Peoples Trust & Savings Bank v. Security Savings Bank

IN THE SUPREME COURT OF IOWA
No. 10–1291
Filed June 22, 2012
PEOPLES TRUST & SAVINGS BANK,
Appellee,
vs.
SECURITY SAVINGS BANK,
Appellant.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Boone County, William C.
Ostlund, Judge.
Appellant asserts the court of appeals erred in granting appellee’s
motion to dismiss appeal and the district court erred in granting
summary judgment. DECISION OF COURT OF APPEALS VACATED;
DISTRICT COURT JUDGMENT AFFIRMED.
Steven W. Hendricks of Kersten Brownlee Hendricks L.L.P., Fort
Dodge, for appellant.
Gary A. Norton of Whitfield & Eddy, P.L.C., Des Moines, for
appellee.
2
APPEL, Justice.
This case presents a battle between banks over the proceeds of the
sale of cattle by a financially strapped borrower who had financial
dealings with both banks. When Security Savings Bank (Security)
obtained the proceeds of the sale, Peoples Trust and Savings Bank
(Peoples) claimed a security interest in the proceeds and sued for
conversion.
Peoples filed a motion for summary judgment. The district court
found that under the undisputed facts, Peoples had a security interest in
the proceeds of the sale of cattle superior to that of Security. The district
court further held that the undisputed facts established that Peoples had
not waived its superior security interest by course of conduct. As a
result, the district court granted summary judgment in favor of Peoples
on its conversion claim and entered judgment in the amount of
$299,353.94.
Security appealed. After the filing of the notice of appeal, Peoples
commenced garnishment proceedings against Security to enforce its
judgment. Faced with the prospect of garnishment, Security paid the
underlying judgment. Peoples then moved to dismiss the appeal,
claiming that by paying the judgment, Security had waived its right to
appeal.
We ordered that the motion to dismiss the appeal be considered
along with the underlying merits of the case and transferred the case to
the court of appeals. The court of appeals determined that Security had
waived its right to appeal and dismissed the case. We granted further
review.
At the outset, we first consider whether Security waived its
pending appeal by paying an underlying judgment when Peoples had
3
commenced garnishment proceedings to enforce the judgment it obtained
in the district court. Based on the most persuasive modern authority, we
conclude that a defendant faced with postjudgment garnishment does
not waive a pending appeal by paying the judgment in order to avoid
further enforcement proceedings.
We next turn to the underlying merits of the case. We conclude
that under the undisputed facts of the case, the district court correctly
determined that Peoples had a security interest in the cattle proceeds
superior to Security’s interest and that Peoples did not waive its superior
position through its course of conduct. As a result, we affirm the
judgment of the district court.
I. Factual and Procedural Background.
A. The Underlying Transactions. Jeffrey Gilley was a feeder
cattle and cow calf operator with a long-term relationship with Peoples.
Gilley and his spouse borrowed substantial funds from Peoples over time,
including $235,000 on January 17, 2003; $100,000 on January 5, 2004;
$54,200 on April 1, 2004; $30,340 on January 10, 2005; and $120,000
on January 11, 2005.
As security for the loans, Peoples obtained from the Gilleys a
security interest in “Farm Products,” which specifically covered
“livestock” and “cattle.” Peoples filed UCC-1 financing statements with
the Iowa Secretary of State on January 3, 2000 and on December 16,
2003. By 2007, however, Peoples was concerned about the state of its
credit line with Gilley and determined not to make additional loans to
Gilley.
Beginning in January 2007, Gilley and Ray Wilson obtained
financing from Security to finance additional purchases of cattle. Wilson
had known Gilley for a long time, had been a customer of Security for
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many years, and was a cattle buyer for Swift & Co. Security agreed to
provide financing for cattle purchases but required both Gilley and
Wilson to be cosigners on the loan. Both Gilley and Wilson also signed
security agreements, which were filed with the Secretary of State. Wilson
would buy the cattle. The invoices listed Gilley as the purchaser and
also charged Gilley a commission for Wilson’s services. Wilson passed on
the invoices to Gilley, who would write a check on Gilley’s solely owned
personal account at Security. The invoice would also be presented to
Security, which would deposit funds in Gilley’s personal account to cover
the purchase. Gilley raised the cattle purchased with loan proceeds on
his farm. When they were ready for sale, Wilson sold them to Swift & Co.
The proceeds were generally payable to Gilley. During the spring of
2008, however, Wilson became suspicious that Gilley was selling cattle
outside their agreed upon process. As a result, Wilson instructed buyers
of the cattle to make checks out to Gilley and Security or to Wilson
himself.
Peoples was unaware of the financial relationship between the
Gilleys and Security until early 2008, when an employee of Peoples
conducted a UCC search on Gilley and found the UCC financing
statement filed by Security. The officer in charge of the Gilley line at
Peoples, Jamie Brant, contacted Gilley and was told that the Security
UCC filing was based on custom feeding occurring on his property.
Gilley claimed that he was being paid for his custom feeding in cattle and
that the cattle so obtained were subject to Peoples’ security interest.
Gilley stated that when the cattle were sold, he would pay down the
Peoples indebtedness. On March 30 and April 1, 2008, Peoples sent
notices to buyers and Gilley under the Food Security Act of 1985,
informing them of Peoples’ security interest in cattle owned by Gilley.
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Gilley sold the cattle as represented to Peoples, but he paid the
proceeds to Security. When Peoples learned of these facts, it filed in
March 2009 a conversion action against Security seeking to recover the
proceeds of the cattle sales. Peoples filed a motion for summary
judgment, which the district court granted. The district court then
entered a judgment against Security in the amount of $299,353.94, plus
interest. Security filed a notice of appeal on July 23, 2010.
B. Events Related to Potential Waiver of Appeal. After Security
filed its notice of appeal, the parties engaged in correspondence regarding
the appeal status. 1 On August 2, 2010, Security asked Peoples what its
position was regarding staying levy and execution pending appeal.
Without specifically answering the inquiry, Peoples commenced
garnishment proceedings against Security on August 16. On August 20,
Security inquired of Peoples why garnishment was necessary, noting that
Security would prefer to set up an escrow arrangement but would pay
the judgment in full. Peoples responded on August 20 by stating that if
Security paid the judgment in full with certified funds, “then doing so will
consequently make the garnishment unnecessary.” Peoples further
indicated on August 20 that it would accept payment of the sum of
$301,430.73 “to fully satisfy the judgment” and that “[o]nce the payment
is received, the garnishment procedure will be withdrawn.” Security
1We have stated that in rare circumstances, when facts relevant to a motion to
dismiss cannot be shown in any other manner, application should be made to the
supreme court for appointment of a commissioner to receive evidence and propose
findings of fact upon which the court may base its findings and conclusions in relation
to a motion to dismiss. Johnson v. Johnson, 301 N.W.2d 750, 753 (Iowa 1981). In this
case, both parties have submitted exhibits in support of their respective positions
without objection on appeal. We further note that no party seeks an opportunity to
develop any additional evidentiary record related to the motion to dismiss. Under these
circumstances, we treat the exhibits submitted by the parties as a stipulated record
upon which we may consider the merits of the motion to dismiss.
