Farmers State Bank v. Farmland Foods, Inc.

• Decision Date: 20 March 1987
• Docket Number: No. 85-250,85-250
• Citation: 225 Neb. 1,402 N.W.2d 277
• Parties: , 3 UCC Rep.Serv.2d 902 FARMERS STATE BANK, Appellant, v. FARMLAND FOODS, INC., doing business as Farmland Industries, Appellee.
• Court: Nebraska Supreme Court

Page 277

402 N.W.2d 277

225 Neb. 1, 3 UCC Rep.Serv.2d 902

FARMERS STATE BANK, Appellant, v. FARMLAND FOODS, INC., doing business as Farmland Industries, Appellee.

No. 85-250.

Supreme Court of Nebraska.

March 20, 1987.

Syllabus by the Court

1. Verdicts: Appeal and Error. A jury verdict will not be disturbed on appeal unless it is clearly erroneous and against the preponderance of the evidence.

2. Waiver: Words and Phrases. Waiver is a voluntary and intentional relinquishment or abandonment of a known existing legal right or such conduct as warrants an inference of the relinquishment of such right.

3. Security Interests: Waiver: Estoppel. Performance under a security agreement, including the failure of the secured party to rebuke the debtor or object to the debtor's conduct in selling collateral in violation of the terms of the security agreement, may amount to a waiver of the lender's contractual right to require its written consent to a sale of collateral.

4. Security Interests: Waiver: Estoppel. Whether the secured party's conduct constitutes a waiver of its right to require written consent to a sale of collateral is a question of fact.

Knudsen, Berkheimer, Richardson & Endacott, Lincoln, for appellant.

David R. Webb, Lincoln, and Brian F. Beckner, Osceola, for appellee.

KRIVOSHA, C.J., and BOSLAUGH, WHITE, HASTINGS, CAPORALE, SHANAHAN, and GRANT, JJ.

GRANT, Justice.

Plaintiff-appellant, Farmers State Bank (hereafter Bank), brought this action for conversion against the defendant-appellee, Farmland Foods, Inc. (Farmland), for damages based on Farmland's purchase of hogs which were subject to the Bank's security interest. Farmland answered, generally denying it was liable to the Bank in any amount and setting out various defenses to the Bank's action, including the defense that the Bank had impliedly consented to the sale of hogs to Farmland and thus waived the Bank's security interest in that collateral. The case was tried to a jury. At the close of all of the evidence, both the Bank and Farmland moved for a directed verdict. The trial court overruled Farmland's motion and sustained the Bank's motion in part, after finding that the acts of Farmland constituted a conversion for which Farmland could possibly be liable. The issue of Farmland's liability was submitted to the jury for its determination as to Farmland's defenses of waiver, consent, estoppel, and ratification. The jury returned a verdict for Farmland. The Bank timely appealed to this court.

Appellant Bank assigns as error the trial court's actions in submitting to the jury the issues of waiver, estoppel, consent, and ratification and in failing to properly instruct the jury on the issue of waiver by estoppel. For the reasons hereinafter set out, we affirm.

Evidence adduced at trial shows the following. For approximately 15 years ending in the latter part of 1983, David Hopwood was engaged in a hog-raising operation described as a farrow-to-finish operation. The hogs would be raised from birth until they reached market weight, at approximately 5 to 6 months, and would then be sold at market.

In February of 1977 Hopwood approached appellant Bank to obtain financing for his operation. The Bank initially loaned Hopwood approximately $86,000. At that time Hopwood signed a security agreement with the Bank pledging his hogs, among other farm assets, as collateral. The security agreement contained various warranties. One such warranty stated "DEBTOR [Hopwood] WARRANTS AND COVENANTS: ... (3) Not to sell, transfer or dispose of the Collateral ... without the prior written consent of the Secured Party [the Bank]."

Despite this requirement for written consent prior to any sale of collateral, Hopwood sold his hogs on over 130 occasions between February 2, 1977, and February 1983, without first obtaining the Bank's consent. The president of the Bank testified that Hopwood was never questioned about his practice of selling the collateral without having obtained permission, nor did the Bank ever require Hopwood to obtain prior consent to any sale. The Bank president further testified that complying with the provision requiring written consent prior to the sale of the collateral was "humanly impossible" and "physically impossible." He explained the circumstances surrounding a typical sale of a farmer's collateral. The farmer would call the buyer for a quote of the current market price. Depending on the market condition, this quoted price was subject to change if not accepted immediately. Requiring the farmer to obtain permission from the secured party before a sale at the quoted price rather than immediately accepting the offer would require a great deal of the farmer's time and might result in a change in price before the intended sale would be completed. In order for the farmer to keep most of his time available for his farming work and to avoid this possible drop in prices, he must be able to accept the quoted price immediately.

