Opinion
No. 5-824 / 04-0292
Filed January 19, 2006
Appeal from the Iowa District Court for Decatur County, David Christensen, Judge.
The defendants appeal from the district court's judgment in favor of the plaintiff in its replevin suit. AFFIRMED.
Douglas D. Daggett of Douglas D. Daggett, P.C., Creston, for appellant Robex, Inc.
Rebecca S. Adams, Leon, pro se.
G. Mark Rice and B. MacPaul Stanfield of Whitfield Eddy, P.L.C., Des Moines, for appellee.
Heard by Sackett, C.J., and Vogel and Eisenhauer, JJ.
Defendants-appellants, Robex, Inc. (Robex) and Rebecca Adams, appeal from the district court's judgment in favor of plaintiff-appellee, Wells Fargo Bank Minnesota, N.A. (Wells Fargo), in its replevin suit. The defendants contend the court erred in admitting a promissory note, security agreement, and UCC financing statement. They also contend the court erred in finding Wells Fargo's security interest covered real and personal property not owned by Robex. Finally, they contend the court erred in concluding Wells Fargo did not need to give definite notice of default and make demand for possession of the collateral before filing the replevin action. Wells Fargo's pending motion to strike much of the pro se brief filed by Adams is submitted with this appeal. We affirm.
Background facts
Adams and her husband, Rod Stubbs, operated a sand and gravel business in Decatur County, Iowa. They owned certain equipment and assets. In 2000, Adams sought financing to purchase equipment to expand the business. Adams applied for a loan from Wells Fargo. In April of 2000, at Wells Fargo's request, Adams incorporated Robex, Inc., listing herself as the sole shareholder and officer. As part of the application process with the Disadvantaged Business Enterprise program of the Iowa Department of Transportation, two documents, among others, were received by the bank. Adams prepared a document entitled "Equipment Owned Currently for Mine Operations" and signed it on June 29, 2000 as president of Robex. Craig Hilpipre, a local auctioneer, was hired to inspect and appraise Robex's property. He filed an appraisal report in August. There is no evidence the appraisal report was available to the defendants until after the replevin was commenced.
In finalizing the loan in September, Adams, as president of Robex, signed a promissory note, a security agreement, and a financing statement. The security agreement granted Wells Fargo a security interest in the following as collateral for the loan:
a. All equipment and machinery, including power-driven machinery and equipment, furniture and fixtures now owned or hereafter acquired, together with all replacements thereof, all attachments, accessories, parts and tools belonging thereto or for use in connection therewith.
b. All passenger and commercial motor vehicles registered for use upon public highways or streets, now owned or hereinafter acquired, together with all replacements thereof, all attachments, accessories, parts, equipment and tools belonging thereto or for use in connection therewith.
(Emphasis supplied.) Wells Fargo filed a financing statement with the Secretary of State in October to perfect its security interest in the collateral. It described the collateral, in pertinent part, using the same language as paragraph "a" above.
Between September of 2000 and July of 2002 Robex had difficulty making timely payments on the loan. On two occasions Wells Fargo granted a modification and deferral of payments. In the summer of 2002 the loan was transferred to Wells Fargo's loan support team. Discussions ensued between Robex and Wells Fargo concerning the difficulties Robex was experiencing and the possible need for Wells Fargo to repossess the collateral. The parties failed to reach an agreement to resolve the problem. Robex refused a voluntary surrender of the collateral.
District court proceedings
In September of 2002 Wells Fargo filed the replevin action that is the subject of this appeal and sought an immediate writ of replevin. The extensive list of collateral Wells Fargo sought to replevin was listed as an attachment to the petition and came, in part, from the list Adams gave Wells Fargo on June 29 and the appraisal list. In October the district court granted the writ, requiring Wells Fargo to post a bond for twice the value of the collateral. See Iowa Code § 643.7 (2001). The Decatur County Sheriff executed the replevin and returned service in late December. In May of 2003 Wells Fargo moved for summary judgment to confirm its right to possession of the collateral. In August the court granted summary judgment against all defendants, but vacated the judgment against Robex and Adams later that month by a nunc pro tunc order.