6
responded on August 23 by stating that “[s]o there [is] no
misunderstanding, this payment is made as a result of a demand to
satisfy the judgment pending appeal.” Security further stated that it
would “prepare a pleading to be filed acknowledging payment of the
judgment without waiving the pending appeal.”
Security paid the judgment in full through a wire transfer on
August 23. Security did not file a pleading acknowledging payment of
the judgment without waiving the pending appeal as stated in its e-mail
correspondence. Upon receipt of the funds, Peoples dismissed its
garnishment summons and complaint.
Peoples filed a motion to dismiss this appeal, asserting Security
waived its right of appeal by voluntarily paying the judgment in lieu of
seeking a supersedeas bond pursuant to Iowa Rule of Appellate
Procedure 6.601. Security resisted the motion to dismiss, arguing the
payment was not voluntary because payment was tendered “only as a
result of the garnishment and only because the judgment could not be
stayed.” Security also asserted that a party does not waive its right to an
appeal if payment is made after the notice of appeal is filed. In an
affidavit attached to Security’s resistance, the attorney for Security
stated that he “advised Security Savings Bank that an appeal did not
stay proceedings under a judgment or order unless the Appellant
executed a bond, which was not available.” The attorney also stated,
After the Notice of Garnishment was served on
Bankers Bank, I contacted [the attorney for Peoples Trust] to
let him know that the Notice of Garnishment was
embarrassing to my client and that we would like to make
arrangements to get the judgment paid. The wire transfer
was made as a result of the Notice of Garnishment. The
payment was not voluntary but caused by the garnishment.
7
Also attached to Security’s resistance were copies of the notice for entry
of foreign judgment filed in Wisconsin, the e-mail correspondence quoted
above, and the acceptance of service of the garnishment summons and
complaint signed by Security’s attorney.
The court of appeals dismissed the appeal. The court first rejected
Security’s argument that an appeal is not waived when judgment is paid
after a notice of appeal is filed. The court relied on Credit Industrial Co.
v. Bendixen, 255 Iowa 1020, 1022, 125 N.W.2d 262, 263 (1963), which
held a party waives appeal when it satisfies a judgment before or
simultaneously with a notice of appeal. The court found no “distinction
of merit” between payment of judgment before or simultaneously with
filing the notice of appeal. Id.
The court of appeals also rejected the argument that the
garnishment proceedings rendered the payment involuntary. The court
of appeals observed that Security could have filed a supersedeas bond to
stay execution of the judgment. The court of appeals also noted that the
e-mail correspondence confirmed that Security considered filing a
supersedeas bond but ultimately rejected the idea in favor of paying the
judgment to avoid the embarrassment caused by the garnishment. We
granted further review.
II. Discussion of Merits of Motion to Dismiss.
A. Iowa Approach to Appellate Waiver. The precise issue before
us in connection with the motion to dismiss the appeal is whether
Security lost its right to appeal when, after filing a notice of appeal,
Security paid the district court judgment in response to the threat of
Peoples to commence garnishment proceedings to collect on the district
court judgment but did not avail itself of the opportunity to file a
supersedeas bond.
8
Our early cases established the general principle that the
“voluntary” payment of a judgment leads to a loss of the right to appeal.
For instance, in Hipp v. Crenshaw, 64 Iowa 404, 405, 20 N.W. 492, 492
(1884), overruled by Yeager v. Durflinger, 280 N.W.2d 1, 4 (Iowa 1979),
we held that satisfaction of a judgment in order to allow the defendant to
borrow money on land upon which the judgment was a lien amounted to
a voluntary satisfaction and not payment under duress.
While Hipp did not address the issue of payment when faced with
execution of the underlying judgment, that issue was squarely raised in
Manning v. Poling, 114 Iowa 20, 83 N.W. 895 (1900). In Manning, the
plaintiff sought to enforce a judgment by obtaining a sheriff’s deed on the
defendant’s land. Manning, 114 Iowa at 22, 83 N.W. at 896. The
defendant then paid the amount of the judgment to redeem the property.
Id. After canvassing decisions from other jurisdictions discussing
voluntariness, the court concluded:
The result of all the authorities is that the party making
payment must be put to his choice between the comparative
evils of the inconvenience and loss by the detention of his
property, and the payment of an unjust and illegal demand.
Id. at 24, 83 N.W. at 896. The Manning court explained that “if there be
other adequate means of escaping the imminent infringement of property
rights, these should be resorted to, rather than that litigation be
postponed by the payment of the controverted claim.” Id. at 24, 83 N.W.
at 896–97. The Manning court held that, because the party could have
obtained a restraining order from the court to stay execution of the
judgment, payment of the amount necessary to redeem the property in
dispute was voluntary. Id. at 27, 83 N.W. at 897; see also In re Hoyt’s
Estate, 182 Iowa 876, 878–79, 166 N.W. 297, 298 (1918) (citing Manning
with approval and stating that “[i]f the mere order to pay coerces
9
payment, then every affirmance on the ground that a judgment had been
complied with before enforcement or threat of enforcement was
erroneous”). In a series of later cases, we held that the Manning principle
applied regardless of whether the notice of appeal was filed before, after,
or simultaneously with the payment of the judgment. See Bendixen, 255
Iowa at 1022, 125 N.W.2d at 263 (simultaneous); Bates v. Nichols, 223
Iowa 878, 880, 274 N.W. 32, 35 (1937) (after); A.E. Shorthill Co. v. Des
Moines Dep’t Store Co., 151 N.W. 65, 66 (Iowa 1915) (before).
In recent years, however, decisions of this court have chipped and
cracked the foundation of the appellate waiver doctrine. Three cases
illustrate the development.
In Vermeer v. Sneller, 190 N.W.2d 389 (Iowa 1971), this court
considered whether the payment of court costs led to loss of the right to
appeal. In Vermeer, the plaintiffs lost in the district court and were
assessed court costs. Vermeer, 190 N.W.2d at 395. The plaintiffs
appealed. Id. The plaintiffs, however, paid court costs in order to get a
clear title opinion on real estate in which the plaintiffs sought a loan. Id.
The question arose whether the payment of the court costs resulted in
loss of the right to appeal.
The Vermeer court said no. Id. at 396. Of course, the case
involved the payment of court costs rather than a judgment. But the
rationale in Vermeer was noteworthy. The Vermeer court emphasized
that it would be ignoring the realities of the situation to say that by
paying minimal costs below, the plaintiffs “knowingly and intelligently”
waived their right to appeal. Id. at 395. In considering whether a party
waived rights on appeal through payment of costs or judgments, the
Vermeer court began a shift away from a “voluntariness” test to a
knowing and intelligent waiver test that is more favorable to a party
10
seeking to avoid dismissal of the appeal. See id. at 395–96. The Vermeer
court also emphasized public policy reasons for encouraging the payment
of court costs, a concept that resounds even more strongly today. Id. at
396.
