*1
MAINE FARMERS INC. MAINE,
FARM CREDIT OF A.C.A.
Supreme Judicial Court Maine.
Submitted on briefs: June 2001.
Decided: Feb. *2 Olore, Esq., Phillips, A. Dunlavey, approximately David Farm Credit loaned York, P.A., Isle, Dunlavey Presque $735,000 Wathen, & to Gordon Glendon plaintiff. Wathen, Wathen, Lynn potato and farm- ers, solely a corporation and Heann, Bangor, Esq., Michael S. for de- Wathen, owned Gordon for the 1995-96 fendant. equip- NEI growing season. leased ment, Wathens, from bought potatoes SAUFLEY, C.J., CLIFFORD, Panel: stored, packed, and then and resold RUDMAN, DANA, ALEXANDER, and potatoes. Farm Credit secured the loan CALKINS, JJ. security potato crop with a interest DANA, J. proceeds and that expectation with of crop from the sale would CLIFFORD, J. satisfy be used to the loan.1 Farm Credit buyers, shippers, packers notified the and appeals 1] Farm Credit of Maine from [¶ potatoes in the interest judgment entered J.) crops inventory (Aroostook Pierson, and of NEI. The Wath- County, favor (MFX) crop ens sold their to NEI in with Exchange the Maine Farmers its setoff claim Farm from against express Credit’s secu- condition that proceeds rity interest in Nightingale Enterprises, potatoes paid NEI’s resale of the would be (NEI) Inc.’s receivable represent- to Farm Credit. ing proceeds potatoes. from the sale of agreement required [¶ 3] The cross-appeals judg- MFX of the authority prior Credit’s written denying
ment claim MFX’s In selling potatoes.2 practice, NEI for unjust enrichment. however, place oral took discussion the court erred in contends between Farm Credit and NEI as to how concluding a right that MFX had the crop NEI would market and contract pursuant setoff to 11 M.R.S.A. for the resale of the and Farm (1995) because interests in MFX’s NEI’s require get specific Credit did not NEI to subject account receivable was and inferior approval during to sell the to Farm as a credi- of its 1995-96 season. NEI sold most disagree and affirm judg- tor. We MFX, a corporation ment. granted by crop specific previously loan the Debt- 1. A is one with the or herewith made plant, that the be used Party. intent loan or to the Secured store, harvest, crops. sell the fruit of the and agreement portion that: of the states Another prior written consent of Farm Without security agreement provides: 2. The sell, lease, (1) Credit: Debtor will not trans- use of It is understood that the the terms fer, assign dispose any of or otherwise "substitutions”, “proceeds”, "replace- liens, Collateral, permit any nor ments”, and “additions” does "accessions” any interests or encumbrances to attach authority, give express or Debtor Collateral, except Secured in favor of dispose implied, to sell or otherwise (2) Party; Debtor will not remove Collateral, specif- Debtor is hereafter unless per- records the Collateral books and ically authorized to do so. The within location(s) speci- taining thereto grant is in interest addition fied above. supplemental any security in Section buying reselling potatoes. business of total price bagged was aware of Farm Credit’s NEI then write MFX a check would crop. the 1995-96 purchased open NEI on MFX’s paid that MFX bagged potatoes. was for with accounts vendors. *3 pay thirty MFX would NEI between MFX also indicated that it “would [¶ 6] forty days taking delivery by after checks ... always keep enough money [NEI’s] jointly
made out to Farm Credit and NEI. account to the] deduct the [cost February [¶ 4] On MFX ad- bags, provided pay didn’t for [NEI] them.” $100,000 vanced to NEI to allow NEI to charge MFX did not NEI more for the advantage take of a payment favorable bags paid than NEI would have otherwise arrangement offered the Maine Potato bag to the MFX a vendors.3 became cred- Growers, Inc. MFX agreed and NEI separate itor of NEI and maintained a weekly NEI would make payments to re- book account for bags provided the pay the loan deducting the amount NEI. It is unclear whether Gordon Wath- from what MFX owed NEI for future en Farm informed Credit about this ar- potato sales. NEI had the understanding rangement. $100,000 loan, that the was not a but rath- [¶ NEI did not make bag pay- 7] the er an advance to NEI to repaid from up large ments to MFX and built ac- the future sale