# Petition for Writ of Certiorari — Ideco Division of Dresser Industries, Inc. v. Crocker National Bank > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1226%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1990 - **Citation:** 495 U.S. 919 ## Text THE Supreme Court af the United States OCTOBER TERM, 1989 IDECO DIVISION OF DRESSER INDUSTRIES, INC., Petitioner, a CROCKER NATIONAL BANK AND T. O. S. INDUSTRIES, INC., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT ROBERT HAYDEN BURNS JAMES R. O’DONNELL KEVIN F. RISLEY JEANNETTE MCALLISTER BUTLER & BINION 1600 First Interstate Bank Plaza Houston, Texas 77002 (713) 237-3269 Attorneys for Petitioner Alpha Law Brief Co., Inc. — 8748 Westpark — Houston, Texas 77063 — 789-2000 QUESTIONS PRESENTED If a District Court assumes certain disputed facts adversely to the defendant in order to enter a sum- mary judgment for the defendant, does the action of the Court of Appeals in reversing and remanding for the entry of judgment in favor of the plaintiff, without allowing for further fact-finding on the as- sumed issues, deprive the defendant of due process of law? If a District Court assumes certain disputed facts adversely to the defendant in order to enter a sum- mary judgment for the defendant. does the action of the Court of Appeals in reversing and remanding fer the entry of judgment in favor of the plaintiff, without allowing for further fact-finding on the as- sumed issues, violate the defendant’s right to trial by jury? In reviewing a summary judgment, to what degree can the Court of Appeals examine the evidence to make factual findings that were not addressed by the District Court rather than remand the case further for proceedings in the District Court? Can a Court of Appeals make factual findings that are contrary to the judicial admissions of the plaintiff in order to reverse a summary judgment in favor of the defendant granted by the trial court and remand the case for the entry of judgment in favor of the plaintiff? Il _— TABLE OF CONTENTS Page GUESS PRESEN EEE) cccsecscccccsedscceveuses I PE RO CEU CEURMCE UD ons. oh ne cewensaceys eR III ERIE hash as cosa dos cuwnwewwus ceerears 2 piy 2 oy 2 a Pa a RRR ence Ue Se 2 EP E tee REO W VEE pene X05 65504 4 bOnGweERe eee 2 DEASEEIN ED We Bee CRG occ sisccsew save senses 2 REASONS FOR GRANTING THE WRIT ............. 5 CAO Coy aos sda dade s ee siee cee ee yaya 12 III TABLE OF AUTHORITIES CASES Page Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L.Ed.2d OE OED ice ese ss cecetiveecss 9 Avia Group International, Ltd. v. L. A. Gear California, eS.) 9,10 Celotex Corp. v. Catrett, 477 U.S. 317, 91 L.Ed.2d 265, acces ewes bese ersedensess 5,9, 10 Donahue v. Windor Locks Board of Fire Commissioners, 8 6 Fidelity & Deposit Co. v. United States, 187 U.S. 315, 47 REED CRED oo ccs cece eens vesences 11 Hill v. McDermott, Inc., 827 F.2d 1040 (Sth Cir. 1987, cert. denied, US. _, 98 L.Ed.2d 1014, 108 S. Ct. I 11 Houghton v. Foremost Financial Services Corp., 724 F.2d Nea vc wins hav ve veer eesees 6 Matsushita Electrical Indusirial Co. v. Zenith Radio Corp., 475 U.S. 57, 89 L.Ed.2d 538, 106 S. Ct. 1348 (1986) .. 6 McKenzie v. Davenport-Harris Funeral Home, 834 F.2d oi eee as esac sso sev essseccves 6 Prineville Sawmill Co., Inc. v. United States, 859 F.2d 905 ES 6 Radobenko v .Automated Equipment Corp., 520 F.2d 540 ee eG tees cceetcr eee dccssese 6 Schwabenbauer v. Board of Education, 667 F.2d 305 (2nd Sea sd aeeuveevegerveenessess 6 RULES AND STATUTES Ie ues yee eereceveeesseccecer 2 ecw ha acs eacceeccvereeseeces 2 TE do sete esse veer vecesens 5,6, 8, 10, 12, 13 Sav cae ncevecccrsesereceers 3 ley yo away ees ce vaca scenes 6 eee echses cer veces csccens 7 ay ewe wcccceersstcesecees 7 OTHER Currie, Thoughts on Directed Verdicts and Summary Judg- eer ee a ee, 72 CE9TT) 2. cc cece ees 10 Schwarzer, Summary Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99 F.R.D. On 10 The Supreme Court—Leading Cases, 100 Harv. L. Rev. ee aa se thk ees veevegiecsscere 10 NO. 90- IN THE Supreme Court of the Hnited States OCTOBER TERM, 1989 IDECO DIVISION OF DRESSER INDUSTRIES, INC., Petitioner, V. CROCKER NATIONAL BANK AND T. O. S. INDUSTRIES, INC., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT Petitioner Ideco Division of Dresser Industries, Inc. (“Ideco”)’ files this Petition for Writ of Certiorari to the United States Court of Appeals for the Fifth Circuit and asks this Court to vacate the judgment and enter judg- ment for the Petitioner or, alternatively, to remand the case to the trial court for further proceedings. 1. Pursuant to Sup. Ct. R. 28.1, a listing of the non-wholly owned subsidiaries and affiliates of Dresser Industries, Inc. is in- cluded in Appendix J. 2 OPINIONS BELOW The decisions of the Court of Appeals are reported at 889 F.2d 1432 (App. A) and 839 F.2d 1104 (App. C). The decisions of the district court are reported at 702 F.Supp. 615 (App: B) and 660 F.Supp. 186 (App. D). JURISDICTION The United States Court of Appeals entered an order on November 29, 1989, reversing the decision of the trial court and remanding for the entry of judgment (App. E). A timely motion for rehearing was filed by Ideco and overruled on January 11, 1990 (App. F). This Court’s jurisdiction is invoked under 28 U.S.C. § 1241(:). Jurisdiction in the District Court was based on 28 U.S.C. § 1332(a). STATUTES INVOLVED This petition involves the fifth and seventh amendments to the United States Constitution and Fed. R. Civ. P. 56(c). Copies are reproduced in Appendix I. STATEMENT OF THE CASE Respondent Crocker National Bank (“Crocker”) filed this action alleging that Ideco converted certain collateral owned by T.O.S. Industries, Inc. (“TOS”) in which Crocker claimed a security interest. The Original Com- plaint filed by Crocker, in which TOS intervened, iden- tified six drilling rigs and related component parts, in- cluding 18 engine packages (App. G). Following dis- covery, the District Court granted Ideco’s motion for summary judgment (App. D). The trial court held that 3 (1) Ideco retained a security interest in the rigs that was perfected by Ideco’s possession of the rigs and that was superior to Crocker’s security interest in the after acquired inventory of TOS, and (2) Ideco’s recovery of the engine packages from a third party who was the bailee of TOS was proper under § 2.703 of the Uniform Commercial Code (“U.C.C.”). In making its ruling, the court assumed there was a contract for the sale of the rigs and engines between Ideco and TOS and that the rigs and engines constituted inventory of TOS. On appeal from that decision, the Fifth Circuit affirmed the judgment on the rigs holding that, since the rigs were never delivered, TOS did not have sufficient rights in the rigs for the Crocker security interest to attach, and agreeing that Ideco had a perfected possessory purchase money security interest in the rigs superior to any se- curity interest claimed by Crocker (App. C). As to the engines, the Court remanded because of a lack of evidence as to the relationship between TOS and Continental Drill- ing Company (“Continental”), a third party to whom the engines were apparently delivered. On remand, upon leave of court, Crocker filed an amended complaint. Crocker abandoned its claims with regard to the original rigs and engines and asserted in- stead that Ideco had converted thirteen completely dif- ferent engines (App. H). A comparison of the serial numbers and the invoices described in the original and amended complaint establish that the thirteen engines described in the amended complaint are not the same engines that were the subject of the original complaint and first appeal. The amended complaint alleged that TOS sold the thirteen engines to Continental. 4 The parties then filed cross-motions for summary judg- ment. After a hearing, the trial court again granted Ideco’s motion for summary judgment on three separate grounds, including that the engines were never in the possession of TOS because the engines were delivered to Continental pursuant to the sale to Continental (App. B). Crocker’s motion for summary judgment admitted such a sale and incorporated the invoices from TOS to Continental. No proof that Ideco had retaken possession of the thirteen engines was offered in support of Crocker’s motion. That proof would have been necessary to establish a conversion of the engines by Ideco. Crocker filed a second appeal, and this time the Fifth Circuit reversed and remanded in favor of Crocker (App. A). It is clear that the Fifth Circuit did not distinguish between the thirteen engines that were the subject of the second appeal and the eighteen engines that were the subject of the first appeal. The reversal was based upon “a different view of the transaction than . the district court.” 889 F.2d at 1453. Despite the judicial admissions and uncontroverted evidence, the Fifth Circuit concluded that there had been no sale of the engines from TOS to Continental. This decision was based upon an unfounded factual! determination that TOS was the party that returned the engines to Ideco. The only evidence in the record was that the eighteen engines, those that were not before the court, had been returned to Ideco by Continental. There was no evidence that the thirteen engines had been returned to Ideco by any party. The Fifth Circuit entered judgment reversing the trial court’s judgment and remanding the case for further proceedings consistent with its opinion (App. E). 5 In its opinion, the Fifth Circuit supplemented the trial court as the finder of fact. It ignored uncontroverted evidence and judicial admissions by Crocker to find certain facts adverse to Ideco. The Fifth Circuit also took as true certain facts that had been assumed adversely by the District Court to Ideco to support its judgment without any examination of the evidence relating to those facts. By engaging in such a broad factual review of the case, the Fifth Circuit greatly exceeded the scope of review available to a court of appeals reviewing a grant of summary judgment. The decision of the Fifth Circuit also denied Ideco its right to trial by jury under the Seventh Amendment to the United States Constitution and the right to due process under the Fifth Amendment. REASONS FOR GRANTING THE WRIT In Celotex Corp. v. Catrett, 477 U.S. 317, 327, 91 L.Ed.2d 265, 106 S.Ct. 2548 (1986), this Court empha- sized the importance of summary judgment proceedings in the federal system: Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole. Fed. R. Civ. P. 56 is to be construed not only with regard to the rights of persons seeking a summary judgment, but also for those parties opposing claims and defenses. Jd. The standard embodied in Rule 56, that summary judg- ment can be granted only when there is “no genuine issue as to any material fact,” means that a summary judgment is proper only when the record taken as a whole could 6 not lead a rational trier of fact to find for the non-moving party. Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S..574, 587, 89 L.Ed.2d 538, 106 S. Ct. 1348 (1986). In its haste to dispose of this old case, the Fifth Circuit ignored the proper standard of review from a grant of summary judgment. A reviewing court cannot resolve issues of fact or resolve credibility disputes, but may only determine whether the moving party has established its case aS a matter of law. McKenzie v. Davenport-Harris Funeral Home, 834 F.2d 930 (11th Cir. 1987); Donahue v. Windor Locks Board of Fire Commissioners, 834 F.2d 54 (2d Cir. 1987); Radobenko v. Automated Equip- ment Corp., 520 F.2d 540 (9th Cir. 1975). And even though the parties filed cross-motions, summary judgment is not proper for either party unless that party satisfies the requirements of Rule 56. Prineville Sawmill Co., Inc. v. United States, 859 F.2d 905, 911 (Fed. Cir. 1988); Houghton v. Foremost Financial Services Corp., 724 F.2d 112, 114 (10th Cir. 1983): Schwabenbauer v. Board of Education, 667 F.2d 305, 313-i4 (2nd Cir. 1981). The most glaring example of fact-finding by the Court of Appeals related to the question of whether there was a sale of the engines from TOS to Continental. Ideco has always denied the formation of a contract for the sale of the engines from Ideco to TOS. Without such a sale TOS would not have had sufficient rights in the collateral to allow Crocker’s security interest to attach to the goods. See, U.C.C. § 9.204. In granting Ideco’s motions, the District Court assumed all disputed or potentially dis- puted facts in favor of Crocker and assumed that a sale to TOS had occurred, but found Ideco’s security interest 7 to be superior to Crocker. In its amended complaint, TOS claimed not only that it had purchased the engines from Ideco, but that it resold them to Continental. The resale was crucial because that terminated Crocker’s security interest under U.C.C. §§ 9.306 and 9.307. Despite all of this, the Court of Appeals found that no sale from TOS to Continental had ocurred. This factual determination was clearly erroneous for three reasons. First, it was contrary to the judicial admission of Crocker that such a sale had occurred.’ Second, it was based on a subsidiary factual determina- tion that TOS had returned the engines to Ideco. This finding was clearly wrong because the only evidence on this point was an affidavit from Ideco stating that it was Continental that had relinquished possession of the eighteen engines, there was no evidence that Ideco ever regained possession of the thirteen engines. Third, the Crocker motion incorporated both the Ideco invoices to TOS and the TOS invoices to Continental relating to the thirteen engines. The two sets of invoices were the only evidence of either transaction, and Ideco consistently denied that any sale to TOS had occurred, while TOS only blatantly denied completion of its sale tc Continental. The two sets contained identical delivery terms and payment terms. The Ideco invoices sent to TOS were attached to and incorporated in the invoices TOS sent to Continental. There was only one delivery of the 2. Crocker’s summary judgment states “TOS sold and invoiced the Caterpillar Engines in place to Continental pursuant .. .” The affidavit of Richard Ramirez, a TOS officer, in support of the motion repeatedly referred to Continental as “TOS’s [sic] customer and subpurchaser of the same . . . Caterpillar Engines. . . .” 8 engines, and that was to the address specified in the TOS invoices to Continental. The Fifth Circuit accepted, with- out question, the District Court’s asumption that a sale from Ideco to TOS had occurred, but still made a factual finding that no sale from TOS to Continental had oc- curred. This inconsistent result is logically impossible: either two sales occurred or no sales occurred. Given the identical evidence on the two transactions, the Court of Appeals could not assume the first sale and find as a mat- ter of fact that the second sale had not occurred. The Court’s lapse concerning t‘1e existence of the sale creates two problems. First, a Court of Appeals cannot, consistently with Rule 56, assume any facts adversely to a party before rendering a judgment against a party. Second, the assumption that an Ideco-TOS sale had been made by the District Court in connection with the eigh- teen engines described in the original complaint, but no such assumption was ever made about the thirteen engines set forth in the amended complaint. The Court of Appeals made no effort to review the evidence on the issue of the Ideco-TOS transaction,-which was a fact Crocker had to establish to show that TOS had rights in the collateral to which Crocker’s security interest could attach. The existence of a sale was not the only fact assumed by the Court of Appeals. Ideco always contested the factual issue of whether Crocker’s security interest in inventory extended to items like the engines. The District Court assumed that issue adversely to Ideco in connection with the_original eighteen engines. Neither the District Court nor the Court of Appeals gave any consideration to whether the thirteen engines were part of TOS’s in- ventory, and the delivery to the F.O.B. address on the 9 TOS invoices to Continental strongly suggests that the engines were never in the possession of TOS even if the engines would have constituted inventory subject to Crocker’s security interest. The District Court did not need to reach this issue in entering the judgment in favor of Ideco, but the Court of Appeals assumed the applica- bility of the security interest. The Court of Appeals undertook independent fact- finding in at least one other instance when it “found” that the thirteen rigs had been returned to Ideco by TOS. There is no evidence from any party that those engines were ever returned to Ideco. The Fifth Circuit’s finding on this point is unfounded and a further usurpation of the province of the finder of fact. A Court of Appeals should not dispose of a lawsuit by making determinations of contested facts when review- ing a summary judgment. That is precisely what the Fifth Circuit did in this case when it assumed disputed facts adversely to Ideco and made findings of other facts ad- versely to Ideco when the record either was without evi- dence on that fact, contained disputed evidence of the fact, or conclusively established the fact in favor of Ideco. By acting as a fact finder and by assuming other facts in dispute, the Fifth Circuit exceeded its authority and com- pletely undercut the purpose and justification that under- lies the availability of summary judgment proceedings. The Fifth Circuit’s haste to force a judgment might be explained by this Court’s decisions in Celotex Corp. v. Catrett, supra, and Anderson vy. Liberty Lobby, Inc., 477 U.S. 242, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986), both of which have been interpreted as encouraging the ex- panded use of summary proceedings. See, Avia Group 10 International, Ltd. v. L. A. Gear California, 853 F.2d 1557, 1560 (Fed. Cir. 1988); Comment, The Supreme Court - Leading Cases, 100 Harv. L. Rey. 100, 250, 252 (1986). These decisions were an attempt to resolve the confusion and distrust of summary judgments that had evolved since Rule 56 was adopted in 1938. See, Schwar- zer, Summary Judgment Under the Federal Rules: Defin- ing Genuine Issues of Material Fact, 99 F.R.D. 465 (1984); Currie, Thoughts on Directed Verdicts and Sum- mary Judgments, 45 U. Chi. L. Rev. 72, 76-78 (1977). If District Courts and courts of appeal are to be en- couraged to utilize summary proceedings more often, the role of an appeals court in reviewing a grant of sum- mary judgment, especially in the context of cross-motions filed in the District Court, takes on an increased import- ance in the orderly and efficient administration of the federal courts. If summary judgment is to be perceived as a legitimate and proper means of resolution and not as a “disfavored procedural shortcut,” Celotex Corp. v. Catrett, supra, 477 U.S. at 327, Rule 56 must be applied with due regard for the procedural and substantive rights of all litigants. The case at bar is proof that summary judgment practice has not reached that level. The improper review of the summary judgment by the Court of Appeals raises two constitutional issues. Because a timely jury demand had been made in this case, Ideco was entitled to a trial by jury on all disputed fact issues.° Although Ideco does not dispute that a proper grant of Summary judgment does not violate the seventh amend- 3. After the District Court had stated its intention to enter judg- ment for Ideco, the parties waived the right to trial by jury on the damage issue only. 11 ment, Fidelity & Deposit Co. v. United States, 187 U.S. 315, 319-21, 47 L.Ed. 194, 23 S. Ct. 120 (1902), it is equall undisputed that a grant of summary judgment in a “suit at law with disputed issues of material fact does deny a party the right to trial by jury. By acting as a finder of fact in this case, the Fifth Circuit denied Ideco its seventh amendment right to a trial by jury. Granting summary judgment against Ideco based upon the assumption of facts adversely to Ideco and by ignoring uncontested evidence in favor of Ideco also constitutes a denial of due process of law. A summary judgment reached in accordance with the requirements of Rule 56 provides procedural due process. Hill v. McDermott, Inc., 827 F.2d 1040, 1044 (Sth Cir. 1987, cert. denied, U.S.___, 98 L.Ed.2d 1014, 108 S.Ct. 1052 (1988). But when a Court of Appeals undertakes to act as an arbiter of facts in reviewing a summary judgment, the procedural safeguards of Rule 56 are destroyed and the party against whom the facts are found is denied both the procedural and the substantive due process required by the fifth amendment. An additional ground justifying review of the case at bar is that the Fifth Circuit ignored the judicial admis- sions of Crocker in order to order the entry of judgment in Crocker’s favor. In both its amended complaint and its summary judgment motion, Crocker asserted that it had resold the thirteen engines to Continental. Had that resale ocurred, any security Crocker might have had in the engines would have terminated. The Court of Appeals found, however, as a matter of fact, that no sale of the engines to Continental had occurred. 12 The intent of notice pleading is destroyed if a Court of Appeals can ignore a party’s pleadings to make factual determinations outside the pleadings. A party’s pleadings must serve as an admission against that party that defines the issues and limits the proof that can be offered by that party. Once a party admits that an event ocurred, as Crocker admitted the resale of the engines to Continental in its pleadings, a court must accept those admissions against the party that made them. If a Court of Appeals is allowed to find facts in favor of a party that are directly contrary to the judicially admitted facts offered by the party, pleadings wholly fail to serve their intended purpose. A defending party can no longer be content to disprove an element of the plain- tiffs case and receive a summary judgment if a Court of Appeals is free to redefine the issues by making factual findings outside the scope of the pleadings. In the instant case, the Fifth Circuit did just that to grant a summary judgment to Crocker that was not supported by Crocker’s own pleadings. This Court should exercise review of this case to determine the extent that a reviewing court can find facts in favor of a party that are contrary to the pleaded admissions of that party. CONCLUSION The use and review of summary judgment proceedings has a history of distrust and disfavor in the federal courts. Recent attempts have been made to expand the use of the summary procedures established in Rule 56, but fair and efficient use of Rule 56 will never exist until the courts of appeal limit their review of summary judgments to questions concerning the existence of disputed material 13 facts. The case at bar presents a stark example of a re- viewing court that ignored contested facts, undisputed facts, and judicial admissions and substituted its own view of the underlying facts to order judgment when Crocker clearly had not met its burden. The decision of the Fifth Circuit should be reversed and the case remanded for further review of the District Court’s grant of summary judgment in favor of Ideco consistent with the purposes and limits of Rule 56. Respectfully submitted, BUTLER & BINION ROBERT HAYDEN BuRNS JAMES R. O’DONNELL KEVIN F. RISLEY JEANNETTE MCALLISTER 1600 First Interstate Bank Plaza Houston, Texas 77002-5008 (713) 237-3269 Attorneys for Petitioner Ideco Division of Dresser Industries, Inc. 14 CERTIFICATE OF SERVICE I certify that three copies of this Petition for A Writ of Certiorari to the United States Court of Appeals for the Fifth Circuit have been sent by certified mail, return receipt requested, to Mr. Tim S. Leonard, Kirklin & Boudreaux. 