Case Title: United Agri-Products Financial Services, Inc. v. O's Gold Seed Co.

Citation: 

Docket Number: 86-172

State: wyoming

Court: Wyoming Supreme Court

Date: 1987-02-25T00:00:00Z

Document:
United Agri-Products Financial Services, Inc. v. O's Gold Seed Co.1987 WY 19733 P.2d 252Case Number: 86-172Decided: 02/25/1987Supreme Court of Wyoming
UNITED AGRI-PRODUCTS FINANCIAL SERVICES, INC., APPELLANT 
(DEFENDANT), ROCKY MOUNTAIN FEED & GRAIN, INC., (DEFENDANT),

 
 
v.

 
 
O'S GOLD SEED COMPANY, AN 
IOWA CORPORATION, APPELLEE (PLAINTIFF).

 
 
Appeal from the District Court,PlatteCounty, William A. Taylor, 
J.

 
 
Frank J. Jones of Jones 
& Weaver, P.C., Wheatland, for 
appellant.

 
 
Eric M. Alden of Jones, 
Jones, Vines & Hunkins, Wheatland, for appellee.

 
 
Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT 
and MACY, JJ.

 
 

MACY, 
Justice.

 
 

[¶1.]     Appellee O's Gold Seed 
Company (O's Gold) filed an action in district court to recover possession of 
personal property. From a judgment in favor of O's Gold, United Agri-Products 
Financial Services, Inc. (UAP) appeals to this Court.

 
 

[¶2.]     We reverse and 
remand.

 
 

[¶3.]     UAP sets forth the 
following issues for our determination:

 
 
"A. WAS THE SECURITY 
INTEREST OF UNITED AGRI PRODUCTS FINANCIAL SERVICES, INC., IN SEED SOLD AND 
DELIVERED TO ROCKY MOUNTAIN FEED & GRAIN, INC., BY O'S GOLD SEED COMPANY 
SUPERIOR TO ANY 
CLAIM OF O'S GOLD SEED COMPANY?

 
 
"B. DID THE SETTLEMENT OF 
FOREIGN LITIGATION WHEREIN UNITED AGRI PRODUCTS FINANCIAL SERVICES, INC., WAS 
PLAINTIFF AND ROCKY MOUNTAIN FEED & GRAIN, INC., WAS DEFENDANT RELEASE THE 
SECURITY INTEREST UNITED AGRI PRODUCTS FINANCIAL SERVICES, INC., HAD IN THE SEED 
BELONGING TO ROCKY MOUNTAIN FEED & GRAIN, INC.?"

 
 
O's Gold states the 
issues as follows:

 
 
"THE APPELLEE'S INTEREST 
IN THE SEED WAS PROTECTED FROM APPELLANT'S CLAIMED SECURITY INTEREST BY THE 
EXCEPTIONS CONTAINED IN § 34-21-243 (c) (i & ii), W.S., 
1977.

 
 
"APPELLEE COMPLIED WITH 
THE PROVISIONS OF § 11-12-105 W.S., 1977 REQUIRING IT TO EVIDENCE ITS IDENTITY 
AS THE ACTUAL SELLER OF THE SEED ON THE BAG LABEL.

 
 
"THE APPELLEE ESTABLISHED 
ROCKY MOUNTAIN WAS GENERALLY KNOWN BY ITS CREDITORS TO BE SUBSTANTIALLY ENGAGED 
IN SELLING SEED OWNED BY OTHERS.

 
 
"THE APPELLANT'S CLAIMED 
SECURITY INTEREST IN THE SEED WAS EXTINGUISHED WHEN THE UNDERLYING DEBT WAS 
SATISFIED.

 
 
"ANY ERROR BY THE TRIAL 
COURT WAS HARMLESS ERROR IN LIGHT OF THE APPELLANT'S FAILURE TO PRESENT ANY 
EVIDENCE OF DAMAGES."