of potatoes to MFX. payable count due to for bags. MFX The record is not clear as to the extent of agreed keep MFX then a running ac- Farm knowledge financing of this count bag on the amount due for reim- agreement, and MFX acknowledged that bursement and to payment deduct arrangements these were made without from at invoices a later time in a similar Farm Credit’s direct involvement. $100,000 doing fashion as it was for the By [¶ 5] late 1995 and early both of charged advance. MFX percent fourteen NEI’s two vendors declined to extend interest on the outstanding bag debt. further credit to NEI. agreed MFX MFX a summary attached of deductions to facilitate NEI’s of bags from joint checks it made out NEI those same vendors permitting NEI to Credit, Farm but NEI never forwarded charge bags open to MFX’s account. the itemizations to Farm Credit. planned MFX to deduct the amount due eventually [¶ 8] Credit became for bags from each shipment invoice aware that NEI selling price was not at a for the it from received At expenses. sufficient to cover request NEI, however, ap- MFX main- peared every payable tained accounts list bags the account for the sub- separately Credit, and did not mitted to Farm deduct the cost from and Farm Credit NEI’s account, long “[paid] recognized, early spring as NEI for bags in [they] about the same becoming manner that MFX was a substantial would have made the deduction.” began creditor of NEI. Farm Credit ad- agreement required MFX to NEI the justing price4 the release based on NEI’s employee 3. An NEI testified that NEI re- 4. A release is the minimum amount potatoes they bagged ceived more for sold paid crop which must be lender from they than would have received for crop proceeds each sale check to ensure satis- practice sold in bulk. It was common crop faction of the loan. industry potato growers responsible to be providing bags pack shipment. auto- accruing payables monthly finan- Farm received from the Credit relief claim, as a showing predictions stay pursue cial summaries matic order to lender, against ar- sums remaining crops. unsold The credit MFX for the a com- rangement between NEI and which that MFX had set off.5 MFX filed seeking crop allowed MFX to from sale with the plaint Bankruptcy deduct declaratory judgment the value of sold to NEI regarding credit, claiming prevented priority on MFX’s for its setoff calculating Following net value of it accurate from what owed to NEI. Court, remaining crops. of the case transfer to the counterclaim, filed a assert- Farm Credit became concerned priori- *4 ing security gave that its interest with and discussed Gordon Wathen claim, that ty prayed over MFX’s and Farm pay accruing need to sums. pro- crop hold MFX sale court liable for at that witnesses trial did not recall Credit punitive damages. ceeds and an to the they explanation received MFX, specifics payable accounts to found Superior The Court why they were increasing. or Gordon of its that MFX’s setoff claim arose out telling also did Farm Wathen not recall and, on relying contract with potato specifically about the need for the 9-318, § that M.R.S.A. concluded MFX, arrangement bags and the with but subject to security Credit’s believed there was some discussion. setoff claim of MFX. The court entered on its setoff judgment a favor of MFX $100,000 ad- NEI satisfied the 10]
[¶ $92,270.59. Farm claim in the amount of requested to in May vance MFX but appealed, appealed and MFX money to that MFX wait deduct owed met its ruling that MFX had not court’s bags in order its to assist NEI with necessary to prove to elements burden pur- crop cash flow. MFX made its last unjust make out a claim for enrichment.6 May from NEI on and did chase not use its credit to for more account pro- Title 11 13] M.R.S.A. [¶ bags April MFX set off after 1996. a right party a limited to a setoff for vides 7,1996, and payment from its June to NEI right in the that can be position pota- for the of the Farm Credit to the interest of se- superior $92,270.59 owed toes the that NEI MFX Credit, party position cured interest) accrued (including subject arises if the matter of the setoff bought that NEI on credit. MFX’s an part out of and is a contract between statute assignee.7 and commenced and The 11] NEI the Wathens debtor [¶ bankruptcy proceedings July provides: of 1996. benefit, (3) knowledge bene- was due 5. The Farm Credit claims it or make it NEI at the trial was fit was under such circumstances to time of between $138,000 $165,863.80. inequitable for Farm the ben- Credit to retain payment id. at efit without of its value. See ¶ permits of a recovery law for the value at
