal of the notes. The bank required additional collateral and prepared documents for Crosby to sign, including an assignment of the balance of the Century note (after payment of the $100,000 to Mrs. Crosby). On May 17, 1982, when the renewal transaction occurred, Crosby signed some of the notes, together with an assignment of the Century note, but refused to sign several renewal notes in his individual capacity.
Peoples Bank bases its suit upon the renewal transaction and the assignment to it of the Century note by Crosby. The assignment authorized the Peoples Bank to deliver a copy of the assignment to Mrs. Crosby’s attorney, W. Dean Belk, and directed Belk to deliver the note to the Peoples Bank when Mrs. Crosby’s $100,000 interest was satisfied.
On June 9, 1982, Betty Crosby and Ira Talmadge Crosby, Jr. executed an instrument entitled “Child Custody and Support and Property Settlement Agreement.” On the same date, they filed a joint complaint for divorce in the Chancery Court of Sunflower County, Mississippi, on the ground of irreconcilable differences, pursuant to Mississippi Code Annotated § 93-5-2 (1972). Final decree divorcing the parties and approving the separate agreement was entered by the court September 10, 1982.
The separation agreement provided that, as lump sum alimony and in lieu of child support, Crosby would convey, set over and assign unto Mrs. Crosby any and all of his interest in the balance due on the Century note, dated November 6, 1980, in the original principal sum of $280,000. Crosby actually assigned that note to Mrs. Crosby on June 28, 1982. Crosby Cable, Inc., by Ira T. Crosby, Jr., President, assigned Betty Crosby all of its interest in the Century note, dated November 6, 1980, on the ninth day of June, 1982, although it had previous
On June 15, 1982, Peoples Bank filed notice of its interest under the Crosby assignment, although it did not file with the Secretary of State’s Office until August 17, 1982. Notice of the Crosby assignment to Peoples Bank was forwarded to Mrs. Crosby’s attorney, W. Dean Belk, and received by him on June 17, 1982. Peoples Bank acknowledged that it had actual notice of the separation agreement and divorce action between Betty Crosby and Ira T. Crosby, when they were filed on June 9, 1982.
The lower court, in arriving at its decision, answered three questions: (1) that there was a valid delivery of the assignment of the Century note from Ira T. Crosby, Jr. to Peoples Bank; (2) that the signing and filing of the property settlement agreement did not constitute a valid security interest and that Mrs. Crosby’s interest was not perfected until September 19,1982, when the divorce was granted to the parties, and, therefore, was inferior to Peoples Bank; and (3) that Peoples Bank perfected its interest on June 17, 1982, when a notice of the assignment of Crosby to Peoples Bank was received by attorney W. Dean Belk on June 17, 1982, and that Peoples Bank’s interest was superior to that of Mrs. Crosby.
Crucial to the decision in this case is the effect of the continued possession of the Century note by Mrs. Crosby and whether or not the property agreement executed by the Crosbys on June 9, 1982, perfected a valid interest in the balance of the Century note to Mrs. Crosby.
The lower court held that the property settlement agreement was not an assignment; that any filing in the chancery clerk’s office of the property settlement agreement did not constitute proper notice; that Mrs. Crosby had to rely on her assignment dated June 28 and its perfection on July 12, 1982, in order to establish her interest; and that her interest was not valid until September 19, 1982, when the divorce between the Crosbys became final.
The lower court relied for its decision on Johnson v. Collins, 419 So.2d 1029 (Miss. 1982), noting that delivery of certain certificates of deposits to the wife in accordance with the terms of a property .settlement agreement in a divorce action was conditional. However, we distinguish Collins from the case sub judice. In Collins, a separation agreement executed by the husband and wife provided the following:
This Agreement entered into this day by and between ALLEN E. COLLINS, hereinafter called “Husband” and SY-YILLA J. REEVES COLLINS, herein-aftered called “Wife”;
Witnesseth:
Whereas, the parties are now separated and do not believe that a reconciliation of their differences is possible at this time; and
Whereas, said parties desire to resolve all questions of property rights in order that a Joint Bill of Complaint for Divorce may be later filed;
NOW THEREFORE, for an [sic] in consideration of the premises, and in consideration of the mutual promises of the parties, Husband and Wife do hereby enter into the following separation agreement: ...
