Court Opinion

ID: 6470828
Source: CourtListenerOpinion
Date Created: 2022-06-26 14:15:50.453049+00
Date Added: 2024-06-11T15:53:48.256085
License: Public Domain

SUTIN, Judge (specially concurring). I concur in the result. Plaintiff appeals the summary judgment granted in favor of the defendant. Plaintiff sold cattle and dairy equipment to J. L. and Grace Nicholas (Nicholas) for which payments were to be made by monthly installments of $2,000 following two initial payments of $1,000 each. Plaintiff retained a lien on all milk produced by the cows. Plaintiff perfected her security interest in the collateral and proceeds by filing a financing statement in Valencia County, the county in which Nicholas operated their business. See §§ 50A-9-302, 303, 401 and 402, N.M.S.A. 1953 (Repl.Vol. 8, pt. 1, 1962 and 1975 Supp.). Nicholas agreed to sell all milk produced through defendant, Milk Producers, Inc. [later, Associated Milk Producers, Inc.], a milk marketing association. Further, Nicholas authorized defendant, from the proceeds realized by the sale of the milk, to pay the monthly installments directly to plaintiff in accordance with the terms specified in the contract. Plaintiff sued defendant and alleged that pursuant to these terms she was entitled to payments totaling $30,000 from the defendant; that she received only $14,000; that defendant’s failure to remit the full amount constituted a conversion of the proceeds; and that she is entitled to judgment for $16,000. A. Plaintiff Waived Security Interest in the Proceeds Plaintiff insists that the conditional sales agreement, which, coincidentally served additionally as security agreement, § 50A-9-201, and financing statement, § 50A-9-402 (1975 Supp.), continued her security interest in all proceeds from the cows, including milk and cash receipts for the sale of the milk. Section 50A-9-306(2) (1975 Supp.) governs: Except where this article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his action was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds, including collections, received by the debtor. A security interest in farm products and the proceeds thereof shall not be considered waived by the secured party by any course of dealing between the parties or by any trade usage. [Emphasis added.] The italicized portion signals an amendment enacted by Laws 1968, ch. 12, § 2. Its intendment was to overcome an earlier judicial construction of this subsection. Clovis National Bank v. Thomas, supra, had held that a debtor’s sale of farm products authorized either expressly or impliedly according to trade usage or custom by the secured party extinguished the secured party’s interest in the collateral. The 1968 amendment provided that only an expressly authorized sale would discontinue the security interest. Otherwise, Clovis was left intact. The only other New Mexico case to consider this issue was S & W Trucks, Inc. v. Nelson Auction Service, Inc., supra. Decided in 1969, subsequent to the amendment’s enactment, it stated: It is undisputed that the consent on the part of S & W and Chicago to the auction sale had the effect of waiving their liens upon the rigs and related property, at least for the purpose of the sale. Clovis National Bank v. Thomas.....[80 N.M. at 424, 457 P.2d at 221], The only material issue is whether or not plaintiff expressly authorized Nicholas to sell the milk. According to the sales contract, the parties agreed that the Nicholas will sell all milk produced through Milk Producers, Inc. Neither obfuscation nor sophistry disguises the nature of this term: an express authorization to sell the milk through defendant. The sale having been expressly authorized, seller’s security interest was waived, § 50A-9-306(2); see Official Comment No. 3, § 9-306 and Official Comment No. 2, § 9-307. Plaintiff argues that the New Mexico cases do not control, that the Oregon case of Baker Production Credit Association v. Long Creek Meat Company, Inc., supra, speaks more authoritatively. I would distinguish that case, not because, as the majority suggests, the security agreement prohibited sale of the collateral without consent, but rather, because the consent given was conditional and the condition had not been met. In our case, consent to sale was also made conditional by the terms of the conditional sales contract; however, in our case, the conditions were satisfied. The majority offers the “correct procedure” to preserve the seller’s security interest: simply include “accounts” in the security agreement. I do not join in this advice for two reasons: (1) Included among the meanings of “proceeds” is “account,” § 50A-9-306{l). Because plaintiff’s agreement accorded her a security interest in “proceeds,” she necessarily obtained a security interest in the “accounts.” The majority’s advice, therefore, would perform a superfluous exercise. (2) When the debtor defaults, § 50A-9-502(1) entitles the secured party to “notify an account debtor ... to make payment to him . . . and also to take control of any proceeds to which he is entitled under section 9-306.” An “account debtor” is one obligated on an account, § 50A-9-105(a). An “account” is a right to payment, § 50A-9-106. The evidence before us shows that the defendant remitted, either to the plaintiff or Nicholas, all the money due. Because defendant discharged its obligation, it was not an account debtor. The plaintiff, therefore, could not gain any additional advantage over the defendant by attempting to designate it an account debt- or, the definitional requirements of which were not fulfilled. B. Assignment of proceeds to plaintiff was lost by Nicholas’ assignment to defendant The majority holds that the conditional sales agreement was ineffective to create a valid assignment. The pertinent provision in the agreement reads: buyers do hereby authorize Milk Producers, Inc. to pay to the seller, from the proceeds of the milk sold to M.P.I., . . . ($1,000.00) . . . on or before September 20, 1970, and . ($1,000.00) . . . on or before October 20, 1970, and ($2,000.00) . . . on or before the 20th day of each month thereafter