 
 

[¶4.]     O's Gold is an 
Iowa corporation engaged in the business of 
selling agricultural seed in Wyoming. In the fall of 1983, O's Gold met 
with Rocky Mountain Feed & Grain, Inc. (RockyMountain), a general retailer of farm and ranch 
supplies in Platte County, 
Wyoming. As a result of their 
meeting, O's Gold and RockyMountain entered into an agreement 
whereby O's Gold agreed to deliver a specified quantity of seed to RockyMountain for resale to area farmers and 
ranchers for the 1984 crop season. The agreement also provided that, at the end 
of the season, Rocky Mountain would pay O's Gold for the seed sold during the 
year, receive a commission for the seed sold, and return to O's Gold any seed 
which remained unsold.

 
 

[¶5.]     Pursuant to the terms 
of the agreement, O's Gold delivered the seed to RockyMountain. At the end of the 1984 season, 
RockyMountain paid O's Gold for 
the seed sold during the year and returned to O's Gold any seed which remained 
unsold. The same procedures were followed the next year.

 
 

[¶6.]     Meanwhile, in December 
of 1984, RockyMountain obtained financing 
for its retail operations from UAP. RockyMountain signed a financing agreement and 
a financing statement in which it pledged its inventory and accounts receivable 
to UAP as security for the indebtedness.

 
 

[¶7.]     In June of 1985, after 
experiencing financial difficulties, RockyMountain closed its business. At the time 
of closing, RockyMountain had in its 
possession a portion of the seed delivered to it by O's 
Gold.

 
 

[¶8.]     On July 15, 1985, O's 
Gold filed a complaint in district court in which it prayed for an order 
determining it to be entitled to possession of the seed and an order directing 
RockyMountain and UAP to 
relinquish the seed to O's Gold. In its answer, UAP alleged as an affirmative 
defense that it was entitled to the seed because it filed the appropriate 
security instrument with the county clerk. On September 3, 1985, the district 
court issued an order for delivery commanding the sheriff to take possession of 
the seed from RockyMountain and to deliver it to O's 
Gold.

 
 

[¶9.]     Sometime prior to trial 
on O's Gold's complaint, UAP filed suit against RockyMountain on the debt underlying its 
security interest defense. On April 18, 1986, UAP settled its claim against 
RockyMountain. Pursuant to the 
settlement agreement, judgment was entered in favor of UAP on April 18, 
1986.

 
 

[¶10.]  A trial to the court on O's Gold's 
complaint against RockyMountain and UAP was held on May 1, 1986. 
O's Gold attempted to show that the seed was sold to RockyMountain on consignment and that the seed 
was exempt from the claims of creditors under § 34-21-243(c), W.S. 1977. That 
section provides as follows:

 
 
"(c) Where goods are 
delivered to a person for sale and such person maintains a place of business at 
which he deals in goods of the kind involved, under a name other than the name 
of the person making delivery, then with respect to claims of creditors of the 
person conducting the business the goods are deemed to be on sale or return. The 
provisions of this subsection are applicable even though an agreement purports 
to reserve title to the person making delivery until payment or resale or uses 
such words as `on consignment' or `on memorandum.' However, this subsection is 
not applicable if the person making delivery:

 
 
"(i) Complies with an 
applicable law providing for a consignor's interest or the like to be evidenced 
by a sign; or

 
 
"(ii) Establishes that 
the person conducting the business is generally known by his creditors to be 
substantially engaged in selling the goods of others; or

 
 
"(iii) Complies with the 
filing provisions of the article on secured transactions (article 
9)."

 
 
In addition, O's Gold 
attempted to show that UAP's claim against RockyMountain had been fully and completely 
settled by the prior judgment. 

 
 

[¶11.]  In contrast, UAP attempted to show that 
the seed was sold outright to RockyMountain and, consequently, that it was 
inventory subject to the security agreement. In the alternative, UAP attempted 
to show that, even if the seed was sold on consignment, it was subject to the 
security agreement because it did not come within the exceptions provided in § 
34-21-243(c).