419 So.2d at 1031.
After delivery of the certificates of deposit to his wife, Mr. Collins died before the divorce was granted. The co-executors of the deceased husband’s estate brought suit to recover the certificates and the widow claimed that they constituted an inter vivos gift. This Court held that transfer of the certificates of deposit was not a free and voluntary act with the intention to make a gift, but, rather, a transfer of property executed pursuant to a separation agreement prepared in contemplation of obtaining a divorce due to irreconcilable differences, and did not constitute a valid gift inter vivos. The facts and agreement in
WHEREAS, the parties hereto were married on the 24th day of December, 1950 in Indianola, Sunflower County, Mississippi, and separated on or about the 1st day of June, 1982 in Indianola, Sunflower County, Mississippi, and since that date have been living separate and apart; and,
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WHEREAS, the parties desire to confirm their separation and make arrangements in connection therewith, including arrangements for the custody and maintenance of the minor child and settlement of the property rights of the parties and other rights and obligations growing out of the marriage relation.
IT IS, THEREFORE, AGREED:
I. SEPARATION
The parties may and shall at all times hereafter live and continue to live separate and apart. Each shall be free from interference, authority and control, direct or indirect, by the other as fully as if he or she were single and unmarried. The parties shall not molest each other or compel or endeavor to compel the other to cohabit or dwell with him or her by any legal or other proceedings for restitution of conjugal rights or otherwise.
* ⅜ ⅝ ⅜ ⅜ ⅜
III. CHILD SUPPORT AND ALIMONY
As lump sum alimony and in lieu of child support for the minor child of the parties, namely: David Greg Crosby, the HUSBAND shall convey, set over and assign unto the WIFE any and all of his interest in the balance due on that certain Promissory Note dated November 6, 1980, in the original principal sum of $280,000.00, a copy of same being attached hereto and marked as Exhibit “A”.
* * * * ⅜: *
VIII. MUTUAL RELEASES
Except as otherwise provided in this Agreement, each party shall be fully released by the other from any obligation for alimony, support and maintenance, and each accepts the provisions hereof in full satisfaction of all obligations for support and otherwise arising out of the marital relationship of the parties, and each relinquishes any right or claim in the earnings, accumulations, money or property of the other.
Subject to the provisions of this Agreement, each party remises, releases and forever discharges, and by these presents does for himself or herself, and his or her heirs, legal representatives, executors, administrators and assigns remise, release and forever discharge the other of and from all causes of action, claims, rights or demands whatsoever, in law or in equity, which either of the parties hereto has ever had or now has against the other, except any or all cause or causes of action for divorce.
IX. WAIVER OF CLAIM AGAINST ESTATES
Subject to the provisions of this Agreement, each of the parties may in any way dispose of his or her property of whatsoever nature, real or personal, and each of the parties hereto, for himself or herself, and for his or her heirs, legal representatives, executors, administrators and assigns, hereby waives any rights of election which he or she may have or hereafter acquire regarding the estate of the other, and hereby waive any right to take against any Last Will and Testament of the other, regardless of when such will is executed. Each party will, at the request of the other party, or his or her legal representatives, executors, administrators or assigns execute, acknowledge and deliver any and all deeds, releases, or any other instruments necessary to bar, release or extinguish such interests, rights and claims, or which may be need*955 ed for the proper carrying into effect of any of the provisions of this Agreement.
******
XI. SUBSEQUENT DIVORCE
In the event that an action for divorce is instituted at any time hereafter by either party against the other in this or any other State or Country, the parties hereto agree that they shall be bound by all the terms of this Agreement and that this Agreement shall survive any decree or judgment that may be granted in such action and shall forever be binding and conclusive upon the parties. Nothing herein contained shall serve to prevent the terms of this Agreement from being incorporated in full or in substance into the final decree of any such actions.
Although a divorce action was filed by the Crosbys on June 9, 1982, along with the settlement agreement, we are of the opinion that the agreement was binding and effective upon the parties even though a divorce action, subsequently, may never have been filed or a decree of divorce entered. The parties could have lived separate and apart for the rest of their lives and the instrument would have been binding upon them. The instrument constituted a valid, enforceable contract at the time of its execution and delivery on June 9, 1982.
Appellee takes the position that the separation agreement was not valid and enforceable until a divorce was granted because of Mississippi Code Annotated § 93-5-2 (Supp.1982), referred to as the “No-Fault Statute” which follows:
No divorce shall be granted on the ground of irreconcilable differences unless the Court shall find in its decree that the parties have made adequate and sufficient provision by written agreement for custody and maintenance of any children of that marriage and for the settlement of any property rights between the parties.
Under the statute, although a no-fault divorce may not be granted without the parties having made provisions by written agreement for custody and maintenance of children and for settlement of property rights between the parties, it does not delay the effective date of a separation agreement until a no-fault divorce is granted.