The matter proceeded to trial in October of 2003. The district court admitted the promissory note, security agreement, and financing statement offered by Wells Fargo. It also admitted a copy of the collateral list prepared by the bank and attached to its petition. The defendants contended they had not given a security interest in all the collateral on the bank's list.
The district court found "no question that Robex had, or represented to [Wells Fargo] that it had, authority to grant a security interest in the collateral." The court found Robex prepared and submitted to Wells Fargo the "Equipment Owned" list and represented that it was the owner of the property identified in the appraisal report. The court concluded Wells Fargo had proved the statutory elements of replevin and was entitled to possession of the collateral. In addition to granting Wells Fargo possession of the collateral, the court ordered Robex to pay the court costs and Wells Fargo's attorney fees, as provided in the promissory note.
Robex and Adams filed a motion for reconsideration under Iowa Rule of Civil Procedure 1.904(2), seeking a ruling on (1) what notice and demand Wells Fargo was required to give before seeking replevin, (2) whether Wells Fargo gave appropriate legal notice before seeking replevin, and (3) whether a fixture filing was necessary to create an enforceable security interest in a truck scale installed at Robex's operation. The district court denied the motion. Robex and Adams appeal.
Scope and standards of review
Actions for a writ of replevin are by ordinary proceedings and our review is for correction of errors at law. Iowa Code § 643.2; Iowa R. App. P. 6.4. The district court's findings have the effect of a special verdict and will be upheld if supported by substantial evidence. Keppy v. Lilienthal, 524 N.W.2d 436, 438 (Iowa Ct.App. 1994); Iowa R. App. P. 6.14(6)( a). We review the district court's admission or exclusion of evidence for an abuse of discretion. See Pexa v. Auto Owners Ins. Co., 686 N.W.2d 150, 160 (Iowa 2004). "An abuse of discretion occurs when the court's decision is based on a ground or reason that is clearly untenable or when the court's discretion is exercised to a clearly unreasonable degree." Id.
Claims on appeal Robex, Inc.
Robex raises three claims on appeal:
1. The district court erred in admitting the promissory note, security agreement, and financing statement.
2. Wells Fargo was not entitled to the personal property because its security interest had not attached or been perfected.
3. The district court erred in concluding Wells Fargo "was not required to provide definite notice of default and demand for possession of collateral as a prerequisite to filing a replevin action."
Rebecca Adams.
Adams contends "the District Court erred in finding Defendant Robex Inc. in wrongful possession of property and concluding that Wells Fargo Bank had right to replevin of property of Robex Inc. and personal property of Rebecca Adams."
Discussion Robex, Inc. A. Admission of exhibits.
The company first contends the court erred in admitting the loan documents offered by the lender. It contends the exhibits "were not authentic copies of the instruments actually signed by Adams." Robex advances Adams signed an incomplete security agreement and financing statement, which were changed or had additions after her signature. Robex offered no exhibits reflecting such different versions of documents. Citing Iowa Rule of Evidence 5.901, Robex argues the documents were not properly authenticated. Rule 5.901( b) provides several examples of authentication "[b]y way of illustration only, and not by way of limitation." Robex's argument focuses on example "(1) Testimony of witness with knowledge. Testimony that a matter is what it is claimed to be." Robex asserts only two people were present when the documents were signed — Adams and Bret Pugh from Wells Fargo — and only Adams testified at trial. Therefore, argues Robex, Wells Fargo did not present the testimony of a witness with knowledge.
Wells Fargo responds that Paul Loveless, the bank's credit manager who approved the Robex loan testified the exhibits were true and correct copies of the originals held by Wells Fargo. The bank advances that Robex admitted executing the promissory note, the security agreement, and page one of the financing statement in its answer to the replevin petition. Robex denied that the collateral list "Schedule I" correctly described the collateral or that Exhibit A was attached to the financing statement when signed. The bank further contends Adams's signatures are deemed genuine because Robex made no denial as required by Iowa Rule of Civil Procedure 1.405(4)( a).
The district court did not abuse its discretion in admitting the challenged documents. We affirm on this issue.
