First State Bank v. Moen Enterprises

Decision Date13 April 1995
Docket NumberNos. 940168,s. 940168
Citation529 N.W.2d 887
CourtNorth Dakota Supreme Court
PartiesFIRST STATE BANK, Plaintiff and Appellee, v. MOEN ENTERPRISES, a Partnership; Michael Moen, Individually, and as a Partner of Moen Enterprises; and Robert Moen, Individually, and as a Partner of Moen Enterprises, Defendants and Appellants. FIRST STATE BANK, Plaintiff and Appellee, v. Michael D. MOEN and Robert J. Moen, Individually, and doing business as Moen Enterprises, a Partnership, Defendants and Appellants, Shirley I. Moen, Farmers Oil Company, and All Persons Unknown, Claiming Any Estate or Interest in or Lien or Encumbrance Upon the Real Estate Described in the Complaint, Defendants. FIRST STATE BANK, Plaintiff and Appellee, v. C & T FARMS PARTNERSHIP; Charles E. Moen, Individually, and as a Partner of C & T Farms Partnership; and Timothy S. Moen, Individually, and as a Partner of C & T Farms Partnership, Defendants and Appellants. FIRST STATE BANK, Plaintiff and Appellee, v. Charles E. MOEN and Timothy S. Moen, Individually, and doing business as C & T Farms, a Partnership, Defendants and Appellants, and All Persons Unknown and Claiming Any Estate or Interest in or Lien or Encumbrance Upon the Real Estate Described in the Complaint, Defendants. FIRST STATE BANK, Plaintiff and Appellee. v. P & J FARMS; Jeffrey C. Moen, Individually, and as a Partner of P & J Farms; and Paul F. Moen, Individually, and as a Partner of P & J Farms, Defendants and Appellants. FIRST STATE BANK, Plaintiff and Appellee, v. Paul F. MOEN and Jeffrey C. Moen, Individually, and doing business as P & J Farms, a Partnership, Defendants and Appellants, and All Persons Unknown, Claiming Any Estate or Interest in or Lien or Encumbrance Upon the Real Estate Described in the Complaint, Defendants. C & T FARMS PARTNERSHIP; Charles E. Moen as an Individual and a Partner in C & T Farms Partnership, Timothy S. Moen as an Individual and a Partner in C & T Farms Partnership, Moen Enterprises, Michael Moen as an Individual and a Partner of Moen Enterprises, Robert Moen as an Individual and a Partner

John S. Foster, Vaaler, Warcup, Woutat, Zimney & Foster, Grand Forks, for plaintiff, defendant and appellee.

J. Philip Johnson (argued), Wold Johnson, P.C., and Kip Kaler (appearance), Kaler Law Office, Fargo, for defendants, plaintiffs and appellants.

SANDSTROM, Justice.

Charles Moen, Timothy Moen, Michael Moen, Robert Moen, Jeffrey Moen, Paul Moen, C & T Farms Partnership, Moen Enterprises, and P & J Farms (the Moens) appeal from district court judgments in favor of First State Bank (the Bank) foreclosing various mortgages and security interests, awarding monetary damages on personal guaranties, dismissing the Moens' counterclaims for fraud, breach of contract, breach of fiduciary duty, and breach of good faith, and dismissing the Moens' separate action for defamation, abuse of process, and interference with contractual rights. We affirm.

I

The Moen brothers, through three partnerships, ran a large-scale farming operation which was financed through the Bank. By 1990, the Moens were in default on operating loans owed to the Bank. In June and July of 1990, the Bank renewed the Moens' existing loans and provided operating funds for the 1990 crop. The Moens executed new loan and security agreements, including security agreements covering the 1990 crop.

The Moens were unable to repay their loans when they came due in November 1990. Under a December 1990 "workout" agreement, the Bank agreed to extend the Moens' loans to March 31, 1991. The Moens in return agreed they would liquidate their wheat, bean, and potato inventory under a set schedule and would deliver all proceeds to the Bank, which would release some funds back to the Moens and apply the balance to their indebtedness. The December 1990 agreement specifically stated the Bank was not agreeing to provide financing after March 31, 1991. The Moens also signed new security agreements covering their harvested and stored inventory of grain and potatoes.

As required by the workout agreement, the Moens sold all of their wheat, beans, and potatoes by March 31, 1991. They initially turned some proceeds over to the Bank, which released funds back to the Moens. Eventually, however, the Moens failed to turn over more than $340,000 from the sale of the wheat, beans, and potatoes, and diverted the funds to their own use.

