Clovis Nat. Bank v. Thomas

• Decision Date: 27 March 1967
• Docket Number: No. 7876,7876
• Citation: 1967 NMSC 61,77 N.M. 554,425 P.2d 726
• Parties: , 4 UCC Rep.Serv. 137 The CLOVIS NATIONAL BANK, Clovis, New Mexico, a corporation, Plaintiff-Appellant, v. Harold THOMAS, d/b/a Clovis Cattle Commission Company, Defendant-Appellee.
• Court: New Mexico Supreme Court

Page 726

425 P.2d 726

77 N.M. 554, 4 UCC Rep.Serv. 137

The CLOVIS NATIONAL BANK, Clovis, New Mexico, a corporation Plaintiff-Appellant, v. Harold THOMAS, d/b/a Clovis Cattle Commission Company Defendant-Appellee.

No. 7876.

Supreme Court of New Mexico.

March 27, 1967.

Rowley, Davis, Hammond & Murphy, Clovis, for appellant

Seth, Montgomery, Federici & Andrews, John G. Jasper, Santa Fe, amicus curiae.

Richard C. Civerolo, H. L. Cushing, Pete V. Domenici, Albuquerque, for appellee.

OPINION

OMAN, Judge, Court of Appeals.

This is a suit by plaintiff-appellant for alleged conversion of cattle by defendant-appellee. The parties operate their respective businesses in Clovis, Curry County, New Mexico, and will be referred to as plaintiff and defendant.

In its capacity as a bank, plaintiff, on March 27, 1963, loaned the sum of $8,800 to a Mr. W. D. Bunch. To evidence and secure the indebtedness he gave plaintiff a promissory note and a security agreement by which he granted a security interest in about 46 head of cattle belonging to him and branded 'W D Bar.' On April 11, 1963, a further security agreement, granting a security interest in 102 head of cattle, was given by him to plaintiff as additional security for the loan of March 27, and as security for additional loans to be made to him by plaintiff from time to time.

On July 29, 1963, he deposited $3,507 with plaintiff. This money represented proceeds from the sale by him of 35 head of cattle covered by the security agreements. $3,300 of this amount was applied by plaintiff on the indebtedness then owing by him.

On October 29, 1963, he deposited with plaintiff the sum of $5,613.17, the total amount of which was applied to his indebtedness, and which amount represented proceeds from the sale by him of 56 head of cattle covered by the security agreements. This deposit consisted of two checks given by defendant, who is a licensed commission house and market agency and as such handled the sale of the cattle for him.

Plaintiff admitted to being aware that Mr. Bunch was making sales of cattle covered by the security agreements.

In about September 1963, he made application to plaintiff for an additional loan with which to purchase additional cattle and with which to carry his cattle through the winter. An investigation was made by plaintiff during September, to determine the feasibility of granting this additional loan. Plaintiff approved the loan, and cattle were acquired by him and paid for by drafts drawn on plaintiff. By November 12, 1963, the additional cattle had been acquired.

On November 12, a new note in the principal amount of $21,500 and a new security agreement covering 283 head of cattle branded W D Bar were given by him to plaintiff to evidence and secure his then indebtedness. This indebtedness in the amount of $21,500 represented $2,007.67 still owing on the original note of March 27, $2,743.10 credited to his checking account on November 12, and amounts loaned or advanced to him during the intervening period. The security agreement was duly recorded in both Curry and Quay counties and in part provided:

'DEBTOR FURTHER REPRESENTS WARRANTS, AND AGREES THAT:

'* * *.

'Without the prior written consent of Secured Party, Debtor will not sell, * * * or otherwise dispose of the Collateral. * * *'

Thereafter, cattle covered by the November 12 security agreement were consigned to defendant by Mr. Bunch for sale on his behalf at public auction. The plaintiff had no actual knowledge of these sales and had not given any express consent to Mr. Bunch to make the sales. He remitted no part of the proceeds from these sales to the plaintiff for application on his indebtedness. The sales were of 45 head of cattle on February 20, 1964, 31 head on March 12, 1964, one head on April 16, 1964, 95 head on May 14, 1964, and one head on May 21, 1964. The total value of these cattle was $16,450.34, and plaintiff sought recovery from defendant of this amount under the first cause of action of its complaint.

Mr. Bunch has a son by the name of William D. Bunch, Jr., also known as Bill Bunch, Jr., who will be referred to either by name or as the son. The son was the owner of a brand referred to as 'Swastika K.' Some time prior to July 15, 1964, at least 90 head of cattle were acquired by either Mr. Bunch or his son and were branded Swastika K. There was some evidence tending to show that these cattle, at least to some extent, were actually property of the father. No security agreement was ever given by either the father or the son by which a security interest in cattle branded Swastika K was granted to the plaintiff, unless in some way it can be held that they were covered by the security agreement of November 12.