Three years after Vermeer, we decided Hegtvedt v. Prybil, 223
N.W.2d 186 (Iowa 1974). In Hegtvedt, the successful plaintiff initiated
garnishment proceedings to collect on the judgment. Hegtvedt, 223
N.W.2d at 188. The district court ordered payment of the judgment and
the defendant made payment in accordance with the court order. Id.
Although the Hegtvedt court noted that the defendant had failed to
obtain a supersedeas bond to stay execution of the judgment, the
payment was still under compulsion because it was made in compliance
with a court order. Id. at 188–89. While Hegtvedt did not expressly
overrule Manning, the decision undercut its rationale as the defendant
had an available remedy that would have prevented the entry of the
district court’s enforcement order, namely, the filing of a supersedeas
bond.
Significantly, Hegtvedt also stated that payment by compulsion
does not amount to a “voluntary relinquishment of a known right.” Id. at
188. The Hegtvedt court’s use of a waiver, rather than a voluntariness
test, embraced a policy of protecting unsophisticated litigants from
unintended loss of a valued right—the right of appeal. See also Johnson
v. Johnson, 301 N.W.2d 750, 753 (Iowa 1981) (acceptance of small
benefit not adequate to demonstrate party “voluntarily and knowingly
waived her right to appeal”); Millsap v. Cedar Rapids Civil Serv. Comm’n,
249 N.W.2d 679, 683 (Iowa 1977) (acceptance of benefits of pay and
reinstatement in employment case was not “relinquishment of a known
11
right” made “knowingly and intentionally, with knowledge of the
circumstances”).
Four years after Hegtvedt, we decided a case that pounded another
crack in the appellate waiver doctrine. In Yeager, the defendant’s lender,
for reasons not described in the opinion, refused to provide a
supersedeas bond to stay enforcement of the judgment. Yeager, 280
N.W.2d at 4. The plaintiff took steps to enforce his judgment, including
subjecting the defendant to a debtor’s examination and transcribing the
Wapello County judgment into the records of Jefferson County, where
the defendant owned real estate. Id. The Wapello County sheriff levied
upon some of the defendant’s personal property, including grain, hogs,
and cattle. Id. The defendant then sought a loan from his lender. Id.
After pocketing a $10,000 nonrefundable commitment fee, the lender
refused to approve the loan unless the judgment lien was removed. Id.
The lender further refused to accept the posting of a supersedeas bond.
Id. The defendant then suggested to the plaintiff that a fund
representing the judgment be placed in escrow in exchange for release by
the plaintiff, but the plaintiff refused to go along. Id. At this point, the
defendant paid the judgment in full and obtained a release from the
plaintiff. Id.
Under the circumstances, the Yeager court refused to apply the
appellate waiver doctrine. Id. The Yeager court noted that the
requirements of the lender and the intransigence of the plaintiff forced
the defendant to satisfy the judgment or face larger losses. Id. Citing
cases from Illinois, Ohio, and Missouri, the Yeager court concluded that
Hipp was “not in accord with recent developments” in the area of
appellate waiver. Id. The Yeager court further concluded that the result
was in conflict with Hipp, which was specifically overruled. Id.
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The posture of this case is somewhat different than that in
Vermeer, Hegtvedt, or Yeager. Vermeer may be distinguished from the
present case in that it involved merely payment of court costs, not a
judgment. In Hegtvedt, the defendant paid the judgment pursuant to a
court order, not simply as a result of a threatened garnishment. This
case is in some ways more similar to Yeager, where the judgment was
satisfied without a court order requiring payment. Unlike Yeager,
however, Security did not face a lender who refused to accept a
supersedeas bond as adequate protection from a judgment lien. Thus,
although Vermeer, Hegtvedt, and Yeager represent a distinct trend, they
do not mandate a result in this specific case. These cases do raise the
important question, however, of whether the recognized exceptions so
swallow the traditional approach to appellate waiver that we should take
this occasion to give the traditional approach a substantive overhaul.
B. Caselaw from Other States on Appellate Waiver. As we often
do, we canvass cases in other jurisdictions in our effort to determine the
best approach to Iowa law. Cases from other jurisdictions have also
struggled with the appellate waiver issues raised in this case. See
generally E. H. Schopler, Annotation, Defeated Party’s Payment or
Satisfaction of, or Other Compliance with, Civil Judgment As Barring His
Right to Appeal, 39 A.L.R. 2d 153 (1955). The state courts are divided on
the question of whether payment or failure to file a supersedeas bond
results in loss of appellate rights and on whether the threat of
garnishment is sufficient to allow for payment of a judgment without
losing the right of appeal.
Even recently, some state courts have adhered to a traditional
per se rule holding that payment of a judgment under any circumstances
bars an appeal in light of the availability of obtaining a stay by posting
13
an appellate bond. For example, in Lyon v. Ford Motor Co., 604 N.W.2d
453 (N.D. 2000), the North Dakota Supreme Court emphasized both
theoretical and practical reasons for enforcing the rule. The Lyon court
noted that, from a theoretical point of view, a cause of action giving rise
to a judgment ceases to exist when the judgment is paid. Lyon, 604
N.W.2d at 457. Further, the Lyon court emphasized the availability of
bond pending appeal. The Lyon court stated:
Although [staying the enforcement of a judgment] is [not] a
jurisdictional prerequisite to an appeal, we see no utility in
judicially authorizing yet another avenue for protection from
judgment collection efforts during the pendency of an appeal,
which would result in little more than a rash of restitution
suits for recovery of voluntary payments on later-reversed
judgments.
Id.; see also Hermesch v. Haverkamp, 381 P.2d 360, 362 (Kan. 1963)
(payment of a judgment, even if pursuant to execution, cuts off the right
to appeal where no request for bond was made); Kelm v. Hess, 457
N.E.2d 911, 911–12 (Ohio Ct. App. 1983) (threat of garnishment did not
render the payment involuntary in light of the defendant’s opportunity to
obtain a stay of the trial court judgment by posting an adequate appeal
bond).
Other state courts are only slightly less stringent. For example,
the Court of Appeals of Arkansas has held that while the failure to post
an appellate bond often may result in loss of appellate rights, a party
might avoid dismissal by showing that a supersedeas bond was
unavailable. See Lytle v. Citizens Bank of Batesville, 630 S.W.2d 546,
547 (Ark. Ct. App. 1982).
A third group of state courts have moved further away from the
traditional rule by emphasizing the requirement of a “knowing and
intelligent waiver” of rights free of coercion before appellate rights are cut
off. For example, in Wheeler Springs Plaza, LLC v. Beemon, 71 P.3d
141258, 1261 (Nev. 2003), the Beemon court took the view that “actual or
potential threat of garnishment or execution is sufficient coercion to
avoid a mootness challenge based upon payment of the judgment.”
