Thompson v. Danner
| Decision Date | 27 October 1993 |
| Docket Number | 930066,Nos. 930052,s. 930052 |
| Citation | 507 N.W.2d 550 |
| Parties | Gene THOMPSON and Jean D. Thompson, individually and as members of a joint venture consisting of Mel Danner, Max Danner, Gene Thompson and Jean D. Thompson, and "The Joint Venture" comprised of Max Danner, Mel Danner, Gene Thompson and Jean D. Thompson, Plaintiffs, Appellants and Cross-Appellees, v. Max DANNER and Mel Danner, Defendants and Appellees, and First American Bank and Trust Company of Grafton, Defendant, Appellee and Cross-Appellant. Max DANNER and Mel Danner, Plaintiffs, v. Gene THOMPSON Chip Potatoes, Inc., a North Dakota Corporation, and Jean D. Thompson, an individual, Defendants and Third-Party Plaintiffs, v. FIRST AMERICAN BANK AND TRUST COMPANY OF GRAFTON, Third-Party Defendant. Civ. |
| Court | North Dakota Supreme Court |
Patrick W. Fisher, of McConn, Fisher, Olson & Daley, Grand Forks, for plaintiffs and appellants.
Nicholas B. Hall, of The Law Office, Ltd., Grafton, for defendant and appellee First American Bank and Trust Co. of Grafton.
Joel Frederick Arnason, of Arnason Law Office, Grand Forks, for defendants and appellees Max Danner and Mel Danner. No appearance.
Gene and Jean D. Thompson appealed from district court judgments on an accounting of expenses for and income from potato crops grown by a joint venture consisting of the Thompsons and Max and Mel Danner. First American Bank and Trust of Grafton [Bank] cross-appealed. We hold: (1) the Bank's security interest in future crops ultimately grown by the joint venture, but which was given to the Bank by the Danners prior to formation of the joint venture, is superior to the interests of the joint venture and its participants; (2) the Bank is not entitled, under the terms of the security agreement, to storage payments as secured "proceeds" of the potato crops; and (3) Jean Thompson, as a joint venturer, may not claim an agricultural processor's lien under Chapter 35-30, N.D.C.C., against crops, and the resulting proceeds, grown by the joint venture. We reject other assertions of reversible error and, accordingly, affirm the judgments.
Gene and Jean Thompson are married. Jean is the mother of Max and Mel Danner. Gene is the Danners' stepfather. Gene Thompson Chip Potatoes, Inc., is a corporation whose sole stockholder is Jean Thompson.
In early 1990, the Thompsons and the Danners informally discussed forming a joint venture to grow 1990 potato crops. This venture was to consist of crops to be grown on approximately 850 acres, with the Thompsons contributing the use of approximately 160 acres of land they had leased from the Danners in 1989, and the Danners contributing the use of the remaining acreage which they either owned or had leased from others.
On April 3, 1990, the Danners executed a security agreement and financing statement with the Bank, pledging as security all 1990 crops to be grown on their farmland, including the entire 850 acres where joint venture potatoes were subsequently grown. In exchange, the Bank advanced the Danners $408,300 for their 1990 farming expenses and refinanced $336,696 in the Danners' existing farm debt from the previous crop year. The financing statement was filed on April 12, 1990. The Danners did not disclose to the Bank that they had discussed the possibility of forming a joint venture with the Thompsons when they executed the security agreement.
The Thompsons and Danners began planting the potato crops on April 25, 1990. Planting was not completed until sometime in May 1990. Max and Mel Danner and Gene and Jean Thompson did not sign the following undated written joint venture agreement until late June and early July 1990.
The potato harvest began in mid-September 1990. Although the Danners provided some labor and fuel, Jean Thompson and her wholly-owned corporation, Gene Thompson Chip Potatoes, Inc., provided most of the trucks and harvesters used in the potato harvesting operation. After harvest was completed, the Thompsons learned that the Bank was receiving the proceeds of the potato crops pursuant to the security agreement given by the Danners. On November 29, 1990, Jean Thompson and the corporation filed an agricultural processor's lien under Chapter 35-30, N.D.C.C., in the amount of $165,000, and asserted a first priority lien over the crop proceeds. See N.D.C.C. Sec. 35-30-03.
