OPINION AND FINDINGS
This is an action to determine the rights of the respective parties in two Euclid 71 TD dump trucks (71’s) and two Euclid dump 65 TD hauling trucks (65’s).
General Electric Credit Corporation (GECC) is a New York corporation. R. A. Heintz Construction Co. (Heintz) is an Oregon corporation. Ingersoll-Rand Financial Corporation (Ingersoll) is a Delaware corporation. Fincham Equipment Co., Inc. (Fincham) is an Oregon corporation and is now in bankruptcy. Its trustee has disclaimed all interest. Jurisdiction exists by virtue of 28 U.S. C. §§ 1441,1332,1335 and 2361.
Fincham was engaged in selling and renting new and used equipment. In April, 1966, it purchased the two 71’s previously mentioned. At thе time it was doing business in Adams County, Colorado, and purchased the equipment in that county. Subsequently, on May 18, 1966, Fincham, for value, executed a note to Ingersoll for $61,600.00. To secure payment of the note, it executed a chattel mortgage on the 71’s. This chattel mortgage was filed for record in Adams County, Colorado, on May 27, 1966. The filing was in accordance with Colorado law. This security interest was acquired in good faith and without knowledge of claimed ownership by others.
Fincham, on June 24, 1966, for value executed and delivered to GECC its promissory note. To secure said note, it executed and delivered to that corporation a chattel mortgage creating a lien on certain equipment not involved in this litigation. The said chattel mortgage was filed for record with the County Clerk and Recorder of Adams County, Colorado, on June 29,1966.
Heintz, on January 25, 1967, in good faith and without actual knowledge of the alleged security interest of Ingersoll, purchased the 71’s from Fincham for the sum of $64,000.00. At the same time, and as part of the same transaction, Heintz traded the two 65’s to Fincham and received a credit of $27,000.00 against the purchase price of the twо 71’s. Heintz is a buyer in the ordinary course of business as to this amount. Fincham, on January 25, 1967, was indebted to Heintz in the sum of $10,000.-00, for the balance of the purchase price on a Cat Loader and was indebted to Heintz-Kaiser, a joint venture, in the amount of $4,459.68 on tires and those amounts were credited on the purchase price of the two 71’s. Heintz, on February 2, 1967, delivered to Fincham a check for the balance of $22,540.32. Heintz is a buyer in the ordinary course of business as to this amount.
Fincham did not have IngersolPs written consent to sell the 71’s. The 71’s were shipped from Denver on February 4, 1967, and shortly thereafter received by Heintz in Redding, California.
Later, on March 10, 1967, Fincham and GECC signed an agreement designated a Partial Release and Substitution of Equipment in Chattel Mortgage, in which the two 65’s were substituted for certain of the collateral covered by the above chattel mortgage. This instrument was filed on March 13, 1967, with the proper officer for the County of Adams, Brighton, Colorado.
At the time GECC obtained its alleged security interest in the 65’s, it did so for value in good faith and without actual knowledge of any claim of ownership or interest of the other parties in or to the 71’s or the 65’s.
The Uniform Commercial Code’s (UCC) effective date in Colorado was July 1, 1966.
The Code’s financing statements reflecting Fincham as debtor and GECC as secured party were filed March 27, 1967, with the Secretary of State of the State of Oregon and the proper officer of Multnomah County, Oregon. At *961 tached to the financing statements, and made a part thereof, were copies of the chattel mortgage and the partial release and substitution of equipment, previously mentioned.
Jack Fincham, President of Fincham, died on March 16, 1967. At that time, Heintz was in physical possession in Oregоn of the two 65’s and did not voluntarily surrender possession. GECC instituted a claim and delivery action in the Oregon courts against Heintz for possession of the 65’s and caused an Oregon sheriff to seize possession. Heintz, learning that defendant Winslow Construction Co. (Winslow) and Ingersoll claimed interest in the 71’s, removed the state case to this Court and filed a third-party complaint seeking a determination of the interests of the respective parties. GECC received possession of the 65’s by posting a surety bond in the amount of $50,000.00 in the state proceeding. GECC later sold the 65’s for a price of $14,000.00.
As оf July 10, 1967, Fincham was indebted to GECC in the sum of $50,697.-61. On March 31, 1967, Fincham was indebted to Ingersoll in the sum of $43,-458.83. On July 10, 1967, the value of the two 65’s did not exceed $14,000.00. Fincham was in default on the dates above mentioned.
ISSUES
The issues of fact as stated in the pre-trial order are:
(1) When did R. A. Heintz Construction Co. obtain actual knowledge of the interests of the various parties in the 71’s and 65’s?
