Lake Region Credit Union v. Crystal Pure Water, Inc.

In 1987 Russell and Franzella Gilliss (defendant) were sued in mortgage foreclosure for a 50-acre plot of land. Along with Bruce and Renee Gilliss, Russell and Franzella owned a closely held corporation named Crystal Pure Water (Crystal) that bottled water. Crystal’s bottling operation sat on a 1-acre tract surrounded by the 50-acre tract owned by Russell and Franzella, which contained springs and wells. Crystal held title to the 1-acre tract. A sheriff’s sale was conducted for the sale of the 50-acre tract. Collectively, the four Gillisses secured a $125,000 loan from Lake Region Credit Union (Lake Region) (plaintiff) to refinance their business. In exchange for Lake Region’s purchase of the sheriff’s certificate, the Gillisses granted Lake Region mortgages on the 1-acre tract and the 50-acre tract and personally guaranteed Crystal’s debts. The Gillisses also gave Lake Region security interests in all of Crystal’s personal property, which included the company’s water permit. Unfortunately, Crystal defaulted on the $125,000 loan, and Lake Region sued, seeking to foreclose on its security interests and to collect on the Gillisses’ personal guarantees. Lake Region settled with Bruce and Renee before trial. A trial court ruled in favor of Lake Region, and Franzella appealed the judgment. Franzella raised a number of issues on appeal related to the trial court’s findings of fact, which were not reviewed by the appeals court because of her failure to provide the court with a complete transcript of the trial court proceedings. The court did consider Franzella’s argument that the trial court erred in allowing Lake Region to foreclose on Crystal’s perfected state water permit because the permit may not be the subject of a valid security interest as a general intangible. General intangibles are certain types of personal property that may have no material form but represent things of value. Franzella did not present the court with any cases that would support her argument.