6. The 760'A.2d 1045-46. benefit retained when there is no contractual did not Farm Credit The court find that compel relationship justice if fairness and benefit, appreciated knowledge or had legal duty pay. performance of a moral prong required to sus- the second the test Tribe, Passamaquoddy Forrest Assoc. unjust enrichment claim. tain an 195, 14, ¶ To sus ME enrichment, though usually refers to unjust MFXmust Article 9 tain a claim for 7.Even a "secured on Farm creditor with a interest as it conferred a benefit show Credit, (2) appreciation party,” a secured with a inter- Farm Credit an had an account (stating only single brings Unless debtor has made an contract setoff 9). agreement enforceable not to protection assert de- claim within of Article arising fenses claims out of a sale as presented [¶ 15] The issue provided in section rights Superior agree Court was whether the assignee subject are purchase bags ment to allow NEI to (a) All the terms of the contract be- MFX’s account was tween assignor the account debtor and contract, separate agreement. or was a If arising defense or claim there- contract, separate it was a Farm Credit’s from; and security agreement subject would (b) Any other defense or claim of the it, and MFX’s would be inferior account debtor the assignor Farm Credit’s interest. Because which accrues before the account debtor was aware of receives assignment. notification of the it was MFX’s 9-318(1) (1995). 11 M.R.S.A. burden to show that right to a setoff correctly [¶ ap- 14] 9-318(l)(a). arose pursuant In plied terminology used section 9-318 succeed, order to MFX had to prove *5 potato to the contract between MFX and agreement its to advance credit to NEI for NEI, and identified MFX as an account bags out part arose of and was (from purchase debtor potatoes buy pota contract with NEI to and sell paid), which it has not assignor NEI as an Co., Apex toes. See In re Oil 975 F.2d (from the assignment right of its of pay- (8th Cir.1992). 1365, 1368, 1370 The court ment for the potatoes), sale of and Farm MFX, found in reasoning favor of that the (from assignee Credit as an assign- credit for bag purchases agreement did right ment to it of the payment to receive part arise out of and was potato for the sale of the potatoes).8 sec- Under contract between NEI and MFX. Accord 9-318(l)(a),9 tion Credit’s that, ingly, the pursuant court concluded subject interest was to “[a]ll terms of to section rights of Farm Credit the contract between the account debtor assignee subject as the all were to and the assignor [MFX] [NEI] potato terms of the contract between NEI defense or claim arising therefrom.” MFX, including agree assignee in this bags, ment for the and that case, however, subject would be only to the MFX properly bags offset the costs for the a single terms of contract for the sale of from the monies it owed to NEI. between NEI and but not to the terms of separate parties contracts The intent of the that single contract. See Harris v. expectation performance Dial and the are (4th Cir.1992) 990, Corp., 954 F.2d determining single 993 crucial to whether a setoff); 990, "assignee” est in accounts is Corp., under sec- Harris v. Dial tion 9-318. (4th Cir.1992) See In re Otha C. Jean & Assoc. (only single brings 993 contract Inc., 219, (E.D.Tenn.1993) 152 B.R. 222-23 9); protection setoff claim within of Article In (noting generally applied that "courts have Co., 1365, (8th Apex re Oil 975 1368 F.2d way.”) § 9-318 this Cir.1992) 9). (noting applicability of Article 9-318(1) provides 8. Section creditor with assignment 9. Because MFX had notice of the right relating perfected limited to a setoff Credit, 318(l)(b) from NEI to 9— 9-318(1) interest. 11 M.R.S.A. apply. does not (1995); Jean, see also In re Otha C. 152 B.R. (explaining applicability at 222 of Article 9 to 90
contract or
contracts
Rob
al
but to
whether
separate
exist.