An approach similar to Beemon was taken by an appellate court in
Florida in Consortion Trading International, Ltd. v. Lowrance, 682 So. 2d
221 (Fla. Dist. Ct. App. 1996). In that case, the appellee filed a motion to
dismiss the appeal after the appellant paid the final judgment.
Lowrance, 682 So. 2d at 222. The appellee argued that the appellant
should have attempted to stay enforcement by posting a supersedeas
bond. Id. The court rejected this argument. The Florida court explained
the fact that the appellant “could have obtained a stay of execution
pending appeal by posting [a supersedeas bond] but did not is of no legal
import. . . . Appellant’s right to appeal is not conditioned upon the
posting of a supersedeas bond.” Id. at 222–23 (citation and internal
quotation marks omitted).
Finally, in Grand River Dam Authority v. Eaton, 803 P.2d 705, 709
(Okla. 1990), the Oklahoma Supreme Court overruled prior precedent in
holding that failure to post a supersedeas bond is “immaterial” to the
question of whether an appellant waives the right to appeal by paying the
judgment. The Eaton court cited with approval Hayes v. Nourse, 14 N.E.
508, (N.Y. 1887), in which the New York Court of Appeals stated:
“The defendant’s practice in paying the judgment
before appealing from it is not to be condemned. It is rather
to be encouraged. A party who recovers at the trial term . . .
might fairly be deemed entitled to the fruits of his action
without further delay. The law, however, allows [an] appeal;
but, although it is taken, the successful party may
nevertheless enforce his judgment by execution, and so
collect its award, unless the defeated party secures its
ultimate payment by a deposit of money or an undertaking.
Why may he not simplify the matter by placing the funds at
once in the hands of the party who, if the appeal fails, will be
ultimately entitled to them? By so doing he will save the
15
costs of execution, and do no harm to his creditor. We think
he should not, by a temporary submission to the decision of
the court, be placed in a worse position than if he awaited
execution and settled it with sheriff’s fees.”
Id. (quoting Hayes, 14 N.E. at 508). The Eaton court took the
opportunity to “clear up any confusion” and held that an appeal is not
waived by payment of judgment unless the payment by a judgment
debtor “is shown to be made with the intent to compromise or settle the
matter and, thus, to abandon the right to appeal or the payment in some
way . . . makes relief impossible in case of reversal.” Eaton, 803 P.2d at
707, 709.
There are also cases that consider the impact of a mere threat of
institution of enforcement proceedings on appellate waiver. In Highland
Church of Christ v. Powell, 640 S.W.2d 235, 236–37 (Tex. 1982), the
Texas Supreme Court held that payments made “to prevent the taxing
authorities from taking steps to collect the taxes before the appeal was
determined” were involuntary, even though the taxing authorities had
not actually attempted execution on the judgment at the time of
payment. The court reasoned that the judgment debtor was “justifiably
anxious to avoid the penalties and interest which would accrue while the
case was on appeal.” Powell, 640 S.W.2d at 237. Also, in this case, it
was noted that “it would have been very embarrassing for this religious
institution to have execution issued against it.” Id.; see also Reitano v.
Yankwich, 237 P.2d 6, 8 (Cal. 1951) (attorney’s threat to levy execution
unless the judgment was paid amounted to coercion as to render
payment involuntary); Carlucci v. Duck’s Real Estate, Inc., 257 S.E.2d
763, 765 (Va. 1979) (payment following issuance of execution on
judgment and filing of garnishment was involuntary).
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C. Federal Caselaw on Appellate Waiver. The federal approach
to appellate waiver is well established and unambiguous. In Dakota
County v. Glidden, 113 U.S. 222, 224, 5 S. Ct. 428, 429, 28 L. Ed. 981,
982 (1885), the United States Supreme Court considered whether an
appeal becomes moot when the parties enter into a settlement following
judgment. According to the Supreme Court, “[t]here can be no question
that a debtor against whom a judgment for money is recovered, may pay
that judgment, and bring a writ of error to reverse it, and if reversed can
recover back his money.” Glidden, 113 U.S. at 224, 5 S. Ct. at 429, 28
L. Ed. at 982. The Supreme Court observed that a party who “merely
submitted to perform the judgment of the court” does not lose his right to
seek reversal of that judgment on appeal. Id. When an agreement
follows judgment, however, whether the cause of action has been
extinguished “must stand or fall on the terms of the compromise.” Id. at
225, 5 S. Ct. at 429, 28 L. Ed. at 982. The Glidden rule remains good
federal law today. See Cahill v. N.Y., New Haven, & Hartford R.R., 351
U.S. 183, 184, 76 S. Ct. 758, 759, 100 L. Ed. 1075, 1077 (1956); Dale M.
ex rel. Alice M. v. Bd. of Educ., 237 F.3d 813, 815 (7th Cir. 2001).
D. Analysis of Whether Payment of Judgment Under Threat of
Execution Waives Right of Appeal. After reviewing the trend in our
own cases and the authorities from other jurisdictions, we conclude that
the approach in Glidden is the best approach. The Glidden rule is clearer
than other approaches and in most cases will not thrust the court into a
multifactor voluntariness determination that lacks standards and
produces conflicting results. We think that in the modern economic and
business environment, a party ought to be able to avoid unnecessary
costs and expenses by simply paying a judgment without losing a right to
appeal.
17
We also think that when a judgment debtor elects to avoid the
hassles resulting from execution, there should be no inference that the
party does not intend to prosecute an appeal. The payment of a
judgment under threat of execution is not freely given in any realistic
way, but it is given under the coercion of law arising from the assertion
of creditors’ remedies. A decision to pay a judgment when faced with the
unattractive choice of allowing the disruption to its business affairs
resulting from creditors’ remedies cannot be considered a voluntary
choice that cuts off important legal rights.
We are also persuaded by the line of cases holding that the mere
availability of a supersedeas bond or other mechanism to stay
enforcement does not mean that payment of a judgment results in waiver
of the right to appeal. See Lowrance, 682 So. 2d at 222–23; Eaton, 803
P.2d at 709. This approach is consistent with our holding in Hegtvedt
and the trend in our caselaw away from a rigid application of the
appellate waiver doctrine. We agree with the New York Court of Appeals
in Nourse that payment of a judgment during the pendency of appeal is
to be encouraged, not condemned. See Nourse, 14 N.E. at 508.
In light of the above review, we hold that the payments made by
Security in this case do not cut off the right to appeal. We overrule
Manning and any other caselaw to the contrary.
III. Discussion of Merits of Summary Judgment.
A. Introduction. Because we have determined that Security has
not waived its appeal, we now proceed to consider the merits of the
district court’s entry of summary judgment in favor of Peoples on its
conversion claim. Security claims that the trial court erred in granting
summary judgment because there was a triable issue on the question of
whether the cattle were owned by Gilley, and thereby subject to Peoples’
18
security interest, or owned jointly by Gilley and Wilson, in which case,
according to Security, Peoples’ security interest would not attach.
Security also asserts that even if Peoples had a security interest in the
cattle, it waived its security interest through the course of conduct
between Peoples and its borrower, Gilley.
