Opinion ID: 1640458
Heading Depth: 3
Heading Rank: 1

Heading: Trust fund liability for receipts issued by VFBA

Text: Upon the insolvency of a grain warehouseman, a trust fund is created for the redemption of outstanding storage receipts of such warehouseman .... § 60-04-02, N.D.C.C. A warehouse receipt may only be issued upon the actual delivery of grain to the warehouse for storage. § 60-02-16(1), N.D.C.C. In State ex rel. Public Service Commission v. R.F. Gunkelman & Sons, Inc., 219 N.W.2d 853 (N.D.1974), this court held that where a party purchases grain from a warehouseman without taking delivery and receives warehouse receipts as evidence of the sale, the warehouse receipts are valid claims against an insolvent warehouseman, even though the receipt holder did not actually deliver grain to the warehouse in return for the receipts. However, that case does not alter the fundamental principle that the party to whom the warehouse receipt is issued must have an ownership interest in the grain described on the warehouse receipt. An ownership interest is not synonymous with a security interest. See § 41-01-11(37)(1-201), N.D.C.C. Section 41-09-02(1)(a)(9-102), N.D.C.C., provides that a secured transaction is [a]ny transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper, or accounts. The test for determining if a particular transaction falls within the purview of Chapter 41-09, N.D.C.C., is whether or not the transaction is intended to have effect as security. Production Credit Ass'n of Minot v. Melland, 278 N.W.2d 780, 786 (N.D.1979). If that intent can be gleaned from the four corners of the instruments in question, the determination is a question of law for the court to decide. Wallwork Lease & Rental v. JNJ Investments, 303 N.W.2d 545 (N.D.1981); State Bank, Etc. v. All-American Sub, Inc., 289 N.W.2d 772 (N.D.1980). The titles or labels attached to the documents by the parties are not conclusive. All-American Sub, Inc., supra . The warehouse receipts issued to the Banks specifically state that they were issued as collateral or security for the $3,400,000 line of credit. The Banks' pleadings in connection with the insolvency proceedings state that the warehouse receipts... were given as collateral for a loan. The Banks have not asserted in this proceeding that they delivered grain to the warehouse in exchange for the receipts, that they paid for the beans reflected on the receipts, or that they paid fees for the storage of the beans. It is clear from the undisputed evidence that the warehouse receipts submitted by the Banks in support of their claim were only intended to serve as security for the loan to VFBA. Thus, the Banks' warehouse receipts were invalid because they did not have an ownership interest in the beans.