Central Washington Bank v. Mendelson-Zeller, Inc., MENDELSON-ZELLE
| Decision Date | 28 September 1989 |
| Docket Number | No. 54949-4,INC,MENDELSON-ZELLE,54949-4 |
| Citation | 113 Wn.2d 346,779 P.2d 697 |
| Court | Washington Supreme Court |
| Parties | , 9 UCC Rep.Serv.2d 1352 CENTRAL WASHINGTON BANK, a Washington corporation, Appellant, v., a California corporation authorized to do business in Washington, Respondent, and Premium Packing & Storage, Inc., a Washington corporation, Defendant. |
Carlson & Drewelow, P.S., Allan Galbraith, Wenatchee, for appellant.
Barrett, Hale & Gilman, Paul A. Barrett, Gregory S. Sergienko, Seattle, for respondent.
Daniel B. Ritter, Seattle, amicus curiae for appellant on behalf of Washington Bankers Ass'n.
This is a conversion action involving competing claims to crop proceeds under article 9 of the Uniform Commercial Code as reflected in RCW 62A.9-101 et seq. The trial court entered summary judgment in favor of the defendant, Mendelson-Zeller, Inc. (MZ), and against the plaintiff, Central Washington Bank (Bank). We reverse.
The facts are undisputed. Robert and Julia Stirling owned and operated several apple orchards in Grant County. In mid-1983 the Stirlings filed for relief under chapter 11 of the Bankruptcy Code, acting as debtors in possession of their bankruptcy estates. The Stirlings then entered into an agreement with Central Washington Bank in which the Bank agreed to finance the Stirlings' growing expenses for their 1984 crop. As collateral, the Bank retained a security interest in the crop and its proceeds. The Bank perfected its interest by filing a financing statement with the Washington State Department of Licensing on December 30, 1983.
Under the terms of the agreement, the Stirlings were required to "properly and timely, in a first-class husbandlike manner ... thin, mature, harvest, transport to market, wash, sort, grade, pack, and sell the crop." They were also required to obtain additional financing for these expenses from a reputable financing institution to be approved by the Bank. Any security interest given this subsequent financier was to be subordinate to the Bank's security interest.
Pursuant to the Bank's requirements, the Stirlings entered into a handling and financing agreement with Premium Packing and Storage, Inc. (Premium). Premium operated as a commission merchant. Under the standard contract entered into with the Stirlings and other growers, Premium accepted fruit on consignment for purposes of processing and sale in return for a commission, and advanced the growers their costs of harvesting and hauling the fruit to Premium's warehouse. Title remained in the growers, subject to a security interest granted to Premium.
Aside from its standard contract, Premium entered into a separate financing and handling agreement with the Stirlings in which Premium inter alia agreed to process and market the Stirlings' 1984 crop and received a security interest in the crop to secure payment of its commission and advances. In accordance with the Bank's requirement, Premium's security interest was expressly made subordinate to the Bank's. This agreement was approved by the Bankruptcy Court.
Unknown to the Bank, Premium had an exclusive sales agent agreement with MZ, a California corporation, under which MZ performed Premium's marketing functions for a commission. MZ sold the apples on credit and collected payment from the buyers in the form of checks or, in international sales, drafts drawn under a letter of credit. The agreement between Premium and MZ was approved by the growers in their standard contracts with Premium. However, the Premium-MZ agreement was not mentioned in the approved separate agreement Premium had with the Stirlings. In addition to performing marketing services, MZ agreed to finance Premium's business operations. Based on the number of bins of fruit handled each week, MZ advanced Premium funds for picking, hauling and packing expenses. Premium retained the packing advances and distributed the picking and hauling advances to the growers. As security for MZ's commission and the advances, Premium granted MZ a security interest in the crops it handled. Premium warranted that it could deliver title to the crops free of any liens or encumbrances. MZ did not search the public records and was unaware of the Bank's prior security interest in the Stirlings' crop. MZ did not file a financing statement.
The gross proceeds from the 1984 crop exceeded $900,000. MZ retained approximately $42,000 as sales commission and brokerage fees, and approximately $366,000 as repayment of the advances made to Premium, remitting the remainder to Premium. Premium deducted its commission and remitted the remaining proceeds to the Bank and Stirling. A deficiency in the principal amount of $99,061.53 remained on the debt owed the Bank.
