Lisbon Bank & Trust Co. v. Murray
| Citation | 206 N.W.2d 96,12 U.C.C.Rep.Serv. 356 |
| Decision Date | 28 March 1973 |
| Docket Number | No. 55484,55484 |
| Parties | 12 UCC Rep.Serv. 356 LISBON BANK AND TRUST COMPANY, Appellant, v. Richard MURRAY, Appellee, v. Glenn MEIER and Joan Meier, Appellees and Defendants to Cross-Petition. |
| Court | United States State Supreme Court of Iowa |
R. B. Wolfe, Mount Vernon, for appellant.
McLaughlin & Beckmann, Anamosa, for appellee Richard Murray.
Heard before MOORE, C.J., and RAWLINGS, REYNOLDSON, HARRIS and McCORMICK, JJ.
This appeal involves a problem under the Uniform Commercial Code arising out of a sale of cattle. Plaintiff Lisbon Bank and Trust Company loaned defendants to cross-petition (Glenn Meier and Joan Meier) $6620.00 on January 15, 1969, to purchase 48 Holstein heifers and received a duly perfected security interest in the cattle. On March 25, 1969, Glenn Meier sold 12 of the heifers to defendant Richard Murray for $2428.80. Subsequently the Meiers defaulted on their note and filed bankruptcy. The bank seeks in this action to collect $2428.80 from Murray on the theory he purchased the cattle subject to the bank's lien. Trial court found the sale was made free of the lien and dismissed the bank's petition. We affirm.
The determinative issue is whether the sale was authorized by the bank. Section 554.9306(2), The Code, provides:
'Except where this Article otherwise provides, a security interest continues in collateral notwithstanding sale * * * 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 Iowa Code commentators state this section was adopted from § 9--306 of the 1962 official text of the Uniform Commercial Code and compare this subsection with previous Iowa law:
'Prior Iowa law was in accord that the lien of the secured party continued in the collateral after a sale thereof, Waters v. Cass County Bank, 65 Iowa 234, 21 N.W. 582 (1884), although the mortgagee could waive his lien by agreeing to the sale, Livingston v. Heck, 122 Iowa 74, 94 N.W. 1098 (1903).' 35B Iowa Code Annotated at 414.
The commentators add that the statute departs from former law by imposing a continuing lien on sale proceeds. However, as explained in the comment, where the lienholder authorizes the sale he waives his lien on the collateral under the Uniform Commercial Code just as under prior law.
We will assume the purchase in this case was by 'a person buying farm products subject to a perfected security interest from a person engaged in farming operations' within the meaning of Code § 554.9307, under which other buyers in the ordinary course of business take free of a security interest even where the sale is unauthorized. See Uniform Commercial Code Comment, Iowa Code Annotated, at 431.
Trial court made a finding of fact that Glenn Meier had authority to sell the cattle. A disputed question of the debtor's authority to sell collateral is for the trier of fact to decide. Producers Livestock M. Ass'n v. John Morrell & Co., 220 Iowa 948, 951--952, 263 N.W. 242, 244 (1935); 15 Am.Jur.2d Chattel Mortgages, § 153 at 324. This was a law action tried to the court. Trial court's fact findings are binding on us if supported by substantial evidence. Rule 344(f)(1), R.C.P. Our role is to examine the record to determine if there is substantial evidence to support this crucial finding.
Sale may be authorized by the secured party 'in the security agreement or otherwise.' § 554.9306(2), The Code. The security agreement in this case did not authorize sale and therefore the bank cannot be held to have waived its security interest in the collateral unless it 'otherwise' consented to the sale.
There was evidence the Meiers lived on a 33 acre tract near Lisbon where they bred sows, farrowed feeder pigs, grew hay and grazed livestock. The bank started loaning Clenn Meier money on his livestock operation in January 1968. Several loans covered by security agreement were made prior to January 15, 1969. At trial the bank acknowledged a general course of dealing, notwithstanding the security agreements, permitting him to sell collateral and apply the proceeds either to substitutions or on the notes. The bank admitted Meier accordingly sold hogs and horses on several prior occasions but denied he was authorized to sell cattle. There had been only one earlier cattle loan and those cattle had evidently not been sold at the time of the loan involved in this case. There was no evidence of any communication from the bank to Glenn Meier making any distinction as to cattle.
Glenn Meier told the bank at the time of the January 15, 1969, loan some of the cattle being purchased were bred, the others would be bred, and he intended to pasture them for six to 12 months on land owned by his father in Clinton County, selling them just before they calved. He hoped to pay the loan through enhancement in their value. The bank asserted it did not learn of the March 25, 1969, sale of 12 of the heifers to Murray until after the Meiers filed bankruptcy in May 1970.
However, it was undisputed that Glenn Meier took Murray's $2428.80 check to the bank the day after the sale. His version is that he told the bank's loan officer he sold some of the cattle and was permitted to deposit the money in his checking account rather than have it applied on the note. He said he spent the money on sows which became substitute collateral. The bank records show the check was deposited in his checking account. The bank loan officer denied Meier told him of the sale and said if he had the money would have been applied on the cattle loan. It was trial court's prerogative to pass on the credibility of the witnesses.
Both Glenn Meier and Murray testified Meier told Murray of the bank's security agreement on the cattle at the time of sale and Meier assured Murray he would take care of it.
Evidence of a course of dealing has relevance in interpreting agreements under the Uniform Commercial Code. Section 554.1205(1), The Code, defines course of dealing as 'a sequence of previous conduct between the parties * * * which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.' It may give particular meaning to and supplement or qualify terms of an agreement. § 554.1205(3), The Code.
A leading case on establishment of authority to sell secured farm products under the Uniform Commercial Code is Clovis National Bank v. Thomas, 77 N.M. 554, 425 P.2d 726 (1967). There the security agreement expressly prohibited sale of the collateral without the prior written consent of the secured party. The court found the secured party had nevertheless as a matter of common practice permitted the debtor to make such sales without prior written consent. The secured party was held to have waived the...
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