1800 InterFirst Plaza, Houston, Texas 77002, on this _ day of March, 1990. JAMES R. O'DONNELL APPENDIX A CROCKER NATIONAL BANK, Plaintiff-Appellant, Cross-Appellee, and T.O.S. Industries, Inc., d/b/a Texas Oilfield Supply, Intervenor-Appellant, Cross-Appellee, V. IDECO DIVISION OF DRESSER INDUSTRIES, INC., Defendant-Appellee, Cross-Appellant. No. 89-2149, United States Court of Appeals, Fifth Circuit. Nov. 29, 1989. Creditor with security interest in debtor’s inventory brought action against seller of inventory to debtor to determine priority of their respective interests in inventory. The District Court, 660 F.Supp. 186, granted summary judgment for seller, and creditor appealed. The Court of Appeals, 839 F.2d 1104, affirmed and remanded. The United States District Court for the Southern District of Texas, Lynn N. Hughes, J., 702 F.Supp. 615, again held for seller, and creditor again appealed. The Court of Appeals held that debtor’s return of inventory to unpaid Seller did not extinguish creditor’s security interest in such after-acquired inventory. Reversed and remanded. A-2 Tim S. Leonard, David Scott Curcio, Kirklin & Boud- reaux, Houston, Tex., for defendant-appellee, cross-ap- pellant. James R. O'Donnell, Kevin F. Risley, Jeannette M. McAllister, Butler & Binion, Houston, Tex., for plaintiff- appellant, cross-appellee. Appeals from the United States District Court for the Southern District of Texas. Before WISDOM, JOHNSON and HIGGINBOTHAM, Circuit Judges. PER CURIAM: This diversity case presents the question whether under the Texas U.C.C. a sale of a debtor’s inventory has oc- curred when (1) the alleged buyer is an affiliate of the debtor, (2) the debtor takes delivery of the inventory from its seller at a facility it shares with the affiliate, (3) the debtor never pays its seller and the affiliate never pays the debtor, and (4) the debtor later transfers the inventory back to its seller in exchange for a release. We must resolve this question in order to determine whether the debtor’s secured party here has priority over the unpaid seller with respect to the inventory. We also must determine whether the transfer back to the seller extinguished the security interest. Crocker National Bank, the secured party, and T.O.S. Industries, the debtor, approve the district court’s judg- ment that Crocker was not entitled to recover the value of certain engines subject to their security agreement. T.O.S. transferred the engines back to the seller, Ideco Division of Dresser Industries. We reverse the judgment of the district court and render judgment for Crocker a ee A-3 On its conversion claim against Ideco. The district court found the value of the engines to be $1,332,340.00. We reject Ideco’s argument that this finding was Clearly erroneous. I T.O.S. Industries was a supplier of oil field equipment. Crocker National Bank perfected a security interest under Article 9 of the Texas Uniform Commercial Code in all of T.O.S.’s after-acquired inventory. Later, Ideco agreed to sell T.O.S. some drilling rigs and engines, which T.O.S. in turn planned to sell to its affiliate, Continental Drilling Company. T.O.S. later in- formed Ideco it did not need the rigs. Ideco delivered the engines to a facility in Owentown, Texas jointly owned by T.O.S. and Continental. The facility was identified in the Crocker-T.O.S. security agreement as a location of T.O.S.’s inventory. The shipment papers indicated the shipment was to Continental, but Ideco sent the invoices to T.O.S. T.O.S. in turn sent invoices to Continental. T.O.S. did not pay Ideco for the engines or the rigs, and Continental never paid T.O.S. for them. T.O.S.’s financial fortunes were declining, so it made a massive transfer of its inventory to its creditors. At the same time. the engines were transferred back to Ideco, and Ideco gave T.O.S. credit memoranda and a release from its obligation. Crocker, which had not specifically approved either T.O.S.’s proposed sale to Continental or the transfer of the engines back to Ideco, filed a complaint in conversion against Ideco in the district court. Crocker sought to recover the value of the engines and the rigs, claiming its security interest had priority over Ideco’s interest as an unpaid seller. T.O.S. intervened as debtor in possession, A-4 seeking to avoid the transfer to Ideco pursuant to 11 U.S.C. § 547(b). The district court granted summary judgment on all the claims in favor of Ideco, and Crocker and T.O.S. appealed. We affirmed the summary judgment only with regard to the rigs, and remanded the case to the district court to determine whether Ideco retained a possessory interest in the engines superior to Crocker’s security interest. Crocker National Bank v. Ideco Division of Dresser Industries, 839 F.2d 1104 (Sth Cir. 1988). On remand, the district court rendered judgment in favor of Ideco, even though it found Ideco surrendered its possessory interest when it delivered the engines to the Owentown facility. The court gave several alternative grounds to support its decision. First, it concluded that [deco delivered the engines to Continental, so T.O.S. never had possession and Crocker’s security interest never attached. Second, the court held that even if T.O.S. had possession, Crocker’s security interest was extinguished when T.O.S. returned the engines to Ideco. Third, the court held that if Continental held the engines as Ideco’s bailee, Ideco properly exercised its rights as bailor by stopping the delivery from Continental to T.O.S. Crocker National Bank v. Ideco Division of Dresser Industries, 702 F.Supp. 615, 616-17 (S.D. Tex. 1988). Crocker and T.O.S. again appealed.’ II We take a different view of the transaction than did the district court. We hold that the district court’s finding that the engines were delivered to Continental instead 1. T.O.S. does not press its claims under 11 U.S.C. § 547(b) on this appeal. It merely adopts Crocker’s arguments A-5 of T.O.S. was clearly erroneous, as was its alternative holding that Continental took delivery as bailee. Ideco’s contract was with T.O.S. and it sent its invoices to T.O.S. T.O.S. stored its inventory at the Owentown facility. When the engines were returned, T.O.S., not Continental, received the credit memoranda and the release. We are thus persuaded T.O.S., not Continental, returned them. The shipping papers merely reflected T.O.S.’s plan that Continental would have use of the engines. Under this view. Crocker’s security interest in the engines attached when they were delivered to Owentown. Tex. Bus. & Comm. Code Ann. § 9.203 (West Supp. 1989). Crocker’s right to the engines as holder of a perfected security interest was superior to Ideco’s claim as an unpaid seller no longer in possession. Matter of Samuels & Co., 526 F.2d 1238 (Sth Cir.), cert. denied, 429 U.S. 834, 97 S. Ct. 98, 50 L.Ed.2d 99 (1976); Villa v. Alvarado State Bank, 611 S.W.2d 483- (Tex. Civ. App.—Waco 1981, no writ). Ideco does not challenge the district court’s holding that it surrendered its possessory interest at the time of delivery. Instead, Ideco argues that T.O.S.’s alleged sale to Con- tinental or its return of the engines to Ideco or both, were sales authorized by the security agreement that extinguished Crocker’s security interest under § 9.306(b). The security agreement authorized T.O.S. to sell the col- lateral in the ordinary course of its business. We are not persuaded that either transaction was suf- ficient to extinguish Crocker’s security interest. There was insufficient evidence of a sale between T.O.S. and Con- tinental. The Code defines a sale as the passing of title from a seller to a buyer for a price. Tex. Bus. & Comm. A-6 Code Ann. § 2.106 (Vernon 1968). The engines were delivered to T.O.S. at Owentown and they were never moved. Continental never paid for them. The only evi- dence of a sale was the set of invoices T.O.S. sent to Continental, and the notation on Ideco’s shipping docu- ments that indicated delivery was to be made to Conti- nental. This is not fatally inconsistent with there being a sale. See Tex. Bus. & Comm. Code Ann. § 2.401(c) (providing that unless the parties otherwise agree, where delivery is to be made without moving the goods, the goods are already identified to the contract, and no docu- ments of title are to be delivered, title passes at the time and place of contracting). But T.O.S. transferred the engines back to Ideco. It could only have done that if it had title. This evidence persuades us that title never passed from T.O.S. to Continental. Finally, the transfer of the engines back to Ideco was not in the ordinary course of T.O.S.’s business. The par- ties agree that the U.C.C. and the security agreement definition of sales in the ordinary course of business are the same. Section 1.201(9) excludes from the definition of “buyer in ordinary course of business” one who re- ceives the property “in total or partial satisfaction of a money debt.” Ideco received the engines in satisfaction of the money debt T.O.S. owed, so this sale does not qualify. See Chrysler Credit Corperation v. Malone, 502 S.W.2d 910 (Tex. Civ. App.—Fort Worth 1974). Therefore, we reverse the judgment of the district court and remand to the district court for entry of judgment for Crocker. Compensatory damages for conversion in Texas are measured by the market value of the property at the place and on the day of the conversion. Branham A-7 v. Prewitt, 636 S.W.2d 507 (Tex. App.