B. Standard of Review. With respect to the district court’s grant
of summary judgment, our review is for errors at law. Iowa R. App. P.
6.907; Hlubek v. Pelecky, 701 N.W.2d 93, 95 (Iowa 2005). Under our
caselaw, the moving party has the burden of showing facts that entitle it
to summary judgment. Teague v. Mosley, 552 N.W.2d 646, 648 (Iowa
1996); Farm Bureau Mut. Ins. Co. v. Milne, 424 N.W.2d 422, 423 (Iowa
1988); Steinbach v. Cont’l W. Ins. Co., 237 N.W.2d 780, 783 (Iowa 1976).
Once that burden is met, the nonmoving party must present competent
evidence to generate a genuine issue of material fact. Iowa R. Civ. P.
1.981(5); Hoefer v. Wis. Educ. Ass’n Ins. Trust, 470 N.W.2d 336, 339
(Iowa 1991). “Speculation is not sufficient to generate a genuine issue of
fact.” Hlubek, 701 N.W.2d at 96.
C. Adequacy of Description in UCC Financing Statement.
1. Position of the parties. Security asserts that the security
agreement between Peoples and Gilley did not provide a security interest
in the cattle involved in this case. Security argues that because the
language of the Peoples/Gilley security agreement did not expressly
apply to jointly owned property, a security interest does not attach to
such property. See In re Hunerdosse, 85 B.R. 999, 1005 (Bankr. S.D.
Iowa 1988).
Security then asserts that there was a substantial factual question
as to whether the cattle in this case were jointly owned by Gilley and
Wilson. Security argues it offered evidence that the relationship between
19
Gilley and Wilson was a joint venture and that the cattle purchased with
funds borrowed from Security were owned by the joint venture and not
by Gilley. According to Security, if the cattle were owned by the joint
venture, Peoples’ security interest would not attach.
Peoples counters that on the undisputed facts the relationship
between Gilley and Wilson was not a joint venture. Relying largely on
our decision in Pay-N-Taket, Inc. v. Crooks, 259 Iowa 719, 145 N.W.2d
621 (1966), Peoples claims that a joint venture is not present when, as
here, there is no partnership name, no partnership books or tax returns,
no sharing of profits and losses, and no control over management. See
Pay-N-Taket, 259 Iowa at 724–25, 145 N.W.2d at 625.
In any event, even if the relationship between Gilley and Wilson
could be characterized as a joint venture, Peoples maintains that the
cattle were still owned by Gilley. In support of its argument, Peoples
cites a section of the Uniform Partnership Act, Iowa Code section
486A.204(4) (2009), which provides that property acquired in the name
of one or more partners without an indication in the instrument
transferring title of the person’s capacity as a partner and purchased
without use of partnership assets, is presumed to be separate property.
Peoples emphasizes that the sales documentation indicates in this case
that the purchaser of the cattle was Gilley, not some kind of joint venture
or partnership.
In the alternative, Peoples argues that, even if the cattle were
jointly owned property, it has a security interest in Gilley’s interest in the
joint property and that, upon sale of the cattle, its security interest
attaches to Gilley’s share of the proceeds.
2. Ownership of cattle. The parties concentrate their fire on the
existence of a triable issue on the question of whether the relationship
20
between Gilley and Wilson amounted to a joint venture. Under our law,
a joint venture is very similar to a partnership. Johanik v. Des Moines
Drug Co., 235 Iowa 679, 685–86, 17 N.W.2d 385, 389 (1945). The main
difference between a partnership and a joint venture is that a joint
venture exists to accomplish a specific goal or end, where a partnership
ordinarily has broader scope. Id. Generally, the same substantive law
applies to joint ventures as applies to partnerships. Id.; see also Brewer
v. Cent. Constr. Co., 241 Iowa 799, 807, 43 N.W.2d 131, 136 (1950).
Whether a joint venture exists is a mixed question of fact and law.
Determination of the characteristics of the relationship is a question of
fact. Determination of the consequences of the proven facts is a matter
of law. We have held that “no particular form of expression or formality
of execution” is necessary to establish a joint venture, which may be
implied “in whole or in part from the conduct of the parties.” Pay-N-
Taket, 259 Iowa at 724, 145 N.W.2d at 625.
We have characterized a joint venture in a number of ways. In
Brewer, we said:
A joint adventure is defined as an association of two or
more persons to carry out a single business enterprise for
profit; also as a common undertaking in which two or more
combine their property, money, efforts, skill or knowledge.
Brewer, 241 Iowa at 806, 43 N.W.2d at 136. Similarly, in Pay-N-Taket we
stated:
A partnership or joint adventure, a limited partnership, is
usually a contract where two or more persons place their
money, labor and skill in some business to be carried on by
the partnership, with an agreement to divide the profits and
share the losses.
Pay-N-Taket, 259 Iowa at 724, 145 N.W.2d at 625.
There is, perhaps, some question as to whether each and every
feature of the above definitions must be shown in every case. See Farm-
21
Fuel Prods. Corp. v. Grain Processing Corp., 429 N.W.2d 153, 158 (Iowa
1988). And, it is certainly true that a mere showing of sharing in profits
alone is not necessarily enough to establish a joint venture.
Nevertheless, a gateway requirement of a joint venture is a showing that
the participants have agreed to share in the profits and losses. See
Skemp v. Olansky, 249 Iowa 1, 7–8, 85 N.W.2d 580, 584 (1957) (joint
venture not present where no showing of sharing of profits and losses
and only assistance in obtaining a loan); Berry Seed Co. v. Hutchings,
247 Iowa 417, 426, 74 N.W.2d 233, 239 (1956) (while participation in
profits does not alone indicate partnership, mere payment as a
percentage of profits, where defendant does not share in losses, does not
establish joint venture); Brewer, 241 Iowa at 806, 43 N.W.2d at 136
(stating general rule that joint venture usually requires an agreement,
express or implied, to share losses). Where each participant does not
share an upside and downside risk in profits and losses, we hold that a
joint venture is not present.
In this case, it is undisputed that Wilson had no right to share in
the profits of the cattle raising activities. Much as a real estate agent
receives commissions on the sale of property, Wilson received his
commissions on the purchase of cattle. He also received payment when
the cattle were sold to Swift & Co. While Wilson could have lost money
in the event that he was called upon to pay outstanding balances of the
loan with Security, this potential liability is the result of his relationship
with the lender and not his relationship with Gilley. We conclude,
therefore, that on the undisputed facts a joint enterprise was not
present.
3. Ownership notwithstanding lack of joint venture. Our holding
that a joint venture was not present, however, is not the end of the
22
matter. If Gilley owned the cattle outright, the parties seem to agree that
Peoples’ security interest would attach to the cattle in question. If,
however, the cattle were owned jointly by Gilley and Wilson, the issue
becomes more problematic. The question thus arises, when two persons
are coborrowers on a loan from a lending institution and the proceeds
are used to buy property, whether the participants are joint owners of
the property.
