Karle v. Visser

Doug and Vicki Visser (defendants) sold their business to Charles and Valerie Karle (plaintiffs) for $85,000. The parties executed an Asset Transfer Agreement (ATA) and a lease agreement regarding the business’s real property. Under the lease, the Karles agreed to pay monthly rent, and the Vissers agreed to make property improvements. The Karles paid $20,000 up front and executed a promissory note (Note) for $65,000 to be paid in monthly installments plus interest. The parties’ relationship soured. The Karles stopped paying rent and Note installments and sued the Vissers for failing to make the property improvements. The Vissers counterclaimed regarding the unpaid rent and missed installment payments under the ATA. A jury trial was held. Judgment was entered awarding the Karles damages and rent reduction, and the Vissers lesser damages for their ATA claim. An execution sale was held. After applying the parties’ credit bids, a portion of the Karles’ judgment remained outstanding. Thereafter, Arthur M. Bistline entered into a security agreement (SA) with the Vissers, which purportedly gave Bistline a security interest in the Note as collateral for outstanding and future attorneys’ fees owed by the Vissers to him. The SA identified the collateral as the Note and granted Bistline right, title, and interest related to proceeds and any judgments resulting from collection of the Note. Bistline filed a financing statement. Subsequently, the Vissers filed a collection action against the Karles in county court regarding unpaid Note installments. The Karles argued that the execution sale canceled their obligations to pay the Note installments. However, the Vissers obtained summary judgment. The Karles filed a writ of execution against the Vissers’ collection action using the remainder of the Karles’ prior judgment. In response, Bistline filed a third-party claim of exemption. The Karles contested. The district court held that Bistline did not have a valid security interest in the Vissers’ collection action. Bistline appealed and argued that the right to sue for collection on a note constitutes proceeds and his interest in the Note automatically attached to the collection action. The Karles argued that Bistline failed to take a security interest in either a chose in action or general intangibles.