Bank of New Mexico v. Sholer

• Decision Date: 29 November 1984
• Docket Number: No. 15300,15300
• Parties: BANK OF NEW MEXICO, Petitioner, v. Bill J. SHOLER, Trustee in Bankruptcy for Nau Enterprises, Inc., David H. Nau and Barbara J. Nau, Respondents.
• Court: New Mexico Supreme Court

Page 465

691 P.2d 465

102 N.M. 78

BANK OF NEW MEXICO, Petitioner, v. Bill J. SHOLER, Trustee in Bankruptcy for Nau Enterprises,

Inc., David H. Nau and Barbara J. Nau,

Respondents.

No. 15300.

Supreme Court of New Mexico.

Nov. 29, 1984.

[102 NM 78] Farlow, Simone & Roberts, Randal W. Roberts, Norman F. Weiss, Albuquerque, for petitioner.

Freedman, Boyd & Daniels, David A. Freedman, Albuquerque, for respondents.

OPINION

STOWERS, Justice.

This Court granted a writ of certiorari to review whether the Bank of New Mexico (the bank) breached the terms of a collection provision in a security agreement. The trial court granted summary judgment in favor of the bank. The Court of Appeals reversed the trial court without deciding the remaining issue of whether the trial court erred in granting summary judgment rather than partial summary judgment. We reverse the Court of Appeals and remand to the Court of Appeals for decision of the remaining issue on appeal.

The issue is whether the bank breached the terms of the security agreement by notifying account debtors to make payments directly to the bank before notifying the borrower of the bank's request for direct payment.

Nau Enterprises, Inc. (Nau), executed a $10,000 promissory note, dated September 13, 1974, with the bank which was due on December 12, 1974. The note was secured by a security agreement in Nau's accounts receivable. The security agreement states, in pertinent part:

6. COLLECTIONS. Bank shall have the right to notify the account debtors obligated on any or all of Borrower's accounts receivable (if covered hereby) to make payment thereof direct to Bank, and to take control of all proceeds of any such accounts receivable, which right Bank may exercise at any time whether or not the Borrower is then in default hereunder or was theretofore making collections thereon. Until such time as Bank elects to exercise such right by mailing to Borrower written notice thereof, Borrower is authorized, as agent of the Bank, to collect and enforce said accounts receivable.

On November 18, 1974, the bank notified Nau's account debtors by mail to make payments directly to the bank. The bank sent written notice of its action to Nau on November 22, 1974. Nau was adjudicated as a bankrupt on April 29, 1975. Two years later this action was filed by Bill J. Sholer (Sholer), the trustee in bankruptcy.

Sholer contends that the conditional phrase in the collection paragraph of the security agreement should be interpreted as a strict limitation on the bank's right to collect and enforce the accounts receivable. We disagree. The paragraph indicates that the conditional phrase, "[u]ntil such time as Bank elects to exercise such right by mailing to Borrower written notice thereof," is a limitation on the borrower's authority as agent of the bank to collect and enforce accounts receivable. See Restatement (Second) of Agency, Sec. 107 (1958). The security agreement states that the bank's contractual right to collect and enforce accounts receivable by notifying account debtors is exercisable "at any time whether or not the Borrower * * * was theretofore making collections thereon." "A contractual provision which is clear and unambiguous is conclusive." Rushing v. Lovelace-Bataan Health Program, 93 N.M. 168, 169, 598 P.2d 211, 212 (1979). This rule applies here.

Sholer's interpretation of the agreement would render the bank's right to collect and enforce accounts receivable subject to prior notice to the borrower. Sholer's interpretation, if accepted, would conflict with the contractual right to notify account debtors "at any time."...