Lawhon Farm Supply, Inc. v. Hayes , 316 Ark. 69 ( 1994 )

Tom Glaze, Justice.*

In an attempt to bring a tort action against appellee Jerry Hayes, the appellant, Lawhon Farm Supply, Inc., asks this court to find a duty of care between a purchaser of farm products, and the holder of an unattached security interest. See Ark. Code Ann. § 4-9-203 (Repl. 1991) of the Uniform Commercial Code. We decline to do so.

On July 20, 1988, Lawhon advanced farm items such as seed, chemicals and fertilizer to Carlyle Good, a farmer. In return, Good executed a promissory note payable to Lawhon in the amount of $135,000, along with a purported enforceable security interest in crops to be grown on his farm in Woodruff County — specifically 1600 acres of milo and 200 acres of soybeans.¹ In its attempt to perfect its interest in Good’s crops, Lawhon filed a financing statement and security agreement with the circuit clerk in Woodruff County and a central farm filing with the Secretary of State.² While Good was a resident of St. Francis County, the milo was grown and stored on Good’s farm in Woodruff County.

In January, 1989, Good sold the milo to Hayes, but prior to the sale, Lawhon notified Hayes orally that the milo was subject to Lawhon’s lien. Lawhon requested Hayes to include Lawhon’s name as co-payee, if Hayes decided to purchase Good’s milo. Hayes does not dispute the fact that he had notice of Lawhon’s interest in the milo. Nonetheless, Hayes purchased Good’s milo and paid Good by check without including Lawhon as co-payee. Good later cashed the check without paying Lawhon, thus defeating Lawhon’s interest in the milo.

On September 25, 1992, Lawhon filed suit against Hayes alleging Hayes negligently destroyed its security interest in the milo crop by failing to name Lawhon as a co-payee on Hayes’ check to Good. Lawhon alleged Hayes’ failure to include Lawhon on the check even though Hayes knew of Lawhon’s interest both from its registration and from Hayes’ conversation with Lawhon. Hayes filed a motion to dismiss for failure to state facts upon which relief could be granted. From the pleadings and supporting briefs, the trial court granted Hayes’ motion to dismiss without prejudice because the complaint failed to allege facts sufficient to constitute a breach of any legal duty owed by Hayes to Lawhon. Lawhon appeals from the order of dismissal.

While the subject matter of this case is governed by the UCC, Lawhon has elected to pursue his claim against Hayes in tort. The question of what duty, if any, is owed a plaintiff alleging negligence is always a question of law and never one for the jury. Keck v. American Employment Agency, Inc., 279 Ark. 294, 652 S.W.2d 2 (1983). A complaint is subject to dismissal pursuant to Ark. R. Civ. P. 12(b)(6) where it fails to state sufficient facts to support a cause of action, and the appellate court will sustain the trial court if the result is correct. Carter v. F.W. Woolworth Co., 287 Ark. 39, 696 S.W.2d 318 (1985).

On appeal, Lawhon argues Hayes owed it a duty of ordinary care due to Hayes’ status as a purchaser of farm products. In pertinent part, Ark. Code Ann. § 4-9-301(l)(c) (Repl. 1991) provides as follows:

(l)[A]n unperfected security interest is subordinate to the rights of:

(c) . . . a person who is not a secured party and . . . is a buyer of farm products in ordinary course of business, to the extent that he gives value and receives delivery of the collateral without knowledge of the security interest and before it is perfected!.] (Emphasis added.)

See also § 4-9-307(l)(Repl. 1991) (code does not protect a buyer in the ordinary course of business who buys farm products from a person engaged in farming operations).

Here, Lawhon’s attempt to perfect its interest in the milo was ineffective because it failed to file a financing statement in St. Francis County where the debtor, Good, resided. See § 4-9-401(l)(a) (Repl. 1991)³ Lawhon argues that, even if his interest in the milo was not properly perfected, Hayes had actual knowledge that Lawhon was claiming a security interest in the milo. As a consequence, Lawhon claims Hayes purchased the milo subject to Lawhon’s security interest and had a statutory duty to preserve Lawhon’s interest under § § 4-9-301(l)(c) and 4-9-306 and 307. However, because Lawhon has no enforceable security interest, its arguments and citation of authority are of no avail.

