Court Opinion

ID: 9662501
Source: CourtListenerOpinion
Date Created: 2023-08-23 23:11:25.446027+00
Date Added: 2024-06-11T18:14:40.189521
License: Public Domain

Krivosha, C.J.,
dissenting.
I must respectfully dissent from the majority in this case. I do so on two grounds. First, I believe we are in error to overrule Garden City Production Credit Assn. v. Lannan, 186 Neb. 668, 186 N.W.2d 99 (1971), the leading case in the nation on this subject. Second, I believe that the result reached by the majority in this case is not supported by logic or reason.
While I recognize that there is some split of authority on this subject (see Annot., What Constitutes Secured Party’s Authorization to Transfer Collateral Free of Lien Linder UCC § 9-306(2), 37 A.L.R.4th 787 (1985)), I believe that the position adopted by this court more than 15 years ago represents the better reasoned position on this subject. In view of the fact that most jurisdictions which follow our earlier longstanding rule cite Garden City Production Credit Assn. v. Lannan, supra, as the basis for their decisions, apparently many other jurisdictions agree. Furthermore, I do not believe that anything that we said in State Bank v. Scoular-Bishop Grain Co., 217 *11Neb. 379, 349 N.W.2d 912 (1984), or Five Points Bank v. Scoular-Bishop Grain Co., 217 Neb. 677, 350 N.W.2d 549 (1984), is contrary to our earlier holding in Garden City Production Credit Assn. v. Lannan, supra, nor does it require us to overrule our holding in Garden City Production Credit Assn. v. Lannan.
It is clear in this case, as noted by the majority, that there was no express waiver by Farmers State Bank. Nor, in my view, can there be said to be an implied waiver sufficient to cause us to ignore the clear language of the security instrument. The majority makes much of the fact that between April 30 and June 17,1983, a period of 49 days, six sales were effected by the debtor without the Bank’s protest and without the Bank’s knowledge. This is suggested by the majority to be sufficient evidence that the Bank had impliedly waived its security. Yet the record discloses that these six transactions were a part of some 60 to 90 sales to Farmland Foods, Inc., conducted over the previous 6-year period in which payment was always made to the Bank following the sale of the livestock. Furthermore, once the Bank learned of the six sales without payment, it did rebuke the debtor and take action. It is apparently the majority’s view that the Bank’s lien was waived long ago, even though it was being paid. It is simply difficult for me to conclude that six sales conducted without the Bank’s actual knowledge within a 49-day period while the debtor is having severe financial difficulty should be the criteria by which we determine the intent of the lender and should be permitted to overshadow 10 times that number of sales where just the opposite result was effected.
The record in this case is clear that the Bank had no knowledge of the six sales before they were made, nor did it learn of the sales until all six had been completed. The majority’s suggestion that the Bank’s failure to rebuke the debtor evidenced implied approval does not wash when the record discloses that the Bank did not know of these six sales until all were completed and, upon learning of the sales, took action.
In my view, the difficulty with the majority opinion is that it has confused an implied waiver of the lien on the security with a waiver by the Bank of a requirement that the lender obtain *12permission to sell in writing before proceeding to sell the security. It appears to me that one might more effectively argue that the Bank obviously did not intend to waive its lien when it waived its requirement that permission to sell be in writing, in view of the fact that everyone is presumed to know the law and the Bank knew that under the provisions of Neb. U.C.C. § 9-306(2) (Reissue 1980) and this court’s consistent interpretation of that section more than 12 years earlier, as expressed in Garden City Production Credit Assn. v. Lannan, 186 Neb. 668, 186 N.W.2d 99 (1971), thesales were all subject to the Bank’s lien. That is precisely what § 9-306(2) provides and what it intends to accomplish. Section 9-306(2) does not prohibit the sale of property nor suggest that the mere sale of the property implies that the lien is to be waived. To the contrary, it provides that the security interest continues in the collateral, notwithstanding the sale. To therefore suggest that because the Bank waived a requirement that consent for the sale be in writing, it also waived its lien is not an accurate statement of the law generally recognized throughout the country.
