JR Simplot Co. v. SALES KING INTERN.

• Decision Date: 05 December 2000
• Docket Number: No. 990223.,990223.
• Citation: 2000 UT 92,17 P.3d 1100
• Parties: J.R. SIMPLOT COMPANY, dba Simplot Soilbuilders, Plaintiff and Appellee, v. SALES KING INTERNATIONAL, INC., Bountiful Valley Produce, Inc., and Virgil Anderson, Defendants and Appellant.
• Court: Utah Supreme Court

17 P.3d 1100

2000 UT 92

J.R. SIMPLOT COMPANY, dba Simplot Soilbuilders, Plaintiff and Appellee, v. SALES KING INTERNATIONAL, INC., Bountiful Valley Produce, Inc., and Virgil Anderson, Defendants and Appellant.

No. 990223.

Supreme Court of Utah.

December 5, 2000.

David C. Nye, Kent L. Hawkins, Pocatello, ID, for J.R. Simplot Co.

John A. Adams, Kevin Glade, Salt Lake City, for Sales King International, Inc.

RUSSON, Associate Chief Justice:

¶ 1 Sales King International, Inc. ("Sales King"), appeals the district court's grant of summary judgment to J.R. Simplot Company dba Simplot Soilbuilders ("Simplot"). We affirm.

BACKGROUND

¶ 2 Bountiful Valley Produce, Inc. ("BVP"), produced onion and squash crops on farms near Tremonton, which is within Box Elder County, Utah. Simplot sold chemicals and fertilizer on credit to BVP for the 1993, 1994, 1995, and 1996 growing seasons. To secure its interests, Simplot maintained annual security agreements with BVP and also filed a Uniform Commercial Code ("UCC") Financing Statement¹ with the Utah Department of Commerce, Division of Corporations and Commercial Code, Central Filing System in May 1993. Simplot's financing statement specified that Simplot retained a security interest in BVP's Box Elder County onion crops and all proceeds from such crops. A legal description of BVP's property was included, but no particular crop year was specified on the financing statement.

¶ 3 For the years 1993 and 1994, Simplot was completely repaid for the chemicals and fertilizer it had sold to BVP on credit. However, Simplot claims it received no payment for the $200,000 in chemicals and fertilizer sold to BVP for the 1995 growing season, nor for the $23,676.30 in chemicals and fertilizer sold to BVP for the 1996 growing season.

¶ 4 In 1994, Sales King and BVP entered into a marketing agreement that made Sales King a marketing agent for BVP. Sales King served as a marketing agent for the 1994, 1995, and 1996 growing seasons, and as an agent, Sales King sold BVP's crops but never actually took ownership of them. The terms of their agreement allowed Sales King to collect the proceeds from the crop sales and retain amounts from those proceeds to cover sales commissions and various expenses. Also, though not specified in the marketing agreement, Sales King directly paid some of BVP's creditors. In an attempt to protect its interests, Sales King filed a financing statement with the Box Elder County recorder² in April 1995 claiming a security interest in all BVP's crops and in the proceeds from the sale of those crops, as specified in the marketing agreement between BVP and Sales King.

¶ 5 In early 1995, a representative from Sales King ("Sales King Rep") allegedly had a telephone conversation with the Simplot credit manager for BVP's account. During that conversation, the Sales King Rep purportedly discussed Sales King's final payment to Simplot for BVP's 1994 credit purchases from Simplot. The Sales King Rep allegedly asked Simplot's credit manager for a letter indicating that Simplot had been paid in full and would "be releasing the UCC's" so that the Sales King Rep could then release the balance of the money to BVP. The Sales King Rep claimed that she eventually received a letter that satisfied her so that she was able to release the 1994 monies to BVP.

¶ 6 The Sales King Rep also claimed that in 1995, according to standard office procedure, she sent a letter to the Sales King corporate attorneys requesting that they research whether there were any UCC security interests filed against BVP. The Sales King Rep further claimed that her job required her only to initiate the request. She did not expect, nor did she receive, any sort of response or acknowledgment and therefore had no indication of what action was taken on her request for a UCC check on BVP.

¶ 7 The sales proceeds from BVP's 1995 onion crop totaled $192,856.86. From this amount, Sales King retained $20,250.17 in sales commissions and $18,159.49 for various business expenses. Sales King disbursed $57,850 to BVP for picking and packing costs, leaving a balance of $96,597.20. Sales King allegedly retained this balance to apply to preharvest advances it made to BVP. Simplot claims it received no payments from the 1995 onion crop.

¶ 8 BVP's 1996 onion crop produced a total of only $2199.93 in sales proceeds. Of this amount, Sales King retained $338.87 in sales commissions and the balance for various business expenses. Simplot claims it received no payments from the 1996 onion crop, either.