Mississippi Code Annotated § 75-9-304(1) (1972) provides the following:
A security interest in chattel paper or negotiable documents may be perfected by filing. A security interest in money or instruments (other than instruments which constitute part of chattel paper) can be perfected only by the secured party’s taking possession, except as provided in subsections (4) and (5) of this section and section 75-9-306(2) and (3) on “Proceeds”.
The subsections (4) and (5) referred to above have no relevance to the present case.
In Bowles v. City National Bank & Trust Company, 537 P.2d 1219 (Okla.App.1975), receiver for a debtor contended that City Bank had wrongfully discharged notes payable to the debtor, since the bank had constructive notice because of a security interest filing of a prior claim of another bank. City Bank had possession of the notes and the Court said:
First, Federal Bank’s claim, as will be shown, cannot be accorded priority over City Bank’s claim in the notes, and second, City Bank never “discharged” or “disposed” of the two notes. Federal Bank never perfected a security interest in the two notes because it never took possession of the notes, which is the only method of perfecting a security interest in the two notes. 12A O.S.1971, Section 9-304.
537 P.2d at 1222. See also In re Bruce Farley Corp., 612 F.2d 1197 (9th Cir.1980); Continental Bankers Life Ins. v. Bank of Alamo, 578 S.W.2d 625 (Tenn.1979).
In City National Bank of Miami, N.A. v. Wernick, 368 So.2d 934 (Fla.App.1979), the rights of a payee on a check were involved, but the importance of possession of commercial paper was noted:
*956 The rule that the “delivery” of an instrument is indispensable to its effectiveness is one of the most ancient and basic in commercial law. 10 C.J.S. Bills and Notes, Section 202 (1938). As the Florida law was expressed by the fifth circuit in City of New Port Richey v. Fidelity & Deposit Co. of Maryland, 105 F.2d 348, 350 (5th Cir.1939):
“As between the immediate parties and all others not holders in due course, delivery is essential to the existence of the instrument as a legal obligation. Until put in operation by delivery, the original instrument and indorsements of it are, as to such parties, incomplete and revocable, and a delivery may be shown to have been conditional or for a special purpose.”
368 So.2d at 936.
Appellee Peoples Bank contends that Mrs. Crosby did not have a perfected interest in the balance of the Century note on account of the separation agreement and that possession of the note did not perfect such interest. The appellee bank argues that the collateral involved here is a note and security agreement rather than just a note, and that the two documents, considered together, constitute “chattel paper” and the security interest of the bank can be perfected by filing. “Chattel paper” is defined in Mississippi Code Annotated § 75-9-105(b) (1972) as: “a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods, .... ”
After reviewing the cases cited by appel-lee bank on this question, we are not persuaded by those authorities that the Century note and instruments of both parties relating to it constitute chattel paper. J. White & R. Sommers, Handbook of the Law Under the Uniform Commercial Code, § 22.8, at 853 (2d ed. 1980) gives a good discussion of chattel paper:
The most common source of “chattel paper” today is the ordinary secured consumer sale: A dealer sells goods to a customer who signs a note or other promise to pay and agrees that the dealer shall retain a purchase money security interest in the goods to secure the customer’s obligation to pay the price, usually in installments. The resulting writing that the dealer thereby acquires “evidence both a monetary obligation and a security interest in ... specific goods” and constitute chattel paper.
We are of the opinion that the separation agreement executed by Mrs. Crosby and Ira Talmadge Crosby, Jr. on June 9, 1982, and the possession of the Century note (for over one year) by Mrs. Crosby through her attorney perfected her interest in the Century note and that her interest was prior and superior to that of the appel-lee Peoples Bank. In view of our conclusion, it is unnecessary for this Court to discuss subsequent filings and perfection of security interests either by the appellee Peoples Bank or Mrs. Crosby.
The judgment of the lower court is reversed and judgment is rendered here for the appellant Mrs. Betty S. Crosby.
REVERSED AND RENDERED.
. The record does not explain this transaction, although it does reflect that Mrs. Crosby and her attorney held the note at that time under the November 25, 1980, assignment from Crosby Cable, Inc.
Rehearing
ON PETITION FOR REHEARING
for the Court:
In its Petition for Rehearing, Peoples Bank argues that it has a perfected security interest in the $180,000 remainder of the $280,000 Crosby Cable note which is prior in time to Mrs. Crosby’s security interest.
It bases this argument on the fact that the Bank was assigned the remainder of this note on May 17, 1982, and gave notice in writing thereof to Mrs. Crosby’s attorney on June 16, which was received by him on June 17, 1982, and Mr. Crosby did not actually assign the remaining balance of this note until June 28, 1982.