(2) Was R. A. Heintz Construction Co. a buyer in the ordinary course of business ?
(3) Was R. A. Heintz Construction Co., subsequent to February 4, 1967, retaining physical possession of the two 65 TD’s at the sufferance of Fincham Equipment Co., and awaiting instructions from Fincham specifying to which point shipment should be made ?
The issues of law as therein stated are:
(1) Did General Electric Credit Corрoration acquire any interest in the 65’s by virtue of its agreement dated March 10, 1967?
(2) If Ingersoll-Rand acquired any interest in the 65’s by reason of these 65’s being a part of the proceeds of the sales of the 71’s, was that interest cut off by the acquired interest of General Electric Credit Corporation ?
(3) Are Ingersoll-Rand’s rights in the 71’s and the 65’s governed by the Colorado Pre-Code Law?
(4) Is the interest of General Electric Credit Corporation in the 65’s governed by the Oregon Uniform Commercial Code?
(5) Are the rights of R. A. Heintz Construction Co. to the 65’s governed by the Uniform Commercial Code ?
(6) Was Heintz a buyer buying in the оrdinary course as to the entire purchase price or just to that portion represented by the cash and trade-in?
(7) In the event that R. A. Heintz Construction Co. is not the owner of the 71’s free and clear of any claim of Ingersoll-Rand, does it have a right in the 65’s superior to that of General Electric Credit Corporation?
HEINTZ’S RIGHTS TO THE 71’S
Although GECC contends that Oregon law is applicable and is the measure of Heintz’s rights, I can find nothing persuasive in its argument. The Oregon law on conflicts, ORS
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71.1050, and the controlling Federal cases, Klaxon Co. v. Stentor Elec. Mfg. Co.,
Ingersoll seems to contend that preUCC Colorado law determines Heintz’s rights in the 71’s. It also relies on the UCC. Inasmuch as Heintz’s rights to the 71’s were established when it made the purchase from Fincham in January, 1967, some six months after the Colorado Code went into effect, the pre-code rights аre here of no significance.
CRS 2 155-2-403(2) provides:
“Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.”
Ingersoll concedes that under this section, as well as under pre-UCC Colorado law, Moore v. Ellison,
Ingersoll concedes that Heintz enjoys this privilege as to the cash paid Fincham and as to the trade-in on the 65’s. It contends, however, that Heintz cannot be protected by the shield of the statute in connection with that part of the purchase price which represented the cancellation by Heintz of the $14,459.-68 Fincham debt. On this point, Ingersoll cites CRS 1963 155-1-201(9), which states in material part:
“ ‘Buying’ may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a pre-existing contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.” (Emphasis supplied.)
As to the cancelled debt, Ingersoll asserts that its mortgage on the 71’s is prior in time and superior in right to that of Heintz. At issue is whether Heintz, which qualifies as a buyer in the ordinary course of business, as to the sale, should be permitted to maintain that status as to the entire transaction, even though part of the purchase price consisted of the satisfaction of a pre-existing debt. Heintz argues that the *963 word “buyer”, as used in the applicable section of the Code, is transactional and that the sale should be considered as a whole and “not fractionalized” into qualifying and non-qualifying parts.
Evans Products Co. v. Jorgensen,
It is urged that the Court should follow the authorities which interpret “buyer in the ordinary course of business” as that language is taken from Section 1 of the Uniform Trust Receipts Act (UTRA). The official comment to CRS 1963 155-1-201(9) clearly indicates that the drafters of UCC took that phrase from the indicated section of the UTRA. The comment states:
“9. ‘Buyer in the ordinary course of business.’ From Section 1, Uniform Trust Receipts Act. Thе definition has been expanded to make clear the type of person protected.”
At the time of the adoption of the Code in Colorado, as well as in Oregon, the phrase as used in UTRA, had been interpreted in at least two cases, Colonial Finance Co. v. DeBenigno,
Be that as it may, Heintz’s contention must be upheld on still another ground. CRS 1963 155-1-201(9) is of primary significance when construed in the light of CRS 1963 155-2-403, the Code’s “Entrusting” section. The Comment 4 to that section makes it perfectly cleаr that the compilers wanted to “state a unified and simplified policy on good faith purchase of goods”, and as to “buyers in the ordinary course of business”, to create “a single principle protecting persons who buy in ordinary course out of inventory.” (Emphasis supplied.) It would be completely inconsistent with the announced policy to penalize a purchaser who qualified as a “buyer in the ordinary course of business”, by “fractionalizing” the entire transaction and making the sale part good and part bad. The argument that under such a construction there would be nothing to prevent an unsecured creditor from paying $1,000.00 in cash and cancelling a $63,-000.00 debt — thus affecting the very preference which the last line of CRS 1963 155-1-201(9) was designed to prohibit — is not sound. In such case, the bona fides of the transaction would be openly in question and it could well be argued that the cash element of the transaction was a strawman entirely incidental to the essence of the transaction and would be a “transfer * * * in total or partial satisfaction of the money debt.” Certainly, the buyer in that case would not qualify as a “buyer in the ordinary course of business” for any part of the sale. Conceding that Fincham was in difficult financial straits at the time of the transaction, nevertheless, there is no evidence and no contention that Heintz was aware of this fact, nor that this was anything but a transaction in the normal course of business. Heintz’s good faith is not in question. I find on the facts and on the law that Heintz was a buyer in the ordinary course of business as to the entire purchase price paid for the 71’s.
