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LANDMARK LAND CO. v. SPRAGUE

UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK


December 14, 1981

LANDMARK LAND COMPANY, INC., Plaintiff,
v.
Irvine H. SPRAGUE, William M. Isaac, John G. Heimann, James E. Burns, Federal Deposit Insurance Corporation and the United States of America, Defendants, and Mercantile National Bank of Chicago, Mercantile Holdings Inc., James R. Frankel, California Canadian Bank, as executor with will annexed of the estate of Leonard B. Ettelson, deceased, Michael B. Schwartz, as executor of the estate of Leonard B. Ettelson, deceased, William P. Bright, and Landmark Land Company, Inc., Counterclaim Defendants

The opinion of the court was delivered by: GAGLIARDI

Plaintiff Landmark Land Company, Inc. ("Landmark") commenced this action for a writ of mandamus and monetary and injunctive relief against the Federal Deposit Insurance Corporation (the "FDIC"), the United States of America, and several government employees affiliated with the FDIC (the "FDIC officials"). *fn1" The action was initially based upon the allegedly wrongful refusal of defendants to deliver to plaintiff a certain promissory note (the "Cove note") and deed of trust (the "Cove deed of trust") executed by a joint venture known as La Quinta Cove. The FDIC and FDIC officials filed a counterclaim for interpleader pursuant to 28 U.S.C. § 1335 to permit this court to adjudicate conflicting claims to the Cove note and deed of trust (collectively referred to hereinafter as the "Cove collateral"). Pursuant to an order of this court, the Cove collateral had previously been delivered to the Clerk of the court. *fn2" The counterclaim defendants that claim an interest in the Cove collateral in these proceedings are Landmark and Mercantile Holdings, Inc. ("Mercantile Holdings"), the successor in interest with respect to the Cove collateral to counterclaim defendant the Mercantile National Bank of Chicago (the "Mercantile Bank") (Mercantile Bank and Mercantile Holdings are collectively referred to hereinafter as "Mercantile"). The FDIC, which along with the FDIC officials and the United States has settled its dispute with Landmark, now maintains that Landmark is entitled to possession of the Cove collateral as its sole owner. Presently before the court is a motion for partial summary judgment by Landmark seeking: (1) an order compelling the Clerk of this court to deliver the Cove collateral to Landmark; (2) a declaration that Landmark's rights in the Cove collateral have priority over Mercantile's claimed interests; and (3) a declaration that all security interests other than Landmark's in the Cove collateral have been extinguished. For the reasons set forth below, Landmark's motion is granted. *fn3"

Statement of Facts

For the purpose of deciding the instant motion, the court has relied exclusively upon the following materials: numerous documents submitted by Landmark and Mercantile, the authenticity of which has not been challenged; facts set forth in affidavits submitted by Mercantile; and undisputed facts set forth in affidavits submitted by Landmark. In accordance with the requirements of Rule 56(c), the court has resolved all ambiguities and drawn all reasonable inferences against Landmark. See United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962) (per curiam); American International Group, Inc. v. London American International Corp. Ltd., 664 F.2d 348 (2d Cir. 1981). The facts so determined are as follows. *fn4"

 In 1972, the First State Bank of Northern California ("First State") made a loan of $ 300,000 to Elkee Corporation ("Elkee") and loans of $ 170,000 each to Richard Curtis, Michael Whelan and James Frankel. These loans were secured by a deed of trust (the "1972 deed of trust") on certain California property owned by Elkee. In 1974, Elkee along with Unique Golf Concepts, Inc. and Landmark formed a joint venture known as La Quinta Cove for the purpose of developing certain California real estate (the "La Quinta property") then owned by Elkee which included the property subject to the 1972 deed of trust. Pursuant to the joint venture agreement, Elkee sold the La Quinta property to the joint venture in exchange for, in part, the Cove collateral, i.e., a non-negotiable promissory note in the amount of $ 1,080,000 payable to Elkee (the Cove note) secured by a deed of trust on the La Quinta property (the Cove deed of trust). The transfer of clear title to the La Quinta property from Elkee to La Quinta Cove was made possible by a deed of reconveyance executed by First State on May 10, 1974 which released and reconveyed First State's interest in the property under the 1972 deed of trust.