inferences”
determine
Assessor,
1127,
bins v. State
536
Tax
A.2d
competence
the record contains
evidence
(Me.1988)
1129
intent
(reviewing
parties
trial
support the
court’s factual conclu-
contract);
interpret
RESTATEMENT
Winthrop,
sions.
v.
Sturtevant
Town of
(SECOND)
OF
240 cmt.
CONTRACTS
¶
(cita-
9,
84,
264,
1999 ME
732 A.2d
267
(1981);10
Co. v. Spencer
b
see also Carvel
omitted).
tion
Press, Inc.,
¶10,
74,
ME
A.2d
1998
708
[¶ 17] The court found that the evidence
1033,
(reviewing
1035
severability or en
agree-
“establishes that the intent of the
error).
tirety of contract for clear
A de
ment
MFX and
for the
between
NEI was
relating
termination
a court
to the con
selling of
packaging
NEI’s
parties
question
tractual intent of the
is
fact,
a finding
we review such
season.... NEI was obli-
clear error.
Forrest Assoc.
See
v. Passa
gated
repay
to sell MFX its
¶
Tribe,
195, 9,
maquoddy
ME
760
$100,000
could not
loan. When NEI
1041,
1044;
A.2d
Carvel
1998 ME
indirectly
obtain potato bags, MFX was
¶ 10,
1035; Ludington
708 A.2d at
v. La- obligated
charge
to allow NEI
¶
Freniere,
17, 5,
1998 ME
A.2d
if it
MFX’s account
wanted to have
Innes,
877;
Dehahn
A.2d
v.
716- $100,000
future
repaid
advance
out of the
(Me.1976). Accordingly,
we will defer
compe-
NEI.” There is
sales from
findings
to a trial
court’s
fact unless
record
support
tent evidence in the
findings
clearly
such
are
erroneous.
In re
misappre-
no
finding, and we discern
clear
¶
McCormick,
24, 18,
Estate
ME
significance
hension of the
of the evidence.
559;
Balano,
Paffhausen
industry
It
practice
is common
¶ 11,
(relying
ME
740 A.2d
*6
grower
provide
the
of
to
or seller
competent
in record
evidence
to affirm
bags in
was
potatoes,
the sale of
and such
Plummer,
court’s findings);
trial
Estate of
the
NEI
case with the contract between
(Me.1995)
(deferring
666 A.2d
to
parties
NEI’s
MFX. The
intended
preemptive
court’s finding
right
lower
that
part
provision
bags
integral
to be an
reasonable);
Williams,
v.
was
Blackmer
Allowing
original potato
of their
contract.
(Me.1981) (acknowl
A.2d
bags
NEI to
MFX’s account for the
charge
edging
superior capability
trial court’s
fulfill the
being
resulted in NEI
able to
determining credibility of witnesses and
terms,
original
to its
according
contract
resolving
testimony);
Porges
conflicts
handling
originally suggested
MFX also
Reid,
(Me.1980)
(giving
bags
the
for the
money NEI owed
jus
presiding
considerable deference to
amount
owed NEI
deduction in the
tice’s set aside of default because of famil
find no
Accordingly,
for the
we
potatoes.
iarity
superior position
with
to
case
that
finding
clear
court
error
the
credibility
parties).
evaluate
func
Our
agreement
supply
to
for
credit
appellate
an
is not
tion as
court
to “review
of a
purchase
bags
integral part
draw
factu-
was
transcript
[our]
a cold
own
necessary
Separate
first
the other
contract are discussed in a com-
has no
effect on
to
party’s duty
perform
ment
section 240:
This
to
the second....
contracts,
so, however,
single
separate
con-
If there are two
one
is not
if there is
party’s performance
parties
under
first and the
to ex-
which the
are
tract under
party’s performance under
other
the second
change performances ....
exchanged
single
are
to
under a
not
cmt.
