W.F.J., Inc. v. Bank of Tioga

605 F. Supp. 39, 41 U.C.C. Rep. Serv. (West) 1025, 1984 U.S. Dist. LEXIS 21149
CourtDistrict Court, D. North Dakota
DecidedDecember 18, 1984
DocketCiv. A4-84-62, A4-84-70
StatusPublished
Cited by3 cases

This text of 605 F. Supp. 39 (W.F.J., Inc. v. Bank of Tioga) is published on Counsel Stack Legal Research, covering District Court, D. North Dakota primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
W.F.J., Inc. v. Bank of Tioga, 605 F. Supp. 39, 41 U.C.C. Rep. Serv. (West) 1025, 1984 U.S. Dist. LEXIS 21149 (D.N.D. 1984).

Opinion

MEMORANDUM AND ORDER

VAN SICKLE, District Judge.

The above-captioned cases were consolidated by order dated May 2, 1984. Pursuant to F.R.Civ.P. 56, The Bank of Tioga has moved for summary judgment in its favor. W.F.J., Inc. (W.F.J.) and Waconia Manufacturing Industries, Inc. (Waconia) have also moved for summary judgment in their favor.

FACTS

The sole issue in this controversy is which party has the superior security inter *40 est in equipment, valued at approximately $350,000, owned by Tioga Air Heaters, Inc. (Tioga Inc.), a corporation which is now inactive. Both parties seek declaratory relief on the issue of priority of security interests.

Tioga Inc. was formed in March, 1979 when Tioga Air Heaters Co. (Tioga Co.) and Flame Industries of North Dakota, Inc. (Flame-North Dakota) merged. (Nelson Affidavit, Ex. L). Flame-North Dakota was the sole stockholder of Tioga Inc. at the time of the merger. Flame-North Dakota’s sole stockholder at the time of the merger was Flame Industries, Inc. (Flame-Minnesota), a Minnesota corporation.

This dispute follows a series of transactions among the various parties. On April 29, 1977, Flame-Minnesota and The First National Bank of St. Paul (First St. Paul) entered into an agreement entitled “$750,-000 Term Loan Agreement”. Terms of that agreement prohibited Flame-Minnesota from incurring any liens or encumbrances on its property (other than that granted to First St. Paul), from incurring debt in excess of $100,000 in any year without prior written consent of First St. Paul, and from guaranteeing the obligations of any person or corporation. (Serviss Affidavit, Ex. A).

On July 26, 1979, First St. Paul and Tioga Co. entered into a security agreement. (Nelson Affidavit, Ex. J). Even though this followed Tioga Co.’s merger into Tioga Inc., both the security agreement and the financing statement referred to the debtor as Tioga Co. The security agreement was a printed form, which at the top was captioned:

SECURITY AGREEMENT

Equipment

The agreement then recited that:

The undersigned (hereinafter called “Borrower”) hereby grants to The First National Bank of Saint Paul—Saint Paul, Minnesota (hereinafter called “Bank”) a Security Interest in the following described property (hereinafter called “Collateral”):
[BLANK]
together with ... all other Equipment (as that term is defined in the Uniform Commercial Code) hereinafter at any time acquired by Borrower or in which Borrower obtains rights;
All property of every kind and description in which the Borrower has or may acquire any interest now or hereafter at any time in the possession or control of the Bank for any reason ... and

All Proceeds of all of the foregoing.... (Nelson Affidavit, Ex. J). On August 10, 1979, First St. Paul filed a financing statement with the North Dakota Secretary of State in which First St. Paul claimed a security interest in “[a]ll [equipment now owned and hereafter acquired” by Tioga Co. (Nelson Affidavit, Ex. A).

