Court Opinion

ID: 9571149
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:29:21.469651+00
Date Added: 2024-06-11T12:28:49.886578
License: Public Domain

Newton, J.,
dissenting.
Plaintiff relies on the provisions of section 9-307(1) *677of the Uniform Commercial Code. The unwarranted discrimination against purchasers of farm products contained in this section has been severely criticized, has been restricted in some jurisdictions by statute, and its demise is now contemplated. See, 26 The Business Lawyer, p. 314 (No. 2, Nov., 1970); Bender’s Uniform Commercial Code Service, § 9-307, p. 1-751. All other buyers in the “ordinary course of business” take free of a security interest created by the seller. One who extends credit necessarily does so on a basis of trust in the honesty and reliability of the borrower. A buyer in the ordinary course of business does not ordinarily rely on the trustworthiness of the seller. As between such a buyer and the holder of a security interest, the latter has the better opportunity to protect itself as the security holder knows with whom it is dealing whereas the buyer is often unaware of the origin of the products purchased and unable to trace them back to the original owner who created the security interest. The farm-product exception tends to restrict the free movement of such goods in commerce. It places an unwarranted responsibility on all commission firms, sale barns, auctioneers, and purchasers at public markets. In the case of fed cattle, it enables the security holder to follow through to the steak or meat on the consumer’s table. Notwithstanding this situation, I am obliged to agree with the majority opinion which holds that under the existing Nebraska statute, the lien followed the cattle into defendant’s hands, unless there was a waiver of the lien. When the cattle fell into the hands of Augustin Brothers, who were simply dealers in cattle and not engaged in farming operations, they became “inventory” and could have been sold free of any lien created by Augustin Brothers, but since the lien was not created by the defendant’s seller, the plaintiff’s lien survives.
I disagree with the result arrived at by the majority of the members of this court. It is held that since the security agreement provides that consent to sale must *678be in writing, no other type of consent or waiver of this provision is valid. Section 1-103, U. C. C., provides: “Unless displaced by the particular provisions of this act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating clause shall supplement its provisions.” Section 1-107, U. C. C., provides: “Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a. written waiver or renunciation signed and delivered by the aggrieved party.” As indicated in the comments on this section, it is subject to the provisions of section 2-200(4), U. C. C., which provides: “Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.”
Gilmore, in his work entitled “Security Interests in Personal Property,” in commenting on security interests in farm products states in Volume II, § 26:11, p. 715: “The usual common law rules of waiver and estoppel may of course be invoked against such a secured party, and the debtor’s authority to sell the collateral may derive either from an express provision in the security agreement or from the secured party’s actions or conduct. In his filed financing statement the secured party may claim not only the original collateral but its proceeds. If he does so, his interest in the proceeds continues perfected indefinitely after their receipt by the debtor. A ‘proceeds’ claim in a financing statement suggests, however, a financing arrangement under which the debtor is expected to sell the collateral and the secured party expects to be reimbursed from the proceeds. The statutory text stops short of saying that good faith buyers without actual notice take free of a security interest when the financing statement covers proceeds, but the Comment to § 9-306(2) cautiously remarks that such a claim ‘might be considered as impliedly author*679izing sale or other disposition of the collateral, depending upon the circumstances of the parties, the nature of the collateral, the course of dealing of the parties and the usage of trade.’ ”
We have held that a security agreement which covers proceeds may not be deemed to authorize sale by implication. See Overland Nat. Bank v. Aurora Coop. Elevator Co., 184 Neb. 843, 172 N. W. 2d 786. It is nevertheless a factor to be considered in determining whether an implied consent to sale has been given.
In Clovis National Bank v. Thomas, 77 N. M. 554, 425 P. 2d 726, cattle subject to a security agreement containing a similar provision forbidding sale without prior written consent was dealt with. The court stated: “The plaintiff, if not expressly consenting to the questioned sales, certainly impliedly acquiesced in .and consented thereto. It not only permitted Mr. Bunch, but permitted all its other debtors who granted security interests in cattle, to retain possession of the cattle and to sell the same from time to time as the debtor chose, and it relied upon the honesty of each debtor to bring in the proceeds from his sales to be applied on his indebtedness.
“Plaintiff was fully aware of its right to require its written authority to sell or otherwise dispose of the collateral, but it elected to waive this right. Waiver is the intentional abandonment or relinquishment of a known right.”
In Hempstead Bank v. Andy’s Car Rental System, Inc., 35 App. Div. 2d 35, 312 N. Y. S. 2d 317, an automobile rental company sold its used cars, which were subject to a security interest, to an automobile wholesaler. It was held that the purchase was not made from one in the business of selling automobiles and was therefore not made in the ordinary course of business. U. C. C., § 1-201(9). The court stated: “In sum, we hold that as a matter of law Auto Buyers did not purchase from a person in the business of selling automobiles and is not, therefore, entitled to the protection afforded to buyers *680in the ordinary course of business by section 9-307 (subd. (1)) of the U. C. C. There is, however, an issue of fact on the question of implied authorization of the sales by the plaintiff; and the action should be retried and submitted to the jury on that issue alone.”
In Overland Nat. Bank v. Aurora Coop. Elevator Co., supra, this court conceded the possibility of an implied authorization to sell.
Plaintiff cites section 9-205, U. C. C., which states that a security interest is not invalid or fraudulent against creditors because the debtor may dispose of the collateral. Suffice it to say that this section does not include bona fide purchasers for value within its purview. It is limited in its scope to persons extending credit to the debtor.
There has been some criticism of the Clovis National Bank case due to the fact that in that case the security holder did not have actual knowledge of the particular sale at issue prior to delivery of the cattle. That is not true here. Plaintiff accepted and credited upon the debtor’s note the downpayment made by Augustin Brothers on the cattle. It likewise accepted and credited the final draft. It had frequently acquiesced in previous sales by the debtor and on the strength of this particular sale had made an additional loan to the debtor. Notwithstanding full knowledge of the sale before its final consummation and delivery of the cattle to the purchasers, it failed to object until the Augustin Brothers’ final draft was dishonored. By that time defendant had purchased the cattle in good faith and received possession. The conduct of plaintiff evidences an intentional relinquishment of its contract-right.to stop the sale and a deliberate waiver of that right. “The essential elements of a waiver, * * * are the existence, at the time of the .alleged waiver, of a right, advantage, or benefit, the knowledge, actual or constructive, of the existence thereof, and an intention to relinquish such right, advantage, or benefit.” 56 Am. Jur., Waiver, § 12, p. 113. All of the *681elements are present in this instance and, in addition, plaintiff accepted money on its contract with the debtor although it knew he had sold the cattle contrary to the strict terms of the security agreement. “Where a party to a contract, with full knowledge of the facts and with knowledge of a breach by the other party, receives money in the performance of the contract the breach will be deemed to have been waived.” Wegner v. West, 169 Neb. 546, 100 N. W. 2d 542.
There are also elements of estoppel present. By failing to question its debtor’s sale of the cattle to Augustin Brothers, plaintiff made it possible for defendant to suffer from the combined acts of its debtor and Augustin Brothers. “Where one of two innocent persons must suffer by the acts of a third, the one whose conduct, act, or omission enabled such third person to occasion the loss must sustain it if the other party acted in good faith without knowledge of the facts, and altered his position to his detriment.” Jordan v. Butler, 182 Neb. 626, 156 N. W. 2d 778.
I respectfully submit that the judgment of the district court should be affirmed.
McCown, J., joins in this dissent.