 During the next three years, Elkee assigned the Cove collateral at least three times to secure its own numerous obligations. The first collateral assignment, which was made in May 1974, was to First State to secure "the obligations of Elkee Corporation in the principal amount of $ 240,000." First State took possession of the Cove collateral pursuant to this initial assignment and remained in possession during the subsequent assignments. The second assignment, which incorporated the first assignment, was made in January 1975. At that time, Elkee executed an instrument assigning the Cove collateral first to First State to secure Elkee's obligations which then amounted to $ 280,000, and then to the Drovers National Bank of Chicago ("Drovers") to secure Elkee's indebtedness of approximately $ 1,161,000. Elkee subsequently repaid the $ 280,000 debt to First State using funds that Elkee obtained through a $ 275,000 loan from Mercantile Bank. Elkee did not, however, repay its obligation to Drovers. Finally, in March 1976 Elkee assigned the same collateral to First State and to Mercantile Bank, this time to secure the loans made by First State to Curtis, Whelan and Frankel. Mercantile Bank had previously purchased from First State 100 percent participations in the loans to Curtis and Whelan. *fn5"

 The FDIC's interest in the Cove collateral commenced in 1976 after First State was declared insolvent. In May 1976, the FDIC in its corporate capacity as liquidator of First State ("FDIC-First State") obtained First State's rights to the Cove collateral, and took physical possession of the Cove collateral as well. In 1978, Drovers was also declared insolvent and the FDIC in its corporate capacity as liquidator of Drovers ("FDIC-Drovers") obtained Drovers' rights to the Cove collateral. FDIC-Drovers, in turn, sold all of its right, title and interest in the Cove collateral to Landmark after Elkee defaulted on the underlying debt owed by Elkee to Drovers.

 The instant action was commenced by Landmark after FDIC-First State refused to relinquish possession of the Cove collateral. Landmark's asserted priority to this collateral is premised upon the rights Landmark acquired through the purchase of the collateral from FDIC-Drovers, which in turn claimed priority to the collateral under the January 1975 assignment from Elkee to First State and then to Drovers. Mercantile's asserted priority to the Cove collateral is premised upon its status as successor in interest to First State's rights with respect to loans made by First State which were allegedly secured by the Cove collateral.

 Discussion

 I. The Applicable Law

 The resolution of the conflicting claims at issue in this case turns on the legal effect of the successive collateral assignments of the Cove note and deed of trust, and on the legal effect of the sale of the Cove collateral from FDIC-Drovers to Landmark following the default by Elkee on its obligations to Drovers. To the extent that the claimed interests in the Cove collateral involve the rights and obligations of the FDIC, the relevant issues are governed by federal law. D'Oench, Duhme & Co. v. Federal Deposit Insurance Corp., 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942); Federal Deposit Insurance Corp. v. Meo, 505 F.2d 790, 793 n.4 (9th Cir. 1974); Riverside Park Realty Company v. Federal Deposit Insurance Corp., 465 F. Supp. 305, 308 (M.D.Tenn.1978); In re Anjopa Paper & Board Manufacturing Co., Inc., 269 F. Supp. 241, 252 (S.D.N.Y.1967). However, where, as in the instant case, "the state commercial codes "furnish convenient solutions in no way inconsistent with adequate protection of the federal interest(s),' " the court should "decline to override intricate state laws of general applicability on which private creditors base their daily commercial transactions." United States v. Kimbell Foods, Inc., 440 U.S. 715, 729, 99 S. Ct. 1448, 1459, 59 L. Ed. 2d 711 (1979) (quoting United States v. Standard Oil Co., 332 U.S. 301, 309, 67 S. Ct. 1604, 1609, 91 L. Ed. 2067 (1947)). Accordingly, to the extent that federal law is applicable to the instant case, the federal rule of decision is given by the applicable state law. Id.

 In order to determine the applicable state law the court turns to the relevant New York conflict of laws doctrine. As the analysis below indicates, see pp. 976-977 infra, the interests purportedly created by the successive collateral assignments fall within the ambit of article 9 of the Uniform Commercial Code ("U.C.C."). *fn6" Therefore, the court must apply the relevant U.C.C. conflicts rules set forth at N.Y.U.C.C. §§ 9-103(1)(b) & 1-105(1).

 N.Y.U.C.C. § 9-103(1)(b) provides that the governing law with respect to the perfection of security interests and the effect of perfection or non-perfection of security interests is determined as follows: *fn7"

 

Except as otherwise provided in this subsection, perfection and the effect of perfection or non-perfection of a security interest in collateral are governed by the law of the jurisdiction where the collateral is when the last event occurs on which is based the assertion that the security interest is perfected or unperfected.