The documentation on the loans obtained from Security indicates
that Gilley and Wilson were both listed as borrowers. Also, they both
signed security agreements in connection with the loan. The mere fact
that Wilson was a coborrower with respect to the underlying debt,
however, is not determinative on the question of ownership of cattle
purchased with the loan proceeds. Merely cosigning a note does not
necessarily establish an ownership interest in the property obtained by
loan proceeds. See In re Easton, 883 F.2d 630, 636 (8th Cir. 1989)
(stating record did not establish ownership based on cosigning of note);
Ingersoll v. Mason, 155 F. Supp. 497, 507 (D.C. Ark. 1957) (stating
cosigning note to finance purchase of car does not establish ownership or
right of control). The question of whether a coborrower has an ownership
interest in property obtained with loan proceeds depends upon the
parties’ intent. See In re Fischel, 103 B.R. 44, 47 (Bankr. N.D.N.Y. 1989);
cf. In re Estate of Liike, 776 N.W.2d 662, 665 (Iowa Ct. App. 2009) (intent
of parties determines whether property is held in partnership). When
Wilson agreed to sign the loan documentation, was he doing it as an
accommodation to Gilley, or instead as a coborrower who had a joint
interest in the funds that traveled through to establish a joint property
interest in the cattle purchased with the funds?
23
Gilley repeatedly stated in a sworn statement offered by Peoples in
support of its motion for summary judgment that he was the owner of
the cattle. Peoples’ evidence further showed that the money borrowed
from Security was placed in an account at Security owned solely by
Gilley. When cattle were purchased by Wilson, the invoices stated on
their face that Gilley was the purchaser. The cattle were delivered to
Gilley’s premises. Gilley honored the invoices by checks sent to the
auction houses drawn on his personal account. The invoices included
not only the price for the purchase of cattle, but a commission to be paid
to Wilson in connection with the transactions. When the cattle were
sold, Gilley was entitled to the proceeds, subject, of course, to any
outstanding security interests. These undisputed facts all suggest that
Gilley was the owner of the cattle.
Security presents an affidavit from Wilson resisting summary
judgment. In the affidavit, Wilson does not directly contest Gilley’s
assertion that Gilley owned the cattle. Wilson states that he “agreed to
be personally responsible for all loans for the purchase of cattle,” made
“arrangements for the purchase of cattle,” and he claimed an
“investment” in the cattle, apparently based upon his potential liability
on the underlying debt. He does not, however, claim that the cattle were
owned jointly by himself and Gilley. Instead, the thrust of his affidavit is
that the relationship amounted to a joint venture, an assertion that we
have already rejected.
Further, Peoples presented testimony by Wilson in a prior
bankruptcy proceeding involving Gilley and his wife where Wilson flatly
stated that he did not have an ownership interest in the cattle, that his
arrangement with Security was one of helping Gilley get financing to buy
the cattle, and that his benefit was the commission he would earn on
24
cattle purchases. 2 Against the backdrop of this unqualified testimony,
we do not find that the evasive and guarded statements in the Wilson
affidavit create a genuine issue of material fact on the ownership issue.
In resisting summary judgment, Security offers two additional
pieces of evidence in its attempt to create a triable issue of fact on the
question of ownership of the cattle. First, Security cites sales
agreements signed by Wilson where the signature line identifies the
signer as “purchaser or agent.” Second, Security notes that Wilson, after
he became concerned that Gilley was not applying proceeds from cattle
sold to the loan upon which Wilson was a coborrower, directed buyers of
cattle to make checks out to Wilson or Security.
Although it is true that the signature line on the sales agreements
for “purchaser or agent” were signed by Wilson, the documents identify
Gilley as the purchaser on the top of the front page of the invoices. The
undisputed facts showed that Wilson was to purchase the cattle and be
paid a commission on the purchases. Gilley in his sworn statement
stated that Wilson signed such documents as his agent. Wilson did not
contradict this factual assertion in his affidavit or in his testimony in the
Gilley bankruptcy proceeding. As a result, the fact that Wilson signed
invoices as “purchaser or agent” does not establish a genuine issue of
material fact. Under the undisputed evidence, he signed the invoices as
agent.
2Prior testimony by a nonparty may be considered in support or opposition to a
motion for summary judgment as a further affidavit under Iowa Rule of Civil Procedure
1.981. Rohlin Constr. Co. v. Lakes, Inc., 252 N.W.2d 403, 405 (Iowa 1977). The test is
whether the offered evidence, if given in the form of testimony at trial, would be
admissible. See Gustason v. Ne. Nat’l Bank, 486 S.W.2d 596, 599 (Tex. Civ. App. 1972)
(stating test is whether offered evidence, if given in the form of testimony from the
witness stand, would be admissible); see also Saghin v. Romash, 258 N.E.2d 581, 583
(Ill. App. Ct. 1970) (same).
25
Finally, although Security offered evidence that Wilson instructed
buyers to make out checks to Wilson or to Security, such action does not
make Wilson an owner of the underlying cattle. It established only that
Wilson, as a selling agent with apparent authority, was able to instruct
buyers regarding the manner of payment. As a result, Security has not
raised a genuine issue of material fact on the ownership question based
on this additional evidence.
D. Waiver by Course of Conduct.
1. Position of Security. Assuming Peoples’ security interest does
attach to the cattle in question, Security claims that Peoples waived its
security interest because Peoples must have known that Gilley was
selling cattle and applying the proceeds to pay down obligations to
another creditor. See Folkers v. Britt, 457 N.W.2d 578, 581–82 (Iowa
1990). Knowledge of such transactions, according to Security, can be
used to establish waiver by course of conduct. See Perkins v. Farmers
Trust & Sav. Bank, 421 N.W.2d 533, 536 (Iowa 1988). Security further
claims that by waiving its preferred security position in its collateral,
Peoples also waived its rights in the proceeds arising from the sale of the
collateral. In support of its position, it cites C & H Farm Service Co. of
Iowa v. Farmers Savings Bank, 449 N.W.2d 866, 875 (Iowa 1989), where
we stated: “[W]here a secured party waives its security interest in
collateral under the course of dealing waiver doctrine, the derivative
security interest in proceeds of the collateral should be deemed waived to
the same extent.”
Security supports its claims by noting that Peoples in September
2007 informed Gilley that Peoples would not extend additional credit for
the purchase of feeder cattle. Yet, Peoples visited Gilley’s lot in 2007 and
2008 and would have had an opportunity to view the cattle, which
26
Wilson claims were different in appearance and segregated from cattle
financed by Peoples. Further, Security claims Peoples must have known
that sales of cattle were occurring over a two-year period with proceeds
being deposited in another bank. This is so, Security argues, because
the loan balance on the Gilley line was not paid down during a period
even though Gilley on his 2007 tax return showed gross receipts from
cattle sales of $444,285.
