Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-02220/USCOURTS-azd-2_08-cv-02220-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Bank of the West, Inc., 

Plaintiff, 

vs.

Organic Grain & Milling, Inc., 

Defendant. 

)

)

)

)

)

)

)

)

)

)

)

)

No. CV-08-2220-PHX-FJM

ORDER

The court has before it plaintiff’s motion for summary judgment (doc. 30), defendant’s

response (doc. 32), and plaintiff’s reply (doc. 35). 

Plaintiff Bank of the West, Inc. (the “Bank”) entered into a loan agreement with

Desert Organics, LLC, to provide $3,000,000 in working capital for Desert Organics’

farming business (“loan agreement”). In exchange, the Bank obtained a security interest in

Desert Organics’ crops and in the crop proceeds. At about the same time, Desert Organics

entered into an “all outputs” contract with defendant Organic Grain and Milling, Inc.,

whereby Organic Grain agreed to purchase Desert Organics’ entire 2008 durum wheat crop,

including a crop in Dateland, Arizona (the “Dateland crop”), and a crop in Wilcox, Arizona

(the “Wilcox crop”). Desert Organics subsequently defaulted on its obligations under the

loan agreement, prompting the Bank to record its lien against Desert Organics’ accounts

Case 2:08-cv-02220-FJM Document 37 Filed 03/17/10 Page 1 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 2 -

receivable, including receivables due from the sale of the Dateland crop. On September 30,

2008, the Bank filed an action against Desert Organics in state court seeking damages for

breach of contract in the amount of $3,037,054.60. On February 20, 2009, Desert Organics

filed for bankruptcy protection. 

In the meantime, Dean Chapla of Organic Grain contacted the Bank, acknowledging

the Bank’s security interest in the Dateland crop proceeds and seeking the Bank’s consent

to pay the harvester and seed supplier out of the money payable to the Bank. To that end,

on June 6, 2008, the Bank, Desert Organics and Organic Grain executed a document whereby

the Bank agreed to subordinate its lien on the harvest proceeds and allow Organic Grain to

pay the harvester and seed supplier a maximum of $72,000 out of the crop proceeds

(hereinafter “June 6, 2008 letter”). The parties agreed that the remainder of the crop

proceeds was to be paid directly to the Bank. 

The total value of the harvested Dateland crop was $243,324.07. Therefore, the Bank

expected payment from Organic Grain in an amount not less than $171,324.07. Instead,

Organic Grain issued a check to the Bank in the amount of $46,915.32, asserting that it is

entitled to an offset of $196,408.75 for losses it claims were the result of Desert Organics’

failure to properly irrigate the Wilcox crop. The Bank then filed this action against Organic

Grain alleging inter alia breach of contract, fraud, misrepresentation, and unjust enrichment.

Organic Grain asserted counterclaims of breach of contract, intentional interference with

contract, and recoupment under A.R.S. § 47-9404. 

The Bank does not seek to enforce its lien against Organic Grain. Instead it contends

that Organic Grain breached its obligation under the June 6, 2008 letter by failing to remit

Case 2:08-cv-02220-FJM Document 37 Filed 03/17/10 Page 2 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

Organic Grain contends that it is not subject to a lien because the Bank did not satisfy

the notice requirements of the Food Security Act, 7 U.S.C. § 1631, which provides that a

buyer of farm products takes free of a security interest unless specific statutory notice

requirements are met. Because the Bank does not seek to enforce its lien, we need not

consider whether the lien is enforceable against Organic Grain. 

2

Even if we assume that the Bank’s lien is ineffective as against Organic Grain as a

“purchaser of farm products,”the Food Security Act does not limit the Bank’s lien rights

against the harvester and seed supplier. See 7 U.S.C. § 1631.

- 3 -

the net Dateland harvest proceeds directly to the Bank.1

 Organic Grain counters that the June

6, 2008 letter is not an enforceable contract. 

An enforceable contract requires an offer, acceptance, consideration, a specific

statement of the parties’ obligations, and mutual assent. Savoca Masonry Co. v. Homes &

Son Constr. Co., 112 Ariz. 392, 394, 542 P.2d 817, 819 (1975). Consideration is a

“performance or return promise” that is “bargained for . . . in exchange for the promise of the

other party.” Schade v. Diethrich, 158 Ariz. 1, 8, 760 P.2d 1050, 1057 (1988) (citing

Restatement (Second) of Contracts § 71 (1981)). Any benefit to the promisor or detriment

to the promisee is sufficient. Hill v. Chubb Life Am. Ins. Co., 182 Ariz. 158, 164, 894 P.2d

701, 707 (1995). There is a presumption that written promises are supported by

consideration. See A.R.S. § 44-121 (“Every contract in writing imports a consideration.”).