 The Cove collateral was in California in the possession of First State at all times during which the parties to this action could claim that their purported security interests became perfected. Accordingly, all perfection issues herein are governed by California law.

 The choice of law with respect to all other issues is governed by N.Y.U.C.C. § 1-105(1). Under this provision, the court should apply the law of the jurisdiction having the most significant contacts with the given transactions. See Martin v. Julius Dierck Equipment Co., 52 A.D.2d 463, 468, 384 N.Y.S.2d 479, 483 (2d Dep't 1976), aff'd on other grounds, 43 N.Y.2d 583, 403 N.Y.S.2d 185, 374 N.E.2d 97 (1978); U.C.C. § 1-105, Official Comment 3; *fn8" N.Y.U.C.C. § 1-105, New York Annotation (1) (McKinney 1964).

 The most significant contacts in the instant case with respect to each of the relevant transactions involving the Cove collateral are plainly with the State of California: the Cove note and deed of trust were executed in California by La Quinta Cove, a joint venture formed to develop California property; the Cove deed of trust covered that California property; the Cove collateral was first pledged to First State, a California bank, by Elkee (an Illinois corporation), and the Cove collateral remained in California in the possession of either First State or FDIC-First State until it was transferred to the Clerk of this court pursuant to court order. Therefore, California law governs all of the substantive issues that are determinative of the rights of the claimants to the Cove collateral.

 The next relevant inquiry is whether the transactions involving the collateral assignments of the Cove note and deed of trust fall within the ambit of article 9 of the U.C.C. as enacted in California, Cal.Com.Code § 9101 et seq. Although it is clear that the collateral assignment of a secured note is governed by article 9, see U.C.C. § 9-102(3), Official Comment 4, the authority from various jurisdictions is divided over whether article 9 or real property law governs the collateral assignment of an accompanying real property interest that secures the note, such as a deed of trust, mortgage or lease. The confusion is created by the apparent conflict between U.C.C. § 9-104(j) (Cal.Com.Code § 9104(j)), which excludes from article 9 the "transfer of an interest in or lien on real estate," and U.C.C. § 9-102(3) (Cal.Com.Code § 9102(3)), which provides that "application of this article to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this Article does not apply." Some courts have read § 9-104(j) broadly to exclude from article 9 all transfers of real property interests notwithstanding § 9-102(3). See In re Bristol Associates, Inc., 505 F.2d 1056 (3d Cir. 1974); Rucker v. State Exchange Bank, 355 So.2d 171 (Fla.App.1978). This view not only squarely conflicts with the plain meaning of § 9-102(3), but also may give rise to the anomalous situation in which one secured creditor has priority to the note under article 9 principles and another has priority to the property interest that secures the note under local property law. This leaves one creditor with an unsecured note and the other with a mortgage or deed of trust that is worthless without the note that it secures-a result clearly not intended by any of the parties to the relevant transactions. See Comment, Security Interests in Notes and Mortgages: Determining the Applicable Law, 79 Colum.L.Rev. 1414, 1422-23 (1979). The more compelling view is set forth in several cases, including cases which interpret California law, that read § 9-104(j) in light of the plain meaning of § 9-102(3), and hold that article 9 governs the collateral assignment of a real property interest securing a note as well as the collateral assignment of the note itself. Starr v. Bruce Farley Corp. (In re Bruce Farley Corp.), 612 F.2d 1197 (9th Cir. 1980) (applying California law); Huffman v. Wikle (In re Staff Mortgage and Investment Corporation), 550 F.2d 1228 (9th Cir. 1977) (applying California law); Groves v. United States, 202 Ct.Cl. 660 (1973); Black v. Sullivan, 48 Cal.App.3d 557, 122 Cal.Rptr. 119 (1975); E. Landau Industries, Inc. v. 385 McClean Corp., 5 U.C.C. Rep. Serv. (Callaghan) 1279 (N.Y.Sup.Ct., Westchester Co. 1969); accord, 1 Gilmore, Security Interests in Personal Property, § 10.6 (1965); White & Summers, Uniform Commercial Code 890-91 (2d ed.1980). Accordingly, the court concludes that the successive assignments of both the Cove note and the Cove deed of trust are governed by article 9 of the California Commercial Code.

