Lake Region Credit Union v. Crystal Pure Water, Inc.
1993 N.D. LEXIS 135, 502 N.W.2d 524, 21 U.C.C. Rep. Serv. 2d (West) 774 (1993)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A state-issued water permit is a 'general intangible' under the Uniform Commercial Code and may be subject to a security interest. Furthermore, the North Dakota constitutional homestead exemption does not prevent the forced sale of a homestead to satisfy a mortgage debt on that property.
Facts:
- Crystal Pure Water (Crystal), a corporation owned by the Gilliss family, operated a water bottling plant.
- The corporation's plant was on a one-acre tract it owned, while the wells and springs were on an adjacent fifty-acre tract where owners Franzella and Russell Gilliss resided and held title.
- After facing financial difficulties, a bank foreclosed on the fifty-acre tract, which was sold at a sheriff's sale in 1987.
- To refinance their debts, Crystal and the Gillisses obtained a $125,000 loan from Lake Region Credit Union (Credit Union).
- As collateral for the loan, the Credit Union took real estate mortgages on both tracts of land and security interests in all of Crystal's personal property, including its state water permit.
- Franzella and Russell Gilliss also personally guaranteed the corporate debt owed to the Credit Union.
- The corporation subsequently defaulted on the loan from the Credit Union.
Procedural Posture:
- Lake Region Credit Union filed suit in North Dakota district court against Crystal Pure Water and Franzella Gilliss to foreclose on mortgages and security interests, and to enforce personal guaranties.
- The district court (trial court) entered a judgment in favor of the Credit Union.
- Franzella Gilliss, as appellant, appealed the judgment to the Supreme Court of North Dakota.
- For the appeal, Franzella Gilliss failed to provide a transcript of the trial court proceedings.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is a state-issued water permit a 'general intangible' under the Uniform Commercial Code that can be subject to a security interest?
Opinions:
Majority - Levine, Justice
Yes. A state-issued water permit is a general intangible under the Uniform Commercial Code and may be the subject of a valid security interest. The UCC, as codified in North Dakota, allows for a security interest to be created in personal property, including 'general intangibles.' This category is broadly defined as 'any personal property... other than goods, accounts, chattel paper, documents, instruments, and money.' The court found no specific prohibition in the state's water laws against creating a security interest in a water permit. Drawing an analogy to other government-issued licenses and permits, such as liquor licenses and transportation authorities, which other courts have deemed general intangibles, this court concluded that a water permit fits within that classification and can serve as collateral. The court also rejected Franzella's homestead claim, holding that 1) her property rights were extinguished in a prior foreclosure action, and 2) the North Dakota Constitution's homestead exemption does not prevent the enforcement of a voluntary mortgage on a homestead.
Analysis:
This decision establishes a significant precedent in North Dakota by classifying a state water permit as a 'general intangible' under the UCC. This expands the category of assets that can be used as collateral, thereby increasing access to financing for businesses whose primary value is tied to such government-issued licenses. The ruling provides clarity for lenders, confirming that they can secure loans with these types of permits, which may encourage lending to industries like agriculture and resource extraction. By aligning the treatment of water permits with that of other licenses like liquor or broadcast licenses, the court promotes consistency in commercial law.
