Court Opinion

ID: 4712950
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:38:49.288849+00
Date Added: 2024-06-11T08:07:14.783087
License: Public Domain

Sanders, J.
(dissenting) — J.R. Simplot Co. contracted with farmer Lynn Olsen to buy potatoes. The price was *654computed per ton and varied depending on the quality of potatoes Olsen delivered. See Clerk’s Papers (CP) at 1959-GO, § III (J.R. Simplot Co. Potato Growing Agreement, dated June 16,1997).4 The terms of the contract required Olsen to bear the cost of delivering the potatoes to a site chosen by Simplot if within eight miles. CP at 1962, § VI.2 (“Said potato crop shall be harvested and delivered field run to the Company at the expense of the Grower” (emphasis added)). Only when Simplot instructed Olsen to deliver the potatoes outside an eight mile radius did the provision central to this case become relevant:
The Company [Simplot] shall pay to the Grower [Olsen] a haul allowance of Sixteen Cents ($.16) per ton mile for all usable potatoes to which the Eighty Dollars ($80.00) base price applies for each mile one way, over eight (8) miles and limited to forty (40) miles (maximum payable mileage thirty-two (32) miles) from the public road nearest the Grower’s field as described in Section II above to the point of delivery designated by the Company. Payments will be made at the same time as the first payment to Grower as set forth in Section VII below.
Id. at 1962, § VI.4. Stated another way, while the cost of shipping the crops up to eight miles was included in the price of crops, Simplot agreed to compensate Olsen in addition to the agreed price for an added service Olsen would provide. Such compensation would increase or decrease depending not on the value of the potatoes delivered but rather on the distance traveled. But despite the parties’ express contract that this hauling allowance was solely payment for a service separate from the price of the goods, the majority broadly holds the payment constitutes “proceeds,” defined by former Article 9 of the Uniform Commercial Code (U.C.C.) as adopted in Washington as “whatever is *655received upon the sale, exchange, collection or other disposition of collateral or proceeds.” Former RCW 62A.9-306(1) (Laws of 1995, ch. 48, § 68). However since this payment was given in consideration of a service, not the collateral, I would hold the hauling allowance was not “proceeds” for the sale of the collateral and affirm the Court of Appeals.
I. Contract for Services, Not Crops
Thompson v. Danner, 507 N.W.2d 550 (N.D. 1993) is instructive, though the majority attempts to distinguish it. Similar to these facts the creditor bank there held a perfected security interest in the debtor’s potato crops and proceeds thereof. Id. at 553. The debtors received storage payments from Simplot (who was the buyer in that case as well) because the sales contracts called for delayed deliveries of the potatoes. Id. at 558. Simplot would pay the debtors an amount which varied depending on how much time the potatoes were left in storage. Id. The court pointed to two separate bankruptcy cases, In re Sumner, 69 B.R. 758 (Bankr. D. Or. 1986), and In re Connelly, 41 B.R. 217 (Bankr. D. Minn. 1984), both of which held payments received in conjunction with government grain set-aside programs did not constitute proceeds. Sumner, 69 B.R. at 763; Connelly, 41 B.R. at 220. Thompson followed suit to hold the storage payments were not proceeds but rather compensation for an additional service, stating:
Contrary to the Bank’s assertion that these payments are merely “a premium added to the agreed upon price,” the amount of the storage payment is directly related to the length of time the potatoes are held in storage. The payment is not received in consequence of the disposition of the crop, but is additional compensation for a service provided by the Danners to Simplot.
Thompson, 507 N.W.2d at 558 (emphasis added). The same is true here. Olsen was to bear the cost of transporting the potatoes to a site designated by Simplot within eight miles. CP at 1962, § VI.2. However if Simplot instructed the *656grower to ship the potatoes to a site farther than eight miles away from Olsen’s farm, it compensated Olsen a separate sum for the added cost of transportation, not an additional sum for the potatoes themselves. CP at 1962, § VI.4. Thus, like in Thompson, this hauling allowance “is not received in consequence of the disposition of the crop, but is additional compensation for a service provided by [Olsen] to Simplot.” Thompson, 507 N.W.2d at 558. The amount which Simplot paid Olsen for hauling the potatoes had nothing to do with the value of the collateral transferred but rather varied by the distance traveled from origin to destination. Accord id. There is no meaningful distinction between Thompson and this case.
II. Proceeds Must Be Received for the Collateral, Not Services
The majority disregards the contractual language, holding “a hauling allowance is an integral part of the disposition of the crops.” Majority at 652-52. However I know of no legal principle which states any farmer must, ipso facto, bear the cost of hauling his crops to a remote location without additional compensation for transportation. If that were the rule farmers would sell only to local customers, losing the potential benefits of a national market. For the same reason the secured party would also lose the potential to maximize the price of the collateral.
But rather than hinge my analysis on arbitrary notions of what a black-robed judge might opine is an “integral” part of a sales contract, majority at 651-52,1 direct my attention exactly where a court should: the statutory language and the text of the contract. State v. J.P., 149 Wn.2d 444, 450, 69 P.3d 318 (2003); Rainier Nat’l Bank v. Bachmann, 111 Wn.2d 298, 302, 757 P.2d 979 (1988). The statutory language here at issue provides “proceeds” are “whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.” Former RCW 62A.9-306(1).
If the statute said nothing more than “whatever is received,” the majority would have a point. But the remain*657der of the definition requires the “whatever” to be “received upon the sale, exchange, collection or other disposition of collateral.” Former RCW 62A.9-306(1) (emphasis added). In other words, “whatever” received is the value received from the sale of the collateral, not from the sale of something else. My reasons follow.