 II. The May 15, 1974 Assignment

 On May 15, 1974 Elkee sent First State two letters signed by William Bright, President of Elkee. One of the letters provided:

 

Elkee Corporation hereby assigns for collateral purposes all of the right, title and interest in and to that certain note dated May 8, 1974 made by La Quinta Cove (a joint venture) in the principal amount of $ 1,080,000, made payable to Elkee Corporation.

 The second letter, which enclosed the Cove note, stated the following:

 

Enclosed is a note signed by Landmark Land Company, Inc.; Unique Golf Concepts Incorporated and Elkee Corporation as joint venturers d/b/a La Quinta Cove in the principal amount of $ 1,080,000 which you are to hold as collateral for the obligations of Elkee Corporation in the principal amount of $ 240,000. You are to return the enclosed collateral to Elkee Corporation upon retirement of the existing debt to you.

 The letter also indicated that the note was secured by the Cove deed of trust and stated that "an assignment" was being sent under separate cover. These two letters, signed by Elkee and accepted along with the Cove collateral without protest by First State, together constitute a written agreement between Elkee and First State providing for a security interest in the Cove collateral.

 Under Cal.Com.Code § 9203(2) a security interest attaches when the following events set forth in § 9302(1) have taken place: "(a) The collateral is in the possession of the secured party pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral... (;) (b) Value has been given; and (c) The debtor has rights in the collateral." There is no question under the instant facts that as of May 14, 1974 First State's security interest in the Cove collateral attached pursuant to § 9203. The dispute here is over which obligations the pledge of the Cove collateral secured. Mercantile contends that the parties intended this collateral assignment to secure the loans made by First State in 1972 to Curtis, Whelan and Frankel. Landmark contends that the assignment only secured Elkee's own indebtedness to First State.

 The relevant language of the assignment documents is unambiguous on its face-it provides that the Cove collateral was to be held by First State "as collateral for the obligations of Elkee Corporation in the principal amount of $ 240,000," a clear reference to Elkee's indebtedness to First State. Under California law, however, extrinsic evidence is admissible to explain the meaning of a facially unambiguous written instrument if the written instrument is "reasonably susceptible" of the proffered interpretation. Pacific Gas & Electric Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 37, 69 Cal.Rptr. 561, 564, 442 P.2d 641, 645 (1968); see Commercial Paper Holders v. R. W. Hine (In re Beverly Hills Bancorp), 649 F.2d 1329, 1335 (9th Cir. 1981). This rule is applicable to the interpretation of pledge agreements falling within the ambit of article 9. See Neumeyer v. Union Bank, 43 Cal.App.3d 873, 118 Cal.Rptr. 116 (2d District 1974). The determination of whether the instrument is reasonably susceptible of the proffered interpretation is a question of law for the court. Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2d 866, 871 (9th Cir.), cert. denied, 444 U.S. 981, 100 S. Ct. 483, 62 L. Ed. 2d 407 (1979).

 The court concludes that the 1974 assignment is not reasonably susceptible of the interpretation urged upon the court by Mercantile. The record is devoid of any evidence suggesting that Elkee intended to assign the Cove collateral to secure the debts of Curtis, Whelan and Frankel to First State prior to the final assignment of the collateral in 1976. On the other hand, there is highly probative evidence indicating that in 1974 Elkee intended to assign the Cove collateral only to secure its own indebtedness to First State. In particular, the second assignment of the Cove collateral, which was effected through a formal assignment instrument executed by Elkee on January 17, 1975 and accepted by First State without protest, recites that Elkee, as the lawful holder of the Cove note, assigns it first to First State to secure a $ 280,000 indebtedness from Elkee to First State, and then to Drovers to secure Elkee's indebtedness to Drovers. *fn9" The fact that this document makes no mention of any loans to Curtis, Whelan, and Frankel cannot be reconciled with Mercantile's proffered interpretation of the 1974 assignment.

 Mercantile's assertion that the 1974 assignment gives rise to a material issue of fact is principally based upon letters from First State to Frankel and Mercantile Bank, upon the certificates of participation given to Mercantile Bank by First State, and upon a First State loan approval form, all of which indicate that the loans to Curtis, Whelan or Frankel were secured by the Cove collateral. *fn10" These documents were each dated after the January 17, 1975 assignment, i.e., after Elkee had again expressed in an unambiguous writing that the Cove collateral was pledged to First State only to secure Elkee's direct indebtedness to First State. In light of the repeated clear expressions of Elkee's intentions, and the acceptance without protest by First State of the instruments setting forth these intentions, the court holds that the documents subsequently prepared by First State do not make the 1974 assignment reasonably susceptible of the very strained interpretation that Mercantile urges upon the court. Accordingly, there are no issues of fact relevant to the interpretation of the 1974 assignment.