While the records fail to disclose actual authorization by the Bank to sell, it seems to me that the most one can glean from the evidence is that the Bank impliedly consented to the sale of the livestock conditioned upon the debtor’s delivering the proceeds of the sale to the Bank, as he had done in the previous 60 to 90 sales. This does not constitute evidence of an intent by the Bank to waive its lien on the security.
As I have suggested earlier, I do not believe that our decision in either State Bank v. Scoular-Bishop Grain Co., 217 Neb. 379, 349 N.W.2d 912 (1984), or Five Points Bank v. Scoular-Bishop Grain Co., 217 Neb. 677, 350 N.W.2d 549 (1984), compels the result reached by the majority today. In State Bank v. Scoular-Bishop, supra, we reversed the decision of the district court and remanded the cause for a new trial because the district court had refused to permit the buyer to introduce evidence showing an express waiver and, instead, directed a verdict for the lender. What the purchaser intended to present by way of evidence were oral conversations with bank officers, bank records, checks, deposit slips, checking account summary, notes and renewal notes, other farm product sales, *13disability ledger cards, and livestock inspection reports, which may have established that the Bank had in fact waived its lien. In reaching our conclusion in State Bank v. Scoular-Bishop, supra at 388, 349 N.W.2d at 917, we nevertheless said:
“[A]n implied agreement should be found with extreme hesitancy and should generally be limited to the situation of a prior course of dealing with the debtor permitting disposition. The issue is a question of fact, but the trial court should carefully consider the written prohibition against disposition found in the security agreement as an important factor in the factual determination and should determine the matter in favor of the written prohibition unless such conclusion is unreasonable under the circumstances.”
The evidence in State Bank v. Scoular-Bishop, supra, was to the effect that there had been actual conversations between the debtor and the bank. Yet this court did not overrule Garden City Production Credit Assn. v. Lannan, supra, and, in fact, cautioned the trier of fact to find an implied waiver only with extreme hesitancy.
To the same extent, in Five Points Bank v. Scoular-Bishop, supra, we reversed and remanded the cause for a new trial because the evidence disclosed that the debtor was encouraged by the bank to minimize his operating loan by obtaining his fertilizer by credit on an open account. Moreover, the bank refused to lend the borrower money for repairs to his farm equipment, acknowledging that the debtor would have to have another advance on his corn crop from someone else. We simply concluded in Five Points Bank v. Scoular-Bishop, supra, that it was a question of fact whether the discussion and conduct between the bank and the borrower constituted authorization. Again, we did not suggest we should overrule Garden City Production Credit Assn. v. Lannan, 186 Neb. 668, 186 N.W.2d 99 (1971), but, quite to the contrary, suggested that our position was consistent. We merely suggested that it was a question of fact as to whether there had been authorization. State Bank v. Scoular-Bishop and Five Points Bank v. Scoular-Bishop are not at all similar to the facts in this case.
The real difficulty with the majority opinion is that we are *14not writing on a clean slate. The law as declared by this court in Garden City Production Credit Assn. v. Lannan, supra, has been the law of this jurisdiction for more than 15 years. During all of that time, the Legislature has not seen fit to amend, in any substantive manner, the law, as did, for instance, the Legislature of the State of New Mexico after the New Mexico Supreme Court decided the case of Clovis National Bank v. Thomas, 77 N.M. 554, 425 P.2d 726 (1967), contrary to our position in Garden City Production Credit Assn. v. Lannan, supra, and consistent with the majority opinion herein.
While the record does not disclose the fact, one may assume that multiple security agreements have been executed in this state, and farmers have been permitted to sell their livestock as they must, based upon the lender’s understanding of our holding in Garden City Production Credit Assn. v. Lannan, supra. Yet, with one stroke of the eraser, we now clean the slate and cause all of those security instruments to become invalid because of what we term to be a course of dealing and, therefore, implied consent.
I believe what we earlier said in Garden City Production Credit Assn. v. Lannan has even greater applicability today and continues, in my mind, to make good sense.