—San Antonio 1982), writ ref'd, n.r.e. 643 S.W.2d 122 (Tex. 1983): Hupp v. Brownsville Shipyard, Inc., 515 F.Supp. 546 (S.D. Tex. 1981). The district court valued the engines at $1,332.340.00 on the date they were sent back to Ideco. It made this determination based on the invoices Ideco sent T.O.S. and on testimony that this figure represented the value of the engines on the date of the transfer. There was contrary evidence but we do not find the district court’s determination to be clearly erroneous. REVERSED and REMANDED. APPENDIX B CROCKER NATIONAL BANK, Plaintiff, Vv. IDECO DIVISION OF DRESSER INDUSTRIES, INC., Defendant. Civ. A. No. H-83-2988. United States District Court. S.D. Texas, Houston Division. Dec. 29, 1988. Creditor with security interest in after-acquired inven- tory of buyer of drilling rigs and diesel engines brought action against seller, after buyer petitioned for bankruptcy relief, to determine relative priority of security interest. The District Court, 660 F.Supp. 186, granted summary judgment for seller, and creditor appealed. The Court of Appeals, 839 F.2d 1104, affirmed judgment and remand- ed in part. On remand, the District Court, Hughes, J., held that: (1) buyer never had possession of engines to allow creditor’s security interest to attach; (2) assuming that buyer had actual possession of engines, any interest creditor had terminated at return of engines to seller; and (3) seller correctly intercepted delivery of engines to bailee when buyer informed seller that it was impecunious. So ordered. B-2 Tim Leonard, Houston, Tex., for plaintiff. James R. O'Donnell, Houston, Tex., for defendant. MEMORANDUM ON SUMMARY JUDGMENT HUGHES, District Judge. This court previously granted summary judgment in favor of Ideco Division of Dresser Industries, holding that its pOssessory security interest prevailed over the security interest of Crocker National Bank in drilling rigs and in several Caterpillar diesel engines. On appeal, this court’s judgment was affirmed on the drilling rigs, and it was remanded on the engines. Crocker Nat'l Bank v. Ideco Div., 839 F.2d 1104 (Sth Cir. 1988). The court of appeals ruled that it was necessary to determine the relationship of Continental Drilling Company to the par- ties in this litigation specifically about the engines be- cause the crucial issue was whether Ideco retained pos- session. Crocker’s security interest in T.O.S. inventory does not attach to the engines. First, the engines were never in the possession of T.O.S. Second, if Crocker had a security interest in the engines, the interest terminated when the engines were returned for full credit to the original vendor. Last, if Continental acted as a bailee at the time the contract was repudiated, Ideco had never relinquished possession of the engines to T.O.S. Accordingly, Ideco’s motion for summary judgment will be granted. Facis. Crocker National Bank was the holder of a security interest in all of T.O.S.’s inventory wherever located, accounts receivable, general intangibles, and returned B-3 goods. Ideco is the unpaid seller of the engines sold to T.O.S. Ideco invoiced T.O.S. on 30-day terms, noting a tax exempt sale for resale. Simultaneously, T.O.S. in- voiced its customer Continental for the engines. In De- cember 1981, Ideco shipped the engines directly to Con- tinental at a storage facility used jointly by T.O.S. and Continental. The engines remained at the storage facility until July 1982, when Ideco issued credit memoranda, executed a mutual release of contract with T.O.S., and retook pos- session of the engines. Possession and Placement. [1] According to Ideco’s invoice, which also was in- corporated into T.O.S.’s invoice to Continental, the en- gines were shipped to Continental Drilling Company at Highway 155 North, Tyler, Texas. The actual delivery of the engines was to Continental, not to TOS: TASS. did not have possession of the engines to allow Crocker’s security interest to attach. The engines were never a part of T.O.S.’s inventory. The engines were shipped to Continental at a storage facility used jointly by T.O.S. and Continental. The de- livery of the engines to a dual capacity yard does not produce a possessory interest in T.O.S. to which Crocker’s security interest can attach. Return. [2] Assuming T.O.S. had actual possession of the engines, making them a part of T.O.S.’s inventory, the security interest still does not subsist. The security and loan agreement states that all of T.O.S.’s inventory is to B-4 be stored at specific locations and that T.O.S. will not, without first obtaining Crocker’s written consent, remove the inventory from that location except for the purposes of sale in the regular course of its business. The return to the original vendor of the engines for full credit is a sale or exchange in the ordinary course of business. T.O.S. did not need Crocker’s consent to return the engines to the original vendor for full credit. The exchange of the engines for full credit was authorized by the Crocker security agreement because the return of the engines was in the ordinary course of business. Inventory adjustment is a normal business operation which has only minimal potential for abuse to the detriment of the in- dividual lender. Any interest Crocker had terminated at the return of the engines to Ideco. When Ideco obtained possession of the engines, Crocker and T.O.S. relinquished any claim to the engines. Bailment. [3, 4] Alternatively, if Continental was the bailee for the engines, Ideco had the right to stop delivery of the six engines from Continental to T.O.S. Delivery of the goods to T.O.S. was required before title passed to it. A seller has the right to stop delivery of goods that are in the possession of a carrier or other bailee when the buyer repudiates the contract. Tex. Bus. & Comm. Code § 2.703. When T.O.S. informed Ideco that it was im- pecunious Ideco correctly intercepted the delivery of the engines. Neither T.O.S. nor Crocker acquired any interest in the engines superior to Ideco’s interest. Value. The actual value of the engines is a fact disputed by Crocker and Ideco. It will become useful only if Crocker is held on appeal to have obtained a security interest in the engines. Since on remand the evidence has already been taken, the finding of their value is made to obviate another remand. On the day they were returned to Ideco, the Caterpillar engines had an aggregate fair market value of $1,332,340. Judgment will be granted for Ideco. APPENDIX C CROCKER NATIONAL BANK, Plaintiff-Appellant, and T.O.S. Industries, Inc., Intervenor-Appellant, V. IDECO DIVISION OF DRESSER INDUSTRIES, INC., Defendant-Appellee. No. 87-2634. United States Court of Appeals, Fifth Circuit. March 15, 1988. Creditor with security interest in after acquired inven- tory of buyer of drilling rigs brought suit against seller, after buyer petitioned for bankruptcy relief, to determine relative priority of security interests. The United States District Court for the Southern District of Texas, Lynn N. Hughes, J., 660 F.Supp. 186, granted summary judg- ment for seller, and creditor appealed. The Court of Appeals, Bright, Circuit Judge, sitting by designation, held that: (1) seller retained perfected security interest in rigs by its continued possession of them, and (2) where seller has never relinquished possession of goods, special property right acquired when goods are identified to con- tract in and of itself does not constitute sufficient right n collateral to enable buyer who has not paid for those ds to transfer security interest in them to third party. C-2 Affrimed and remanded in patt. Ann Spiegel, Tim §. Leonard, H. Victor Thomas, Kirklin, Boudreaux & Joseph, Houston, Tex., for T.O.S. Industries, Inc. & Crocker Nat. Bank. James R. O'Donnell, Kevin F. Risley, Butler & Binion, Houston, Tex., for defendant-appellee. Appeals from the United States District Court for the Southern District of Texas. Before CLARK, Chief Judge, BRIGHT,* Senior Cir- cuit Judge, and Gee, Circuit Judge. BRIGHT, Senior Circuit Judge: I. BACKGROUND In this case we determine the security interests, and their relative priority, of appellee Ideco Division of Dresser Industries, Inc. (Seller), the unpaid seller-manufacturer of drilling rigs; appellant T.O.S. Industries, Inc. (Buyer), who agreed to purchase the drilling rigs: and appellant Crocker National Bank (Bank), the holder of a security interest in the Buyer’s inventory. Sometime in 1981, the Buyer agreed to purchase forty drilling rigs, their engines and control units, from the Seller. In January 1982, the Buyer informed the Seller that it did not need the rigs. The Seller, however, in- formed the Buyer that it was too far along in the manu- facture of six of the rigs to cancel the order and that the * Senior Circuit Judge of the Eighth Circuit, sitting by designa- tion. C-3 Buyer would have to purchase these six rigs. The Seller continued to send invoices for the goods to the Buyer. These invoices stated that the goods were to be “held for shipping instructions” and contained an F.O.B. point of shipment term. The Seller retained possession of the rigs. The Seller accounted for the rigs as a sale and, accord- ingly, its records showed an increase in accounts receiv- able and a decrease in inventory. In July 1982, the Seller stopped sending invoices for the six rigs and issued credit memoranda reflecting the cancellation of the Buyer’s indebtedness and executed a mutual release with the Buyer whereby each party re- leased the other from all contractual obligations arising from the sale of the six rigs.’ At that time the Seller’s books showed an increase in inventory and a decrease in accounts receivable. Approximately one month later, the Buyer filed for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101, ef seq. In May of the following year, the Bank filed its com- plaint in the district court, based on diversity of citizen- ship, 28 U.S.C. § 1331, asserting that it is entitled to recover the rigs, engines and control units from the Seller on the basis of a security interest in the inventory of the Buyer which it had perfected by the filing of financing statements. The Buyer moved to intervene, asserting that as debtor in possession it might avoid its transfer of the goods to the Seller. Both the Bank and the Seller filed motions for summary judgment, each asserting a perfected security interest in the goods entitled to preference. The Honorable Lynn N. o » 1. The Seller apparently sought a clear title in order to resell the rigs. C-4 Hughes, United States District Judge for the Southern District of Texas, 660 F.Supp. 192, granted summary judgment in favor of the Seller, holding that the Seller's perfected purchase money security interest prevails over any interest held by the Bank. The court further held that the Buyer never possessed sufficient rights in the goods to convey a security interest to the Bank. Finally, the district court concluded that neither the Buyer nor the Bank acquired any interest superior to that of the Seller in the engines, which had been shipped to a third party, Continental Drilling Company. This appeal followed. Il. DISCUSSION Summary judgment shall be granted only when the mov- ing party establishes that there is no genuine issue of material fact and that he is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In reviewing an order granting summary judgment we must consider the evidence in the light most favorable to the party opposing the motion, AfcPherson v. Rankin, 736 F.2d 175, 177-78 (Sth Cir. 1984), aff'd, US. 10. Ch. Sot, 97 L.Ed.2d 315 (1987), and resolve all reasonable in- ferences in his favor, Galindo v. Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985). In this case, the rele- vant facts are not disputed but the parties reach differing legal conclusions on those facts. (A) The Rigs The Seller contends that it retained an interest in the rigs superior to any interest possessed by the Buyer or the Bank by virtue of its continued possession of the rigs. C-5 [1] A seller who retains title to goods retains a se- curity interest in those goods. § 2.401.7 A security interest in goods obtained through continued possession by a seller for the purpose of securing the purchase price of the goods Ils a purchase money security interest. § 9.107. This se- curity interest is perfected by the seller’ Ss continued pos- Session of the goods. § 9.305." Thus, so long as the Seller retains possession of the rigs in order to secure payment by the Buyer, its security interest remains perfected. The Buyer and the Bank argue, however, that while the Seller retained physical possession of the rigs, the Buyer acquired constructive possession of them which served to oust the Seller of its security interest. (1) Present Sale [2] The Buyer and the Bank rely on the Code’s “present sale” concept to support their argument, Unless otherwise explicitly agreed, title to goods gen- erally passes to the buyer when the seller completes his performance with reference to physical delivery of the goods. § 2.401(b). Section 2.401(c) contemplates an agreement that delivery shall take place without moving the goods. See Bore-Warne rb ACE CPltance Corp. v. Massey- Ferguson, 713 S.W.2d 351, 353 (Tex. Ct. App. 1985) The Buyer and the Bank rely on this latter section. They argue that the notation on the rig invoices to “hold for # All references to sections are to the Texas Business & Code Annotated (Vernon 1968 and Supp. ] noted. We have reproduce to this opinion 3. Section 9.113 recognizes the seller security interest under Article 2 of the Code. W possession oO! the voOod interest. § 9.113(2 C-6 shipping instructions” evidence the agreed intent of Buyer and Seller that title shall pass at the time the rigs are identified to the cortract and without physical delivery of them. We reject this contention. The record unequivocally demonstrates that the parties never agreed to transfer title other than by delivery. The Code makes clear that the F.O.B. term is a delivery term, § 2.319(a), and that F.O.B. point of manufacture indicates that the seller must place the rigs in the hands of a common carrier at the point of manufacture. § 2.319(a)(1). Thus, the terms of the invoice oblige the Seller to deliver the rigs to a carrier. Title, therefore, passes only when that delivery obligation is met. § 2.401(b).* The notation “hold for shipping instructions” does not conflict with the F.O.B. term. Whenever a sales agreement contains an F.O.B. term, except when the term is F.O.B. destination, the buyer must seasonably provide the seller with any needed shipping instructions. § 2.319(c). The “hold tor shipping instructions” notation simply recog- nizes the buyer's “obligation of cooperation,” comment 3 to $ 2.319 with the seller. Those instructions, without more, do not effect the transfer of title of the goods to the Buyer. 4 [he circumstances here differ from those discussed by Donald L. Kreindler in his article The Unitorm Commercial Code and Priority Rights Between the Seller in |! ton and a Good Faith Third-Party Purchaser, 82 Comm. L.J. 86, 88 (1977), relied upon appellants. Kreindler comments that “[iJn the absence of any cle contrary [contractual] provision, it would appear that the nal commercial understanding of an invoice denotes that title passed upon ( he invoice notwithstanding the seller's retention of possession As we have discussed, the F.O.B lear Sell livery obligation and title “ . ° . ‘*. se C-7 The Buyer and the Bank attempt to negate the effect of the F.O.B. term by pointing to the Buyer’s business practice of storing its inventory with its seller until a resale buyer is found. This practice, they contend, at least Creates a genuine issue of material fact as to Whether a present sale was intended. The proffered evidence, how- ever, relates to circumstances surrounding the Buyer's transactions with other parties, not the arrangement be- tween these parties. Thus. we reject this contention of the Buyer and the Bank. [3] The Buyer and the Bank also attempt to negate the F.O.B. term by referring to the Seller's accounting records reflecting an increase in its accounts receivable and a decrease in its inventory upon invoicing. These record transactions do not determine title. They represent bookkeeping procedures performed by the accounting de- partment which do not negate the express delivery term of the agreement. The district court therefore properly concluded under the undisputed evidence that no present sale occurred and that title to the rigs remained with Buyer. (2) Rights in the Collateral] The Buyer and the Bank argue in the alternative that the Buyer obtained rights in the rigs sufficient to transfer a security interest to the Bank. A security interest attaches and is enforceable against the debtor and third Parties when (1) the collateral js in the possession of the secured party or the debtor has signed a security agreement containing a description of the collateral; (2) value has been given; and (3) the debtor has rights in the collateral. & 9.203(a). Here Buyer signed a security agreement with the Bank whereby the i C-8 Bank obtained a security interest in the Buyer’s inventory. In return, the Bank advanced funds to the Buyer. When goods are identified to a contract, a buyer ac- quires a special property and insurable interest in those goods. §§ 2.401(a), 2.501. The Buyer and the Bank argue that the special property interest which the Buyer acquired by identification of the six rigs to the contract constitutes a sufficient right in the collateral to permit the Bank’s security interest to attach to the rigs. The Uniform Commercial Code does not define the term special property interest. However, comment 3 to $ 2.401 indicates that the special property interest is not a security interest but essentially relates to a purchaser's remedial rights. “[I]ts incidents are defined in provisions of the Article such as those on the rights of the seller's creditors, on good faith purchase, on the buyer's right to goods on the seller’s insolvency, and on the buyer’s right to specific performance or replevin.” The Buyer and the Bank argue that because § 9.203 does not specify any minimum quantum of rights in the collateral that must be held by a debtor before a security interest can attach, the special property interest 1s suf- ficient for a security interest to attach. The parties rely on L.B. Smith, Inc. v. Foley, 341 F.Supp. 810 (W.D. N.Y. 1972) and In re County Green Lid. Partnership, 438 F.Supp. 693 (W.D. Va. 1977), but miss the im- portant distinction in both of those cases that the buyer had physical possession of the goods to support the attach- ment of a security interest. The court in In re County Green held that “the mere delivery of the appliances to the construction site for use on the construction project gave the debtor rights in the collateral for purposes of § [9.203].” 438 F.Supp. at 696. C-9 In County Green, the buyer actually possessed the goods and thus the case is distinguishable from the present facts. L.B. Smith, Inc. v. Foley arises in a different factual framework. There the Internal Revenue Service asserted a tax lien on two trailers delivered by the seller to the buyer pursuant to a conditional sales agreement. The buyer never made any payment to the seller for the trailers. The district court was called upon to determine the rela- tive priorities of the IRS’s tax lien and the unperfected interest of the unpaid seller. In determining whether or not the IRS’s lien was perfected, the court examined the issue “whether and to what extent the taxpayer-conditional vendee had property and rights to property in the two Coastal Trailers to which the federal tax lien could at- tach.” 341 F.Supp. at 813. The court concluded that “[w]hatever the full nature of this ‘special property’ in- terest in the buyer, it is of a nature sufficient to permit attachment of a lien by the buyer’s creditor.” Jd. Although the court did not discuss the buyer’s possession of the trailers, that change of possession to the buyer did occur and the opinion must be read and construed in light of the buyer’s possession.° 5. L.B. Smith, Inc. v. Foley is the basis for the statement that “a debtor has rights in the collateral if he * * * is a buyer with special property rights in goods by virtue of U.C.C. § 2-501. even though he has not yet acquired title under U.C.C. § 2-401 * * *.” 8 ANDERSON, UNIFORM COMMERCIAL CODE § 9-203.45. The other case relied upon by Anderson for this proposition, Holstein + Greenwich Yacht Sales, Inc., 122 R.I. 211, 404 A.2d 842 (1979), is also distinguishable from this case. There the Rhode Island court held that the special property interest acquired by the buyer of an undelivered sailboat was superior to the security interest of the seller's floor-plan financer. Holstein, however, is distinguished because it did not determine the rights of the buyer as against the seller holder of a purchase money security interest in the goods. Retention of posses- sion was not an issue in Holstein, while it is central to the rights of the parties here. C-10 In In the Matter of Samuels & Co., 526 F.2d 1238 (5th Cir.) (en banc), cert. denied, 429 U.S. 834, 97 S. Ct. 98, 50 L.Ed.2d 99 (1976), this court focused on the importance of possession in determining the relative rights of parties claiming a security interest in property. The opinion addressed the following question: is the in- terest of an unpaid cash seller in goods already delivered to a buyer superior or subordinate to the interest of a bank. the hclder of a perfected security interest in those same goods? Jd. at 1241. This court held that the buyer had the right to encumber the goods upon their delivery having obtained that right upon acquiring possession of the goods. The decision rested upon possession. Indeed, as the opinion made clear, the bank’s security interest attached only as a direct result of the seller's voluntary act of delivery of the cattle to the buyer without reserving any written security interest. Id. at 1247. See Interfirst Bank of Abilene, N.A. Vv. Lull Mfg., 778 F.2d 228, 233 (5th Cir. 1985). This case is different from Samuels. The Seller never delivered the rigs to the Buyer. Nevertheless, the analysis in Samuels is important here because it demonstrates the important role of possession 1n determining rights in col- lateral. See Kinetics Technology Int'l Corp. v. The Fourth Nat'l Bank of Tulsa, 705 F.2d 396 (10th Cir. 1983), where the court held that for a security interest to attach, a debtor must have some degree of control or authority over collateral placed in the debtor's possession. The Seller in this case retained possession of the rigs at all times, thus preserving a purchase money security interest in them. The Buyer never paid for the rigs and never acquired any control over them. A holding that the C-11 Buyer could transfer a security interest to the Bank would contravene the general principle that one cannot encumber another person’s property. See Kinetics Technology Int'l Corp., 705 F.2d at 398. As the district court noted, “[iJt would astonish the sellers of the world to discover that a seller who has not parted with goods nor received pay- ment for them has an interest in the goods inferior to the creditor of a holder of an executory contract to buy them.” Such a holding would offend the commercial expectations of all sellers who retain possession of goods to protect themselves against a defaulting buyer.