Opinion ID: 2634730
Heading Depth: 2
Heading Rank: 3

Heading: Whatever Must Be Limited to its Facts

Text: The majority claims Rainier National Bank, 111 Wash.2d 298, 757 P.2d 979, supports its definitional construction, centering its analysis on the court's statement, [T]he expansive statutory definition of `proceeds' [should] be given `a flexible and broad content.'  Id. at 302, 757 P.2d 979 (quoting In re Munger, 495 F.2d 511, 513 (9th Cir. 1974) ). [4] But the majority fails to mention Rainier National Bank emphasized its analysis [was] made in the factual context presented. Id. (emphasis added) (citing In re Cupp, 38 B.R. 953 (Bankr.N.D.Ohio 1984)) (emphasis added). Closer scrutiny of that factual context reveals the majority's reliance is misplaced. The creditor bank there held a perfected security interest in the debtor's livestock and all proceeds thereof. Id. at 299, 757 P.2d 979. The debtor took advantage of a federal program instituted to maintain milk prices, which required the sale of all livestock for auction or slaughter and an agreement to leave the milk production industry for a period not less than five years. Id. at 299-300, 757 P.2d 979. The debtor elected to sell his cattle for slaughter, and in consideration he received over $670,000 from the federal government. Id. at 300, 757 P.2d 979. The court quoted the dictionary definition of whatever, noting its broad scope includes `anything ... everything ... no matter what ... anything at all.' Id. at 303, 757 P.2d 979 (quoting WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 2600 (1976)). Reasoning the sale of the livestock for slaughter under the federal program was within the statutory phrase or other disposition and noting the payments were received for such disposition, the court held the government payments constituted proceeds of the livestock. Id. at 303, 308, 757 P.2d 979. But the issue here is not as it was in Rainier National Bank, namely whether the transfer of collateral between Simplot and Olsen was a sale or other disposition covered by former RCW 62A.9-306(1); certainly it was. Rather our issue is whether Simplot's payment to Olsen for a trucking service additional to the transfer was received upon that transaction. Former RCW 62A.9-306(1). The whatever component, despite its expansive nature, references the immateriality of the types of consideration given in exchange for collateral, which is evidenced by former RCW 62A.9-306(1)'s explicit recognition that both cash and noncash consideration constitute proceeds. Accord Rainier Nat'l Bank, 111 Wash.2d at 303, 757 P.2d 979 (noting statute evidences an intent to include more than the usual cash proceeds received in a normal sale of the collateral). But it does not and cannot eliminate the requirement that the consideration be given in response to the debtor's transfer of collateral. Therefore payment, whatever its nature, former RCW 62A.9-306(1), must still be received by the debtor in answer to or in satisfaction of the transfer of the collateral to a third party, WEBSTER'S, supra, at 2518, to qualify as proceeds under the U.C.C. Rainier National Bank does not negate this principle. [5] I further take issue with the majority's willingness to disregard the language of the actual sales contract because of its fear debtors and third-party buyers might engage in creative contracting to defeat a creditor's security interest. See majority at 1056. Such a fear is unfounded, especially since both the common law and equity supplement the U.C.C. and each gives the creditor a remedy should a debtor and third party act tortiously to defeat the creditor's property right. See RCW 62A.1-103; [6] see also RCW 62A.9A-102(c) (noting general principles and rules of interpretation contained in Article 1 of Title 62A RCW apply to Article 9A). Moreover, such a view disregards Rainier National Bank's instruction to consider these cases in the factual context presented. Rainier Nat'l Bank, 111 Wash.2d at 302, 757 P.2d 979. Here the factual context presented by this contract encourages Olsen to sell to Simplot for an $80 base price [7] by not risking uncompensated remote delivery. If anything, removal of this contingency benefits the creditor by encouraging the sale without giving Simplot any incentive to require delivery any further than necessary because Simplot has to pay for the delivery in addition to the potatoes. My view is further supported by the far more expansive definition of proceeds in the revised secured transactions article adopted by the legislature in 2000. See LAWS OF 2000, ch. 250, § 9A-102(64), codified at RCW 62A.9A-102(64). In addition to the language of former RCW 62A.9-306(1), see RCW 