until . ($59,180.00) . . plus interest, have been paid in full. The document in its entirety was delivered to the defendant along with a cover letter drafted by plaintiff’s attorney. The letter included the following explanation: By the Contract of Sale, the buyers have assigned unto Mrs. Raley as security for the payment of the consideration named in the contract, their interest in the milk produced by such cows, and Mrs. Raley has a lien against such milk securing the payment of the amount due her under the contract. By the terms of the contract, you are to mail to Mrs. Raley, on the 20th day of September, $1,000 and on the 20th day of October, $1,000 and on the 20th day of each month thereafter until the consideration and interest are paid, $2,000, from the proceeds of the sale of the milk belonging to the buyers. Although I agree with the majority that New Mexico’s law on assignments under the U.C.C. is adequately contained in S & W Trucks, Inc., supra, I do not agree with the majority’s recitation of the law, nor do I agree that the facts are analogous. (a) The Law The Uniform Commercial Code, § 50A-9-318(3), N.M.S.A. 1953, provides, with respect to a notification to an account debtor of the assignment of the account, that a notification which does not reasonably identify the rights assigned is ineffective. [5 & W Trucks, 80 N.M. at 425, 457 P.2d at 222], Section 50A-9-318(3) also provides: If requested by the account debtor, the assignee must seasonably furnish reasonable proof that the assignment has been made and unless he does so the account debtor may pay the assignor. (b) The Facts In S & W Trucks, Inc. the secured party consented to debtor’s sale through the defendant auction house. The debtor thereupon sent two letters to the auctioneer authorizing it to pay a given amount to S & W. These letters did not create an assignment because they did “not identify any rights or claimed rights of S & W and Chicago in any of the funds derived from sale.” [80 N.M. at 425, 457 P.2d at 222]. In our case, as noted above, the documents received by the defendant clearly identified all “the rights or claimed rights [of plaintiff] in . . . the funds derived from sale.” This measure of proof does not satisfy the majority, but I can think of no more probative evidence of an assignment than a duly executed agreement ratified, in effect, by the secured party’s own lawyer. This assignment, however, insofar as it determined defendant’s obligations to plaintiff, as assignee, was superceded by the subsequent assignment executed by Nicholas and defendant. By its terms, defendant was to pay to plaintiff $1,000 each month rather than the $2,000 provided by the conditional sales agreement. The variance, to me, is prima facie evidence of fraud by Nicholas, but absent any showing of collusive participation or unlawful purpose by defendant (and no such allegation was made), it may lawfully assert the terms of the assignment to which it was privy. This assignment subjugated plaintiff’s rights. Section 50A-9-318 reads: (1). . . the rights of an assignee are subject to (a) all the terms of the contract between the account debtor and assignor and any defense or claim arising therefrom; . Based on the foregoing analysis, the assignment obligated defendant to pay $1,000 to plaintiff. The defendant fulfilled its obligation. C. Effect of Rescission and Repossession Let me note at the outset as an aside, that the plaintiff chose not to join Nicholas as defendants because plaintiff fully exercised her contractual remedies by retaining all monies paid and by repossessing the cows. The majority was puzzled why Nicholas was not made a party to the action. The majority holds under this point that plaintiff relinquished all rights against Nicholas when she exercised her contractual rights against Nicholas. I would not reach this issue because the first two points, supra, dispose of the matter, and the issue presented has not been adequately joined for review. I should like simply to respond to the majority’s reasoning. (1) The majority would enable the defendant to assert contractual defenses to which it was not a party. At the same time the majority vouchsafes the defendant from any contractual obligations. In other words, defendant gains whatever third party benefits may be forthcoming, but it escapes any duty. This seems inequitable on its face. (2) The Uniform Commercial Code does not have a provision which resolves this contention. Section 50A-9-318 discusses the defenses available to defendant, an account debtor, against plaintiff, an assignee. This section does not say that defendant enjoys all the defenses against plaintiff that Nicholas might have. In other words, the statute does not allow defendant to fill the shoes of Nicholas whenever it suits defendant. (3) If defendant converted the proceeds, the tort occurred at the moment defendant exercised unlawful dominion over the property; to await plaintiff’s decision as to how it will enforce its contractual rights against Nicholas as determinative of whether or not conversion will lie, delays, in effect, the accrual of the cause of action until long after the tortious conduct was committed. Put more simply: plaintiff alleges that defendant converted the November, 1969 proceeds when it remitted $1,000 instead of $2,000; defendant answers that because over a year later plaintiff repossessed the cows from Nicholas that it could not have committed any tort. (4) Davies v. Boyd, supra, cited by the majority cannot serve as authority for a rule that the rescission of a contract between X and Y terminates all rights that X may have against Z. In Davies v. Boyd, the .court had before it a purchaser and seller of a home under a real estate contract. The contract provided that upon default by the buyer, the seller could cancel the contract and retain all amounts already paid. The Court ruled that once the seller exercised these rights, it could not enforce a note executed by the buyer as part of the purchase agreement. This case has no value as precedent for the rights which may be invoked against a third party.