The evidence reveals a typical farm-ranch operation contemplating a course of dealing in the sale of farm products, and the necessity of securing credit financing for such an operation. The Uniform Commercial Code, whatever else its objects may be, was designed to close the gap in the classic conflict between the lender and the innocent purchaser and furnish acceptable, certain, and suitable standards which would promote the necessity of and the fluidity of farm credit financing in the modern context, and at the same time facilitate the sale and exchange of collateral by furnishing a definable and ascertainable standard which purchasers could rely on. Case application is in its genesis, but an examination of the textual and court authority supports such an approach to an examination of cases in a specific factual context. See Uniform Commercial Code Bibliography, 1969 (published by the Joint Committee on Continuing Legal *15Education of the American Law Institute and the American Bar Association), “Article 9 — Secured Transactions,” pp. 87 to 101.
186 Neb. at 671-72, 186 N.W.2d at 102.
We went on further in Garden City Production Credit Assn. v. Lannan, supra at 673, 186 N.W.2d at 102, to say:
We must assume that section 9-306(2), U.C.C., was drafted with an awareness of the practical realities of farm credit financing, the market movement of chattel property, and the practical problems of a simultaneous sale and payment. This provision of the code must clearly have been designed to accommodate and to fit the practical realities of financing a farming and business operation contemplating the raising, feeding, and processing, and sale of livestock and tangible chattel property. It is uncontested in the present case that there whs strict compliance with the filing and notice provisions of ¡the code. Lannan, the purchaser, was bound by the provisions of the code and must ordinarily take the risk of a : failure to make the appropriate investigation contemplated by its provisions.
It appears to me that the language of Garden City Production Credit Assn. v. Lannan, 186 Neb. 668, 186 N.W.2d 99 (1971;), is even stronger today as it applies in the instant case where the purchaser testified that it was not even aware that a lien could be obtained on the farm commodities purchased or that such a filing had been made.
Some of our neighboring states which also have had occasion to examine this issue have, likewise, concluded that our earlier decision! in Garden City Production Credit Assn. v. Lannan was the better rule. In North Cent. Kan. Prod. Cred. Ass’n v. Washington Sales Co., 223 Kan. 689, 694, 577 P.2d 35, 39 (1978), the Supreme Court of Kansas said:
We have carefully examined the cases and authorities cited by industrious counsel in the original briefs and those amicus curiae (all of whose briefs were most helpful), as well as others which our research uncovered. The division of authority is sharp. Some cases support the rationale of Clovis National Bank v. Thomas, 77 N.M. 554, 425 P.2d *16726 (1967); others — and most writers on the subject — follow Garden City Production Credit Assn. v. Lannan, 186 Neb. 668, 186 N.W.2d 99(1971).
The Kansas Supreme Court then went on to point out that following the decision by the New Mexico Supreme Court in Clovis National Bank v. Thomas, 11 N.M. 554, 425 P.2d 726 (1967), “the New Mexico legislature repudiated the Clovis doctrine” by amending the Uniform Commercial Code as it applied in New Mexico. 223 Kan. at 694, 577 P.2d at 39. The Kansas Supreme Court then went on in North Cent. Kan. Prod. Cred. Ass’n v. Washington Sales Co., supra at 696, 577 P.2d at 41, to say:
The Clovis decision, as we pointed out earlier, is no longer applicable in the jurisdiction where it was adopted. Be that as it may, we do not think its rationale follows the intent of the framers of the Uniform Commercial Code, particularly as expressed in the sections of the code set forth above. We conclude that a ruling, following the Clovis doctrine, would hinder “the granting of credit to the capital-intensive agricultural industry” in this state; that such a holding is not in the spirit of the UCC, is not required by its terms, and would not be in the public interest. We therefore follow the rationale of Laman, supra, and find no waiver of a security interest, and no consent to the sales here involved, by PCA’s failure to remonstrate with Uffman, following his sales of milk and wheat.
Similarly, the Minnesota Supreme Court in Wabasso State Bank v. Caldwell Packing Co., 308 Minn. 349, 350, 251 N.W.2d 321, 322 (1976), said:
The question presented is whether one who finances farming operations and takes a security interest in cattle under an agreement which prohibits the sale of the collateral without the financier’s prior written approval authorizes the borrower to sell the collateral by not objecting to a course of dealing in which the borrower has previously sold collateral without consent.
In concluding that a waiver did not occur, the Minnesota court said at 353, 251 N.W.2d at 323-24: “Article 9 of the *17Uniform Commercial Code established a recording system which permits a creditor, by filing a financing statement, to rely upon the secured position set out in his written security agreement.”
