Garden City Production Credit Ass'n v. Lannan

• Decision Date: 16 April 1971
• Docket Number: No. 37373,37373
• Parties: , 8 UCC Rep.Serv. 1163 GARDEN CITY PRODUCTION CREDIT ASSN., Appellant, v. J. P. LANNAN, Appellee.
• Court: Nebraska Supreme Court

Page 99

186 N.W.2d 99

186 Neb. 668, 8 UCC Rep.Serv. 1163

GARDEN CITY PRODUCTION CREDIT ASSN., Appellant, v. J. P. LANNAN, Appellee.

No. 37373.

Supreme Court of Nebraska.

April 16, 1971.

Syllabus by the Court

1. A security interest continues in collateral notwithstanding sale, exchange, or other disposition thereof by the debtor, unless his action 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.

2. A provision in a security agreement granting a security interest in proceeds of collateral, as well as in the collateral itself, does not amount to written consent to dispose of collateral but only a provision that should a sale, exchange, or other disposition occur, the proceeds also would be covered by the security agreement.

3. The failure to rebuke or object alone by the lender to the sale of the collateral does not amount to written consent to dispose of the collateral free of the lender's security interest.

4. The coupling of a provision prohibiting disposition of the collateral without written consent, together with a reservation of a security interest in the proceeds of the sale, are provisions primarily designed for the further protection of the security holder and not provisions to expand the rights of a purchaser.

5. Ordinarily to establish a waiver of legal right there must be a clear, unequivocal and decisive act of a party showing such a purpose, or acts amounting to an estoppel on his part.

6. Ordinarily a waiver is a voluntary abandonment or surrender, by a capable person, of a right known by him to exist, with the intention that such right shall be surrendered.

Snell, Winkle & Heese, Columbus, for appellant.

Wagner & Johnson, Raymond E. Baker, Gale D. Tessendorf, Columbus, Mattson, Ricketts, Gourlay & Lewis, Lincoln, for appellee.

Heard before WHITE, C.J., and SPENCER, BOSLAUGH, SMITH, McCOWN, NEWTON, and CLINTON, JJ.

WHITE, Chief Justice.

A protected Kansas lender seeks in repleaving to recover 161 head of cattle in the possession of an innocent Nebraska purchaser. The basic issue is whether, under the Uniform Commercial Code, the lender has waived his otherwise protected security interest. The judgment of the district court was against the lender. We reverse the judgment of the district court.

Section 9--306(2), U.C.C., provides: 'Except where this article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his action 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.'

The cattle in question were from the ranch of Murlin and Doris Carter in Syracuse, Hamilton County, Kansas. The plaintiff, Garden City Production Credit Association, hereinafter referred to as P.C.A., extended the Carters a loan in 1965 to finance their farming and ranching operations. A signed financing statement, covering the cattle in question and executed and perfected pursuant to the Uniform Commercial Code of the State of Kansas, was filed with the Hamilton County register of deeds in Syracuse, Kansas, on May 2, 1966. Several subsequent security agreements were filed by P.C.A. pursuant to the Kansas Uniform Commercial Code covering farm machinery, crops, and branded liverstock. On March 9, 1967, the Carters executed a security agreement which included the 161 heard of cattle here involved. This agreement prohibited Carter from encumbering, removing, selling, or otherwise disposing of the cattle without the Written consent of P.C.A., and provided the right to repossess in the event of default.

Subsequent to these security agreements, the Carters at various times did sell and remove secured property in the course of their farming and ranching operation and each time they did so without first obtaining the written consent required by the financing agreement. The record shows that after various sales, Carter endorsed all checks received for the sale of the cattle involved to P.C.A. for application on his indebtedness. Carter has never requested written consent to sell the various collateral nor has Carter ever been rebuked by P.C.A. for failing to secure the written consent required by its financing contract. Carter sold the 161 head of cattle here involved to the Western Cattle Company, hereinafter referred to as Western, a large livestock brokerage firm operating principally in western Kansas. On June 15, 1967, Western negotiated a contract between Carter and Augustin Brothers, of Shelby, Nebraska, hereinafter referred to as Augustin, for delivery of 165 head of steers on or before September 20, 1967. Mr. Daly of Western issued a sight draft on a Columbus bank for the Augustin account payable to Murlin Carter in the amount of $1,650 as part payment for the cattle. The draft was forwarded to Carter by Western and Carter endorsed it over to P.C.A. as payment under the financing contract. The draft included a notation that it was given as part payment for 165 head of cattle as per contract.