B. Security interest.
Robex next contends Wells Fargo's security interest had not attached, and the court erred in finding Wells Fargo had a security interest in property not owned by Robex. Under Iowa Code section 554.9203(2) (2003), a security interest attaches to collateral when it becomes enforceable, which is when:
a. value has been given;
b. the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
. . . .
c.(1) the debtor has authenticated a security agreement that provides a description of the collateral. . . .
Robex contends it did not have the rights in the collateral required by paragraph "b" and the security agreement does not adequately describe the collateral.
The district court concluded Robex either "had, or represented to the Bank that it had, authority to grant a security interest in the collateral"; that Robex submitted the equipment owned list to the bank; and that Robex represented to the bank it owned the equipment in the appraisal list. These conclusions are based on the findings (1) Robex represented it owned certain equipment that would be collateral for the loan, (2) Robex gave the bank the list of equipment "owned," and (3) the bank received "an appraisal of Robex equipment" prepared by Hilpipre. In its references to Robex, the court did not specify the person who acted on behalf of Robex.
Robex argues the equipment owned list was the equipment Rebecca Adams and Rod Stubbs owned to operate Robex Sand and Gravel before Robex, Inc. was formed. It asserts Adams and Stubbs never transferred ownership of the equipment to the corporation. The Hilpipre appraisal lists items Adams and Stubbs claim ownership of and explicitly states no inquiry into ownership was made of any of the items appraised.
In Schultz v. Security Nat'l Bank, 583 N.W.2d 886, 889 (Iowa 1998), the court noted that under Iowa Code section 554.9203(1)(c), in general, a security interest is enforceable against a debtor if "the debtor has rights in the collateral." It went on to say that "[c]hapter 554 (the Uniform Commercial Code) does not define `rights in the collateral' and apparently neither have our cases." Id. The court went on to quote, but not necessarily adopt, the position of a commentator who said:
The basic reason for requiring rights in the collateral is not difficult to grasp. The Article 9 security interest is by nature a consensual interest. It arises because the debtor has consented to its existence. But the consent must be manifested with respect to assets which the debtor has some right to control. A stranger cannot create a security interest in assets which the stranger does not own or appropriately control. Giving such a power to a stranger would interfere with the rights of the person entitled to control the property. The debtor must have some authority over the assets in order to create an interest in them. The concept of rights in the collateral is rooted in authority over the collateral.
Id. (quoting 1 Peter F. Coogan et al., Secured Transactions Under the Uniform Commercial Code § 2B.02[2], at 2B-8 (U.C.C.Serv.(MB) 1998)).
68A American Juris Prudence 2d, Secured Transactions section 244, at 253 (2003) says:
Under the Uniform Commercial Code, a security interest cannot arise or attach unless the debtor has rights in the collateral. Bald possession is not sufficient to give a debtor "rights in the collateral" for purposes of attachment of creditor's security interests in collateral. Requiring the debtor to have rights in the collateral is simply an application of the general principle that one cannot encumber another's property without his or her consent. The acquisition by the debtor of rights in the collateral is a condition of the attachment of the security interest as well as the enforceability of the interest. . . .
The right of a creditor is limited by the extent of the rights of the debtor in the collateral.
We reject Robex's position that Wells Fargo is not entitled to replevin any of the personal property because its security interest had not attached or been perfected. Clearly there were a number of items to which the interest attached, most particularly the after-acquired items. However, we do have certain concerns about items which were in the possession of Adams and her husband prior to the formation of the corporation. Employees of Wells Fargo who instructed Adams to form a corporation were aware Adams and her husband had a business before the corporation was formed. There is no direct evidence to suggest that those assets were transferred to the corporation or exchanged for stock in the corporation as part of an asset injection. The security agreement described the collateral as the property that the corporation "owned."
As the district court determined, Wells Fargo carries the burden of proving that it had an enforceable security agreement in the property it sought to replevin. That said, Wells Fargo showed that Robex had some authority over all the property, but Wells Fargo did not show that Robex owned all the property. Wells Fargo's rights were limited by the extent of Robex's interest in the property.
Robex advances Wells Fargo's description of the collateral in the financing statement was too general to allow attachment of a security interest.
