Southwest Washington Production Credit Ass'n v. Seattle-First Nat. Bank, SEATTLE-FIRST
| Decision Date | 12 April 1979 |
| Docket Number | No. 45534,SEATTLE-FIRST,45534 |
| Parties | , 26 UCC Rep.Serv. 1346 SOUTHWEST WASHINGTON PRODUCTION CREDIT ASSOCIATION, Petitioner, v.NATIONAL BANK, Respondent. |
| Court | Washington Supreme Court |
Armstrong, Vander Stoep & Remund, J. A. Vander Stoep, Chehalis, for petitioner.
Davis, Wright, Todd, Riese & Jones, Marvin L. Gray, Jr., Seattle, for respondent.
Southwest Washington Production Credit Association (PCA) brought a declaratory judgment action claiming its security interest in crops acquired by Symons Frozen Foods, Inc. (Symons), a food processor, had priority over a security interest of Seattle-First National Bank (Sea-First) in Symons' inventory. The trial court ruled in PCA's favor, which judgment was reversed by the Court of Appeals. We reverse the Court of Appeals and affirm the judgment of the trial court.
The issue in this case is whether petitioner PCA, by its actions, authorized the sale of farm products and thereby waived its security interest in them.
Petitioner PCA is a borrower-owned cooperative, much like a credit union, which is a branch of the federal credit system. It borrows its funds from the Federal Intermediate Credit Bank and in turn makes operating loans directly to farmers in its franchised territory.
In 1975, as in the prior 10 years, PCA made short-term loans to three Washington farmers to cover current operating expenses for crop production. The loans were 1-year notes payable on demand. PCA made the loans based on yearly budgets, prepared by the farmers, which anticipated the sale of crops. The farmers were scheduled to repay the loans as crops were sold.
As it had in the past, PCA in 1975 received and perfected a security interest in each of the crops and its proceeds. The security agreements, which were standard forms, provided that the debtor farmers would "not permit any of the Collateral to be encumbered (other than Secured Party's security interest), sold, or removed . . . without first having obtained the written consent of the Secured Party." Petitioner PCA had never enforced the letter of this clause before, and did not do so in 1975. Rather, as always, PCA regularly met with the farmers, discussed their expected harvesting and sale of the crops, and payment of the loans out of sale proceeds.
In the summer of 1975, the farmers sold their crops to Symons without obtaining PCA's prior written authorization. Symons paid the farmers a portion of the sale price, which portion the farmers remitted to PCA. Symons thereafter became insolvent and never paid the balance due the farmers. The farmers then defaulted on their debts to PCA.
Respondent Seattle-First National Bank had a perfected security interest in Symons' inventory of frozen and processed food. PCA brought a declaratory judgment action, claiming its security interest in the crops acquired by Symons from the three farmers had priority over Sea-First's security interest in Symons' inventory. Sea-First acknowledged that if PCA still maintained an interest in the crops, this interest would be superior to the bank's. Its argument was, however, that by permitting the growers to sell to Symons, PCA had waived its security interest in the crops.
The trial court's ruling in PCA's favor was based upon its finding that PCA's consent to the crop sale was conditioned on its receipt of proceeds. The Court of Appeals reversed, ruling that PCA waived its security interest by its subsequent course of performance. Southwest Washington Prod. Credit Ass'n v. Seattle-First Nat'l Bank, 19 Wash.App. 397, 406, 577 P.2d 589 (1978). We reinstate the judgment of the trial court.
Article 9 of the Uniform Commercial Code governs this case. See RCW 62A.9-101 Et seq. That article treats specially farmers and agricultural transactions. See RCW 62A.9-109(3); 9-204(4)(a); 9-302(1)(c); 9-401(1)(a); 9-307(1); 9-312(2). See generally Clark, The Agricultural Transaction: Equipment and Crop Financing, 11 U.C.C.L.J. 15, 18-20 (1978).
Under 62A.9-307(1), a buyer in the ordinary course of business takes free of a security interest created by his or her seller except when that buyer is "a person buying farm products from a person engaged in farming operations . . . " Here, Symons purchased farm crops secured by PCA from three Washington farmers. Thus Symons and its creditor, respondent Sea-First, did not take free of PCA's security interest unless the interest was somehow defeated.
Under 62A.9-306(2), "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...
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