Hopwood testified that between February 2, 1977, through February of 1983, he sold hogs to the defendant, Farmland, approximately 10 to 15 times a year. These sales ranged from 20 to 40 hogs per sale. Hopwood testified that he would check on the price Farmland was paying, and if this was satisfactory, Hopwood would immediately sell and deliver the hogs to Farmland. Hopwood would then take the collateral sale proceeds to the Bank and have these proceeds applied against his loan. During all this time, the Bank was aware of Hopwood's sales to Farmland because Farmland checks were applied to Hopwood's loan with the Bank. Hopwood testified that he never sought permission to sell his collateral in this manner, nor was he ever reprimanded by the Bank for not having done so. After the proceeds were applied to his loan, Hopwood would usually borrow more money for his continuing operation.

On some occasions Hopwood was unable to speak with a loan officer. On these occasions he would deposit the proceeds directly into his farm account rather than giving the proceeds to the Bank for application to reduce the loan account balance. Then, a few days later, he would return to the Bank and have those proceeds applied to his loan. As an example, the testimony showed that such a procedure was followed in sales on October 25, November 8, and November 9, 1982. The proceeds of these sales were deposited in Hopwood's farm account. Hopwood returned to the Bank on November 16, 1982, and had these deposits applied toward his loan. While there was testimony that the Bank told Hopwood at this time that these direct deposits into his farm account were a violation of the security agreement, Hopwood testified that he did not recall there being any reprimand or censure by officials of the Bank, that, in fact, the November 16, 1982, incident was not isolated, and that on two or three other occasions when direct deposits to his farm account were made, there was no complaint.

The present case concerns six specific sales made by Hopwood to Farmland between April 30 and June 17, 1983. The six sales were of 155 hogs for a price of $16,612.01. The proceeds from these sales were deposited directly into Hopwood's farm account. Rather than returning to the Bank and having these proceeds applied to his loan balance and then borrowing additional funds from the Bank, Hopwood used the proceeds to pay for feed for the hogs and other farm operation expenses. The Bank became aware of these sales in July of 1983, after a state bank examiner noticed a lack of activity on Hopwood's loan sheet. Hopwood was called into the Bank to discuss this inactivity. At this time a plan for an orderly liquidation of the collateral was suggested. Additional funds were advanced by the Bank to Hopwood in order to keep the operation going until the liquidation could be complete. Hopwood continued to sell his hogs just as he had done before the plan for liquidation, until November of 1983, when he filed for bankruptcy. At this point appellant Bank requested all future checks for the sale of collateral be issued jointly to Hopwood and the Bank. Farmland complied with this request on all sales after that time. The Bank then sought to recover the proceeds from the six disputed sales between April 30 and June 17, 1983, in an action for conversion against Farmland.

This court has often held that a jury verdict will not be disturbed on appeal unless it is clearly erroneous and against the preponderance of the evidence and so clearly contrary to findings that it is the duty of the reviewing court to correct it. Further, a jury verdict is sufficient if there is any competent evidence presented to the jury upon which it could find for the successful party. Mennonite Deaconess Home & Hosp. v. Gates Eng'g Co., 219 Neb. 303, 363 N.W.2d 155 (1985). The district court did not err in submitting to the jury the issue of waiver.

The controlling issue to be determined is whether the Bank, by its conduct over a long period of time, has consented to the sale of the Bank's collateral without its written consent and has thus, by implication, waived its rights in the collateral. The Bank contends that Hopwood did not have express consent to sell the collateral. Consent, however, may be established by implication arising from a course of conduct as well as expressly, and such consent operates as a waiver of the security interest. See, Hedrick Savings Bank v. Myers, 229 N.W.2d 252 (Iowa 1975); United States v. Central Livestock Association, Inc., 349 F.Supp. 1033 (D.N.D.1972); Moffett Bros. & Andrews Commission Co. v. Kent, 5 S.W.2d 395 (Mo.1928).

Waiver has been defined as a "voluntary and intentional relinquishment or abandonment of a known existing legal right ... or such conduct as warrants an inference of the relinquishment of such right...." (Emphasis supplied) Five Points Bank v. Scoular-Bishop Grain Co., 217 Neb. 677, 681, 350 N.W.2d 549, 552 (1984).

We determine that the evidence as...