The financing statement is sufficient if it contains the names and mailing addresses of the debtor and secured party, a statement indicating the types, or describing the items, of collateral, and is signed by the debtor. The purpose of the financing statement is to give public notice to other creditors that a security interest is claimed in the debtor's collateral. Because the financing statement is designed to warn subsequent creditors rather than to identify the collateral, the collateral need not be specified but may be described by type. Merchants Nat'l Bank v. Halberstadt, 425 N.W.2d 429, 432 (Iowa Ct.App. 1988) (emphasis added) (citations and internal quotation marks omitted). "[S]upergeneric descriptions" such as "all personal property" are not sufficient. Id. at 433; see Iowa Code § 554.9108(3). A description is sufficient "if it reasonably identifies what is described." Id. § 554.9108(1). Among the examples of descriptions that reasonably identify collateral is "a type of collateral defined in this chapter." Id. § 554.9108(2)(c). Section 554.9102(1)(ag) defines "equipment." We conclude the descriptions in the security agreement sufficiently describe the collateral by type.
Robex contends Wells Fargo failed to make a fixture filing to perfect a security interest in a truck scale Robex installed at its work site, citing Hawkeye Land Co. v. Laurens State Bank, 480 N.W.2d 854, 856 (Iowa 1992). This case, however, deals with a property owner's suit to force a secured creditor to remove fixtures in which it had a security interest. Wells Fargo responds that a fixture filing relates to priority disputes between creditors and is not necessary for it to have a security interest in the truck scale for purposes of the replevin action. See Iowa Code § 554.9334. The security agreement and financing statement both specifically include fixtures in the description of collateral. We conclude Wells Fargo's security interest included the truck scale.
Wells Fargo argues Robex should be estopped from denying it had rights in the collateral sufficient to grant a security interest. Principles of estoppel apply to transactions under Iowa's Uniform Commercial Code. Iowa Code § 554.1103. Wells Fargo contends the evidence supports all four elements of estoppel:
(1) The defendant has made a false representation or has concealed material facts; (2) the plaintiff lacks knowledge of the true facts; (3) the defendant intended the plaintiff to act upon such representations; and (4) the plaintiff did in fact rely upon such representations to his prejudice.
Meier v. Alfa-Laval, Inc., 454 N.W.2d 576, 578-79 (Iowa 1990); see generally, 68A Am. Jur. 2d Secured Transactions § 246, at 256 (applying estoppel to the true owner who "allow[s] another to appear as the owner").
Adams testified the equipment owned list did not identify Robex as the owner of the equipment, but merely listed "equipment that we have that we can do this job with." The district court found Robex either "had, or represented to the Bank that it had, authority to grant a security interest in the collateral." Substantial evidence supports this finding. Robex needed funds to purchase equipment and machinery to operate its business. The equipment owned list prepared by Robex included "Equipment Purchases to be made to begin operation" totaling in excess of $344,000. In order to obtain the loan from Wells Fargo, Robex had to demonstrate it could provide adequate security for the loan. Although the equipment owned list did not specify Robex owned the items listed, it was reasonable for Wells Fargo to believe the list prepared in the name of the corporation listing "equipment owned" for the corporation's business operation was a list of property the corporation had rights in to use as collateral.
Implicit in the court's finding is a determination Wells Fargo's version of events was more credible than Robex's. "Our task is not to weigh the evidence or the credibility of the witnesses. Rather, our task is to determine whether substantial evidence supports the district court's findings according to those witnesses whom the court believed." Tim O'Neill Chevrolet, Inc. v. Forristall, 551 N.W.2d 611, 614 (Iowa 1996).
Robex intended its representations of an interest in sufficient property to secure repayment of the loan to induce Wells Fargo to lend it the money it needed. Wells Fargo relied on the representations to its detriment. We conclude Robex is estopped from denying it had sufficient rights in the collateral to grant a security interest in it.
C. Notice and demand.
Robex contends Wells Fargo failed to make a required formal notice of default and demand for possession before proceeding with the replevin action. It argues a written notice of default is necessary if the parties prior course of dealing includes forbearance. See C H Farm Serv. Co. v. Farmers Sav. Bank, 449 N.W.2d 866, 871 (Iowa 1989). Wells Fargo responds Robex has not identified any instances of forbearance of delinquency. The closest is a February 2002 amendment to the loan that deferred specified payments. Wells Fargo also points to the voluntary surrender agreement Robex refused to execute and contact by a Wells Fargo vice president telling Adams that Wells Fargo would take possession of the collateral unless Robex cured its default. We conclude Wells Fargo provided adequate notice of default and that Robex had actual knowledge of its default.
