Court Opinion

ID: 9545589
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:15:51.861377+00
Date Added: 2024-06-11T15:15:08.832561
License: Public Domain

Dore, J.
(dissenting).—I dissent. Mendelson-Zeller, Inc. (MZ) is entitled to the reasonable value of its services and expenses. Otherwise Central Washington Bank (the Bank) would be unjustly enriched. As the California Court of Appeals very recently held, a claim based upon equitable principles of unjust enrichment can, in certain circumstances, supersede the rights of a secured creditor whose interest is fully perfected. Producers Cotton Oil Co. v. Amstar Corp., 197 Cal. App. 3d 638, 242 Cal. Rptr. 914 (1988). I would hold that such an equitable claim prevails in this case.
The facts in Producers are analogous to the facts of the present case. There, Producers Cotton Oil Co. (Producers) financed a beet grower's farm operation and took in return *364a security interest in the crop and its proceeds. The security agreement stated that no setoff or deductions were to be made by the buyer. The grower contracted to sell his beets to Amstar. This contract stated that Amstar would deduct from the sales price certain deductions. However, harvesting costs, which were later paid by Amstar, were not specified as deductions. Producers was aware of this buyer's contract with its stated deductions and sent a notice of Producer's assignment of crop proceeds to Amstar. The grower had the crops harvested. The grower asked Amstar to pay the harvester for his services. Amstar agreed to and did pay the harvester without receiving a subordination agreement from Producers. The usual practice of Amstar was to receive a subordination agreement from the financiers, however, in this case they inadvertently paid without one. In any event, Producers usual practice is to deny such requests for subordination. The grower never spoke to anyone at Producers about this payment for harvesting by Amstar. However, Producers was aware that harvesting services were being performed. Amstar remitted to Producers the proceeds of the sugar beet crop after deducting its miscellaneous expenses and harvesting expenses. Producers brought suit against Amstar, claiming that these deductions violated the security interest and constituted conversion of the proceeds.
The California Court of Appeals found an implied in law contract, or quasi contract, between Producers and Amstar which would allow Amstar to retain the harvesting costs it paid. Producers, 242 Cal. Rptr. at 926. The issue then became whether a claim based upon principles of unjust enrichment prevails over a claim based upon a properly perfected security interest pursuant to Article 9 of the Uniform Commercial Code. 242 Cal. Rptr. at 927. This conflict was one of first impression for the California courts. The court held:
[WJhen a party possessing a security interest in a crop and its proceeds has knowledge of and acquiesces in expenditures made which are necessary to the development of the crop, and *365ultimately benefits from the expenditures, a party who, through mistake, pays such costs without first obtaining subordination, is entitled to recover.
Producers, at 660.
Here the Bank agreed to finance the growers crop. The Bank took a security interest in the apple crops and its proceeds. Pursuant to this security agreement, the Bank required the grower among other things to obtain a written commitment from a reputable and viable financing source to advance funds to borrower for the harvest of the crops grown in 1984. In addition, the Bank required the grower to transport to market, wash, sort, grade, pack, and sell the crop grown and produced on borrower's orchards.
Pursuant to the Bank's requirements the grower entered into two separate agreements with Premium. The "Crop Financing and Handling Agreement" secured the grower's required harvest financing as required by the Bank. The security interest granted to Premium was subordinated to the Bank's interest. The second agreement, the "Standard Grower's Contract", carried out the Bank's mandate to market and sell the crop. Within this agreement was the approval of MZ as the exclusive sales agent for grower's fruit. Thus while the Bank was unaware of the MZ-Premium contract, it did request the services performed in this contract, i.e., the packing, storing, selling and shipping of the apples. The MZ-Premium contract required MZ to wire funds to Premium based on the number of bins of fruit handled by Premium. Premium would then make advances to the grower. After the sale, MZ would deduct its expenses and advances.
Similar to Producers, which was unaware of the harvesting payment agreement, the Bank here was unaware of the services to be performed by MZ. Nonetheless, the Bank requested and benefited by these services performed by MZ. Thus similar to Producers, the present facts establish an implied in law contract, or quasi contract between the Bank and MZ which would allow MZ to retain its expenses and advances it paid to Premium. MZ advanced costs so *366that the apple crop could be handled in a timely manner. The Bank specifically requested that these handling services be performed. Because the crop was handled, the Bank benefited by receipt of the proceeds of the sale. Thus, the facts satisfy the requirement that a recipient of services performed either requested or acquiesced in them and the requirement that the party to be charged with payment for service received a benefit. Chandler v. Washington Toll Bridge Auth., 17 Wn.2d 591, 602-03, 137 P.2d 97 (1943); Kerr v. King Cy., 42 Wn.2d 845, 854, 259 P.2d 398 (1953).
Under the common law equitable doctrine of implied in law or quasi contract, MZ had the right to recover from the Bank the handling costs by way of offset. Furthermore, Article 9 does not displace or prohibit the application of equitable principles. See RCW 62A. 1-103. Therefore, like the California Court of Appeals, I would hold when a party with a security interest in a crop and its proceeds requests expenditures which are necessary to the development of the crop, and ultimately benefits from the expenditures, a party who pays such costs is entitled to recover. I would hold such an equitable claim exists here and would affirm the trial court.