Under § 4-9-201 (Repl. 1991), a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors. Section 4-9-203(1) (Repl. 1991) provides that as to the collateral, a security interest is not enforceable against a third party unless the formal requisites for attachment are satisfied. Those requisites for attachment of a security interest in the milo are as follows: (1) the collateral is in the possession of the secured party pursuant to agreement or the debtor has signed a security agreement which contains a description of the collateral and, in addition, when the security interest covers crops growing or to be growing, a description of the land concerned; (2) value has been given, and (3) the debtor has rights in the collateral.

In this case, the security agreement between Good and Lawhon is a printed form that indicates it has been approved by the Secretary of State and the Arkansas Commission on Uniform State Laws. While the form identifies Good as the debtor, it is signed only by Noel Lawhon, and contains the following description of the collateral and the land:

(i) All crops of every kind grown or to be planted heretofore or hereafter, within one year from date of the execution hereof, on lands commonly known and referred to as the K-180 & K-13 Farm in Woodruff Countv. Arkansas, or at any other place in Woodruff County (ies), Arkansas.

(v) Other:

Approx. 1600 Acres Milo

Approx. 200 Acres Soybeans

At another area of the form, the following is found:

3. That DEBTOR’S residence in the State where the Collateral is located is

Rt. 2. Box 126 Wheatley. Ar. St. Francis County⁴

Section 4-9-110 provides that any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described. In Piggott State Bank v. Pollard Gin Co., 243 Ark. 159, 419 S.W.2d 120 (1967), this court identified the test of sufficiency of a description of land on which crops are grown is to make possible the identification of the thing described. In Piggott, the description was “7 acres of cotton and 53 acres of soybeans ... on the lands of S.E. Karnes ... in Clay County, Arkansas.” Finding this description insufficient, this court opined it could not determine whether exactly seven acres of cotton were grown and whether anyone else was also growing cotton upon this same land. In citing preUCC cases, the Piggott court reaffirmed the rule that the “mortgage of a specified number of articles out of a larger number will not be allowed to prevail, unless it furnishes the data for separating the property intended to be mortgaged from the mass.” Id. at 161 (cites omitted).

In People’s Bank v. Pioneer Food Industries, Inc., 253 Ark. 277, 486 S.W.2d 24 (1972), the bank brought a third party action in conversion against a purchaser of crops in which the bank claimed a perfected security interest. This court found a description similar to that in Piggott (all crops on number of acres and whose land) was not sufficient, but did uphold the award of damages for those crops grown on land with “an accurate legal description.” Id. at 280.

Here, Lawhon argues that its security agreement described Good’s crops and real property by using A.S.C.S. K-180 and K-13 numbers from which a specific metes and bounds description of real estate could be determined. However, nothing in the abstract reflects the numbers appearing in the agreement were A.S.C.S. numbers, much less that the numbers sufficiently describe the lands so as to put a third person on notice under the UCC. To confuse matters, the financing statement not only reflects unidentified farm numbers but also refers to all crops on land commonly known as the K-180 and K-13 Farm in Woodruff County or at any place in Woodruff County(ies), Arkansas. And to confuse matters further, a reference is made that the collateral involved is located in St. Francis County. Furthermore, it cannot be determined whether the “approx. 1600 acres of milo” represents the entire acreage or is only part of a larger amount of acreage.

In conclusion, Lawhon has failed to satisfy the requirements of 4-9-203(1) by omitting the signature of the debtor and by not providing a sufficient description of the land on which the milo was to be grown. As a result, Lawhon’s security interest in Good’s milo did not attach, and, as the holder of an unattached security interest, Lawhon cannot claim or enforce any duty of care that Article 9 of the UCC may place on a purchaser of farm products in the ordinary course of business. Therefore, we affirm the trial court’s order dismissing Lawhon’s action under Ark. R. Civ. P. 12(b)(6).

Hays, L, dissents; Brown, L, concurs.

1 Only the security interest in the milo is at issue.

2 Lawhon’s interest in the milo was inferior to a mortgage held by Farmers’ Home Administration. However, Lawhon indicates there were funds remaining after the sale of Good’s milo in excess of Farmers’ lien (hat should have been paid to him.

3 Under § 4-9-401(l)(a), perfecting a security interest in farm products requires filing in the county of the debtor’s residence and, if crops growing or to be grown, in the county where the land is located. Crops are farm products under § 4-9-109(3) (Repl. 1991).

4 The underlined portion represents the information filled in; the unlined portion represents the printed matter.