(Second)
of Contracts
Restatement
exchange
promises, and even a
fail-
total
(1981).
b
performance by
ure of
one
as to the
and the
manufacturer
purchaser
1998 ME
bottle
single contract. See Carvel
¶ 10,
by
manufac-
of the bottles
the bottle
wholly separate contract. factual conclusion that erred out of and was agreement arose [¶ 19] Farm Credit’s contention potatoes. contract for the sale of See open arrangement Paff ¶ 169, 11, hausen, 1999 ME 740 A.2d at prior subsequent crop purchases made (refusing finding to vacate lower court require MFX also does not a conclusion *7 simply because court could reach different that the trial court Regardless erred. conclusion). accrue, they when and claims defenses arising out aof contract from which as uphold we the [¶ 22] Because signed may accounts are created be assert right conclusion that MFX had a Court’s by against ed the account debtor as offsets pursuant the to 11 M.R.S.A. 9- to setoff amount assignee. the owed to the United 318(1), conten- we need not address MFX’s E. Sports, Cal. Bank v. Mountain 546 pur- tion that MFX took the (de (D.Mass.1982) 945, 963, F.Supp. 977 and clear of chased from NEI free claring running part single account con 11 security interest of Farm Credit. See tract even for claims based on unrelated 307(1) (1995 9-306(2), §§ & M.R.S.A. transactions because that result consistent P.L.1999, by ch. Supp.2001) repealed assignor dealing with course of between 2001). (effective July § A-l Nor need debtor). and account trial court erred we decide whether the v. it concluded that This case is similar to Harris when
[¶20] (4th Cir.1992), by MFX’s extension unjustly 990 not enriched Corp., Dial to which allowed NEI to where the court found that one contract of credit potato fulfill its contract and of resin a bottle continue to covered both the sale inventory loan like crop thus continue down its to Farm An lender [¶25] Assoc., 195, Farm that has the full not received Credit. See Forrest ME ¶ typically sale collateral at 1045^6. buyer has claims potential against two entry is: the collateral. One claim sounds con tract: the extent that has not
Judgment affirmed. collateral, full paid the lender, assignee the ac secured as SAUFLEY, DANA, C.J., J., sale, count created credit receivable concurring concurring in the collect the balance sue judgment. however, to subject, due on the account— to the extent allowed buyer’s defenses We concur in the result but write 9-318(1). potential The second separately question address first, in claim independent is goods that long “so goods volves the themselves: has agree declined to reach. We still continues security interest with the Court’s conclusion that had can maintain inventory, the secured right pursuant to former 11 M.R.S.A. repos against purchaser action 9-818(l)(a) (1995)11 to set off States v. session or conversion.” United potato amount NEI owed it for the (9th Harman, 750 Handy & F.2d against the receivable potato Cir.1984) dif (discussing party’s purchases owed to NEI and assigned remedies); ferent see Bank Wau also Credit; although a different charac- Sales, Inc., 906 nakee v. Rochester Cheese terization of the facts would have been Cir.1990) (7th (considering pro F.2d 1185 possible, the Superior finding Court’s that not priety against account but of setoff debt out of the con- arose collateral claim considering conversion of tract is not clearly erroneous. court); trial not raised before properly however, do agree, [¶ 24] We Corp., Amstar Producers Cotton Oil Co. v. our decision on the section 9-318 setoff Cal.Rptr. Cal.App.3d it unnecessary issue makes to consider the (considering separate conversion separate question of whether MFX took claims); Co. setoff Mid-States Sales Ass’n, free of Farm Credit’s Empire Dairymen’s Mountain This separate (considering interest. issue must con- (Colo.Ct.App.1987) P.2d 342 However, par sidered. because Farm Credit conversion claim because secured ty challenge has failed ac