¶ 9 In August 1996, Simplot filed a complaint in First District Court, Box Elder County, against BVP and Virgil Anderson, the personal guarantor for the credit Simplot extended to BVP, for breach of contract, and against Sales King for conversion of crop proceeds belonging to Simplot. In June 1998, the district court granted Simplot's motion for summary judgment as against BVP and Anderson. That judgment is not on appeal.

¶ 10 Thereafter, in February 1999, the district court granted Simplot's motion for summary judgment against Sales King. It is from that judgment that Sales King now appeals.

¶ 11 On appeal, Sales King argues that although Simplot properly filed its financing statement with the Central Filing System within the Utah Division of Corporations and Commercial Code, the trial court erred in granting summary judgment because (1) Simplot represented to Sales King that Simplot would terminate its security interest in BVP's 1995 and 1996 crops; (2) Sales King's marketing agreement granted Sales King rights under Utah Code Ann. § 70A-9-318³ giving Sales King priority over Simplot's security interest; (3) Simplot cannot claim sales proceeds that Sales King used to pay expenses incurred or paid in the ordinary course of business; and (4) Simplot impliedly authorized Sales King to use the sale proceeds to cover business expenses.

¶ 12 Simplot counters that by filing its financing statement with the proper state agency as required by Utah law, it had a perfected security interest in BVP's 1995 and 1996 crop proceeds. By perfecting its security interest, Simplot argues, it met its burden and gave notice to all other creditors that it had priority over any unperfected or later perfected security interests. In addition, Simplot avers that because Sales King filed its financing statement with the Box Elder County recorder, which was not the proper place to file under Utah law, Sales King was an unsecured creditor and Simplot's interest had priority. Therefore, Simplot argues, Sales King's affirmative defenses or alleged errors are not well taken and Simplot was entitled to summary judgment as a matter of law.

SCOPE OF REVIEW

¶ 13 Summary judgment is appropriate only if there has been a showing "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." Utah R.Civ.P. 56(c), quoted in Dairy Prod. Serv., Inc., v. Wellsville, 2000 UT 81, ¶ 15, 13 P.3d 581

. Therefore, when we review the district court's decision to grant summary judgment, we review the court's legal decisions for correctness, giving no deference, and review "the facts and inferences to be drawn therefrom in the light most favorable to the nonmoving party." Dairy Prod. Serv.,

2000 UT 81 at ¶ 15, 13 P.3d 581 (citing Tretheway v. Miracle Mortgage, Inc., 2000 UT 12, ¶ 2, 995 P.2d 599).

ANALYSIS

I. SECURITY INTERESTS

¶ 14 Part of the underlying purpose of the UCC is to "simplify, clarify and modernize the law governing commercial transactions." Utah Code Ann. § 70A-1-102(2) (1997); see also Insley Mfg. Corp. v. Draper Bank & Trust, 717 P.2d 1341, 1346 (Utah 1986)

(noting that "[a] secured party should be able to rely on his compliance with the Code's requirements for perfection"); 79 C.J.S. Secured Transactions § 2 (1995) (stating that the code's "general purpose is to create a precise guide for commercial transactions under which businessmen may predict with confidence the results of their dealings"). Furthermore, "[t]he fundamental purpose of Article 9⁴ is to give notice to third persons and simplify the filing process." 9 Ronald A. Anderson & Lary Lawrence, Anderson on the Uniform Commercial Code § 401:5, at 483 (3d ed. rev.1999); see also Insley, 717 P.2d at 1345 ("The purpose and concept of notice filing would be significantly weakened if we held that [the party] is not bound by that which it would have discovered through a proper inquiry."); 79 C.J.S. supra, § 53, at 438 (stating that purpose of filing includes protection of creditor "by furnishing to others intending to enter into a transaction with the debtor a starting point for investigation which will result in fair warning with respect to the transaction contemplated"). As such, a party who has secured its interest in accordance with article 9 has priority, upon a debtor's default, "over `anyone anywhere, anyhow' except as otherwise provided by the remaining Code priority rules." Insley, 717 P.2d at 1347 (quoting Continental Am. Life Ins. Co. v. Griffin, 251 Ga. 412, 306 S.E.2d 285, 287 (1983)); see also Anderson & Lawrence, supra, § 9-312:6, at 330 (noting that conflicts of security interests are determined exclusively by article 9).

¶ 15 A security interest is defined as "an interest in personal property or fixtures which secures payment or performance of an obligation," Utah Code Ann. § 70A-1-201(37)(a) (Supp.2000), and a security agreement is any "agreement which creates or provides for a security interest," id. § 70A-9-105(1)(n) (Supp.2000). Additionally, "[e]xcept as otherwise provided by this act a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors." Id. § 70A-9-201 (1997). However, a security interest is not enforceable against a debtor or a third party unless the security interest has attached. See id. § 70A-9-203(1) (1997).

¶ 16 In order to attach,...