Robex claims Wells Fargo also was required to make a demand for delivery of the collateral. It cites Varvaris v. Varvaris, 255 Iowa 800, 804, 124 N.W.2d 163, 165 (1963) for the proposition a creditor in replevin must make demand for delivery of the collateral before seeking replevin. Wells Fargo responds that Varvaris was an estate case in which the executor sought possession of two automobiles held by the decedent's spouse, who claimed they were inter vivos gifts. It did not involve a security interest in collateral. The court noted proof of a demand for possession is required "only where it is necessary to terminate defendant's right of possession or confer on plaintiff that right." Id. The promissory note Robex executed gave Wells Fargo the right, in the event of default, to take possession of any collateral "without notice or demand." Further, Wells Fargo made a demand for voluntary surrender of the collateral, which Robex refused. We conclude Wells Fargo was not required to make any further demand before initiating the replevin action.
Rebecca Adams. A. Wells Fargo's motion to strike.
Before considering claims raised by Adams, we must address the pending motion to strike her appellate brief to the extent she raises claims for Robex or anyone other than herself. Wells Fargo asserts that the corporation Robex, Inc. cannot appear pro se. Hawkeye Bank and Trust v. Baugh, 463 N.W.2d 22, 25 (Iowa 1990) ("We therefore adopt the general rule that a corporation may not represent itself through nonlawyer employees, officers, or shareholders."); cf. Iowa Code § 631.14 (allowing officers to appear for a corporation in small claims actions). It also asserts Adams, who is not a licensed attorney, cannot represent anyone other than herself. Adams responds that Iowa Court Rule 1.208 allows her to defend her husband, Rodney Stubbs. ("If both are sued, each may defend; and if one fails to defend, the other may defend for both.") Rodney Stubbs is not a party in the replevin action.
After Wells Fargo filed its motion to strike, the Iowa Supreme Court issued an order clarifying that Robex would be represented by an attorney, setting filing deadlines for briefs, directing Adams to limit her brief to her claims individually as a defendant, and ordering that the motion be considered with the appeal.
Robex retained counsel and filed briefs. We have considered its claims above. Adams represents only herself. To the extent her briefs address claims of the corporation, family members, or others than herself, those portions are stricken and we do not consider them.
B. Replevin of Adams's personal property.
Adams's sole issue as it relates to herself as an individual defendant is "whether the district court erred in . . . concluding that Wells Fargo had right to replevin of . . . personal property of Rebecca Adams." In her answer to Wells Fargo's replevin petition, Adams states she "at all times acted as president of Robex, Inc. and makes no claim as an individual to any property properly included in this case." The district court order does not include a judgment against Adams personally. Adams does not indicate any items of her personal property that she claims were wrongly subject to possession by Wells Fargo. We conclude Adams waived any claim Wells Fargo wrongfully took possession of her personal property by making "no claim as an individual to any property included in this case" in her answer.
Adams ends her appellant's brief with a prayer for relief that includes damages and attorney fees. Much of her reply brief is a discussion of losses she and her husband have suffered because of not being able to operate their sand and gravel business without equipment. She does not raise damages as an issue for review or cite or argue authority for such an issue. We deem this implicit claim waived. See Iowa R. App. P. 6.14(1)( c) ("Failure in the brief to state, to argue or to cite authority in support of an issue may be deemed waiver of that issue.").
Summary
Robex. The district court did not abuse its discretion in admitting the challenged exhibits. The description of collateral in the security agreement and financing statement sufficiently described the property by type so that a security interest attached. Robex is estopped from claiming it did not have sufficient rights in the collateral to grant Wells Fargo a security interest in it.
Adams. The portions of Adams's briefs not relating to her personal claims are stricken and we do not consider them. She waived her personal claim to any property at issue in her answer to the replevin petition. Her unstated claim for damages is waived.