2. Position of Peoples. Peoples claims the case involves a different
legal framework than that offered by Security. Peoples maintains that
there is a distinction between waiver of rights in collateral and waiver of
rights in proceeds. In support of its position, Peoples cites Humboldt
Trust & Savings Bank v. Entler, 349 N.W.2d 778 (Iowa Ct. App. 1984). In
Humboldt, the court of appeals noted that a secured creditor may release
its lien in collateral and retain a security interest in the identifiable
proceeds. Humboldt, 349 N.W.2d at 782. Peoples maintains that the
language cited by Security in C & H Farm Service is inaccurate and is in
any event dicta. According to Peoples, its argument is strengthened by a
change in the Iowa version of the UCC enacted in 2001, which now
clearly distinguishes between waivers with respect to rights in collateral
and waiver of rights in proceeds. See Iowa Code § 554.9315(1)(a)–(b).
On the issue of whether Peoples waived its right in the proceeds,
Peoples argues that under C & H Farm Service, a creditor must have
“actual knowledge” of the transaction giving rise to a waiver of a right.
C & H Farm Serv. Co., 449 N.W.2d at 873.
In support of its legal position, Peoples notes that Security has
offered no “direct” evidence that Peoples had knowledge of cattle sales in
which the proceeds were deposited with Security. Jamie Brant, the
responsible loan officer at Peoples, testified that he had no knowledge of
27
the fact that Gilley was selling his cattle and depositing the proceeds
elsewhere. Brant testified that he was aware of the Security UCC
statement, but believed it related to cattle Gilley received as payment for
custom feeding. Brant testified that Gilley advised him that these cattle,
some two hundred head, were to be sold in the summer or fall of 2008
for application on the debt due Peoples. According to Peoples, any waiver
of security interest in the proceeds of the sale of cattle requires actual
knowledge of the sale or actual knowledge of the use of the proceeds
inconsistent with Peoples’ security interest.
3. Existing Iowa legal framework. We begin with a review of the
provisions of the Iowa version of the Uniform Commercial Code (IUCC)
that deal with the question of whether a lender may waive its perfected
security interest in collateral or identifiable proceeds through a course of
dealing between the lender and the borrower. Prior to 2001, Iowa had
adopted section 9-306(2) of the Uniform Commercial Code, which
provided:
(2) Except where this Article otherwise provides, a
security interest continues in collateral notwithstanding sale,
exchange or other disposition thereof unless the disposition
was authorized by the secured party in the security
agreement or otherwise, and also continues in any
identifiable proceeds including collections received by the
debtor.
U.C.C. § 9-306(2), 3B U.L.A. 33–34 (2002) (emphasis added) (former
U.C.C. article 9); see also Iowa Code § 554.9306(2) (1999). The thrust of
former section 9-306(2) was that after sale a security interest continues
in the collateral and in the proceeds, unless the sale was either
authorized (1) by the secured party in the security agreement, or (2)
“otherwise.” See U.C.C. § 9-306(2).
There was a split in authority regarding whether the “otherwise”
language should be interpreted to allow a course of dealing between a
28
lender and borrower to override an express requirement in the security
agreements that a borrower first obtain written consent before selling the
collateral. See, e.g., Garden City Prod. Credit Ass’n v. Lannan, 186
N.W.2d 99, 104 (Neb. 1971) (no waiver of express provision of security
agreement through course of conduct), overruled by Farmers State Bank
v. Farmland Foods, Inc., 402 N.W.2d 277, 282 (Neb. 1987); Clovis Nat’l
Bank v. Thomas, 425 P.2d 726, 730 (N.M. 1967) (course of conduct could
authorize sale notwithstanding requirement of written consent in
security agreement); see generally Janet Fairchild, Annotation, What
Constitutes Secured Party’s Authorization to Transfer Collateral Free of
Lien Under UCC § 9-306(2), 37 A.L.R. 4th 787 (1985).
In Lisbon Bank & Trust Co. v. Murray, 206 N.W.2d 96, 99 (Iowa
1973), we held that a course of dealing between the debtor and the
borrower could give rise to authorization to sell cattle free of the security
interest where the security agreement did not contain a requirement of
written consent. We also held in Lisbon Bank that the failure of a party
to live up to a condition that it account to the secured party for the
proceeds did not affect the implied authorization to sell. Lisbon Bank,
206 N.W.2d at 99. In Hedrick Savings Bank v. Myers, 229 N.W.2d 252,
256 (Iowa 1975), we joined the Clovis line of cases in deciding that a
course of conduct could authorize sale of collateral in contradiction to an
express prohibition in the security agreement.
The principles of Lisbon and Hedrick have been followed in a series
of cases. See, e.g., First State Bank v. Shirley Ag Serv., Inc., 417 N.W.2d
448, 453 (Iowa 1987) (failure of seller to abide by agreement with lender
does not affect rights of purchaser to collateral); Ottumwa Prod. Credit
Ass’n v. Keoco Auction Co., 347 N.W.2d 393, 396 (Iowa 1984) (failure of
secured party to remit proceeds does not vitiate authority to sell hogs
29
established through course of dealing). The theory in these cases is that
an innocent third party should not bear the loss resulting from
inadequate collection practices of the secured party. Keoco, 347 N.W.2d
at 397; Lisbon Bank, 206 N.W.2d at 99. We have further noted that a
lender may reassert previously waived rights by giving reasonable notice
to the debtor that the creditor intends to do so. See FS Credit Corp. v.
Troy Elevator, Inc., 397 N.W.2d 735, 738 (Iowa 1986).
We revisited the law of secured interests in C & H Farm Service. In
C & H Farm Service, the lender learned of the sale but did not veto it.
C & H Farm Serv. Co., 449 N.W.2d at 872. Instead, the lender advised
the debtor to get the lender’s name on the check resulting from the sale.
Id. Although the debtor proceeded with the sale, the debtor did not
follow the lender’s instructions. Id. Instead of instructing the buyer to
make the check out to the lender, the debtor obtained the proceeds and
deposited the funds in an overdrawn bank account. Id. at 875.
In determining whether the lender waived its security interest in
the collateral through its course of dealings with the debtor, we observed
“a secured party must have actual knowledge of its debtor’s sales of
collateral without prior written consent before the secured party may be
deemed to have waived its right to such consent by course of dealing.”
Id. at 873. We concluded under the facts of the case that the lender
knew of the sale. Id. The fact that the debtor did not take steps to
ensure that the proceeds were paid to the lender did not affect the waiver
of the bank’s security interest in the collateral. Id.
We next turned to the question of whether the creditor continued
to have a security interest in the proceeds. We noted that because the
debtor’s bank account was overdrawn, there were not identifiable
proceeds that might be subject to the creditor’s security interest. Id. at
30
876. We also observed, in apparent dicta, that ordinarily, when the
creditor waives its security interest in the collateral, the derivative
security interest in the proceeds is also waived. Id. at 875. This dicta
was inconsistent with the earlier court of appeals decision in Humboldt,
which was not cited in the opinion.
In 2000, the legislature revised the IUCC. In place of Iowa Code
section 554.9306(2), the legislature enacted Iowa Code section 554.9315.