establish did not setoff count). survived, we concur the result.12 *8 which, MFX, opinion al by 11. All references in this the se- issue raised enrichment cured article of the U.C.C. will be transactions though by Superior Court characterized 9, §§ to the former 11 "claim,” Article M.R.S.A. really as a nature was more in the (1995 Pamph.2000), gov- to 9-507 & which liability. an Produc affirmative defense to Cf. case, repealed this but has erns which been Corp., Cal. ers Co. v. 197 Cotton Oil Amstar replaced July as of with new (hold App.3d Cal.Rptr. 242 914 9-A, §§ Article M.R.S.A. 9-1101 to 9-1709 ing wrongfully beet who set off harvest (Pamph.2001). ing in violation 9-318 and costs of section continuing se converted beets in violation of 12. Because Credit has not established Farm curity not liable because interest nevertheless liability MFX’s or the on either setoff unjustly party). liability secured would enrich issue, agree we with the interest unjust we Court that need not consider the then, Farm brought question, [¶26] Credit a contract is whether NEI’s sale of against claim MFX assignee as of NEI’s MFX potatoes by was authorized receivable,13 and we have now af Farm It Credit. is clear that the sale was Superior firmed the by Court’s conclusion not security agreement, authorized that MFX was not writing provided by liable Farm Credit nor in as on the account it agreement; time, because had a valid setoff at the same it is clear arising from the contract. Farm Credit that Farm Credit knew that NEI was brought also alleging claim that MFX selling nearly all its collateral, had basis, converted its objected. which is dis never On this MFX ar- parties’ cussed in the appeal gues briefs on but gave that Farm Credit implied not in the opinion Credit, of the Court nor in the consent to the sale. Farm howev- Superior er, decision of the If argues Court.14 Farm that its consent was conditioned (via Credit in is correct its contention that on its receiving a check MFX took potatoes subject usual, payable, its secu as to NEI and Farm Cred- interest, it) rity it then would be entitled the full price which it recover the remainder of the never received due to MFX’s unauthorized conversion, damages not setoff. withstanding against MFX’s valid setoff have the better reason, account receivable. For this it argument on this issue. The in evidence is necessary to discuss whether Farm the record could be read to support a interest finding that Farm Credit’s consent was survived the sale to MFX. conditional and that the condition was not
[¶ Article 27] 9’s default rule is that the satisfied. A number of courts have held security interest survives: “Except where that when a condition that the lender re- this Article or Article 8 provides, otherwise full price ceive the of the collateral is not satisfied, continues collateral the sale has not been “authorized sale, notwithstanding exchange or by other party” meaning within the thereof, disposition 9-306(2). disposition unless the of section See Churchill Bus. by Credit, Co., authorized the secured party in the Inc. v. Pac. Mut. Door security agreement (8th Cir.1995) or otherwise ....” 11 (majority rule is 9-306(2) (1995). M.R.S.A. first that “a collateral eon- Although Proceeds, however, 13. potatoes. Credit's counterclaim did are defined as clearly state a contract claim on the upon ac- is "whatever received the sale ... of receivable, count 9-306(1) (1995) is evident from the record collateral.” 11 M.R.S.A. arguments appeal and the added). that this claim (emphasis Proceeds need not be re was tried parties pursuant debtor, Merrill, consent of the ceived Farnum v. C.J. 15(b). to M.R. Civ. Inc., P. (Me.1970), they but someone, must be received and the Although Court did not ex- MFX withheld for the setoff was not received claim, plicitly address the conversion by anyone, Banking see Branch Co. & Trust correctly, we will assume for F.Supp. Columbian Peanut asserts — purposes argument (E.D.N.C.1986) (no the court made created —that implicit finding pola- that MFX took the peanut when set off seed debt *9 toes free security hand, of Farm Credit’s interest. peanuts). of On the other the money pota MFX received when it resold the thereof, argues 15. Farm clearly proceeds Credit also that it had a secu- toes was and if Farm rity continuing security interest in the funds MFX withheld as Credit had a interest in debt, paying security setoff for the instead of 1o it had a interest those in proceeds proceeds because that was as well. 94 it, products excep im-