In view of this finding, I need not consider Heintz’s alternative contention that if it is not recognized as a buyer in the ordinary course of business as to the entire purchase pricе paid for the 71’s, that there was a failure of consideration and that on that basis, it is entitled to a return of the 65’s. I might say that the contention is judicially attractive and that I would make such a finding if I had reached that particular issue.
THE 65’S INGERSOLL-RAND v. GECC Here, as on the previous issue, I must first determine the law which governs the transaction.
Consistent with its position throughout the litigation, GECC insists that the rights of the parties must be determined in accordance with Oregon law. The statutory law of that state, in my belief, destroys this contention. ORS 79.-1020(1), in material part, provides as follows:
“Except as otherwise provided in ORS 79.1030 on multiple state transactions and in ORS 79.1040 on excluded transactions, ORS 79.1010 to 79.-5070 apply so far as concerns any personal property and fixtures within the jurisdiction of this state: * *
*965 ORS 79.1030, one of the exceptions, provides in part:
“(2) If the chief place of business of a debtor is in this state, ORS 79.-1010 to 79.5070 govern the validity and perfection of a security interest and the possibility and effect of proper filing with regard to general intangibles or with regard to goods of a type which are normally used in more than one jurisdiction (such as automotive equipment, rolling stock, airplanes, road building equipment, commercial harvesting equipment, construction mаchinery and the like) if such goods are classified as equipment or classified as inventory by reason of their being leased by the debtor to others. Otherwise, the law (including the conflict of laws rules) of the jurisdiction where such chief place of business is located shall govern.” (Emphasis supplied.)
Inasmuch as the 65’s are large earth moving trucks, there is no question but they belong in either the classification of “road building equipment”, “construction machinery”, or “automotive equipment”, or all. It is conceded that Fineham, the debtor, has his chief place of business in Colorado. Consequently, the law оf that state must govern. ORS 79.1030 refers to the entire body of Colorado law, statutory and decisional, including that state’s law on conflicts. CRS 1963 155-9-102(1) and CRS 1963 155-9-103(2).
Ingersoll makes two contentions that its rights are prior in time and superior in right to those of GECC. First, that Fincham’s sale of the 71’s in breach of the terms of the Ingersoll chattel mortgage, destroyed Fincham’s title to that property and, consequently, lost all right to the proceeds of the sale of the collateral, composed of the 65’s. Furthermore, inasmuch as Fineham had no right to the 65’s at the time GECC made its partial release in substitution of equipmеnt agreement of March 13, 1967, GECC could not take a valid security interest in that property. Second, that even if Fineham did have an interest on which GECC’s security interest could attach, Ingersoll enjoys priority to that interest by virtue of an after-acquired property clause in its May, 1966, chattel mortgage.
(1) Under the UCC, the security interest attaches when there is an agreement that it attaches, value is given, and the debtor acquires rights in the collateral. CRS 1963 155-9-204(1). Ingersoll argues that GECC could not acquire title in the collateral for the reason that Ingersoll had absolute legal title to thе 71’s when Fineham breached the terms of the chattel mortgage and sold property. It is further argued that in losing all rights to the 71’s, that Fincham lost all rights to the proceeds of the sale of the collateral, the 65’s. Rosenthal v. Whitehead,
(2) Ingersoll’s second argument on its rights to the proceeds of the sale of the 65’s is basеd on the after-acquired property clause contained in its pre-code chattel mortgage on the 71’s. GECC relies on the security interest in the 65’s which was taken and perfected under the Colorado UCC and the Oregon UCC. The question presented is the time, if at all, when Ingersoll, under its pre-code chattel mortgage, acquired a *966 perfected security interest in the 65’s after the effective date of the code. GECC earnestly contends that Ingersoll never acquired a perfected security interest, because at no time did it make a filing under the Colorado UCC. Ingersoll claims that no filing was necessary because it had already perfected its chattel mortgage by recording, prior to the effective date of the code and that its security interest was thus perfected in the 65’s as soon as they were acquired by Fincham. Under the code, a person holding the security interest, which includes a clause adding after-acquired property as collateral, takes a security interest in the after-acquired property upon its acquisition by the debtor. CRS 1963 155-9-204. The security interest is perfected at the time the secured party files on the original agreement. CRS 1963 155-9-303. Inasmuch as Ingersoll did not follow the provisions of the code by filing under it, it cannot claim under those provisions.