In February, 1980, Bank of Tioga began providing financing to Tioga Inc. A February 15, 1980 security agreement between Bank of Tioga and Tioga Inc., by its terms, gave Bank of Tioga a security interest in “[a]ll equipment and machinery, including power-driven machinery and equipment ... now owned or hereafter acquired, together with all replacements thereof, all attachments, accessories, parts and tools belonging thereto or for use in connection therewith.” (Nelson Affidavit, Ex. B, see Appendix A attached hereto). On February 22, 1980, Bank of Tioga filed a financing statement with the North Dakota Secretary of State, claiming a security interest in “all equipment and machinery” of Tioga Inc., as described in the February 15, 1980 security agreement. (Nelson Affidavit, Ex. C).

A letter dated March 25, 1980, from First St. Paul to Flame-Minnesota included the following statement with respect to provisions of First St. Paul’s April 29, 1977 loan agreement with Flame-Minnesota:

We hereby agree to waive Section 4A and 4B of the loan agreement dated April 29, 1977, as amended March 28, 1980, between Flame Industries, Inc. (Flame) *41 and the First National Bank of St. Paul on the following terms:
We agree to a waiver of Flame[Minnesota] granting a First Security Interest to the Bank of Tioga, Tioga, North Dakota and the Small Business Administration and certain collateral described in the loan agreement with a total transaction cost of $350,000.

(Nelson Affidavit, Ex. E). Section 4A of the April 29, 1977 loan agreement is Flame-Minnesota’s covenant not to incur any liens or encumbrances upon any of its property, other than its lien to First St. Paul or properly perfected purchase money security interests in equipment. (Serviss Affidavit, Ex. A at 13). Section 4B is Flame-Minnesota’s covenant not to incur outstanding indebtedness in excess of $100,000 in any one fiscal year without prior written consent of First St. Paul. (Serviss Affidavit, Ex. A at 14).

Bank of Tioga asserts the March 25, 1980 letter was a waiver of First St. Paul’s priority lien. W.F.J. and Waconia assert it was merely a waiver of the restrictions of the First St. Paul/Flame-Minnesota loan agreement in which Flame-Minnesota agreed not to incur, assume, or guarantee any debts other than those to First St. Paul. W.F.J. and Waconia argue this waiver was necessary because Tioga Inc., as a wholly owned subsidiary of Flame-Minnesota, was an asset of Flame-Minnesota. W.F.J. and Waconia contend that the reference to granting a first security interest to Bank of Tioga was a reference to allowing Tioga Inc. to grant a purchase money security interest to Bank of Tioga for specific equipment purchased with the $350,000 loan from Bank of Tioga.

In May, 1982, First St. Paul acquired a security interest in certain property of Tioga Inc. On May 19, 1982, First St. Paul filed a financing statement with the North Dakota Secretary of State, claiming a security interest in that property specifically described in an attachment to the financing statement. (Nelson Affidavit, Ex. K). The May 19, 1982 financing statement is not involved in the current dispute.

By notice dated January 18, 1984, First St. Paul notified Bank of Tioga that, because of Tioga Inc.’s default on its obligations, First St. Paul would dispose of the collateral in which it claimed a security interest. (Nelson Affidavit, Ex. F). W.F.J., a new corporation formed to purchase Tioga Inc.’s assets, purchased the property (accounts receivable, inventory, and general tangibles) of Tioga Inc. from First St. Paul on January 31, 1984 for $650,000. (Nelson Affidavit, Ex. O, HV). Waconia is a successor transferee of W.F.J.

DISCUSSION

Because they succeeded to First St. Paul’s interest, the rights of W.F.J. and Waconia to the property of Tioga Inc. are wholly dependent on the rights of First St. Paul. The respective rights of Bank of Tioga and First St. Paul are dependent on the validity of the 1979 security agreement and financing statement.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Armstrong v. Mack (In re Mack)
93 B.R. 695 (D. North Dakota, 1988)
In Re MacK
93 B.R. 695 (D. North Dakota, 1988)

Cite This Page — Counsel Stack

Bluebook (online)
605 F. Supp. 39, 41 U.C.C. Rep. Serv. (West) 1025, 1984 U.S. Dist. LEXIS 21149, Counsel Stack Legal Research, https://law.counselstack.com/opinion/wfj-inc-v-bank-of-tioga-ndd-1984.