Aberdeen Production Credit Ass'n v. Redfield Livestock Auction, Inc. , 1985 S.D. LEXIS 397 ( 1985 )

FOSHEIM, Chief Justice.

Aberdeen Production Credit Association (PCA) brought separate conversion actions against five South Dakota livestock auction companies or their owners (sale barns) for selling cattle in which PCA had a perfected security interest. Summary judgments were entered against PCA in all cases, which have been consolidated on appeal. We reverse.

During 1981, Bellman Farms, Inc., (Bellman Farms) was indebted to PCA for approximately a million and a half dollars. Various notes were executed by Bellman Farms and Ace Cattle Company, a tax shelter owned solely by the shareholders of Bellman Farms. The notes were secured by over 3,000 head of cattle. “Financing statements’’ covering the cattle, their increase, proceeds, and products and feed were filed with the Faulk County Auditor and the South Dakota Secretary of State. Under the terms of the security agreements, Bellman Farms is not to sell, assign, or transfer secured property without PCA’s written consent. The security agreements also contain a nonwaiver provision which provides that PCA’s failure to strictly enforce performance of any covenant or condition does not operate as a waiver of PCA’s right to later require strict conformance with a term or condition.

In 1981, PCA became increasingly concerned with the Bellman Farms loan and notified Bellman Farms that the balance of the indebtedness would be due in December of that year. The indebtedness was not paid. Bellman Farms petitioned for a chapter 11 reorganization under the federal bankruptcy code in early December, 1981. In late 1981, PCA learned that Bellman Farms had sold secured cattle without remitting the proceeds to PCA. Written consent from PCA was not obtained by either Bellman Farms or any of the sale barns in the farm’s behalf prior to these sales. PCA accordingly brought these actions in conversion against the different sale barns.

The appeal rests on two basic issues: I. Did PCA expressly consent to the sales in the cash-flow projections and other internal documents? II. By its course of dealing with Bellman Farms, did PCA implicitly waive the written consent requirement contained in the security agreements?

A review of an order granting summary judgment leads to an affirmance if any basis exists which supports the ruling. The evidence must be viewed most favorable to the nonmoving party. The burden of proof is on the movant to clearly show that there is no genuine issue of material fact and that he is entitled to judgment as a matter of law. Feistner v. Swenson, 368 N.W.2d 621, 622 (S.D.1985). We are not, however, bound by the facts as found by the trial court. Wilson v. Great Northern Railway Co., 83 S.D. 207, 157 N.W.2d 19 (1968). Instead, we conduct our own review of the record to determine whether a genuine issue of fact exists. Id. at 211, 157 N.W.2d at 21. We also review the legal conclusions reached by the trial court. Bennett v. Jansma, 329 N.W.2d 134 (S.D.1983).

The security agreements required PCA’s prior written authorization for Bellman Farms to sell the secured cattle. In selling the cattle the sale barns were acting as agents for Bellman Farms. First National Bank v. Siman, 65 S.D. 514, 275 N.W. 347 (1937). Under SDCL 57A-9-306(2), the burden is on sale barns to show that authorization to sell was given by PCA in the “[1] security agreement or [2] otherwise” if they are to prevail. United States v. E.W. Savage & Sons, Inc., 343 F.Supp. 123 (D.S.D.1972). We therefore initially determine whether authorization to sell was given in the security agreements.

In paragraph nine of the security agreements Bellman Farms clearly agreed not to “sell, assign or transfer said property or any part thereof without the written consent of the Secured Party ...” (emphasis added). The sale barns tjirge the court to find that the requisite written authorization was not on the face of the security agreements but in the various related cash flow statements, loan applications and attachments executed between Bellman Farms and PCA. We note, as have the sale barns, that PCA employees labeled these documents as authorization or written consent for sale of cattle. However, we do not characterize these statements or documents as constituting consent to the particular sales made by Bellman Farms through the individual sale barns during 1981 or as a waiver of PCA’s security interest in the cattle or proceeds. These internal documents recognize the business plans and sale projections for Bellman Farms throughout the year but nothing more. Obviously, PCA understood and anticipated that Bellman Farms could meet the December, 1981, called due date only by selling secured cattle at the most advantageous market but it does not follow that PCA thereby expressly or implicitly expected anything less than full compliance with the security agreement or, in the absence of advance written consent, that Bellman Farms could pocket the proceeds. The alternative would mean that whenever a len-dor executes a standard cash flow or repayment projection with a borrower, a written consent to sell and a security interest surrender is established. That would emasculate, if not totally negate, the purposes and objectives of the parties.