The Bank began a number of actions against the Moens, seeking money judgments on the personal guaranties and foreclosure of the real estate mortgages and personal property security interests. The Moens counterclaimed for fraud, breach of contract to lend money, breach of fiduciary duty, and breach of good faith.

In April 1992, the Bank served statutory notices on four potato brokers who had purchased potatoes from the Moens without making the checks payable jointly to the Bank. See N.D.C.C. Sec. 41-09-28(11). The Moens then brought a separate tort action against the Bank, alleging defamation, abuse of process, and interference with contractual rights.

All of these actions were consolidated for trial. In December 1993, the district court granted partial summary judgment declaring the June, July, and December 1990 security agreements valid. In February 1994, the court granted partial summary judgment dismissing the Moens' claims for breach of contract to lend money and breach of good faith, and all claims based on the notices to the brokers. The court denied the Moens' motion to amend their pleadings to seek punitive damages. In April 1994, the court granted a final summary judgment dismissing the Moens' remaining claims, awarding the Bank judgment on the personal guaranties, 1 and foreclosing the real estate mortgages and personal property security interests. The Moens appealed.

II

The district court had jurisdiction under Art. VI, Sec. 8, N.D. Const., and N.D.C.C. Sec. 27-05-06. This Court has jurisdiction under Art. VI, Sec. 6, N.D. Const., and N.D.C.C. Secs. 28-27-01 and 28-27-02. The appeal was timely under Rule 4(a), N.D.R.App.P.

III

Much of the Moens' argument focuses upon the validity of the June, July, and December 1990 security agreements. They assert each security agreement covering the 1990 crop or proceeds from that crop is invalid under N.D.C.C. Sec. 35-05-04:

"Security agreement not to include other personal property. A security agreement covering specific crops is not valid to create a security interest therein, nor entitled to be filed in the office of the register of deeds or the secretary of state, if the security agreement contains any provision by which a security interest is claimed in any other personal property. For the purpose of this section, the term 'crops' means crops, crop proceeds and products, supplementary price payments and payments made in lieu of crop proceeds, including crop insurance payments, for the period of time authorized in this section, but does not include diversion payments or third-party payments made to producers which are not directly related to crop production or proceeds."

The June and July security agreements list the collateral as "All Crops" on certain described lands, but in a later paragraph the agreements also purport to create a "contractual possessory security interest" in all of the Moens' accounts with the Bank. For purposes of this appeal, we will assume the June and July security agreements were invalid under N.D.C.C. Sec. 35-05-04. Because we conclude the December security agreement was valid, the validity of the June and July agreements is immaterial to the ultimate question whether the Bank had a valid security interest in the grain and potatoes which could be foreclosed, and which provided the basis for the notices sent to the brokers.

The December 1990 security agreement covered equipment, inventory, accounts, farm products, general intangibles, and "All grain ... and potatoes heretofore grown and harvested ... in the year 1990 and prior years." The dispositive issue on validity of the December security agreement is whether the crop mortgage statutes, N.D.C.C. ch. 35-05, apply to security agreements in farm product inventory taken after the crop has been harvested and stored. We conclude they do not.

The Moens attempt to stretch the statutory definition of crops in N.D.C.C. Sec. 35-05-04 to support their argument that any security interest taken in crops, products, or proceeds, whether taken before or after severance from the land, is subject to the provisions of N.D.C.C. ch. 35-05. Neither the legislative history nor a logical reading of the statutes supports the Moens' interpretation.

In 1989, N.D.C.C. Sec. 35-05-04 was amended to expand the definition of "crops" to include "crop proceeds and products." See 1989 N.D.Sess.Laws, ch. 420, Sec. 1. The legislative history indicates the definition was added in response to confusion over the meaning of the term "crops" in a series of federal cases, beginning with In re Kingsley, 73 B.R. 767 (Bankr.N.D.1987). In Kingsley, the Bankruptcy Court concluded a security agreement covering all crops and "Proceeds and Products" violated N.D.C.C. Sec. 35-05-04 because it extended to government farm payments, which constituted "other personal property" under the statute. 2 In response to Kingsley, the 1989 Legislature amended the statute to clarify that including proceeds, products, and certain government farm payments, in the description of collateral would not invalidate a security interest taken in specific crops. A lender could take a security interest in growing crops and in "proceeds and products" to assure the lien continued after the crop was harvested and stored. The Moens point to no legislative history suggesting an intent to...

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