Unfortunately for the Bank, this ignores the property settlement agreement executed between Mr. and Mrs. Crosby on June 9, 1982.
The controlling date of the notice to Mrs. Crosby, in order to have given the Bank any claim to priority, would have been some date prior to June 9, the date of the property settlement agreement, not June 28,1982, the date of the actual assignment and transfer of all of Mr. Crosby’s interest in the note to Mrs. Crosby.
Mrs. Crosby testified at trial, and it is not disputed, that she had no actual notice or knowledge of any claim of the Bank in the remainder of this note when she executed the property settlement agreement on June 9.
The Petition for Rehearing is Denied.
PATTERSON, C.J., WALKER and ROY NOBLE LEE, P.JJ., and HAWKINS, PRATHER, ROBERTSON and ANDERSON, JJ., concur.
Concurrence Opinion
concurring.
Although I have no doubt that our original decision of April 17, 1985, reaches the correct result, reflection has made it appear at least to me that our statement of the bases of our decision in this admittedly factually oddball case could stand supplementation.
This is not a case we may decide by reference to any notions of fairness or justice or the natural equities of the matter. The adjudication of this case is the function of Code, in this instance the Uniform Commercial Code, as enacted by the legislature in this state, Miss.Code Ann. §§ 75-1-101, et seq., coupled and supplemented by our law regarding separation agreements incident to divorce proceedings and our law of contracts generally. See Miss.Code Ann. § 75-1-103 (Supp.1984). The time for arguments of fairness and equity and “do right” was before the enactment of the Code. Those kinds of considerations went into the shaping of the UCC. Our task now is the faithful application and enforcement of that carefully honed code.
In this context I recite what I regard as the operative facts.
Prior to May 17, 1982, Betty S. Crosby held a $100,000.00 interest in a $280,000.00 note dated November 6, 1980, made originally by Century Mississippi Corporation. The note was physically held by Mrs. Crosby’s attorney, W. Dean Belk of Indianola, Mississippi.
On May 17, 1982, Ira T. Crosby, Jr. executed a security agreement in favor of Peoples Bank of Indianola wherein he conveyed to the bank a security interest in the remaining $180,000.00 of the November 6, 1980 Century note. Significantly the bank did not take possession of the collateral (the note) nor did it give notice to Mrs. Crosby or her attorney of its security interest.
On June 9, 1982, at a time when neither Mrs. Crosby nor her attorney had any knowledge or notice of this security interest so recently acquired by Peoples Bank, Ira T. Crosby and Betty S. Crosby executed a settlement agreement in contemplation of obtaining a divorce on grounds of irreconcilable differences. Miss.Code Ann. § 93-5-2 (Supp.1984). Pursuant to that agreement Ira T. Crosby, Jr., unconditionally obligated himself to convey unto Betty S. Crosby “all of his interest in the [Century note] dated November 6, 1980, ... as lump sum alimony and in lieu of child sup-port_” The note was not physically endorsed at the time. The separation agreement provided that it might be incorporated into a final decree of divorce, but the validity and enforcibility of the obligations undertaken therein were in no way dependent thereon.
On June 16, 1982, Peoples Bank of Indi-anola gave to Mr. Belk, as Mrs. Crosby’s attorney, written notice of its claim of a
On June 28, 1982, Ira T. Crosby, Jr., physically endorsed and delivered the remaining balance of the note in favor of Betty S. Crosby.
I begin with the proposition stated in the opinion of April 17, 1985, that the separation agreement “constituted a valid, enforceable contract at the time of its execution and delivery on June 9, 1982”. If Ira Crosby had not prior thereto granted a security interest to the bank regarding the same note and had merely unconditionally obligated himself to convey to Mrs. Crosby via the settlement agreement, there could be no question but that Betty S. Crosby held a legal claim of entitlement to this promissory note enforceable in a court of law. Miss.Code Ann. § 75-3-201(3) (1972).
I would emphasize that Ira Crosby did not convey the note as collateral to be held as security for his performance of alimony or other obligations. His conveyance of his interest in the note was in discharge of his alimony and support obligations, not to secure their discharge. In short, the note was alimony and support. In my view Betty S. Crosby’s interest in the note may not fairly be classified as a security interest within Miss.Code Ann. § 75-1-201(37) (1972), although little if anything turns on the point.