 
 

[¶12.]  At the close of the evidence, the 
district court found that:

 
 
"The consignor complied 
with Section 34-21-243 Wyoming Compiled Statutes in that (1) every bag of seed 
displayed the following statement[:] `Seed sold through Agents remains the 
property of [O's Gold] Seed Company until delivered to the customer.' This 
notice substantially complies with [paragraph] (i) of Wyoming Statute 
34-21-243[(c).] (2) Rocky Mountain Feed had been selling seed and other products 
for various companies on consignment and this information was known or should 
have been discovered by the Defendant (WS [3]4-21-243[(c)](ii)). Lastly, UAP 
settled [its] claim with Rocky Mountain Feed. The settlement provided for the 
payment of money and assignment of accounts receivable in settlement of UAP['s] 
claim against Rocky Mountain Feed. This appears to the court to be in full 
satisfaction of the debt of RockyMountain to UAP."

 
 
I

 
 

[¶13.]  In its first claim before this Court, UAP 
argues that the seed sold by O's Gold to RockyMountain was sold outright and, 
consequently, that it was inventory subject to UAP's security interest. The 
agreement entered into by RockyMountain and O's Gold on October 26, 1983, 
specifically provided:

 
 
"THE UNDERSIGNED O's GOLD 
SEED DEALER [Rocky Mountain] AND O's GOLD SEED COMPANY AGREE TO CARRY OUT THE 
OBLIGATIONS COVERED IN THIS AGREEMENT. DEALER AGREES TO CONFORM TO THE POLICIES 
OF O's GOLD * * *.

 
 
"* * * Dealer agrees to 
represent and offer for sale O's Gold seed product line and associated products. 
* * *

 
 
"* * * Dealer agrees to 
call on all potential customers in his territory to sell, collect for an[d] 
promote the products of the Company * * *.

 
 
* * * * * 
*

 
 
"* * * Seed corn, 
sunflower, and sorghum seed [are] delivered to the Dealer on consignments and can be returned * *." 
(Emphasis added.)

 
 
The agreement for 1984 
also provided:

 
 
"The parties mutually 
agree to:

 
 
"1. Adhere to the 
provisions written in the * * * O's Gold Sales Agent Policies and 
Procedures."

 
 
The manual on sales agent 
policies and procedures provides in relevant part: "The Company retains 
ownership of the seed until the customer accepts delivery." On the basis of that 
provision, UAP argues that RockyMountain was O's Gold's customer. However, 
the manual goes on to state that:

 
 
"The Company will set 
prices, terms, and conditions that are fair to all customers. The Sales Agent is 
not permitted to depart from those prices, terms, and 
conditions.

 
 
"The Sales Agent invoices 
the customer at time of delivery * * *.

 
 
"The Sales Agent is 
expected to obtain cash upon delivery but shall not be liable for the customer's 
account payable to the Company if the Sales Agent has provided the [C]ompany 
with a customer signed delivery invoice."

 
 

[¶14.]  The language of these provisions is clear 
and unambiguous. When considered together, the provisions clearly contemplate 
the involvement of three separate and distinct entities - the company, O's Gold; 
a sales agent or dealer, Rocky Mountain; and a customer, the farmer to whom 
Rocky Mountain sold O's Gold's seed. In addition, the language clearly provides 
that, although O's Gold gives up possession of the seed, it retains ownership 
until acceptance of delivery by a farmer and retains the right to set prices, 
terms, and conditions of sale. Thus, RockyMountain was not the customer within the 
meaning of the agreements, and the arrangement was clearly a 
consignment.

 
 
II

 
 

[¶15.]  UAP next contends that, even assuming 
that the seed was sold to Rocky Mountain on consignment, O's Gold failed to 
prove that it fell within one of the exceptions contained in § 34-21-243(c). As 
a result, UAP claims the seed is subject to the security agreement signed by 
RockyMountain.