The revised code does not explicitly define “upon,” thus compelling analysis of the dictionary definition. Am. Legion Post No. 32 v. City of Walla Walla, 116 Wn.2d 1, 8, 802 P.2d 784 (1991); Rainier Nat'l Bank, 111 Wn.2d at 303. Webster’s defines “upon” two separate ways which could be applied to former RCW 62A.9-306(1).5 The first option defines “upon” as “immediately following on [ ] very soon after.” Webster’s Third New International Dictionary 2518 (1993) (using as example sentence “[upon] his death, she went on the . . . stage”). But certainly here “upon” cannot mean something temporal. For example, were we to follow this definition, we would be forced to include in “proceeds” any lottery winnings received by the debtor contemporaneously with income from the sale of collateral. This is absurd. J.P., 149 Wn.2d at 450 (courts must avoid absurd results when interpreting statutes).
This leaves the alternative definition of “upon,” which means “in answer to [ ] in satisfaction of.” Webster’s, supra, at 2518 (using as example sentence “transcripts are sent [upon] the request of the particular student”). This definition is consistent with the purpose behind extending security interests to the proceeds of collateral, namely to protect the creditor’s ability to secure repayment of the debt owed notwithstanding the debtor’s transfer of the collateral to a third party. Cf. In re H.S.A. II, Inc., 271 B.R. 534, 541 (Bankr. E.D. Mich. 2002) (recognizing secured party is still protected notwithstanding the transfer of collateral to buyer in ordinary course of business as security interest remains in proceeds of collateral). Property in the debtor’s *658possession still secures the debt owed to the creditor, even though the original collateral is now in someone else’s possession.6 This makes sense, for if “proceeds” were merely whatever the debtor receives during the time his or her property is subject to a security interest, the collateral’s value would grow exponentially beyond that contemplated by the debtor and secured creditor identified in the security agreement.
Consequently, a payment must be received “in answer to” or “in satisfaction of,” Webster’s, supra, at 2518, the “sale, exchange, collection or other disposition of collateral” to constitute proceeds. Former RCW 62A.9-306(1). The payment must therefore be the bargained-for consideration received by the debtor in direct exchange for the transfer of collateral.
But this hauling allowance was paid in addition to the price of the collateral. It was not merely a reimbursement of included shipping costs, which under the terms of the sales agreement Olsen was to bear, but rather extraordinary shipping costs for which additional compensation would be due. Simplot compensated for a service Olsen provided that was separate and distinct from the sale of the crops. The allowance was not “in answer to” or “in satisfaction of” the sale of the potato crops, Webster’s, supra, at 2518, but rather for a trucking expense unrelated to the value of the potatoes.
III. “Whatever” Must Be Limited to its Facts
The majority claims Rainier National Bank, 111 Wn.2d 298, 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 (quoting In re Munger, 495 F.2d *659511, 513 (9th Cir. 1974)).7 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)). 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. 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. The debtor elected to sell his cattle for slaughter, and in consideration he received over $670,000 from the federal government. Id. at 300. The court quoted the dictionary definition of “whatever,” noting its broad scope includes “ ‘anything . .. everything ... no matter what ... anything at all.’ ” Id. at 303 (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.
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 *660immateriality of the types of consideration given in exchange for collateral, which is evidenced by former RCW 62A.9-306(l)’s explicit recognition that both cash and noncash consideration constitute proceeds. Accord Rainier Nat’l Bank, 111 Wn.2d at 303 (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.8
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 652. 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;9 see also RCW 62A.9A--102(c) (noting general principles and rules of interpretation contained in Article 1 of Title 62ARCW 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 Wn.2d at 302. Here the “factual context presented” by this contract encourages Olsen to sell to Simplot for an $80 base price10 by *661not 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(a)(64). In addition to the language of former RCW 62A.9-306(1), see RCW 62A.9A-102(a)(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(a)(64)(B), as well as “[r]ights arising out of collateral,” RCW 62A.9A-102-(a)(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 Wn.2d 139, 159, 3 P.3d 741 (2000) (quoting John H. Sellen Constr. Co. v. Dep’t of Revenue, 87 Wn.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 Wn.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. 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. Relying on both Johanson Transportation Service v. Rich Pik’d Rite, Inc., 164 Cal. App. 3d 583, 210 Cal. *662Rptr. 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 Wn.2d at 361.
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. 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 *663statutory 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 ROW 62A.9-306U).
CONCLUSION
Simplot paid Olsen $160,607.44 to transport potato crops, not for the crops themselves. It therefore does not constitute “proceeds” from the sale of the crops and is not subject to the bank’s security interest. To hold otherwise discourages commerce and ultimately works to the disadvantage of all concerned. I would therefore follow the sound reasoning of Thompson and affirm the Court of Appeals.
Ireland and Chambers, JJ., concur with Sanders, J.