On July 15, 1964, plaintiff requested that Mr. Bunch sell the remainder of his cattle, including the Swastika K cattle. On the following day, 90 head of Swastika K cattle were trucked to defendant's place of business for sale and were carried on the defendant's records as belonging to Bill Bunch, Jr. Plaintiff knew the cattle were at defendant's place of business to be sold and told defendant that plaintiff claimed some interest in the cattle. Defendant was not told the nature or extent of the claimed interest of plaintiff in these cattle.

The cattle were sold on July 16. Plaintiff was aware of the sale and advised defendant that it would be 'nice' if the check in payment for these cattle could be made payable to one or both of the Bunches and to the plaintiff. At no time did the plaintiff demand payment or request that defendant not make payment to Bill Bunch, Jr.

Bill Bunch, Jr. consulted the local brand inspector and solicited his aid in securing payment from defendant. The brand inspector advised defendant that the Swastika K brand was recorded in the name of Bill Bunch, Jr., and that insofar as the Cattle Sanitary Board was concerned, payment could be made to him.

An attorney also called defendant on behalf of Bill Bunch, Jr. concerning payment for the cattle, and demand was made by Bill Bunch, Jr. upon defendant to pay him the proceeds from the sale of the cattle. This the defendant did on July 22. This payment was in the amount of $7,777.84, which is the amount of plaintiff's claim against defendant under the second cause of action.

On this same date, plaintiff filed suit against W. D. Bunch and William D Bunch, Jr., wherein plaintiff sought to recover from the father on the note of November 12, and sought to recover from the son the said sum of $7,777.84. In this proceeding plaintiff filed an affidavit in support of an application for a writ of garnishment, wherein it was asserted that defendant was indebted to William D. Bunch, Jr. No claim was made that the proceeds from the sale belonged to plaintiff, but rather plaintiff asserted that the proceeds belonged to William D. Bunch, Jr., and, as already stated, tried to reach these proceeds by garnishment, which came too late. The present suit was then filed against defendant on August 31, 1964.

The plaintiff asserts thirteen separate points relied upon for reversal. However, the ultimate conclusions upon which the judgment for defendant rests are (1) that plaintiff consented to the sales of W D Bar cattle covered by the security agreement of November 12, and thus waived any possessory rights it may have had in these cattle, and (2) that plaintiff had no perfected security interest in the Swastika K cattle, and failed to prove an unperfected security interest in these cattle of which defendant had knowledge.

Insofar as the sales of the W D Bar cattle are concerned, the trial court found plaintiff, as a matter of common practice, usage and procedure, permitted Mr. Bunch to sell cattle covered by the security agreements of March 27 and April 11, and consented to receipt of the sale proceeds by Mr. Bunch. It also found that plaintiff, by common practice, custom, usage and procedure, permitted and consented to the sales of W D Bar cattle covered by the security agreement of November 12, and permitted and consented to the receipt by Mr. Bunch of the proceeds from these sales.

The trial court concluded that plaintiff had permitted, acquiesced in, and consented to these sales; that by its conduct, plaintiff had waived any possessory rights it may have had in and to these cattle; that defendant did not wrongfully convert cattle in which plaintiff had an enforceable security interest; and that defendant was not responsible for the debtor's failure to remit the proceeds of the sales to plaintiff.

We agree with the findings and conclusions of the trial court. Insofar as consent and waiver on behalf of plaintiff are concerned, in addition to the facts recited above, the plaintiff's officers testified that it was the custom and practice of plaintiff to permit a debtor, who has given cattle as collateral, to retain possession and to sell the collateral without ever obtaining prior written consent of plaintiff, and that at no time in its dealings with Mr. Bunch between the time of the making of the note on November 12, 1963, and the sale of cattle on May 21, 1964, did plaintiff demand of him that he obtain prior written consent before making a sale.

It is true there was some testimony that the collateral was not released from the lien until the debtor actually delivered the proceeds of the sale to plaintiff, but, as testified to by one of the plaintiff's officers, the debtor never contacts the plaintiff and secures permission to make a sale, but the sale is made and plaintiff relies upon the debtor to bring the proceeds to plaintiff to be applied on the indebtedness. This practice is followed because 99% of the people with whom plaintiff deals are honest and take care of their obligations.

The general rule of liability of an auctioneer, who sells, in behalf of his principal, property subject to a mortgage lien, is stated as follows in the annotation at 96 A.L.R.2d 208, 212 (1964):

'According to...