 III. The January 17, 1975 Assignment

 As stated above, on January 17, 1975, Elkee executed an instrument which assigned the Cove collateral first to First State to secure Elkee's indebtedness to First State in the principal amount of $ 280,000 and then to Drovers to secure Elkee's indebtedness to Drovers in the principal amount of $ 1,161,000. See note 9, supra. Following the execution of this instrument it is clear that the security interests in the Cove collateral purportedly created thereby attached in favor of both First State and Drovers under Cal.Com.Code § 9203. See p. 977 supra. *fn11" Mercantile argues that Mercantile Bank "in effect purchased" the secured loan of First State to Elkee by loaning Elkee funds which were used to repay Elkee's obligation to First State. Landmark argues that since Elkee's debt to First State was admittedly repaid by Elkee, Drovers thereupon acquired the senior security interest in the Cove collateral. Landmark further argues that Drovers' security interest in the Cove collateral was perfected, giving Drovers priority over all subsequent assignees of the Cove collateral. These contentions are analyzed below.

 A. Mercantile Bank's Purported Interest

 It is undisputed that on December 1, 1975, Mercantile Bank loaned Elkee $ 275,000 so that Elkee could repay its loan from First State, and that Elkee used these funds to repay the loan from First State. Mercantile asserts that First State agreed to assign its interest in the Cove collateral to Mercantile Bank to secure Mercantile Bank's loan to Elkee. Mercantile argues that through this transaction, Mercantile Bank in effect purchased Elkee's secured obligation to First State. Mercantile further argues that since Elkee never repaid its loan to Mercantile Bank, Mercantile has the senior claim to the Cove collateral.

 This argument is without merit. Under the U.C.C., a security interest is extinguished once the underlying secured obligation is paid in full. Bank of Lexington v. Jack Adams Aircraft Sales, Inc., 570 F.2d 1220, 1225 (5th Cir. 1978); Rozen v. North Carolina National Bank, 588 F.2d 83, 86 (4th Cir. 1978). Therefore, First State's security interest in the Cove collateral was extinguished, and Drovers obtained the senior security interest in the Cove collateral, once Elkee repaid its obligation to First State.

 B. Perfection of Drovers' Security Interest

 The Cove note and deed of trust constitute non-negotiable "instruments" within the meaning of Cal.Com.Code § 9105(1)(i). See note 7, supra (construing the identical provision set forth at N.Y.U.C.C. § 9-105(1)(i)). Under Cal.Com.Code § 9304(1), a security interest in such instruments can be perfected only by the secured party taking possession. Starr v. Bruce Farley Corp. (In re Bruce Farley Corp.), 612 F.2d 1197, 1199 (9th Cir. 1980); Huffman v. Wikle (In re Staff Mortgage and Investment Corp.), 550 F.2d 1228, 1230 (9th Cir. 1977). However, the secured party is considered to be in possession of the collateral if the collateral is actually possessed by a third person who is the secured party's agent or bailee. Cal.Com.Code § 9305; U.C.C. § 9-305, Official Comment 2. Where possession is effected through such a third person, the security interest becomes perfected when the third person receives notification of the secured party's interest. Id. *fn12"

 The application of these principles to the facts of the instant case indicates that whether Drovers had a perfected security interest in the Cove collateral turns on whether First State, as the party with the senior security interest in the Cove collateral, possessed the Cove collateral as the agent or bailee of Drovers within the meaning of § 9305. Where, as in the instant case, the senior secured party in possession of the collateral acknowledges and accepts the instructions of the pledgor to deliver the collateral to the junior secured party after the debt to the senior secured party is satisfied, *fn13" then the senior secured party is considered to possess the collateral as the agent or bailee of the junior secured party. See Gins v. Mauser Plumbing Supply Co., 148 F.2d 974, 977 (2d Cir. 1945); *fn14" cf. Winnett v. Inverness Counsel, Inc., No. 76 Civ. 3810 (S.D.N.Y. August 14, 1979), aff'd mem., No. 79-7577 (2d Cir. December 17, 1979) (junior security interest was not perfected where senior secured party in possession stated that it would not turn the collateral over to the junior pledgee absent instructions from the pledgor); Hale v. Kontaratos (In re Kontaratos), 10 B.R. 956 (Bkrtcy., D.Me.1981) (notification from the pledgor to the senior pledgee in possession of the collateral of the junior pledgee's interest is essential to the creation of a bailment sufficient to perfect the secondary pledge). Accordingly, Drovers had a perfected security interest in the Cove collateral following the execution of the January 17, 1975 assignment instrument by Elkee. As of that time, Drovers' security interest had attached and First State possessed the collateral as the agent or bailee of Drovers.