° [4] We thus hold that where the seller has never re- linquished possession of the goods the special property right of § 2.401 in and of itself does not constitute a sufficient right in the collateral to enable a buyer who has not paid for those goods to transfer a security interest in them to a third party. Accordingly, the district court properly entered sum- mary judgment in favor of the Seller with respect to the rigs. (B) The Control Units The district court failed to address the control units. However, the record before us indicates that the control units remained at the Ross Hill Company where they had been stored since the Ross Hill Company manu- factured them for the Seller. There is no evidence that 6. One of a seller’s remedies for non-payment by the buyer is to withhold delivery of the goods. § 2.703(a). The clear implication of § 2.703(a) is that the seller’s right to withhold delivery under such circumstances is superior to any right held by the buyer or the buyer’s creditors. C-12 the control units were ever delivered to the Buyer. Thus, the above analysis with respect to the rigs applies to the control units and the summary judgment as granted in- cluded those items. (C) The Engines It appears from the record that the Caterpillar engines were delivered to a third party vendor Continental Drilling Company. However, the record is bare of ex- planation concerning the relationship of Continental Drill- ing Company to the Buyer and the Seller. Regardless, the Seller asserts that it exercised its right to reclamation of the rigs under § 2.705. The lack of evidence on this matter requires a remand of this portion of the case to the district court for further development of the record and appropriate disposition. As we have discussed, the crucial issue between the Seller and the Bank relates to whether or not the Seller retained a possessory interest in the goods. III. CONCLUSION For the foregoing reasons, we affirm the judgment of the district court as applied to the drilling rigs and control units, but remand to the district court for further pro- ceedings relating to the engines and the entry of an ap- propriate judgment as to these engines. AFFIRMED AND REMANDED IN PART. C-13 APPENDIX § 2.319. F.O.B. and F.AS. Terms (a) Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which (1) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this chapter (Section 2.504) and bear the expense and risk of putting them into the possession of the carrier: or (2) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there ten- der delivery of them in the manner provided in this chapter (Section 2.503); (3) when under either Subdivision (1) or (2) the term is also F.O.B. vessel, car or other vehicle. the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this chapter on the form of bill of lading (Section 2.323). (b) Unless otherwise agreed the term F.A.S. vessel (which means “free alongside”) at a named port, even though used only in connection with the Stated price, is a delivery term under which the seller must (1) at his own expense and risk deliver the goods alongside the vessel in the manner usual in that a ~ Tr) A C * < =o < ~4«" ‘ . . . ~ 5 ~ sSu b f lading ~s | ~ T " | 4 z C * VICC . S & . 2 S + + 9 , 1 i CC : , r > , > Lliad Ants + 7 f SO aS y Ave 1 LLULCU iiS UL S i . ‘ y sriann t1'har tha + + i _~ Y =>* = Vv i en . . ‘\ 5 \ >) ] } +} ] ] y ¢ . 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Y Willi VALIVII c r+. ci \ At a _ > 1 Wey +h, trtla — ratant n rere rr +; nm hx thea s Q)T) ©) \ rs | () ‘LU ‘ i . il Viv iili il AV OL 1 cat Li y tli ’ ] , ' C _- + thea +. ’ nroneart ) ca cTOOdS cninned \T ’ 7 ~ iil i \ . \ = Ji WILY il — Si bilP7OUU i Ul i I o E I ran ¢ +h, iN - 4 mitan > tt ant ¢ racar, + a ) , > . ) ) ) ~iCU LLic MYCi iS i CU Ab CLICK | a CSI Val i > . y , ntarsa + S h + + + . — _ 9 ; ) Cc) ) 1 SLL U y btLL CS i = ‘ LOL \ VIS S 4 i +} a a * hy WMtor S ’ ] | ‘ . ~A4 _ 5 ‘ . — — s} _ ~~ \ ~~ \ ‘ 5 ‘\ 5 ( . mter O +. + . ] ~ ‘ +l, . - ¢ . ) x SSeS \ AJ LL . ae i . . = . _ / ’ thea nortisa s 4 ane y bi PGAILIL sy = _— ~ s — \~ rv - ~ _ C cfr y , ’ r y , ‘; ‘ or ? , . Te A . y < eas . 4 . bs “++ Ator ‘ , ] , + . t *¢ . ~ } eS Ui . . 1 A - A 1 — Li . . . . . 4 C-16 (2) if the goods are at the time of contracting al- ready identified and no documents are to be delivered, title passes at the time and place of contracting. (d) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by opera- tion of law and is not a “sale”. $2501. Insurable Interest in Goods; Manner of Identi- fication of Goods (a) The buyer obtains a special property and an insurable interest in goods by identification of existing goods 2s goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs (1) when the contract is made if it is for the sale of goods already existing and identified; J (2) if the contract is for the sale of future goods other than those described in Subdivision (3), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers; (3) when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within C-17 twelve months or the next normal harvest season after contracting whichever is longer. (b) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified. (c) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law. ~ 2.703. Seller's Remedies in General Where the buyer wrongfully rejects or revokes accept- ance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (Section 2.6i2), then also with respect to the whole undelivered balance, the aggrieved seller may (1) withhold delivery of such goods; (2) stop delivery by any bailee as hereafter provided (Section 2.705); Dro pa j ahe lor Th "2a + > alate r; rm: a = / pis LOOCU UllUCl ine next section L©>} CLI UUS , : Ti ry? ar tified ¢ thea ntr + still unidentified LO the CONUact, { rp +1] d rea ar } * y rp > > | + ) iCscil an eco Wailia med aod [ . i r ULU a ~~ ar r (Section 2./U0) S rs r + + , recove Udllidy Cs ~LL =< oe + Q “a “Fr - j } ( . = SL ~ 4 ~ Sec ~ - Y (6) cancel. § 2.705. Seller's Stoppage of Delivery in Transit or Otherwise (a) The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers + the buyer to be insolvent (Section 2.702) and n lay stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repud! ates or fails to make a payment due before delivery or if for any other reason the seller has a right to with hold Or reclaim the goods. (b) As against such buyer the seller may stop de ivery until ) lo ven ? 5 | > a | >| .1 " . 7 2) acknowledgment to the buyer by any bailee ol the goods except a carrier that the bailee holds the goods for the buyer; o! saan L, Laas } ‘ or cknowledg Lit iI to tne Wu ef b adWw<« + + ‘o yy reshipment or as warehouseman, or + * | I 8 to t! L bu Ll oT any negotl ab . CG . y ? | tit y\ 1 y he ‘ rd L if it wv verins Ul ” OOdCS Io stop delivery the seller must so notify , | Lea } ra La liaan . ys iC I L ) ilee D\ reasonapvdie diligence to —- } event delivery Ol the coods. ) \f ’ tif ala’ the ha yIICT ] na Fa iv not Lal LIA I) it GaiiCe TIUSt OIG dallU er t soods according to the directions ol! | C t se , s liable to the baiulee C-19 a ‘we —— If a negotiable document of title has been is- sued for goods the bailee is not obliged to obey a notification to stop until surrender of the document. (4) A carrier who has issued a non-negotiable of lading is not obliged to obey a notification to stop received from a person other than the consignor. $ 9.107. Definitions: “Purchase Money Security Interest” A security interest is a “purchase money security terest” to the extent that it is (1) taken or retained by the seller of the collateral to secure all or part of its price: or I (2) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. 3 9.113. Security Interests Arising Under Chapter on Sales A security interest arising solely under the chapter on Sales (Chapter 2) is subject to the provisions of this chapter except that to the extent that and so long as the debtor does not have or does not lawfully obtain posses- sion of the goods (1) no security agreement is necessary to make the security interest enforceable; and (2) no filing is required to perfect the security interest: and C-20 (3) the rights of the secured party on default by the debtor are governed by the chapter on Sales (Chapter 2). $ 9.203. Attachment and Enforceability of Security In- terest; Proceeds. Formal Requisites (a) Subject to the provisions of Section 4.208 on the security interest of a collecting bank, Section 8.321 on security interests in securities, and Section 9.113 on a security interest arising under the chapter on Sales, a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless: (1) 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 and in addition, when the security interest covers crops growing or to be grown or timber to be cut, a description of the land concerned; (2) value has been given; and (3) the debtor has rights in the collateral. (b) A security interest attaches when it becomes enforceable against the debtor with respect to the coi- lateral. Attachment occurs as soon as all of the events specified in Subsection (a) have taken place unless explicit agreement postpones the time of attaching. c) Unless otherwise agreed a security agreement = ' tins roar ’ rrr tings yi t ? > Pp ; r ves the secured party the rights to proceeds provided C-21 (d) A transaction, although subject to this chapter, is also subject to Title 79, Revised Civil Statutes of Texas, 1925, as amended, and in the case of conflict between the provisions of this Chapter and any such Statute, the provisions of such statute control. Failure to comply with any applicable statute has only the effect which is specified therein. [footnote omitt $ 9.305. When Possession by Secured Party Perfects Security Interest Without Filin vo. - fara le .Y - y lie — ] . A security interest in letters of credit and advices credit (Subsection (b)(1) of Section 5.116), goods, struments (other than certificated securities), money, ne gotiable documents or chattel paper may be perfected by the secured party’s taking possession of the collateral. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives noti- fication of the secured party’s interest. A security interest is perfected by possession from the time possession is taken without relation back and continues only so long as possession is retained, unless otherwise specified in this chapter. The security interest may be otherwise perfected as provided in this chapter before or after the period of possession by the secured party. APPENDIX D CROCKER NATIONAL BANK. Plaintiff, and | O.S. Industries. Inc.. Intervenor. Vv. IDECO DIVISION OF DRESSER INDUSTRIES. INC.. Defendant. Civ. A. No. H-83-2988 United States District Court. S.D. Texas. Houston Division April 29, 1987. Creditor with security interest in after-acquired inven- tory of buyer of drilling rigs brought suit against seller, and buyer intervened. Creditor and seller moved for sum- mary judgment. The District Court, Hughes, J., held that: (1) seller retained purchase money security interest in rigs in its possession superior to any interest of buyer or secured creditor, and (2) once seller of drilling rigs to buyer was told that buyer would not be able to pay for rigs, seller had right to stop delivery of rigs to buyer, and right included stopping of delivery of rigs from buyer’s bailee to buyer. Creditor’s motion denied and seller’s motion granted. D-2 Arlen Driscoll, Atty. in Charge, Gilpin, Maynard, Par- sons, Pohl & Bennett, Houston, Tex., for plaintiff. Stephen R. Kirklin, Kirklin, Boudreaux & Joseph, Hous- ton, Tex., for intervenor. James R. O'Donnell, Butler & Binion, Houston. Tex.. for defendant. MEMORANDUM HUGHES, District Judge. TOS Industries, Inc., agreed to buy six drilling rigs from the Ideco Division of Dresser Industries, Inc. Betore the six rigs were delivered, TOS told Ideco that it would be unable to pay for them, and Ideco kept the rigs. Crocker National Bank had a security interest in all after- acquired inventory of TOS. Crocker and TOS contend that (1) TOS acquired title to the drilling rigs when Ideco sent TOS invoices of the sale, and that (2) Crocker’s security interest attached to the drilling rigs. Ideco contends that (1) the title to the drilling rigs did not pass from Ideco to TOS because [deco retained possession of the rigs and (2) Crocker’s security interest does not encompass the drilling rigs so that even if title had passed, Crocker has no claim to the drilling rigs or their value. Ideco’s nossession of the drill- ing rigs and the engines gives it priority. Background. In late 1981, Ideco began to send TOS invoices for Six rigs. The invoices identified which rigs in Ideco’s possession were to be shipped. The payment and delivery terms in the invoices are: (1) thirty or ninety days net D-3 and (2) F.O.B. manufacturer or F.O.B. Beaumont, hold for shipping instructions. Ideeo sent TOS a letter con- firming the agreement in January of 1982. Later, TOS told Ideco that it would not be able to pay for the rigs. In June of 1982, Ideco stopped sending invoices and issued credit memoranda to TOS in the amounts of the purchase prices of the rigs. Ideco never shipped the drilling rigs. Six Caterpillar engines were sent to the Continental Drilling Company. These engines were components of the drilling rigs. Ideco asked Continental to return the engines to Ideco, and Continental did. Before the invoicing began, Crocker loaned TOS money. Crocker received a security interest in all TOS after-acquired tubular goods, wellhead equipment, and oilfield supplies. Claims. Ideco has moved for summary judgment claiming that the Crocker security interest in all TOS after-acquired inventory did not attach to the rigs it had contracted to sell to TOS. Ideco argues that, if a contract was created, its terms required delivery according to TOS’s instruc- tions before title to the rigs passed to TOS. Without delivery, TOS never acquired title. Without title having passed to TOS, Crocker’s security interest could not attach to the rigs. Even if title passed, Crocker’s security interest could not attach since it did not encompass the drilling rigs. Crocker has also moved for summary judgment claim- ing that, by the terms of the invoices and by the intention of the parties, a present sale was effected. A present sale D-4 a C . C ‘ ( ‘ C LOS D-5 that security interest. For purposes of this motion, the court assumes that these rigs and engines are part of TOS’s inventory covered by the security interest. The Contract. There is an issue whether there was a contract for sale of the rigs between Ideco and TOS. A contract results when an offer has been presented and accepted, with consideration flowing between the parties. Ideco contends that no contract existed between TOS and it. Some of the facts suggest the existence of a contract. Ideco issued invoices for the sale of six drilling rigs, identified by serial number. On January 27, 1982, the president of Ideco sent a letter confirming the existence of the Ideco-TOS agreement for these rigs. When TOS told Ideco that it could not pay for the rigs, Ideco issued credit memoranda to reverse its accounting entry of the sale. The existence of a contract is a question of fact; how- ever, if there was no contract, TOS and Crocker have no basis for asserting an interest in the rigs. The court will assume that a contract existed. Ideco’s Possessory Interest. [1] Ideco retained an interest in the goods through possession, superior to any interest TOS or Crocker could have acquired. Two relevant code provisions place the interest of the possessing party above all others. A seller may retain the title to goods shipped or de- livered to the purchaser; this is a security interest. Tex. Bus. & Comm. Code §§ 2.401(a) and 2.505. This se- D-6 curity interest is a purchase money security interest. Tex. Bus. & Comm. Code § 9.107(1). A purchase money security interest is superior to a prior interest in the inventory held by a third party if the purchase money security interest is perfected either by retained possession in the seller or if the conflicting interest holder is notified of the purchase money security interest before the pur- chaser receives possession of the collateral. Tex. Bus. & Comm. Code §§ 9.305 and 9.312(c). Here, Ideco re- tained possession of those drilling rigs it had completed. Those rigs not yet completed were not possessed by any party. But, if Ideco has the superior interest in the com- pleted rigs, it must have the superior interest in the un- completed rigs. Ideco’s interest prevails over Crocker’s. [2] If Crocker’s present sale argument were to be accepted and title to the drilling rigs passed to TOS upon invoicing, Ideco would have been the bailee of TOS'’s goods. Possession by a bailee cannot be stopped unless strict requirements are met. Tex. Bus. & Comm. Code § 2.705; In re Samuels & Co., 526 F.2d 1238 (5th Cir. 1976). That code section, however, does not pertain to a situation where the bailee is also the seller, like here. Ideco, as bailee, perfected its security interest by inform- ing itself it had possession of TOS’s goods. See Tex. Bus. & Comm. Code §§ 9.304(c) and 9.305. Again, this se- curity interest would be a purchase money security in- terest since the bailee’s possession allows TOS to do with the goods as it wished. Tex. Bus. & Comm. Code § 9.107 (2). This purchase money security interest would also be superior-to Crocker’s security interest since Crocker had received notice of Ideco’s interest prior to TOS’s receiving possession of the drilling rigs. Tex. Bus. & Comm. Code $ 9,312(c). D-11 delivered to sustain a claim for possession against Ideco. TOS would be relegated to a breach of contract claim. Conversion would not lie for Ideco’s refusal to ship the rigs to TOS without payment because, whatever special property it may have, TOS would not have an unqualified right to possession. Even if Ideco is considered the bailee of the drilling rigs tor TOS, Ideco’s right to retain possession is superior to Crocker’s security interest. Ideco retained possession of the rigs in whatever capacity and that possession per- fected its superior security interest. Ideco needed to do no more. The Caterpillar Engines. [10] If Continental was TOS’s bailee, Ideco had the right to stop delivery of the six engines from Continental to TOS. Delivery of the goods to TOS was required before title passed to it. A seller has the right to stop delivery of goods that are in the possession of “a carrier or other bailee’” when the buyer repudiates the contract. Tex. Bus. & Comm. Code § 2.703. When TOS informed Ideco that it was impecunious, Ideco correctly intercepted the de- livery of the engines. Neither TOS nor Crocker acquired any interest in the engines superior to Ideco’s interest. Conclusion. Since Ideco, whether it is viewed as a bailee for TOS Or as an owner, retained and perfected a purchase money security interest in the goods superior to Crocker’s con- flicting security interest in TOS’s inventory, Ideco prevails. Even if a present sale were effected, the security interest of Crocker in after-acquired inventory of TOS is inferior D-12 to Ideco’s security interest as a possessory unpaid seller. The passage of title and the existence of a special property are not determinative of the priority of claims question. No present sale occurred here since the invoices show a credit sale with delivery required before title would pass. Once Ideco was told that TOS would not be able to pay for the rigs, Ideco also had the right to stop delivery of these rigs to TOS. This right included stopping the delivery of the engines from Continental to TOS. with Continental the bailee of TOS. Crocker’s motion for summary judgment will be denied. Ideco’s motion for summary judgment will be granted, quieting title to the six rigs and engines in Ideco. FINAL JUDGMENT Crocker National Bank and TOS Industries, Inc., take nothing against the Ideco Division of Dresser Industries, Inc. Costs are taxed against Crocker and TOS. APPENDIX E UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 89-2149 D.C. Docket No. H-83-2988 CROCKER NATIONAL BANK, and T.O.S. INDUSTRIES, INC, d/b/a TEXAS OILFIELD SUPPLY, Intervenor-Appellant Cross-Appellee, Versus IDECO DIVISION OF DRESSER INDUSTRIES, INC., Defendant-Appellee Cross-Appellant. Appeals from the United States District Court for the Southern District of Texas (Filed February 2, 1990) Before WISDOM, JOHNSON, and HIGGINBOTHAM, Circuit Judges. E-2 JUDGMENT This cause came on to be heard on the record on appeal and was argued by counsel. ON CONSIDERATION WHEREOF, It is now here ordered and adjudged by this Court that the judgment of the District Court in this cause is reversed, and the cause is remanded to the District Court for further proceedings in accordance with the opinion of this Court. IT IS FURTHER ORDERED that defendant-appellee cross-appellant pay to plaintiff-appellant cross-appellee the costs on appeal to be taxed by the Clerk of this Court. November 29, 1989 ISSUED AS MANDATE: | January 31, 1990 APPENDIX F IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 89-2149 CROCKER NATIONAL BANK, Plaintiff-Appellant Cross-Appellee, and T.O.S. INDUSTRIES, INC., d/b/a TEXAS OILFIELD SUPPLY, Intervenor-Appellant Cross-Appellee, versus IDECO DIVISION OF DRESSER INDUSTRIES, INC., Defendant-Appellee Cross-Appellant. Appeal from the United States District Court for the Southern District of Texas ON PETITION FOR REHEARING (January 11, 1990) Before WISDOM, JOHNSON and HIGGINBOTHAM, Circuit Judges. F-2 PER CURIAM: IT IS ORDERED that the petition for rehearing filed in the above entitled and numbered cause be and the same is hereby DENIED. ENTERED FOR THE COURT: /s/ PATRICK E. HIGGINBOTHAM United States Circuit Judge CLERK’S NOTE: See FRAP and Local Rules 41 for Stay of the Mandate. APPENDIX G UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION CIVIL ACTION NO. H-83-2988 CROCKER NATIONAL BANK V. IDECO DIVISION OF DRESSER INDUSTRIES, INC. (Filed May 10, 1983) COMPLAINT The Complaint of CROCKER NATIONAL BANK (“CROCKER”), Plaintiff, against the IDECO DIVISION OF DRESSER INDUSTRIES, INC. (“DRESSER”), De- fendant, states the following: I. Jurisdiction of this civil action is founded on diversity of citizenship and amount. CROCKER is a national bank- ing association having its principal place of business in the State of California. DRESSER is a corporation in- corporated under the laws of the State of Delaware, hav- ing its principal place of business in a state other than the State of California. The matter in controversy exceeds, exclusive of interest and costs, the sum of Ten Thousand and No/100 Dollars ($10,000.00). IT. On or about August 10, 1981, T.O.S. INDUSTRIES, G-2 INC., a Texas corporation (“TOS”), sometimes doing business under the name of “Texas Oilfield Supply”, en- tered into a security and loan agreement with CROCKER providing for a secured loan by CROCKER to TOS. The amount of the indebtedness of TOS to CROCKER for such loan is now, and at all times material to this suit, has been more than Thirty Million and No/100 Dollars ($30,000,000.00). IIT. As security for its indebtedness to CROCKER, TOS granted CROCKER a security interest, among other things, in all of its accounts receivable, general intangibles, returned goods, and its inventory. That security interest was perfected by a financing statement duly filed August 3, 1981, under File No. 81-152713, as Amended by Financing Statement duly filed August 31, 1981, under File No. 81-15296 with the office of the Secretary of State of the State of Texas. CROCKER at that time became and is now the holder of a security interest in the returned goods and inventory of TOS that is perfected and enforce- able against third parties, such as and including DRESSER. IV. On August 10, 1982, TOS filed a petition under Chap- ter 11 of Title 11 of the United States Code. Pursuant to the provisions of Section 362(a) of Title 11, the filing of such petition operates as a stay of the commencement Or continuation, including the issuance or employment of process, of a judicial proceeding against TOS that could have been commenced before the filing of such petition. For that reason, TOS could not be joined as a party SS G-3 hereto. but TOS is not a person whose joinder herein is required by law. =: DRESSER. from time to time, has sold goods to TOS, including drilling rigs and related accessory products. Such goods were sold to TOS for resale by TOS or to be held by TOS for sale or lease to its customers. In any event. TOS became heavily indebted to DRESSER in amounts which apparently exceeded Nine Million, Four Hundred Sixty-Three Thousand, Two Hundred Sixty-T wo and No/100 Dollars ($9,463,262.00). VI. DRESSER made arrangements with TOS for the collec- tion of the indebtedness owed by TOS to DRESSER. Pursuant to these arrangements, on or about July 12, 1982. in cancellation of indebtedness owed by TOS to DRESSER. TOS transferred drilling rigs and related ac- cessory products to DRESSER out of the TOS inventory, and DRESSER issued credit memoranda reflecting the cancellation of such indebtedness. Such TOS transfers to DRESSER reflected in the credit memoranda on or about July 12, 1982, included the following: (a) TOS transferred to DRESSER rig components and accessory products under Sales Return No. D1/ B0091 through D1/B0091-6. The components are described and have serial numbers as follows: SCR System UTB-360-5-42 Block 370 LR-275 Rotary 683 TL-300 Swivel 280 G-4 2 Caterpillar D-398 Power Units 35Z01139 35201140 1 Caterpillar D-379 Power Unit 34Z00864 ED-1200 Hoist 227 Dretech Model 3550 Brake 8116 2 GE-752 Electric Motors 7544015, 7544168 TOS was issued a credit memorandum for return of the components in the total amount of One Million, Four Hundred One Thousand, One Hun- dred Sixteen and No/ 100 Dollars ($1,401,116.00) (b) TOS transferred to DRESSER rig components and accessory products described under Sales Return No. D1/B0128 through D1/B0128-7. The com- ponents are described and have serial numbers as follows: 1 Foster Model 24-AH Breakout 1876 Cathead 1 Foster Model 37-AH Spinning 1555 Cathead LR-275 Rotary 58 | 1 Caterpillar D-399 Power Unit 36Z01204 | Caterpillar -D-398 Power Unit 35Z01143 Caterpillar D-379 Power Unit 34 ZUUS6E SCR System E-1700 Hoist MM245 Dretech Model 525U Brake SU86 2 GE-752 Electric Motors 75433866 TL-400 Swivel 181 UTB-525-6-50 Block 63 2 T-1300 Pumps 199, 204 2 T-1300 Pump Drives 167, YO 4 GE-752 Electric Motors 7543852 G-9 the only interest of DRESSER in such goods ts ec erest that t perfected as required by lav enforceable against CROCKER. CROCKER 1s determination and judgment that its sec erest and claims to such goods are first, prior and supe ms held by DRESSER to such goods ther claims against DRESSER. including but not limited » claims for conversion of Its collateral. If so. CROC KER ll amend this Complaint after sufficient discovery has proceeded to er » CROCKER to discover the tacts re irding what om SSI R has done with the collateral fo the TOS indebtedness to CROCKER. WHEREFORE, PREMISES CONSIDERED, Plainufi CROCKER NATIONAL BANK, prays that summons Is sue to Defendant, IDECO DIVISION OI DRE SSER IN DI STRIES. INC.: that the Court issue such writs other orders prior to trial as are appropriate; that upon t P | I] have jigemen I ) recover Ol l] UOUS i [ . IOSSeSSION 2) | 1) Jet nda Su = to the LL 4 { nte ests favor of the Plaintiff. for damages for any such goods converted to the use or benefit of the Defendant, and that thea ’ + ove) )) , ‘ . | ; a ‘1 ’ sf the Claim oT tne Plaintiff to such goods 1s first. priot and ry ' . y ‘ sfioy nt , h Jlagn superior to any claim of Defendant; and that Plaint i‘. . ] ] vs r I SUCT) Hel biG rurther eliel ne | ind spec , i iW equil O wnicn il i \ selr t C a \ iW AG OF COUNSEI GILPIN, MAYNARD POHL & BENNETT G-] JOHN H Apr BENNI 3 ] APPENDIX H IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION CIVIL ACTION NO. H-83-2988 CROCKER NATIONAL BANK, and T.O.S. INDUSTRIES, INC. d/b/a TEXAS OILFIELD SUPPLY, Plaintiff, v. IDECO DIVISION OF DRESSER INDUSTRIES, INC., Defendant. PLAINTIFFS’ FIRST AMENDED COMPLAINT To The Honorable United States District Judge: COME NOW, CROCKER NATIONAL BANK (“Crocker”) and T.O.S. INDUSTRIES, INC. d/b/a TEXAS OILFIELD SUPPLY (“T.O.S.”), as Plaintiffs, and file this their First Amended Complaint against IDECO DIVISION OF DRESSER INDUSTRIES, INC. (“Ideco”), Defendant, and in support of this Amended Complaint state the following: 1. Jurisdiction in this civil action is based on 28 U.S.C. S 1331. and 11 U.S.C. $8 547, 549. The matter in con- troversy, exclusive of interests and costs, exceeds the sum of Ten Thousand Dollars ($10,000.00) and arises under the laws of the United States. H-2 II. Plaintiffs Crocker and T.O.S. hereby file this Amended Complaint pursuant to Federal Rules of Civil Procedure 15 such that Plaintiffs’ pleadings will conform to the evidence and the opinion of Crocker National Bank vy. Ideco Division of Dresser Industries, Inc., 839 F.2d 1104 (Sth Cir. 1988). IIT. Ideco, from time to time has sold goods to T.O.S. Such goods were sold to T.O.S. for resale by T.O.S. or to be held by T.O.S. for sale or lease to its customers. LZ Ideco sold to T.O.S. and shipped to Continental Drill- ing Company (“Continental”) a total of thirteen cater- pillar engines. Continental in turn purchased these said engines from T.O.S. The thirteen engines in question are listed as follows: Caterpillar D-399 Packaged Electric Set Cat D-399 Engine 35B06578 KATO Generator 84425-4 O & M Radiator 130-263 Caterpillar D-398 Packaged Electric Set Cat D-398 Engine 66B09262 KATO Generator §4476-10 O & M Radiator 129-19] Caterpillar D-379 Packaged Electric Set Cat D-379 Engine 34Z00784 KATO Generator 84426-19 O & M Radiator 129-23] H-3 Caterpillar D-399 Packaged Electric Set Cat D-399 Engine KATO Generator O & M Radiator Caterpillar D-399 Packaged Electric Set Cat D-399 Engine KATO Generator O & M Radiator Caterpillar D-398 Packaged Electric Set Cat D-398 Engine KATO Generator O & M Radiator Caterpillar D-379 Packaged Electric Set Cat D-379 Engine KATO Generator O & M Radiator Caterpillar D-398 Packaged Electric Set Cat D-398 Engine KATO Generator O & M Radiator Caterpillar D-398 Packaged Electric Set Cat D-598 Engine KATO Generator O & M Radiator Caterpillar D-379 Packaged Electric Set Cat D-379 Engine KATO Generator O & M Radiat 35B06584 94425-5 128-834 35B6582 R661 2-] 128-836 66B9263 84426-11 129-192 o4 > §$4420-12 129.93) HHBY 4% Te? Fe! ry 129 WS 66B927 84426-17 ~ ; s 347774 H-4 Caterpillar D-398 Packaged Electric Set Cat D-398 Engine 66B9272 KATO Generator 84426-2 O & M Radiator 129-007 Caterpillar D-398 Packaged Electric Set Cat D-398 Engine 66B9273 KATO Generator 844276-3 O & M Radiator 129-006 Caterpillar D-379 Packaged Electric Set Cat D-379 Engine 34Z783 KATO Generator §$4426-2 O & M Radiator 128-972 Ideco first attempted to reclaim the said engines on } nit : ] 5 or about mid-July. 1982? Security and Loan Agreement with Crocker pr a secured loan by Crocker t TOS I debtedness of T.O.S. to Crock rh t a seme matar ‘ L, ; ; " aiiuu ad aii i > “tt Al > Su Iwenty Million Dollars and No/! 52 5 | : | , \) Yiict +] TOR] mn lor hia nimNnyear \* 15906 with thea MLUSL sLiUicl bhi PAULL i 7 ’ " ++ > . 9 ‘ “1 + > + + hy + ts ; . \ t} > . ’ ' \S tp . t " ‘S \ | ) \ ‘ ~~. \ i ‘ \ SEC . + & y \ ‘ a. ~\ ee — ‘ eae \ CXAS ; Crocker at that time he .° and ic now the haider ai PLL AL rea \ Al ‘ bi WEL GLLIL aii bY LEER il bh | 1 ’ r ' ea nmtoaract ry) ) th , nror + S ther , , d SCCU! y ALLL LOSE Lil cil iv YELL i ¥ LI i () WI Vit VL la ited that nortoerctead 7.Ts rt rile ve, net third. KV GIO cil » WMLELILLIU ail VibiXIQN ad L ana 4 il i . ! ] m~ort na nr ry | . “Milits SUA as i Liu a UL’ Ide . ] ‘ ’ 1 «lL, | thir? starn tf nome , UL’ Ue rv . ~ Oc =< —=_eaae 4 . _ > s H-6 Seven Dollars and No/100 ($1,708,127.00), that Plain- tiffs have pre- and post-judgment interest at the maximum rate allowable by law, and for such other and further relief, general and special, at law or in equity, to which Plaintiffs may show themselves justly entitled. Respectfully submitted, s/ TIM S. LEONARD Tim S. Leonard State Bar No. 12211200 Federal ID No. 1756 1800 InterFirst Plaza Houston, Texas 77002 (713) 757-0000 Attorney-in-Charge for Plaint OF COUNSEL: KIRKLAND & BOUDREAUX Robert J. Ward. Jr. 1800 InterFirst Plaza Houston. Texas 770 )? she ed A 3) 757-0000 APPENDIX I U.S. CONST amend. \ AMENDMENT \ GRAND JURY INDICTMENI FOR CAPITAL CRIMES; DOUI +t rT DARD Dif } rs A IN SELF-INCRIMINATION DUT PROCESS LAW; JUST COMPENSATION FOR PROPI APPENDIX J Rp ‘ Sr’ ¢ > ( f S G . 7 \ ‘4 vi | \ % ~ . ane _ ‘ r) 2 \Vi.W K Lt inc 2 : , 7 4 ‘ ‘ \ > * . ‘5 P l) ¥ i ( \ r) } \ ~* , 7 Pp \\ (yj ] As 5 " s [ . , 7 J-4 State or Other Sovereign Under The Laws Of Which Name Organized IRI International Corporation Delaware Magcobar Abu Dhabi, Ltd. Abu Dhabi Manufacturas Petroleras Venezolanos, S.A. Venezuela Nile Oilfield Engineering Limited Sudan Petroleum and Industrial Maintenance Company Limited Cayman Islands (Parent—Kellogg International Services Limited) Productos Magcomex S.A. de C.V. Mexico Riese Consolidated Industrial C.A. Venezuela Shah Magcobar Chemicals Sdn. Bhd. Brunei Wayne (West Africa) Limited Nigeria (Parent—SWOL ) Western Atlas International, Inc. Delaware (and subs) Worthington Pump India Limited India (Parent—Pump Investments, Inc.) MIDCO Bartil, Inc. North Carolina (Parent—MIDCO) China Nanhai-Magcobar Mud Corporation, Ltd. China (Parent—MIDCO) Dresco Pte. Ltd. Dubai (Parent—MIDCO) Dresser (Cyprus) Limited Cyprus (Parent—M-I Great Britain Ltd. ) Drescon Produtos de Perfuracao S.A. Brazil Melbar Produtos de Lignina Ltda. Brazil (Partnership) (Parent—Dresser do Brasil, Ltda. ) Global Chemicals, Inc. Cayman Islands (Parent—MIDCO) Name Kayoee Bentonite ( Partnership) (Parent-MIDCO) Minerals Supply, Inc. (Parent—MIDCO) Oman Drilling Products Co. (Parent—MIDCO) Dresser-Rand Company Turbodyne S.A. de C.V. Frontier Energy Associates, L.P. Martel Cogeneration Limited Partnership Thermal Energy Development Partnership (Parent—Turbodyne Electric Power Company ) Unicord Power Associates G.P. (Parent—TEPCO/Pembroke Power) Komatsu Dresser Company Komatsu Dresser Brazil S.A. (Parent—Dresser Finance Corporation ) State or Other Sovereign Under The Laws Of Which Organized Wyoming Texas Oman Mexico Delaware Washington Delaware New Hampshire Brazil --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1226%3A1. Public record. Not legal advice.