P.C.A. had knowledge of the intended sale on September 20, 1967, as Carter had informed a Mr. Jones at P.C.A. of the contract when Carter applied for an additional advance on the financing agreement in June 1967. On September 20, 1967, the contract date, Carter delivered the cattle to Western, the livestock broker, for shipment to the Augustin lots in Columbus, Nebraska.

Because of rejects, only 161 head of steers were actually delivered to Nebraska. A second sight draft (in the amount of $28,537.76) was again drawn on a Columbus bank, on the Augustin account, and signed by Daly of Western for Augustin.

Carter endorsed the draft over to P.C.A. and forwarded it to it for credit to his account. P.C.A. sent the draft through regular banking channels for collection. Approximately 2 weeks later, P.C.A. was informed that the draft was being dishonored for insufficient funds and was being returned.

Augustin sold the cattle to defendant Lannan, delivered possession, and received payment from Lannan. After learning of Lannan's possession of the cattle, P.C.A. caused a financing statement covering the 161 head of steers to be recorded with the county clerk of Platte County, Nebraska, thus perfecting the security interest, pursuant to the Nebraska Uniform Commercial Code; and made a demand for return of the cattle from Lannan. The demand was refused, whereupon this action commenced.

The district court found that P.C.A. had knowledge of the proposed sale; that it had failed to rebuke or object to the sale; and therefor it 'had waived its security interest in the cattle.'

There is no evidence in the record to support the defendant's allegation in his amended answer that P.C.A. had orally or in writing waived its security interest under the terms of the financing agreement. In essence, then, the defense to this action, in violation of the express terms of the security financing agreement, is based on the doctrine of implied consent or authorization (s. 9--306(2), U.C.C.) flowing from P.C.A.'s acknowledgment of the sale, and its failure to rebuke or object and require compliance with the express terms of the agreement when it accepted and applied the proceeds of the sale on the loan.

The evidence reveals a typical farmranch operation contemplating a course of dealing in the sale of farm products, and the necessity of securing credit financing for such an operation. The Uniform Commercial Code, whatever else its objects may be, was designed to close the gap in the classic conflict between the lender and the innocent purchaser and furnish acceptable, certain, and suitable standards which would promote the necessity of and the fluidity of farm credit financing in the modern context, and at the same time facilitate the sale and exchange of collateral by furnishing a definable and ascertainable standard which purchasers could rely on. Case application is in its genesis, but an examination of the textual and court authority supports such an approach to an examination of cases in a specific factual context. See Uniform Commercial Code Bibligraphy, 1969 (published by the Joint Committee on Continuing Legal Education of the American Law Institute and the American Bar Association), 'Article 9--Secured Transactions,' pp. 87 to 101.

We have already had occasion to construe section 9--306(2), U.C.C., in a slightly different factual context, but the principles therein announced furnish the guide for an approach and a determination in the factual context of this case. In Overland Nat. Bank v. Aurora Co-op. Elevator Co., 184 Neb. 843, 172 N.W.2d 786, we held that a provision in a security agreement granting a security interest in proceeds of collateral, as well as in the collateral itself, does not amount to written consent to dispose of collateral but only a provision that should a sale, exchange, or other disposition occur, the proceeds also would be covered by the security agreement.

In the Overland case, the borrower expressly promised not to sell or otherwise dispose of the collateral. In our case here the borrower covenanted not to dispose of the collateral without written consent. The financing agreement, herein, and the provisions of section 9--306(2), U.C.C., provide that the security interest of the lender continues in any identifiable proceeds including collections received by the debtor. It is difficult to see, either considering the purpose of the code, or examining the intent of P.C.A. and Carter in their course of dealing that there was any intention, either express or implied, on the part of P.C.A. to waive its security interest up to the point of acceptance and actual application of the proceeds of the sale. We must assume that section 9--306(2), U.C.C., was drafted with an awareness of the...