The Bank brought this conversion action against Premium and MZ, claiming a right to the proceeds they retained by virtue of a superior security interest. The parties submitted cross motions for summary judgment. Premium did not appear for the hearing on these motions and the Bank was granted summary judgment against Premium. Premium has not appealed and is not a party before this court.
The trial court granted MZ's motion for summary judgment, ruling that the Bank was only entitled to net proceeds. The Bank appealed the order granting summary judgment in MZ's favor and the denial of its cross motion for summary judgment. We accepted certification.
The arguments presented by the parties raise two issues: (1) Does the Bank's security interest in the proceeds have priority over MZ's; and (2) if so, does the Bank's security interest extend to the gross proceeds or only the net proceeds after costs of processing and sale?
As this appeal arises out of an order granting summary judgment, we engage in the same inquiry as the trial court. Hontz v. State, 105 Wash.2d 302, 311, 714 P.2d 1176 (1986); Wilson v. Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56(c). Hontz. All facts submitted and reasonable inferences therefrom are to be considered in favor of the nonmoving party. Hontz; Wilson.
Initially the Bank had a superior security interest in the crop and proceeds. The Bank perfected its interest at the time it filed a financing statement. § 9-302 1. The proceeds were initially accounts receivable when the apples were sold on credit, and then changed to negotiable instruments (checks and drafts) when the accounts were paid. As it is impossible to take possession of an intangible, a security interest in accounts can only be perfected by filing. § 9-302(1); 2 Washington Commercial Law Deskbook § 17.3(1) (1982). MZ did not file a financing statement. Therefore, MZ did not perfect its interest until it took possession of the negotiable checks and drafts, see § 9-304(1), some time after the Bank had filed its financing statement. As the Bank was the first to file or perfect its interest, it has priority under § 9-312(5)(a).
MZ raises several theories, however, under which it contends the Bank lost its priority in the proceeds. 2
MZ argues that the Bank waived its security interest by requiring in the security agreement that the Stirlings sell the crop. Under § 9-306(2), a secured party relinquishes its security interest in the collateral if it consents to sale of the collateral. That section reads:
[A] security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.
(Italics ours.) However, this waiver extends only to the security interest in the collateral itself, preventing the secured party from recovering the collateral in the hands of the third party buyer; it does not extinguish the secured party's interest in the proceeds as against the debtor or competing creditors. In re Mid State Wood Prods. Co., 323 F.Supp. 853, 857 (N.D.Ill.1971); In re Cullen, 71 B.R. 274, 279-80 (Bankr.W.D.Wis.1987); Vacura v. Haar's Equip., Inc., 364 N.W.2d 387, 392 (Minn.1985); § 9-306 Official Comment 2(a), 3.
The Bank expressly authorized the sale of the crop in the security agreement. However, the Bank is not attempting to recover the apples from the ultimate buyers, nor is it suing MZ, as sales agent, for unauthorized sale of the collateral. Clovis Nat'l Bank v. Thomas, 77 N.M. 554, 425 P.2d 726 (1967) and its progeny, cited by MZ, are inapposite. Rather, the Bank is seeking the proceeds retained by MZ. Unless MZ can show the Bank waived its security interest in the proceeds, the Bank's interest continues in those proceeds retained by MZ.
MZ argues that by requiring processing and sale of the crop, the Bank expressly authorized MZ's consignment contract with Premium, the terms of which allowed MZ to first deduct its commission and advances, thereby waiving its security interest in the proceeds to that extent. MZ also contends the Bank impliedly waived its security interest by its conduct. Whether an authorization or waiver has occurred is generally a question of fact. In re Klipfer, 62 B.R. 290, 295 (Bankr.S.D.Ohio 1986); Benson Cy. Coop. Credit Union v. Central Livestock Ass'n, Inc., 300 N.W.2d 236, 241 (N.D.1980). However, when reasonable minds could reach but one conclusion from the evidence presented, questions of fact may be determined as a matter of law, and summary judgment is appropriate. Davis v. Niagara Mach. Co., 90 Wash.2d 342, 348, 581 P.2d 1344 (1978); Meissner v. Simpson Timber Co., 69 Wash.2d 949, 951, 421 P.2d 674 (1966).
Waiver is the intentional relinquishment of a known right. It...
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