We next consider whether certain acts of PCA resulted in an “otherwise” authorization to sell the cattle. The sale barns argue that continued representations and demands for sale of cattle by the PCA or PCA’s failure to chastise Bellman Farms for selling cattle on prior occasions without written consent resulted in an “otherwise” authorization as recognized by SDCL 57A-9-306(2).¹ It is important to note that the prior sales were followed by prompt application of the proceeds on the loan. Under SDCL 57A-l-205(4), “[t]he express terms of an agreement and an applicable course of dealing or usage of trade shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable expressed terms control both course of dealing and usage of trade_” To construe PCA’s various actions as consent for sale and release of their security interest is unreasonable and inconsistent with the express terms of the security agreement which required written consent. It follows that the security agreement’s requirement controls and PCA did not “otherwise” authorize sale of the cattle and their security interest continued, as provided in SDCL 57A-9-306(2).

Further, we find no course of dealing on which the sale barns can rely to show that PCA waived its security interest.² The previous course of dealing amounted to nothing more than PCA’s failure to impose some form of creditor discipline against Bellman Farms for selling cattle on prior occasions without written consent. Considering the fact that these particular sales were made without PCA’s knowledge, sale barns’ argument that PCA failed to protect itself ignores reality. Wabasso State Bank v. Caldwell Packing Co., 308 Minn. 349, 354, 251 N.W.2d 321, 324 (1976). When Bellman Farms sold secured cattle and paid over the proceeds to PCA, PCA was presented with an accomplished fact. Since PCA was not prejudiced by such sales, to now argue that PCA’s failure to nevertheless rebuke Bellman Farms or to call the loan constituted a waiver of the security agreement in the subsequent, unreported sales is not persuasive.

We must assume that SDCL 57A-9-306(2) was drafted in recognition of the realities of our agricultural financing system, the constant marketing of secured farm products, and the practical problems associated with agribusiness. See Garden City Production Credit Association v. Lannan, 186 Neb. 668, 670,186 N.W.2d 99, 101 (1971). The sale barns, acting as Bellman Farms’ agents, had constructive notice (i.e., notice imputed to them by law, SDCL 17-1-3) of security agreements filed pursuant to statute. SDCL 57A-1-201(25) and (26), and SDCL ch. 57A-9. See also Shelby v. Bowden, 16 S.D. 531, 94 N.W. 416 (1903); Parrish v. Mahany, 10 S.D. 276, 73 N.W. 97 (1897). The sale barns failed to heed that notice at their peril. Parrish, 10 S.D. at 284-85, 73 N.W. at 99.

This is not the first time we have similarly construed SDCL 57A-l-205(4). Swiden Appliance and Furniture, Inc. v. National Bank of South Dakota, 357 N.W.2d 271 (S.D.1984). In Swiden, we held that obligations created under a course of dealing and usage of trade are subordinate to any terms of an express agreement with which the parties’ conduct or trade usage disagree. Id. at 274. “The expressed terms of the contracts control in the face of inconsistency. SDCL 57A-l-205(4).” Id. at 275.

Finally, but perhaps most controlling, we find that PCA did not waive its security interest in the proceeds of the sales. The security agreement covered proceeds and proper financing statements perfected PCA’s interest in the proceeds. Even assuming that PCA consented to the sales of cattle as the sale barns maintain, the security interest in identifiable proceeds was nevertheless retained. See SDCL 57A-9-306(2) and Humboldt Trust & Savings Bank v. Entler, 349 N.W.2d 778 (Iowa App.1984).

By Notices of Review, sale barns present additional issues on appeal. Since the circuit court in each case granted summary judgment to the sale barns, these questions involve issues of fact which were not reached. As an appellate court, we are without jurisdiction to determine issues of fact or direct a decision to the trial courts except where facts are undisputed and such that only one conclusion can be drawn. Baken Park, Inc., v. County of Pennington, 79 S.D. 156, 164, 109 N.W.2d 898, 902 (1961). The record is insufficient to direct entry of summary judgments for PCA.

From a review of the record, we conclude that the lower courts erred as a matter of law in finding that PCA waived their security interest in Bellman Farms cattle or the sale proceeds in “the security agreement or otherwise” under SDCL 57A-9-306(2). We accordingly reverse and remand in all of the cases.

MORGAN, J., and WUEST, and HERTZ, Acting J., concur. HENDERSON, J., dissents.

1 . Sale barns’ contention that "course of performance" established consent is without merit. “Course of performance" is a sales associated term. See SDCL 57A-2-208(2). Compare SDCL 57A-l-205(4).

2 . Sale barns were not privy to the course of dealing between PCA and Bellman Farms. Moreover, they cannot claim knowledge of any course of dealing on which they relied in failing to check for a perfected security interest. See Garden City Production Credit Association v. Lannan, 186 Neb. 668, 674, 186 N.W.2d 99, 103 (1971); Wabasso State Bank v. Caldwell Packing Co., 308 Minn., 349, 354, 251 N.W.2d 321, 324 (1976).