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JANET R. KENDRICK v. HEADWATERS PRODUCTION CREDIT ASSOCIATION AND HEADWATERS FEDERAL LAND BANK ASSOCIATION (03/27/87)

filed: March 27, 1987.

JANET R. KENDRICK, JOHN L. KENDRICK AND KIM M. KENDRICK
v.
HEADWATERS PRODUCTION CREDIT ASSOCIATION AND HEADWATERS FEDERAL LAND BANK ASSOCIATION



Appeal from the Judgment entered October 24, 1986, Court of Common Pleas, Tioga County, Civil Division at No. 424 1985.

COUNSEL

William A. Hebe, Wellsboro, for appellants.

Edward H. Owlett, Wellsboro, for appellees.

Wieand, Montemuro and Johnson, JJ.

Author: Johnson

[ 362 Pa. Super. Page 2]

We are called upon to interpret a provision under Division Nine of the Uniform Commercial Code -- Secured Transactions, Act of November 1, 1979, P.L. 255 No. 86, 13 Pa.C.S. § 9101 et seq.

[ 362 Pa. Super. Page 3]

On appeal we must determine whether an enforceable security interest is created when a debtor acquires rights in collateral pledged under a security agreement subsequent to the execution of the agreement and the giving of value. We conclude that pursuant to 13 Pa.C.S. § 9203(a) and (b) an enforceable security interest is created and attaches when (1) the collateral is in possession of the secured creditor or the debtor signs a security agreement which contains a description of the collateral, (2) value has been given and (3) the debtor has rights in the collateral. Upon the completion of all of these steps an enforceable security interest is created.

As a result of a family settlement agreement reached in the estate of Hillman Kendrick, Louis Kendrick purchased all the assets of that estate including real estate and personal property (cattle, equipment and machinery). Louis Kendrick later conveyed his interests in the real estate and personal property to himself and his wife Janet Kendrick. The Kendricks subsequently entered into a mortgage transaction with Headwaters Federal Land Bank (hereinafter Bank), in the amount of $80,000.00. Although he owned no interest in the real estate, the Kendrick's son John Kendrick joined in the mortgage transaction. Louis Kendrick later died and all title to the real estate and personal property passed to his wife, Janet.

On May 17, 1983 John Kendrick and his wife Kim, entered into a security agreement with Headwaters Production Credit Association (hereinafter Production Credit) in order to obtain a loan. In their agreement with Production Credit, John and Kim Kendrick pledged as collateral personal property (cattle, machinery and equipment) then owned solely by Janet Kendrick. On June 15, 1983 Production Credit filed a financing statement with the Prothonotary of Tioga County. Between May 17, 1983 and April 1, 1985 John and Kim Kendrick filed eight loan applications with Production Credit who in turn advanced them approximately $30,000.00.

[ 362 Pa. Super. Page 4]

On June 8, 1983 Janet Kendrick and her son, John Kendrick, entered into an installment agreement of sale, wherein Janet agreed to convey to John, cattle, machinery and equipment for the sum of $78,000.00, that being the remaining amount of the debt owed by Janet Kendrick to the Bank. The parties further agreed that John Kendrick would pay the purchase price by assuming and discharging in a timely fashion the indebtedness owed by Janet Kendrick to the Bank. John and Kim Kendrick subsequently defaulted on the loan agreement with Production Credit and the installment sale agreement with Janet Kendrick. On July 2, 1985 the cattle, equipment and machinery, the subjects of the Installment Agreement of Sale and security agreement, were sold at a public sale. The net proceeds of that sale came to $55,366.96, which was placed in an escrow account.

On July 19, 1985, Janet Kendrick, John Kendrick and Kim Kendrick filed an action for a declaratory judgment in order to establish the respective rights of the parties. Following a hearing, the trial court entered a verdict in favor of Production Credit for $30,991.77, and in favor of Janet Kendrick in the amount of ...


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