 Each of the potato growing contracts relevant to this case appears on standardized forms and deviates only with respect to the price per ton and quantity sought. See, e.g., Pl.’s Exs. 89,101. In the interest of simplicity I will cite only to the June 16, 1997 agreement between Olsen and Simplot, on which Key Bank relied in its motion for summary judgment of dismissal. See Clerk’s Papers (CP) at 1959-64.

 Other definitions include “in a high position on” or “in or into close proximity or contact with by way of or as if by way of attack.” Webster’s Third New International Dictionary 2517 (1993). These are plainly inapposite.

 Of course the security interest remains attached to the original collateral and its proceeds if the debtor fails to obtain the creditor’s authorization to transfer the collateral free of the security interest, thereby protecting the creditor even further. Former RCW 62A.9-306(2); RCW 62A.9A-315(a)(l)-(2).

 I pause to note the court which coined the phrase “flexible and broad content” on which the majority so heavily relies, In re Munger, 495 F.2d 511 (9th Cir. 1974), quoted in Rainier Nat’l Bank, 111 Wn.2d at 302, did so while construing a temporal definition of proceeds which was never adopted in Washington. See In re Munger, 495 F.2d at 513 (quoting former Cal. Com. Code § 9306(1) (1974)) (defining proceeds as “ ‘whatever is received when collateral or proceeds is sold, exchanged, collected or otherwise disposed of.’ ” (emphasis added)).

 As such I am even less persuaded by the majority’s rejection of Thompson as contrary to Rainier National Bank, 111 Wn.2d 298. See majority at 652 n.3.

 That section provides in relevant part, “Unless displaced by the particular provisions of this Title, the principles of law and equity, including .. . fraud, misrepresentation,... or other validating or invalidating cause shall supplement its provisions.” RCW 62A.1-103.

 At least one other contract between Olsen and Simplot utilized a $71 base price. See Def.’s Ex. 101, § III.l.