The burden of showing lack of consideration is on the party attacking it. Lessner Dental

Labs, Inc. v. Kidney, 16 Ariz. App. 159, 160, 492 P.2d 39, 40 (Ct. App. 1971). 

Organic Grain had knowledge of the Bank’s security interest in the Dateland crop

proceeds, as well as the Bank’s demand for direct payment. Accordingly, at the request of

the harvester, Organic Grain solicited the Bank’s written consent to allow it to pay the

harvester and the seed supplier directly out of the harvest proceeds, money that was

otherwise due to the Bank.2

 In exchange for the Bank’s written consent, Organic Grain

expressly acknowledged that the balance of the harvest proceeds “will then be remitted to the

bank.” PSOF, exhibit F. We reject Organic Grain’s argument that it received no benefit

Case 2:08-cv-02220-FJM Document 37 Filed 03/17/10 Page 3 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 4 -

from this bargain. As the intended purchaser of the grain, it had an obvious interest in

ensuring that the grain was harvested. 

We conclude that the June 6, 2008 letter satisfies the requirements of an enforceable

contract. Organic Grain breached its obligation under the contract by failing to remit the net

harvest proceeds to the Bank as promised. 

The Bank also moves for summary judgment on Organic Grain’s counterclaims,

which are based on the failure of Desert Organics to irrigate the Wilcox crop resulting in the

loss of the crop. Organic Grain contends that the Bank, in “deviation . . . from normal and

prudent agricultural financing practices,” failed to extend funds to Desert Organics to irrigate

the Wilcox crops. Counterclaim ¶ 5. There is no evidence, however, that the Bank had any

obligation to provide additional funding to Desert Organics for any purpose. It had already

advanced $2,998,000 on a $3 million line of credit, and Desert Organics was in payment

default. PSOF ¶ 7. But even if the Bank had an obligation to extend additional funding,

there is no evidence that anyone requested that the Bank provide extra funding for irrigation.

We also reject Organic Grain’s counterclaim that the Bank is an “assignee” of Desert

Organics pursuant to A.R.S. § 47-9404. The Bank was a lender, and as such had a secured

interest in Desert Organics’ crops and crop proceeds. A security interest in Desert Organics’

assets does not make the Bank an “assignee” of Desert Organics’ rights and obligations under

the all outputs agreement with Organic Grain. Organic Grain’s reliance on Indep. Nat’l Bank

v. Westmoor Elec., Inc., 164 Ariz. 567, 570, 795 P.2d 210, 213 (Ct. App. 1990), is misplaced

in that there the borrower expressly assigned its rights to the lender. There is no express

assignment in the instant case. Organic Grain’s claim for recoupment under § 47-9404 is

without merit. 

Finally, we reject Organic Grain’s counterclaim for intentional interference with

contractual relations. Organic Grain argues that the Bank “intentionally caused Desert

Organics to fail to irrigate and deliver the crops at Wilcox, Arizona.” Counterclaim ¶ 14.

But Organic Grain has failed to demonstrate that the Bank had any legal or equitable

obligation to provide additional funding for irrigation of the Wilcox crop and therefore the

Case 2:08-cv-02220-FJM Document 37 Filed 03/17/10 Page 4 of 5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 5 -

Bank’s failure to fund was not improper. See Safeway Ins. Co. v. Guerrero, 210 Ariz. 5, 10,

106 P.3d 1020, 1025 (2005) (holding that a defendant’s interference must be improper). 

Based on the foregoing, we conclude that Organic Grain breached its agreement to

pay the Bank the total Dateland harvest proceeds, less the actual costs of harvesting and seed.

IT IS ORDERED GRANTING the Bank’s motion for summary judgment on count

1 of the complaint and GRANTING the Bank’s motion to dismiss all of Organic Grain’s

counterclaims (doc. 30). 

DATED this 17th day of March, 2010.

Case 2:08-cv-02220-FJM Document 37 Filed 03/17/10 Page 5 of 5