Opinion ID: 428387
Heading Depth: 2
Heading Rank: 2

Heading: Validity of Tri-State's Security Interest.

Text: 16 In general, a course of dealing cannot override the express terms of an agreement. Ariz.Rev.Stat. Sec. 44-2212.D (U.C.C. Sec. 1-205(4)). In the secured transactions context, a buyer of farm products from a farmer takes the products subject to any perfected security interest, unless the secured party has authorized the sale in the security agreement or otherwise, Ariz.Rev.Stat. Sec. 44-3127.B (U.C.C. Sec. 9-306(2)) (emphasis added); cf. Ariz.Rev.Stat. Sec. 44-3128 (U.C.C. Sec. 9-307) (secured interest ends in nonfarm context). Because there is no question here that the security agreement did not authorize the sale (it required prior written consent, which was not given), the issue before us is whether a course of dealing (i.e., the fact that Tri-State had never insisted on prior written consent to other sales) may otherwise authorize the sale in question under Sec. 44-3127.B, in light of the rule of Sec. 44-2212.D that express terms control course of dealing whenever the two cannot reasonably be construed as consistent. 17 The parties do not discuss the nature of the course of dealing referred to in Sec. 44-2212, but we note that paragraph A of that section defines it as a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. 18 Here, the course of dealing between Tri-State and Spence was that when Spence sold cattle, it obtained cash and paid Tri-State, at which point Tri-State released its security interest in the sold cattle. So far as appears, the sale to Ellsworth is the first in which the buyer did not pay Tri-State. We find it difficult to say that the course of dealing requires that Tri-State's security interest must be deemed to have been released in such a case. In cases where Tri-State was paid, its security interest in the sold cattle was satisfied, and it therefore was released. To apply such a course of dealing to a case in which Tri-State was not paid is to defeat the security interest in the very situation in which it was designed to protect Tri-State. That is what Sec. 44-3127.B is about. It expressly provides that the security interest continues after the sale, unless the action of the debtor (Spence) is authorized by the secured party in the security agreement or otherwise. Here, there was no written consent, in the agreement or otherwise. To find an implied consent from cases in which Tri-State was paid, in a case in which it was not paid, is going too far. 19 The security agreement, duly perfected, gave notice to all the world including Ellsworth, who could have checked with Tri-State before buying but did not do so. In buying without getting a written consent, Ellsworth took a chance. He did not pay Spence, and so Spence did not pay Tri-State. Under these circumstances, Tri-State was entitled to enforce its security interest. 20 Arizona courts have not decided the question. Other courts have differed in interpreting the relation of U.C.C. Sec. 1-205(4) (Ariz.Rev.Stat. Sec. 44-2212.D) and Sec. 9-306(2) (Ariz.Rev.Stat. Sec. 44-3127.B). See J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code 102 (2d ed. 1980). Compare First Tennessee Production Credit Ass'n v. Gold Kist, Inc., Tenn.App., 1983, 653 S.W.2d 418, 421, with Anon, Inc. v. Farmers Production Credit Ass'n, Ind.App., 1983, 446 N.E.2d 656, 660-62. 21 The following cases, among others, support our reasoning and conclusion. First Tennessee, supra, 653 S.W.2d at 421; Southwest Washington Production Credit Ass'n v. Seattle-First National Bank, 1979, 92 Wash.2d 30, 593 P.2d 167; North Central Kansas Production Credit Ass'n v. Washington Sales Co., Inc., 1978, 223 Kan. 689, 577 P.2d 35, 40; Wabasso State Bank v. Caldwell Packing Co., 1976, 308 Minn. 349, 251 N.W.2d 321; Garden City Production Credit Ass'n v. Lannan, 1971, 186 Neb. 668, 186 N.W.2d 99. 22 Some of the cases on which the appellees rely are not distinguishable on their facts, e.g., Planters Production Credit Ass'n v. Bowles, 1974, 256 Ark. 1063, 511 S.W.2d 645; United States v. Central Livestock Ass'n, Inc., D.N.D., 1972, 349 F.Supp. 1033 (applying North Dakota law); Clovis National Bank v. Thomas, 1967, 77 N.M. 554, 425 P.2d 726; Anon, Inc., supra. Other cases relied on differ somewhat from our case, e.g., Central Washington Production Credit Ass'n v. Baker, 1974, 11 Wash.App. 17, 521 P.2d 226; Lisbon Bank and Trust Co. v. Murray, Iowa, 1973, 206 N.W.2d 96; First National Bank and Trust Co. v. Iowa Beef Processors, Inc., 10 Cir., 1980, 626 F.2d 764 (applying Oklahoma law); but their reasoning tends to support the appellees. 23 For the reasons that we have stated, we decline to follow the appellees' cases. 24 The judgment of the Bankruptcy Appellate Panel is reversed and the case is remanded to the Panel with instructions to affirm the judgment of the bankruptcy court.