Opinion ID: 2109851
Heading Depth: 1
Heading Rank: 4

Heading: crop liens

Text: The Istas assert that the trial court erred in holding that PCA had a valid security interest in crops grown in 1986, 1987, and 1988. On April 22, 1985, the Istas received their 1985 operating loan and executed a security agreement to PCA covering [a]ll crops growing or to be grown by the Istas on certain described real estate. The trial court rejected the Istas' assertion that the parties had intended to provide a lien only upon the 1985 crop. The court held that the security agreement was valid as to crops grown by the Istas in 1986, 1987, and 1988, and granted foreclosure of that security interest. [6] The Istas assert on appeal that the parties, through a long-standing course of dealing, intended that the security agreement executed on April 22, 1985, was to cover only the 1985 crop. In response to PCA's motion for summary judgment, Allen Ista submitted an affidavit stating that for over thirty years PCA had annually made operating loans to the Istas for each crop year, and had required the Istas to sign a new security agreement covering crops in conjunction with each year's operating loan. Allen Ista's affidavit also states that it was mutually agreed, and the parties understood, that each year's security agreement covering crops applied only to the crop raised during the growing season for which a particular operating loan was made. On summary judgment, this evidence must be viewed in the light most favorable to the Istas and they are to receive the benefit of all favorable inferences. Hillesland v. Federal Land Bank of Grand Forks, 407 N.W.2d 206, 210 (N.D. 1987). Thus, we must accept the affidavit as true when determining whether summary judgment was appropriate. PCA asserts that its security agreement is clear and unambiguous on its face, precluding consideration of course of dealing. [7] We have recently noted, however, that the surrounding circumstances must always be considered when interpreting contract language: `It is axiomatic that the surrounding circumstances from which a contract stems are to be considered when interpreting its provisions.' Delzer Constr. Co. v. New Marian Homes Corp., 117 N.W.2d 851, 856 (N.D.1962). `It is sometimes said that extrinsic evidence cannot change the plain meaning of a writing, but meaning can almost never be plain except in a context.' Restatement (Second) of Contracts § 212 comment b (1981). Matter of Jawaski, 446 N.W.2d 258, 260 (N.D.1989). Thus, parol evidence of course of dealing is admissible, because an intelligent interpretation of the agreement requires that the court familiarize itself with the commercial setting. See Dawn Enterprises v. Luna, 399 N.W.2d 303, 306 n. 3 (N.D.1987); Peoples Bank and Trust v. Reiff, 256 N.W.2d 336, 341 (N.D.1977). If the terms of the contract are ambiguous after considering evidence of course of dealing, the court is to consider all relevant extrinsic evidence to determine the true intent of the parties. Dawn Enterprises v. Luna, supra, 399 N.W.2d at 306 n. 3. An ambiguity exists when rational arguments can be made in support of contrary positions as to the meaning of a term, phrase, or clause of a contract. Barsness v. General Diesel & Equipment Co., 422 N.W.2d 819, 824-825 (N.D.1988). After taking into consideration the evidence of course of dealing and reviewing the security agreement in its commercial context, we conclude that the language [a]ll crops growing or to be grown is susceptible of differing reasonable interpretations and thus is ambiguous. Although the language of the security agreement can be read as an indication of intent to create a continuing crop lien beyond the 1985 crop year, the fact that the parties executed a new security agreement each year contemporaneously with receipt of the operating loan for that year's crop is a strong indication that the parties intended the security agreement to cover only that crop. Accordingly, there are two reasonable interpretations of the contract language. The resultant ambiguity raises a material issue of fact, and therefore summary judgment on the issue of the duration of the security interest was inappropriate. PCA correctly points out that a party may not use course of dealing to contradict express provisions of the written agreement. Section 41-01-15(4), N.D.C.C. [U.C.C. § 1-205(4) ], provides: The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. Thus, parol evidence of a course of dealing may not be used to directly contradict unambiguous terms of the written contract. Thiele v. Security State Bank of New Salem, 396 N.W.2d 295, 301 (N.D.1986); Peoples Bank and Trust v. Reiff, supra, 256 N.W.2d at 341. Course of dealing is not being used in this case to directly contradict express, unambiguous terms of the written agreement. It is possible to reasonably construe the express language of the contract, crops growing or to be grown, as consistent with the alleged course of dealing suggesting that each security agreement applied only to that year's crop. The course of dealing may indicate that the parties, by the language crops growing or to be grown, intended only those crops to be grown during that crop year. The evidence of the parties' prior conduct is used here to give particular meaning to and supplement or qualify terms of an agreement. Section 41-01-15(3), N.D.C.C.; see Peoples Bank and Trust v. Reiff, supra, 256 N.W.2d at 341. We conclude that the trial court erred in granting summary judgment foreclosing PCA's alleged security interest in the Istas' 1986, 1987, and 1988 crops. We reverse that part of the judgment foreclosing those alleged security interests and remand for further proceedings in accordance with this opinion. The judgment is, in all other respects, affirmed. Each party shall bear its own costs on appeal. ERICKSTAD, C.J., and MESCHKE and VANDE WALLE, JJ., concur. GIERKE, J., deemed himself disqualified subsequent to oral argument and did not participate in this decision.