Stockman Bank of Montana v. Agsco, Inc.

• Decision Date: 28 February 2007
• Docket Number: No. 20060174.,20060174.
• Citation: 728 N.W.2d 142,2007 ND 26
• Parties: STOCKMAN BANK OF MONTANA, a Montana banking corporation, Plaintiff and Appellant, v. AGSCO, INC., a North Dakota corporation, Capital Harvest, Inc., d/b/a Capital Harvest Finance Company, a North Dakota corporation, individually and as agent for AGSCO, Inc., Defendants and Appellees, and Farmers Union Oil Company of Williston, a North Dakota cooperative association, MON-KOTA, Inc., a Montana corporation, Betaseed, Inc., a Minnesota corporation, Central Insurance Agency, a North Dakota corporation, Steven D. Cayko, a/k/a Steve Cayko, Perry Elletson, a/k/a Perry E. Elletson, Ron Gross, a/k/a Ronnie Gross, Edward P. Ochs, a/k/a Eddie Ochs, Tom Ochs, Mark Brunelle, Kelly Brunelle, and Bill Sheldon, Defendants, and Farmers Union Oil Company of Williston, a North Dakota cooperative association, Third-party Plaintiff, v. Hardy Farm, Inc., and Jim Hardy, Third-party Defendants.
• Court: North Dakota Supreme Court

728 N.W.2d 142

2007 ND 26

STOCKMAN BANK OF MONTANA, a Montana banking corporation, Plaintiff and Appellant, v. AGSCO, INC., a North Dakota corporation, Capital Harvest, Inc., d/b/a Capital Harvest Finance Company, a North Dakota corporation, individually and as agent for AGSCO, Inc., Defendants and Appellees, and Farmers Union Oil Company of Williston, a North Dakota cooperative association, MON-KOTA, Inc., a Montana corporation, Betaseed, Inc., a Minnesota corporation, Central Insurance Agency, a North Dakota corporation, Steven D. Cayko, a/k/a Steve Cayko, Perry Elletson, a/k/a Perry E. Elletson, Ron Gross, a/k/a Ronnie Gross, Edward P. Ochs, a/k/a Eddie Ochs, Tom Ochs, Mark Brunelle, Kelly Brunelle, and Bill Sheldon, Defendants, and Farmers Union Oil Company of Williston, a North Dakota cooperative association, Third-party Plaintiff, v. Hardy Farm, Inc., and Jim Hardy, Third-party Defendants.

No. 20060174.

Supreme Court of North Dakota.

February 28, 2007.

Garth H. Sjue (argued) and Ken G. Hedge (on brief), Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P., Williston, ND, for plaintiff and appellant.

John S. Foster (argued) and Tracy Ann Kennedy (appeared), Zimney Foster P.C., Grand Forks, ND, for defendants and appellees.

VANDE WALLE, Chief Justice.

[¶ 1] Stockman Bank of Montana appealed from a summary judgment determining AGSCO, Inc., and Capital Harvest, Inc., were entitled to agricultural supplier's liens for agricultural supplies furnished to Hardy Farm, Inc. We affirm in part, reverse in part, and remand for proceedings consistent with this opinion.

I

[¶ 2] Stockman Bank is a Montana banking corporation with a branch office in Sidney, Montana. Stockman Bank provided operating loans for the 2001 and 2002 crop years for Hardy Farm, which conducted farming operations in North Dakota and Montana during those years. According to Hardy Farm's records, in 2002 Hardy Farm planted 1,587 acres of sugar beets and 207 acres of grain in Montana, and 1,564 acres of sugar beets and 2,447 acres of grain in North Dakota. In January 2002, Hardy Farm executed a promissory note to Stockman Bank for $4,991,039. In August 2002, Stockman Bank advanced Hardy Farm an additional $356,979 to complete the 2002 crop. As security for Stockman Bank's loans, Hardy Farm executed security agreements granting Stockman Bank a security interest in Hardy Farm's then-owned or thereafter acquired property, including its crops, and Stockman Bank filed financing statements for the security agreements.

[¶ 3] AGSCO is a North Dakota corporation that sells agricultural chemicals and supplies to farmers in North Dakota and Montana. AGSCO offers its customers a one percent discount if their bill is paid within five days of the invoice; otherwise, the invoiced amount is due within thirty days of the date of the invoice. AGSCO also offers its customers a credit line through Capital Harvest, an affiliate North Dakota corporation. Both AGSCO and Capital Harvest are owned by Randy Brown. Capital Harvest does not sell agricultural goods or furnish agricultural services; rather, Capital Harvest finances AGSCO's credit sales under a revolving charge agreement. AGSCO and Capital Harvest had an "agency agreement" for Capital Harvest, as agent for and affiliate of AGSCO, in which Capital Harvest agreed to facilitate financing and credit applications for AGSCO's customers; to establish appropriate lines of credit for AGSCO's customers' purchase of AGSCO products; to perform all services necessary to bill and invoice AGSCO's customers for products purchased from AGSCO and collect balances due; to market AGSCO's products; to finance purchases of AGSCO's products and services on a non-recourse basis; and to indemnify and hold AGSCO harmless for any damages, injury, or loss caused by Capital Harvest's performance of its responsibilities under the agency agreement.