tinues where the conditions of release not mention the farm met”); by 9-307(1) posed party the secured are not preempt in section has tion been Corp. v. accord Livestock Credit Tri-State by Security Food Act ed federal (In Ellsworth), 1448, Ellsworth 1631(d) re (1999). (FSA), § 7 See U.S.C.A. (9th Cir.1984); 1450-51 N. Commercial Inc., Royal Heights, Food Servs. Am. v. 205, (Alaska Cobb, Co. v. P.2d 778 208-09 590, 123 Wash.2d 871 P.2d 1989); but see E. Idaho Prod. Ass’n Credit (1994) (en banc) (purpose and effect Inc., Gem, v. Idaho 122 Idaho 842 products is to farm abrogate FSA U.C.C. (1992) (lender’s P.2d 285 authorization Nelson v. Am. Nat’l exception); accord to sell receiving collateral conditional on its Bank, (Tex.App.1996). 921 416 S.W.2d security though cut off interest three Although the FSA itself contains met). condition not We need not resolve buyer to which a exceptions pursuant issue, however, because, this as we discuss ordinary in products farm course below, if Farm Credit cannot even prevail interest, subject security take to a it one assumes that did not authorize the 1631(e), § Farm Credit failed U.S.C.A. sale to MFX. persuade trial court existence argues 29] MFX that if Farm [¶ Credit exceptions. of those sale, did not authorize the MFX still took either Nor did Farm Credit assert security free of the interest because it was arguments on this issue. two alternative buyer ordinary in the course of business: in First, buyer that MFX was a assuming buyer ordinary “A course of busi- course, it ordinary it follows that ... person ness other than a farm buying security free of the inter took products person engaged from a in farm- § by 9- est created its seller. M.R.S.A. ing operations, security takes free of a 307(1). argued, could Farm Credit have interest by though created his seller even therefore, NEI, not that MFX’s seller was security perfected interest is even Wathens, that MFX took free of so though buyer knows of its existence.” security created NEI but sub 9-307(1) (1995). § M.R.S.A. by the ject security to the interest created apparently prod- relies on the farm v. Men See Cent. Wash. Bank Wathens.16 exception ucts ordinary delson-Zeller, Inc., 346, 779 113 Wash.2d 9-307(1) course in rule contained banc) (1989) (en (apple P.2d support its contention that MFX took the security inter did not take free of bank’s subject to its interest. not agent, it from bought est because sales argument This fails for two reasons. interest; buy First, farmer who out, created buy not points did conversion); liable to Baker er bank for products person farm engaged from Long Meat Prod. Credit Ass’n v. farming NEI not en- Creek operations. was (1973) 1129, 1132 P.2d gaged operations, thus the Or. farming banc) (en from cattle carcasses inventory, (buyer hands were 9-109(3), take of securi products. slaughterhouse farm did not free M.R.S.A. (1995). Second, do feed lot and although parties ty created ("If 16. The the Wath- See 11 U.C.C. cmt. interest created M.R.S.A. disposition by the se- presumably ens ... was authorized survived the initial sale because, party’s although subject cured to the secured the Wathens to NEI sale, interest, ac- obviously consented there the transferee will not quire the secu- is no reason to believe that it consented collateral free clear of interest.”). rity sale free clear of that interest. *10 conversion). contract