The Minnesota Supreme Court then discussed the argument raised by the purchaser to the effect that the bank could have easily protected itself by informing its farm loan debtors that it expected them to adhere to the terms of the security agreement and by reprimanding those who failed to do so, as now suggested by the majority herein. In rejecting that argument the Minnesota Supreme Court said at 354, 251 N.W.2d at 324:
The fallacy in this argument is that it ignores the realities of the situation. The bank was not made aware of the sales of collateral before they occurred. Farmers would simply notify the bank of the sales when they came in with the proceeds to pay off the loan. At this point, not only was the bank not harmed by the sale but it was presented with an accomplished fact.
Examining the options open to both the bank and the purchasers of the cattle, we have no difficulty in determining which party was in a better position to protect its interests. On the one hand, the bank had complied with all of the provisions of Article 9. It did not rebuke those farmers who sold collateral without authorization, since after the fact such action would have had little effect. It had no prior knowledge of Marczak’s plans to sell his cattle. On the other hand, the defendants had constructive notice of the bank’s security interest and after checking the records, a simple phone call would have determined whether the bank had authorized Marczak’s sale. Alternatively, when paying Marczak for the cattle, defendants could have named Marczak and the bank as joint payees on their check. Either action would have fully protected the bank and defendants. In any event, this is not a case of detrimental reliance since defendants had no way of knowing whether or not the bank had reminded Marczak of the necessity for prior approval of sales.
The Minnesota court then concluded by quoting at length from our decision in Garden City Production Credit Assn. v. *18Lannan, 186 Neb. 668, 186 N.W.2d 99 (1971).
As the majority observes, and as the record in this case establishes, requiring the borrower to obtain written consent from the Bank at 6 a.m. when livestock must be taken to market is not a realistic approach to the situation, nor does it permit the U.C.C., if so interpreted, to deal with the realities of life. We are here given two choices — shall we grant to the lender the benefits of his security, or shall we protect the purchaser who is rewarded by his failure to check the records. As a matter of fact, our decision today would seem to indicate that there is greater benefit in refusing to be provided any information if one wishes to purchase free and clear. What did the purchaser rely upon in making its purchase, and how was it misled by the lender?
I have no difficulty in concluding that by permitting the farmer to sell his livestock without first obtaining written consent, the Bank has waived the requirement for written consent. I have greater difficulty, however, in concluding that by simply waiving one of the requirements for sale, the Bank has thereby impliedly waived its entire security in the property and the benefits of § 9-306(2).
By waiving the requirement that the borrower must obtain written consent, the Bank may not declare the loan in default for failure to obtain such written consent. Nor may the Bank sue the debtor for conversion. It does not necessarily follow, however, that by waiving its right to declare the loan in default by reason of the borrower’s failing to obtain written consent before sale or its right to sue the debtor for conversion that the lender impliedly intended to give up its security.
In passing, I must further disagree with the majority’s discussion in this case of the effect of Neb. U.C.C. § 1-205 (Reissue 1980). While it may be true that § 1 -205 is relevant only with regard to preagreement dealings between the parties, it is not true in this case that all of the dealings herein are postagreement. The transactions between the Bank and the debtor have gone on for nearly 6 years. During that time a host of agreements have been signed and a number of practices conducted. I fear that the majority opinion in this case may be misunderstood to mean that if the parties execute renewal *19documents or subsequent loan agreements, the evidence regarding the manner in which they dealt with each other prior to the execution of the last renewal agreement would not be relevant. Certainly that is not what § 1-205(4) means, nor what it is intended to say.
I am not unmindful that the 1985 Legislature has amended Neb. U.C.C. § 9-307 (Cum. Supp. 1986). I purposely make no comment with regard to that because it is not relevant to the instant case.
For all of these reasons, therefore, I would not have overruled our holding in Garden City Production Credit Assn. v. Lannan, 186 Neb. 668, 186 N.W.2d 99 (1971), and I would have concluded that the evidence in this case was insufficient to submit to the jury the question of implied waiver. I would therefore have reversed and remanded.
I am authorized to state that Caporale and Shanahan, JJ., join in this dissent.