In February 1991, the Danners brought an action against Jean Thompson and the corporation seeking to have the agricultural processor's lien invalidated. Jean Thompson and the corporation brought a third-party action against the Bank seeking to have their agricultural processor's lien declared superior to the Bank's security interest in the potato crops. In March 1991, the Thompsons brought an action against the Danners and the Bank for an accounting of joint venture income and expenses. The trial court consolidated the two actions.
After a summary judgment proceeding, an evidentiary hearing, and a trial, the court determined the Danners and the Thompsons had entered into a joint venture to grow 1990 potato crops on the 850 acres, but found "[i]nsufficient evidence ... to allow the Court to make a definitive finding with regard to exactly when the Venture was created." The trial court, however, determined the Bank's security interest was perfected on April 12, 1990, "prior to the creation of the Danner-Thompson Joint Venture." The trial court also determined the misdescription of three tracts of land in the financing statement did not render the Bank's security interest ineffective.
The trial court also ruled Jean Thompson's corporation was the "alter ego" of the Thompsons in any dealings involving the corporation and the joint venture and refused to recognize its separate corporate existence. The court ruled Jean Thompson, as a joint venturer, could not place a valid agricultural processor's lien under Chapter 35-30, N.D.C.C., on venture assets in which she had an interest in net proceeds. The trial court found the Danners had a "proprietary interest," through lease or direct ownership, of all 850 acres of land on which the joint venture grew the potato crops. However, because the Danners had leased the 160 acres to the Thompsons in 1989 before the Danners executed the security agreement, the trial court ruled the Danners could not grant the Bank a valid security interest covering the crops planted on that leased property. The court determined that, after April 12, 1990, the Bank had a priority creditor position as to all others having claims against the joint venture regarding the crops on the remainder of the 850 acres. The court also ruled, although $26,825 in contract storage payments would normally constitute "proceeds" of the potato crops subject to the Bank's security agreement, because this storage fee income was intended by the joint venturers to be outside the scope of the venture, the Bank was not entitled to the storage payments.
In accordance with these rulings, the trial court ordered distribution of joint venture assets held in escrow. The court granted the joint venture a $325,558 judgment against the Danners; granted the Thompsons a $118,206.31 judgment against the joint venture; and ordered the remaining joint venture funds be distributed 60 percent to the Danners and 40 percent to the Thompsons. The Thompsons and the Bank appealed.
The trial court ruled the Bank perfected its security interest in the Danners' 1990 crops on April 12, 1990, when the Bank filed the financing statement, and this perfection preceded formation of the joint venture. Based on these determinations, the trial court ruled the joint venture crops grown on the land contributed to the joint venture by the Danners remained subject to the Bank's prior perfected security interest. We find no error in any of these rulings.
The creation of a perfected security interest is accomplished by a two-step process: attachment and perfection. See N.D.C.C. Sec. 41-09-24 [U.C.C. Sec. 9-303]. While "attachment" relates to the creation and enforceability of a security interest between the parties to the transaction, "perfection" is an additional step which makes the security interest effective against third parties. Citizens Nat. Bank of Evansville v. Wedel, 489 N.E.2d 1203, 1205 (Ind.Ct.App.1986). When the security interest is intended to cover crops growing or to be grown, attachment occurs once the debtor has signed a security agreement containing a description of the collateral and of the land concerned, value has been given, and the debtor has rights in the collateral. N.D.C.C. Sec. 41-09-16(1) and (2) [U.C.C. Sec. 9-203]. See also Thet Mah & Assoc. v. First Bank of N.D. (NA), 336 N.W.2d 134, 139 (N.D.1983). A creditor perfects a security interest in crops to be grown by filing an appropriate financing statement. N.D.C.C. Sec. 41-09-23(1) [U.C.C. Sec. 9-302]. If a creditor completes the required steps for perfection prior to attachment of its security interest, the date of perfection is fixed as of the date the interest attaches. N.D.C.C. Sec. 41-09-24(1) [U.C.C. Sec. 9-303]; Benson County Co-op. Credit Union v. Central Livestock Ass'n, Inc., 300 N.W.2d 236, 240 (N.D.1980).
In this case, the Danners, on April 3, 1990, signed a security agreement describing the 1990 crops as the collateral and giving the legal description of the land on which the crops were to be grown. The Bank gave value in the form of a renewal of a...
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