for sale but does not include a thus liable for There is case law, however, brief, in in or as for or in cited MFX its bulk transfer holding buyer ordinary that when a a partial total or satisfaction of purchases crops course farmer- debt. processor, owned both the farmer and the 1-201(9) (1995) (emphasis § 11 M.R.S.A. seller,” are processor treated as “his so added). context, In the section 9-307 buyer that the takes free of the definition to courts have construed this interest created First Bank both. in qualify buyer mean that as a Co., Pillsbury v. N.D. —Jamestown course, ordinary give one must “new val- (8th Cir.1986); F.2d 1039-40 United than goods purchased, ue” for the rather Co., F.Supp. States v. Cont’l Grain preexisting a debt setting off (W.D.Wis.1988). 1193, 1200 A reasonable Banking goods. Branch & appears resolution of this conflict to be Co., v. Trust Co. Columbian Peanut disregarding separate entity (E.D.N.C.1986) F.Supp. 1118 n. processor the farmer-owned is proper in ordi- (peanut purchaser buyer was not “piercing corpo
when the elements of nary against pur- course because it set off met, rate veil” can be Deutsche Credit price the amount that farmer owed chase Corp. Equip. v. Case Power & seed); Harman, Handy it for & peanut 1190, 1195(1994), Ariz. 876 P.2d and it (“[A] at buyer goods clear that is those elements have not been ordinary cannot course qualify credit here, generally demonstrated see Johnson 1201(9) § subsequently status under if he Unlimited, Props. Exclusive 1998 ME promise offsets his with a debt that ¶¶ (outlining 720 A.2d bought was in existence at the he time elements). Oil, 242 goods.”); Producers Cotton Cal. Second, and significantly, more (beet Rptr. purchaser at 923 who set off successfully Credit has not chal- harvesting buyer ordinary costs not in lenged buy- MFX’s that it assertion was giv- “[n]o course because new value in ordinary er course of business. A en”); generally see D. WILLIAM buyer in ordinary course is in defined AL., ET HAWKLAND HAWKLAND general the U.C.C. in 1- definitions UNIFORM COMMERCIAL SER- CODE 201(9), provided:17 which (1997) (“[T]he purchaser VICE 9-307:02
“Buyer in
ordinary
give
course of
must
new value if he or she wants to
busi-
course.”).
person
ap-
ness” means a
in
in
It
good
buyer
ordinary
who
faith be a
new value
knowledge
pears
give
and without
that the sale to
that MFX failed to
purchased
him
in violation
from NEI to
ownership
is
it took
or
interest of a third
the extent of the setoff
therefore,
extent,
in
goods buys
ordinary
debt. To that
in the ordi-
person
course from a
in the business of would not have been
course;
inter-
selling goods
“Buying” nary
of that kind ....
by exchange
potatoes;
or
other
est would have continued
cash
subsequent
re-
property
or on’ secured or unsecured
MFX’s
and retention of the
receiving goods
credit and includes
sale of the
a viola-
preexisting
proceeds,
of title
resale
would have been
documents
under
ordinary
adoption
currently with the
of Article 9-A
17. The definition of
1-201(9)
1-201(9)
July
See 11 M.R.S.A.
course of business in section
has
revised,
here,
(Supp.2001).
ways
con-
been
not relevant
*11
interest for
9 is meant to this buyer gives
of remedies. If a of collateral value, party
full the secured can be satis-
fied out of the obtained —whether buyer
from the or on suing debtor assigned need receivable—and retain goods
not hand, if full
themselves. On the other
proceeds are not available to the secured legiti-
party because the has made receivable,
mate setoff the account given will not have new value
and the interest will remain itself,
collateral to be enforced an action replevin. The result conversion case, therefore,
this should not be seen as remedy,
leaving parties without a a secured properly denying
but remedy it effective- one asserted
ly, but to which was entitled. all, at error in Alternatively, implicit issue if the court made no doing finding findings simply so harmless. but failed make