 IV. The March 1976 Assignment

 In March 1976, Elkee executed "special pledge agreements" purporting to assign the Cove collateral to First State and Mercantile Bank as security for the loans from First State to Messrs. Curtis, Whelan and Frankel. As the discussion above indicates, prior to that time Elkee's obligation to First State secured by the 1975 assignment had been repaid, extinguishing First State's security interest and leaving Drovers with a senior perfected security interest in the Cove collateral.

 The rights to the Cove collateral acquired by Mercantile and First State under the 1976 assignment as against Drovers are governed by the applicable rule determining priority among conflicting security interests. This rule is given by Cal.Com.Code § 9312(5)(a) which provides in pertinent part: "Conflicting security interests rank according to priority in time of filing or perfection." Therefore, even if the court assumes that Mercantile and First State acquired perfected security interests in the Cove collateral as a result of the 1976 assignment, this interest would be junior to the interest possessed by Drovers.

 V. Subsequent Transfers of the Cove Collateral

 FDIC-Drovers, the successor in interest to Drovers' perfected security interest in the Cove collateral, sold the Cove collateral to Landmark in June 1979, after Elkee defaulted on the underlying obligation of Elkee to Drovers. Landmark argues that any subordinate security interests in the Cove collateral held by Mercantile were discharged as a result of this sale. The applicable rule of law is given by Cal.Com.Code § 9504(4) which provides:

 

When collateral is disposed of by a secured party after default, the disposition transfers to a purchaser for value all of the debtor's rights therein, discharges the security interest under which it is made and any security interest or lien subordinate thereto. The purchaser takes free of all such rights and interest even though the secured party fails to comply with the requirements of this chapter or of any judicial proceedings.

 

(a) In the case of a public sale, if the purchaser has no knowledge of any defects in the sale and if he does not buy in collusion with the secured party, other bidders or the person conducting the sale; or

 

(b) In any other case, if the purchaser acts in good faith.

 The collateral was disposed of through a non-public sale. *fn15" Therefore, all subordinate security interests in the Cove collateral were discharged as a result of the sale, and Landmark is the sole owner of all right, title and interest in the Cove collateral irrespective of whether FDIC-Drovers complied with the relevant article 9 requirements, provided that Landmark acted in good faith in connection with the purchase.

 The record establishes that there is no genuine issue of fact with respect to Landmark's good faith in connection with the purchase of the Cove collateral from FDIC-Drovers. The record reflects that the terms of sale were arrived at pursuant to negotiations between FDIC-Drovers and Landmark, and the sale was authorized by a resolution of the Board of Directors of the FDIC. Mercantile's only contention that bears upon Landmark's conduct in connection with the sale from FDIC-Drovers is that at the time of the sale, Landmark had knowledge of the claims of Mercantile against the Cove collateral. However, the good faith requirement of § 9504(4)(b) does not require that the purchaser of the collateral lack knowledge of any pre-existing subordinate claims against the collateral. Northwest Equipment Sales Co. v. Western Packers, Inc., 623 F.2d 92, 95 (9th Cir. 1980) (construing Idaho's identical statutory provision set forth at Idaho Code § 28-9-504(4)). Mercantile's contentions are not relevant to the good faith of Landmark in connection with the sale, and therefore do not give rise to any genuine issues of material fact.

 Accordingly, the record establishes that as a matter of law, Landmark was the sole owner of the Cove collateral following Landmark's purchase of the collateral in June 1979 from FDIC-Drovers.

 Conclusion

 For the reasons set forth above, Landmark's motion for partial summary judgment pursuant to Rule 56, Fed.R.Civ.P. is granted. The court hereby declares that Landmark is the sole owner of the Cove collateral, and that all other interests in the Cove collateral have been extinguished. Submit order on 5 days' notice.

 So Ordered.


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