Our next inquiry concerns the nature and extent of the right of Peoples Bank of Indianola in Ira T. Crosby’s remaining $180,000.00 interest in the promissory note. Without question, the bank held a security interest in this portion of the note. Miss. Code Ann. §§ 75-1-201(37) and 75-9-203 (1972). As of May 17, 1982, Ira T. Crosby had signed a security agreement in favor of the bank describing his interest in the Century note, he had rights in that note, and value had been given by the bank in the form of the renewal of prior Crosby notes. Miss.Code Ann. § 75-9-203(1) (1972). Moreover, that security interest had become enforceable as between the parties. Miss.Code Ann. § 75-9-203(2) (1972).
What is important is that the bank’s security interest had not been perfected before June 9, 1982. Ordinarily, a security interest in an instrument [and there can be no question but that the Century note was an “instrument” within Miss.Code Ann. §§ 75-3-102(l)(e) and 75-9-105(1)©] “can be perfected only by the secured party’s taking possession, _” Miss.Code Ann. § 75-9-304(1) (1972). Without contradiction, the bank never took possession of the note. At all times it remained in the hands of Mrs. Crosby’s attorney, W. Dean Belk. To be sure, Miss.Code Ann. § 75-9-305 (1972) sanctions “constructive possession” as an alternative means of perfection, by virtue of which the bank’s security interest may be said to have become perfected on June 17, 1982, when Belk received notice of the bank’s interest. This does not change the fact that the bank’s security interest was wholly unperfected on June 9, 1982.
This brings us to the critical section of the UCC. Miss.Code Ann. § 75-9-301(l)(c) (1972). That statute, in pertinent part, provides that
An unperfected security interest is subordinate to the rights of ..., in the case of ... instruments ..., a person who is not a secured party and who is a ... buyer not in ordinary course of business ... to the extent that he gives value and receives delivery of the collateral without knowledge of the security interest and before it is perfected.
Taking it slowly, we have established that the Century note in which the parties claim conflicting interest is an “instrument”. Betty S. Crosby “is not a secured party”— as explained above, the separation agreement does not create a security interest. Moreover, a taking incident to a settlement agreement in contemplation of divorce is rather clearly a taking “not in ordinary course of business”. Betty S. Crosby thus meets the conditions of Section 75-9-301(l)(c) which provides that a security in
to the extent that [s]he gives value and receives delivery of the collateral without knowledge of the security interest and before it is perfected.
Again going slowly, I regard that the obligations undertaken by and the conditions and releases made by Betty S. Crosby in the separation agreement constitute “giving value” within Section 75-9-301(l)(c). That Betty S. Crosby’s attorney at all times held the note qualifies as her having received delivery of the collateral, delivery referring to an acquisition of physical possession and nothing more. Miss.Code Ann. § 75-1-201(14) (1972). The parties do not in any way suggest that prior to June 9, 1982, Betty S. Crosby or her attorney had knowledge of the bank’s then unperfected security interest. Even though the bank thereafter perfected its security interest by giving notice to Belk as allowed by Section 75-9-305 on June 17, 1982, the horse was gone. Under these circumstances Section 75-9-301(l)(c) provides without room for doubt that the bank’s security interest is subordinate to the rights of Betty S. Crosby-
A hypothetical analogy may be useful. Assume that the interest held by Betty S. Crosby were a security interest (which in fact and in law it is not). If that be so, the first-to-be-perfect rule of Miss.Code Ann. § 75-9-312(5)(a) (1972) comes into play and the bank still loses, viz., Betty Crosby’s “security interest” has been perfected by her (actually her attorney’s) possession of the collateral on June 9, 1982, see Miss. Code Ann. § 75-9-304(1) (1972), while the bank’s security interest was not perfected until June 17, 1982.
We understand that the bank on June 15, 1982, filed its “security agreement” with the chancery clerk of Sunflower County no doubt in lieu of the filing of a financing statement, see Miss.Code Ann. § 75-9-401 (Supp.1984) and on August 17, 1982, it filed with the secretary of state. These filings are wholly ineffective to accomplish anything in that the type of collateral, here an instrument, is not one a security interest in which is susceptible of perfection by filing. Miss.Code Ann. § 75-9-304(1). Beyond that these filings were made after June 9, 1982. '
A final point needs to be made. The actual endorsement of the note by Ira T. Crosby, Jr. to Betty S. Crosby did not occur until June 28, 1982. This is of no moment. To be sure, endorsement was necessary to make the note enforceable against its maker, Century Mississippi Corporation. Miss. Code Ann. § 75-3-202 (1972). Negotiation and endorsement, however, were in no way legally requisite to Betty S. Crosby’s acquisition of an unconditional and wholly enforceable claim of entitlement to the remaining $180,000.00 portion of the note, for Section 75-3-201(3) provides that transfer of an instrument for value “gives the transferee the specifically enforceable right to have the unqualified endorsement of the transferor”.