62A.9A-102(64)(A) (same language as first sentence of former RCW 62A.9-306(1)), now proceeds may also be [w]hatever is collected on, or distributed on account of, collateral, RCW 62A.9A-102(64)(B), as well as [r]ights arising out of collateral, RCW 62A.9A-102(64)(C). If former RCW 62A.9-306(1) is as broad as the majority claims, then the legislature needlessly expanded the definition. This cannot be the case as `[t]he legislature does not engage in unnecessary or meaningless acts, and we presume some significant purpose or objective in every legislative enactment.' Simpson Inv. Co. v. Dep't of Revenue, 141 Wash.2d 139, 159, 3 P.3d 741 (2000) (quoting John H. Sellen Constr. Co. v. Dep't of Revenue, 87 Wash.2d 878, 883, 558 P.2d 1342 (1976)). The cases relied on by the majority are not to the contrary. In Central Washington Bank v. Mendelson-Zeller, Inc., 113 Wash.2d 346, 348-49, 779 P.2d 697 (1989), the creditor bank owned a perfected security interest in the debtor's apple orchard crops and its proceeds. The creditor bank filed a conversion action against a third party who had performed marketing services on behalf of the debtor and retained a percentage of the gross proceeds from the sale of the apple crop. Id. at 350, 779 P.2d 697. At issue was whether the [b]ank's security interest extend[ed] to the gross proceeds or only the net proceeds after costs of processing and sale. Id. at 351, 779 P.2d 697. Relying on both Johanson Transportation Service v. Rich Pik'd Rite, Inc., 164 Cal.App.3d 583, 210 Cal.Rptr. 433 (1985), and In re Estate of Philp, 114 Ill.App.3d 107, 448 N.E.2d 535, 69 Ill.Dec. 817 (1983), we held the U.C.C. definition of proceeds included gross proceeds and not just the net benefit earned as a result of the sale. Cent. Wash. Bank, 113 Wash.2d at 361, 779 P.2d 697. Likewise in Johanson Transportation the debtor business had sold its strawberry crops which were subject to a security interest on a sold delivered or delivered price basis, meaning the freight charges were included in the total cost to the fruit buyer and not charged separately. Johanson Transp., 210 Cal.Rptr. at 435 (emphasis added). When payment for the strawberries arrived, the debtor deposited the sales revenue in an account controlled by the creditor bank. Id. at 434-35. The debtor failed to repay the transportation broker for funds it advanced to the truckers for shipping the strawberries, inducing the broker to sue the creditors for conversion. Id. at 435. Holding the gross proceeds received by the debtor for the sales were proceeds of the strawberries, the California Court of Appeal concluded: To us it seems illogical to agree that the cost of the seed, fertilizer, other agri-chemicals, water, picking, packaging, etc., are included within the term proceeds but the cost of transporting the product to market is not. Such an argument exalts form over substance and should be rejected. Proceeds includes all economic components that go into the total amount received for the product. Id. at 438 (emphasis added). The most one can say about both Central Washington Bank and Johanson Transportation is that a security interest will attach to gross proceeds, not just the net benefit the debtor derives from the sale of collateral, because there the product was sold at its point of destination. It would have been a different case had the buyer arranged to purchase the strawberries in California and then entered into a separate arrangement to truck them to the east coast. The former is an expense absorbed by the farmer, i.e., part of the gross; however the latter is not part of the gross but compensation for an additional service. In sum, neither case displaces the unambiguous statutory requisite that consideration received by the debtor must be in direct exchange for the sale or other disposition of collateral. Had Simplot designated a delivery location within an eight mile radius of Olsen's farm, Olsen would not have been entitled to any additional compensation. The entire sum received by Olsen would have been for the potatoes and the transportation costs subsumed in the gross price, rendering such sum proceeds. But, unlike the situation in Johanson Transportation where there was no additional service provided by the debtor in addition to the sale of the strawberries, Olsen provided Simplot with a supplemental service of delivering the potatoes outside the normal eight mile radius contemplated by the contract. The hauling allowance was not in answer to or in satisfaction of the sale of potatoes to Simplot. WEBSTER'S, supra, at 2518. It therefore was not received [by Olsen] upon the sale of the potato crop and consequently not proceeds. Former RCW 62A.9-306(1).