[¶ 4] In March 2002, Capital Harvest provided Hardy Farm with a $500,000 credit line for the purchase of agricultural chemicals and supplies from AGSCO. The credit line provided that if the balance on the account was not paid by December 1, 2002, Hardy Farm would be responsible for all credit service charges at the fixed rate of 18 percent per annum, but if the balance was paid before December 1, 2002, the 18 percent rate would be waived in an amount necessary to bring the annual effective interest rate "to Wall Street Journal Prime minus 3.0% floating daily, (currently 1.75% per annum)." During the 2002 growing season, AGSCO sold Hardy Farm $536,582.24 in agricultural chemicals and services. AGSCO transferred $500,000 of Hardy Farm's account receivables to Capital Harvest under the revolving charge agreement. Rick Dregseth, the chief financial officer of an affiliate of AGSCO and Capital Harvest, described the recordkeeping for the transfer of the account receivables to Capital Harvest:

2.

That AGSCO sells agricultural products to a Customer on credit, which creates a receivable from that Customer on AGSCO's books.

3.

That the next business day after the purchase is made, AGSCO transfers its Customer receivable to Capital Harvest for collection. Capital Harvest pays nothing to AGSCO for this bookkeeping transfer of the Customer receivable between the two affiliated entities. 4.

That the transfer shows as a bookkeeping receivable to AGSCO from Capital Harvest.

5.

That Capital Harvest then creates a bookkeeping receivable from the Customer for the amount of the products purchased plus any finance charge required of the Customer in the Revolving Charge Agreement.

6.

That AGSCO does not receive cash or payment in any form from Capital Harvest for the amount of the sale, for the transfer of the receivable from AGSCO's books to Capital Harvest's books, or at anytime thereafter until the Customer pays Capital Harvest. Capital Harvest does not maintain lending capital of its own to buy AGSCO's receivables and never pays AGSCO for any receivables until payment is collected from the Customer.

7.

That when Capital Harvest collects money from the Customer it credits its bookkeeping receivable, which in turn allows Capital Harvest to pay money to AGSCO as a credit on its bookkeeping receivable to AGSCO.

8.

That AGSCO holds an outstanding receivable on its books and does not get paid unless and until Capital Harvest's receivable is satisfied with payment in money from the Customer.

[¶ 5] According to Marc Geatz, the credit manager for AGSCO and Capital Harvest, they sold Hardy Farm $536,582.24 worth of agricultural chemicals and services during the 2002 growing season, and in May 2003, Hardy Farm owed $552,330.41 for those purchases. On October 30, 2002, AGSCO filed an agricultural supplier's lien with the North Dakota Secretary of State, which said $35,142.61 was owed for the purchase of agricultural chemicals for Hardy Farm's alfalfa, corn, malting barley, potatoes, sugar beets, and wheat crops located in Township 151, Range 104 and Township 152, Range 104 in McKenzie County, North Dakota. On October 30, 2002, Capital Harvest, "as Agent for AGSCO," also filed an agricultural supplier's lien with the North Dakota Secretary of State, which said $500,000 was owed for the purchase of agricultural chemicals for Hardy Farm's alfalfa, corn, barley, wheat, potatoes, and sugar beet crops located on the same land in McKenzie County. AGSCO and Capital Harvest also filed crop liens for spraying or dusting in Montana under Mont.Code Ann. § 71-3-902 (2005).

[¶ 6] In 2003, Stockman Bank sued several entities with claimed interests in Hardy Farm's crops, alleging Stockman Bank had a perfected security interest in the proceeds from Hardy Farm's crops. Stockman Bank sought to determine the respective rights of the parties to several checks deposited with the district court, which represented the proceeds from the crops. Stockman Bank alleged Capital Harvest was not entitled to an agricultural supplier's lien, because Capital Harvest had not provided agricultural supplies to Hardy Farm and did not have a perfected security interest that was prior to Stockman Bank's security interest. Stockman Bank asserted the amount claimed as a lien by AGSCO and by Capital Harvest was excessive in light of the number of acres farmed by Hardy Farm in North Dakota.

[¶ 7] In March 2004, the district court granted partial summary judgment for AGSCO and Capital Harvest, concluding AGSCO and Capital Harvest clearly intended an agency relationship for the furnishing of agricultural supplies to Hardy Farm, and Capital Harvest was acting as an agent of AGSCO and was entitled to file an agricultural supplier's lien on AGSCO's behalf; under North Dakota law, AGSCO and Capital Harvest complied with the statutory requirements for an agricultural supplier's lien and were entitled to an agricultural supplier's lien for agricultural supplies provided to Hardy Farm within a 120-day window before their liens were filed on October 30, 2002; and Capital Harvest was not entitled to a lien for aerial spraying done by an independent third party. The court decided additional facts were necessary to determine what agricultural supplies were furnished to Hardy Farm "within the 120-day period and on produce from North Dakota lands."

[¶ 8] In January 2006, the district court granted a final summary judgment for AGSCO and Capital Harvest, concluding as a matter of law they were entitled to an agricultural supplier's lien of $176,560.85 for agricultural supplies furnished to Hardy Farm after July 2, 2002, plus accrued finance charges of $74,024.84 through November 30, 2004, and finance charges of $87.07 per day after November 30, 2004. In January 2006, a judgment was entered authorizing Capital Harvest and AGSCO to obtain $250,585.69, plus $87.07 per day finance charges after November 30, 2004, from the funds deposited with the district court. In January 2006, at the request of counsel for AGSCO and Capital Harvest, the clerk of court released...