Pre-code Colorado law, CRS 1963 21-1-2(1), (a) provided:
“Property subject to mortgage.— (1) (a). A chattel mortgage may be given upon personal property of any kind or character, including, but not by way of limitation, the following:
******
(f) After-acquired property, property not in existence or property to which title was not in mortgagor at the time of the execution and delivery of the mortgage. Such mortgage shall attach to the interest of the mortgagor upon the property coming into being or when title theretо is acquired by the mortgagor.” (Emphasis supplied.)
Colorado cases such as First Nat’l. Bank of Montrose v. Felter,
Of great significance, in arriving at a proper conclusion, is the saving clausе of the Colorado UCC. 155-10-101(2), which provides:
“(2) Transactions validly entered into prior to the effective date of this chapter and the rights, duties, and interests flowing from them remain valid thereafter and may be terminated, completed, consummated, or enforced as required or permitted by any statute or other law amended or repealed by the enactment of this chapter as though such repeal or amendment had not occurred.”
GECC argues that Ingersoll’s interest in the 65’s, if any, by virtue of Fincham’s acquisition, is a new transaction which requires application of the Code and thus a Code filing. Although Rosenberg v. Rudnick,
The exhaustive research of counsel for the respective parties, and of the Court, has uncovered only one case in point. Charles S. Martin Distributing Co., Inc. v. First State Bank of Blakely,
GECC knew that Fincham was a resident and operated his principal business in the state of Colorado. Obviously, it knew that the UCC controlled in Colorado and likewise in the state of Oregon. It is presumed that it knew of the saving clause in the Colorado code which continued validity in the pre-code chattel mortgage. It filed its own security agreement pursuant to the UCC in Colorado and the UCC in Oregon. Under these circumstances, I hold that GECC had constructive notice of the Ingersoll chattel mortgage and its after-acquired property provisions. The UCC had been in effect in Oregon long prior to the execution and delivery of Ingersoll’s precode chattel mortgage.
In arriving at a proper conclusion, I cannot overlook the declared purpose of UCC § 1-102.
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Without question the
*968
code was designed to bring the body of commercial law into the contemporary world of business. In re United Thrift Stores, Inc.,
ORS 79.1030(2) makes it clear that the law of the jurisdiction where the chief place of business of the debtor is located shall govern the validity and perfection of security interest.
Returning for the moment to the Heintz claims: Heintz did not have actual knowledge of the claims of Ingersoll until after it had traded the 65’s to Fincham and until after the 65’s had moved out of Fincham’s possession. As previously stated, Heintz was a buyer in the ordinary course of business and had no notice of third party claims until after the 65’s had been shipped pursuant to Fincham’s directions.
The foregoing shall serve as my findings and conclusions.
Notes
. Oregon Revised Statutes.
. Colorado Revised Statutes.
. Edward Thompson Company.
. “3. The definition of ‘buyer in ordinary course of business’ (section 1-201) is effective here and preserves the essence of the healthy limitations engrafted by the case-law on the older statutes. The older loose concept of good faith and wide definition of value combined to create apparent good faith purchasers in many situations in which the result outraged common sense; the court’s solution was to protect the original title especially by use of ‘cash sale’ or of over-technical construction of the enabling clauses of the statutes. But such rulings then turned into limitations оn the proper protection of buyers in the ordinary market. Section 1-201(9) cuts down the category of buyer in ordinary course in such fashion as to take care of the results of the cases, but with no price either in confusion or in injustice to proper dealings in the normal market.” (Emphasis supplied.)
. Identical to C.R.S.1963 155-10-101(2).
. Ҥ 1-102. Purposes; Rules of Construction; Variation iy Agreement.
(1) This Act shall be liberally construed and applied to promote its underlying purposes and policies.
(2) Underlying purposes and policies of this Act are
(a) to simplify, clarify and modernize the law governing commercial transactions ;
*968 (b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties;
(c) to make uniform the law among the various jurisdictions.” ORS 71.1020(1) (2).