 
 

[¶16.]  UAP's argument presumes that the 
consignment falls under the provisions of Article 2 of the Uniform Commercial 
Code. However, both Articles 2 and 9 of the Uniform Commercial Code contain 
sections concerning consignments. The distinction commonly made is that a 
consignment "`intended as security'" falls within the scope of Article 9, while 
a "`true'" consignment is regulated by Article 2. Winship, The "True" 
Consignment under the Uniform Commercial Code, and Related Peccadilloes, 29 
Southwestern Law Journal 825, 838 (1976). A true consignment is said to be one 
in which the consignor retains extensive control over the goods but gives up 
possession with the intent that they be sold to a third party and in which the 
consignee may return the goods at any time and is not obligated to pay a fixed 
price for them. Id., at 857.

 
 

[¶17.]  The present consignment satisfies the 
description of a true consignment. However, the agreement between RockyMountain and O's Gold expressly 
incorporated the terms of O's Gold's sales agent policy manual which provides in 
relevant part:

 
 
"The Sales Agent 
[RockyMountain] agrees to grant 
the Company [O's Gold] a security interest in all * * * O's Gold labelled 
products now held or hereafter sold * * *."

 
 
Thus, the consignment not 
only fulfilled the description of a true consignment but also was intended to 
create a security interest.

 
 

[¶18.]  As a number of authorities have noted, 
the determination of whether a consignment falls within the scope of Article 2 
or Article 9 "is fraught with uncertainty." White & Summers U.C.C.2d HB § 
22-4 at 883 (1980). See also 8 Hawkland, Lord & Lewis UCC Series, §§ 
9-114:01 through 9-114:05 (Art. 9); 29 Southwestern Law Journal, supra, at 825; 
Annot., 40 A.L.R.3d 1078 (1971). That statement is particularly true in the 
present case. However, because O's Gold failed to comply with the requirements 
of either article, we find it unnecessary to engage in a lengthy discussion 
concerning the proper application of Articles 2 and 9.

 
 

[¶19.]  There is no contention that O's Gold 
complied with the relevant filing provisions of Article 9; therefore, O's Gold 
is not entitled to the seed under Article 9 or under Article 2, § 
34-21-243(c)(iii). In addition, upon reviewing the record, we find the evidence 
insufficient to demonstrate that Rocky Mountain was generally known by its 
creditors to be substantially engaged in selling the goods of others as required 
in paragraph (ii) of § 34-21-243(c). In its brief, O's Gold states: "The 
business of selling agricultural seed is almost universally handled on a 
consignment or sales agent basis." Yet there is no evidence in the record 
supporting that claim. That all the seed companies with which RockyMountain dealt transacted business in this manner 
would not be sufficient to establish that RockyMountain was generally known by its 
creditors to be in the business of selling the goods of others. Likewise, 
evidence that UAP is in the business of lending to agricultural-oriented 
businesses and has approximately 120 farm supply customers fails to satisfy § 
34-21-243(c)(ii). Finally, the testimony given by an agent of UAP that he was 
not with UAP at the time but "[i]t's possible" that Rocky Mountain informed UAP 
that the seed was consigned does not satisfy O's Gold's burden. Absent 
additional evidence, we are unable to find that O's Gold satisfied the 
requirements of § 34-21-243(c)(ii). 

 
 

[¶20.]  Evidence was presented at trial that each 
bag of seed was labeled "Seed sold through Agents remains the property of [O's 
Gold] Seed Company until delivered to the customer." O's Gold contends that such 
labeling constitutes compliance with paragraph (i) of § 34-21-243(c). Were we to 
accept O's Gold's claim and hold that such labeling removes goods from the reach 
of creditors, we would be placing upon creditors the onerous and perhaps 
ineffectual task of inspecting the property of their debtors prior to extending 
credit. Thus, we join the vast majority of jurisdictions which have declined to 
extend protection to the consignor absent a state sign law specifically intended 
for that purpose. 8 Hawkland, supra, at 358-59. The statute upon which O's Gold 
relies1 was enacted along with the other 
provisions of Title 11 for the purpose of regulating noxious weeds in Wyoming. It simply does 
not constitute a sign law within the meaning of § 
34-21-243(c)(i).

 
 

[¶21.]  Our holding is also influenced by the 
terms of the policy manual cited earlier which provided that O's Gold retained a 
security interest in the seed. As indicated earlier, if the intent was truly to 
create a security interest, O's Gold had to comply with the filing requirements 
of Article 9 in order to perfect its interest.

 
 
III

 
 

[¶22.]  Having found that O's Gold did not comply 
with the applicable provisions of Article 2 or Article 9 of the Uniform 
Commercial Code, we turn next to the question of whether UAP's claim to the seed 
was extinguished by the terms of its settlement agreement with RockyMountain and the resulting 
judgment.

 
 

[¶23.]  The settlement agreement provides in 
pertinent part:

 
 
"As full settlement of 
this matter, the parties agree as follows:

 
 
"1. [Rocky Mountain has] 
paid unto [UAP] the sum of $25,000.00 * * *.

 
 
"2. [RockyMountain] shall permit judgment in the 
amount of $15,000.00 to be entered on [UAP's] Complaint.

 
 
"3. [RockyMountain has] assigned all [its] accounts 
receivable * * * unto [UAP], which is now the holder of the accounts. 
[RockyMountain] shall have the 
obligation and will pursue good faith efforts to collect all the accounts 
receivable with all amounts collected being immediately delivered to [UAP]. 
[RockyMountain] shall receive a 
credit against the $15,000.00 judgment entered pursuant to [P]aragraph 2, equal 
to 20% of any amount collected and delivered. * * *

 
 
"[RockyMountain] will obtain and sell for the benefit of 
[UAP] all that inventory and merchandise now held by Jim Rumrey located in 
Riverton, Wyoming. All amounts received shall be 
immediately delivered to [UAP]. [RockyMountain] shall receive a credit against 
the $15,000.00 judgment entered pursuant to Paragraph 2, equal to 20% of any 
amount collected and delivered.

 
 
"[4. Rocky Mountain] will 
provide all required assistance to [UAP] in that case now pending in this Court 
as Civil Action No. 17-206 wherein O's Gold Seed Company is named as Plaintiff 
and Rocky Mountain Feed & Grain, Inc., and United Agri Products Financial 
Services, Inc., are named as Defendants. If requested the individual Defendants 
shall appear as witnesses on behalf of United Agri Products Financial Services, 
Inc., in said case."

 
 
It has been 
said:

 
 
"[A settlement] agreement 
is conclusive only as to those matters which the parties have fairly intended to 
include within its terms * * *." 15A C.J.S., Compromise and Settlement § 27 at 
235-36 (1967).

 
 
"[I]f the alleged 
settlement is tentative and conditional on the result of some subsequent act or 
event, it is not conclusive." Id., § 26 at 235.

 
 
"As a general rule, * * * 
third persons not parties to a * * * settlement are not entitled to any of the 
benefits arising therefrom, and cannot set up as a bar to an action against them 
a settlement not made for their benefit, and to which they were not privies." 
Id., § 24 at 
228-29.

 
 
Applying these rules to 
the present case, we find that the settlement agreement did not extinguish UAP's 
claim to the seed held by O's Gold. It simply cannot be said that UAP and 
RockyMountain fairly intended 
that the agreement be conclusive as to the seed which was the subject of the 
action filed by O's Gold. The settlement agreement clearly contemplated that, 
with the assistance of RockyMountain, UAP would continue to assert its 
right to the seed in the action filed by O's Gold. In addition, because O's Gold 
was not a party to the settlement, we find that it is not entitled to claim that 
the settlement agreement extinguished UAP's claim to the 
seed.

 
 

[¶24.]  Reversed and remanded for further 
proceedings consistent with this opinion.

 
 
FOOTNOTES

 
 

1 
Section 11-12-105, W.S. 1977.