See 2000 Iowa Acts ch. 1149, §§ 26, 35 (codified at Iowa Code
§§ 554.9306, .9315 (Supp. 2001)). The amendment adopted the
revisions made in 2000 of Article 9 of the Uniform Commercial Code. See
U.C.C. § 9-315, 3 U.L.A. 289–90 (2010); H.F. 2513, Explanation, 78th
G.A., Reg. Sess. (Iowa 2000) (stating “[t]his bill adopts revisions to Article
9 of the Uniform Commercial Code . . . as proposed by the national
conference of commissioners on uniform state laws”); H.F. 2513, Fiscal
Note, 78th G.A., Reg. Sess. (Iowa 2000) (same). This provision states, in
relevant part, except as otherwise specifically provided in exceptions not
applicable here:
a. a security interest or agricultural lien continues in
collateral notwithstanding sale, lease, license, exchange, or
other disposition thereof unless the secured party authorized
the disposition free of the security interest or agricultural
lien; and
b. a security interest attaches to any identifiable
proceeds of collateral.
Iowa Code § 554.9315(1)(a)–(b) (2009).
The new UCC provision allows a lender to “authorize[] the
disposition [of collateral] free of the security interest,” but when such
authorization occurs, a security interest attaches “to any identifiable
proceeds of the collateral.” Id. The new provision clearly separates a
security interest in the collateral, which is addressed under subsection
31
(a), from a security interest in identifiable proceeds, which is addressed
by subsection (b). The clear import of the legislative action is that waiver
of rights in collateral does not necessarily mean waiver of rights in the
proceeds.
4. Resolution of legal issues. The parties raise two legal issues
that require resolution in determining this appeal. The first legal issue is
whether the waiver of a secured interest in collateral necessarily results
in a similar waiver of the creditor’s interest in the proceeds. In short, we
must resolve whether the approach of the court of appeals in Humboldt is
correct, or whether the dicta in C & H Farm Service is the better
approach.
A second legal issue is the standard to be applied in determining
whether a creditor has waived rights in proceeds. Must a party
challenging creditor’s rights on waiver grounds show that the creditor
had “actual knowledge” of the application of identifiable proceeds in a
fashion contrary to the creditor’s interests? Or, can waiver arise on a
lesser showing?
On the first issue, we conclude that Peoples has the better
argument. It is true that in C & H Farm Service we used language that
seemed to imply that a creditor who waived rights in collateral also
waived rights in proceeds. See C & H Farm Serv. Co., 449 N.W.2d at 875.
The language, however, was dicta. We also recognize that there is some
authority supporting the approach in C & H Farm Service. See United
States v. Sec. State Bank, 686 F. Supp. 733, 736 (N.D. Iowa 1988) (citing
general rule that consent to sale through normal sales channels rather
than through UCC enforcement procedure waives right to collateral and
proceeds). The majority of courts and commentators has accepted the
contrary view, however, and maintain that a secured party who
32
authorizes the disposition of collateral free of the security interest
continues to have a security interest in the identifiable proceeds of the
collateral, unless, of course, the secured party relinquishes or waives the
security interest in the proceeds as well. See, e.g., In re Bumper Sales,
Inc., 907 F.2d 1430, 1440 (4th Cir. 1990); Dixie Ag Supply, Inc. v. Nelson,
500 So. 2d 1036, 1040 (Ala. 1986); Producers Cotton Oil Co. v. Amstar
Corp., 242 Cal. Rptr. 914, 922 (Ct. App. 1988); Vacura v. Haar’s Equip.,
Inc., 364 N.W.2d 387, 392 (Minn. 1985); Farmers & Merchants Nat’l Bank
v. Sooner Coop., Inc., 766 P.2d 325, 329 (Okla. 1988); Dry Canyon Farms,
Inc. v. U.S. Nat’l Bank of Or., 735 P.2d 620, 623 (Or. Ct. App. 1987); Cent.
Wash. Bank v. Mendelson-Zeller, Inc., 779 P.2d 697, 700 (Wash. 1989);
see also U.C.C. § 9-315 cmt. 2, 3 U.L.A. 290–91; 9B Frederick H. Miller &
Neil B. Cohen, Hawkland UCC Series §9-315:2[Rev] (2008) (“Regardless of
whether the disposition of the collateral is authorized, the security
interest continues in identifiable proceeds unless the secured party also
either relinquishes or waives the security interest in the proceeds.”);
D. Fenton Adams, Sales of Personal Property As Secured Transactions
Under Article 9 of the Uniform Commercial Code, 31 U. Ark. Little Rock L.
Rev. 1, 62 (2008) (stating under former Article 9 secured interest in
proceeds served as substitute collateral if the secured party authorized
disposition of the collateral); William Stoddard, Tracing Principles in
Revised Article 9 § 9-315(B)(2): A Matter of Careless Drafting, or An
Invitation to Creative Lawyering?, 3 Nev. L.J. 135, 136–37 (2002) (noting
secured party who authorizes sale of collateral retains secured interest in
proceeds).
Our position is reinforced by the recent legislative change to the
IUCC. The amendment now reflected in the language of Iowa Code
section 554.9315 demonstrates a decoupling of waiver of interest in
33
collateral from waiver of interests in proceeds. See U.C.C. § 9-315 cmt.
2, 3 U.L.A. 290–91 (stating “[i]n many cases, a purchaser or other
transferee of collateral will take free of a security interest, and the
secured party’s only right will be to proceeds”).
On the question of appropriate legal standard required to establish
waiver, we do not believe actual knowledge of the details of a particular
transaction is always required, particularly when through a course of
conduct a lender has knowingly waived its security interest through
acquiescence in transactions of similar scope and import. We note that
the language in C & H Farm Service suggesting that actual knowledge
was required was only a proposition advanced for purposes of argument
rather than a holding of the court. We do believe, however, that a waiver
can be established only upon showing that the creditor knowingly and
intentionally waived his rights in the proceeds. See Churchhill Bus.
Credit, Inc. v. Pac. Mut. Door Co., 49 F.3d 1334, 1337 (8th Cir. 1995);
Vermillion Cnty. Prod. Credit Ass’n v. Izzard, 249 N.E.2d 352, 354 (Ill.
App. Ct. 1969); N. Cent. Kan. Prod. Credit Ass’n v. Wash. Sales Co., 577
P.2d 35, 41 (Kan. 1978); Hauenstein & Bermeister, Inc. v. Met-Fab. Indus.,
Inc., 320 N.W.2d 886, 892 (Minn. 1982); Bank of E. Or. v. Griffith, 792
P.2d 1210, 1213 (Or. Ct. App. 1990); Cent. Wash. Bank v. Mendelson-
Zeller, Inc., 779 P.2d 697, 701 (Wash. 1989). Further, in order to
establish implied waiver by conduct, there must exist clear, unequivocal,
and decisive conduct demonstrating intent to waive. Cent. Wash. Bank,
779 P.2d at 701; see also Vogel v. Carolina Int’l, Inc., 711 P.2d 708, 711–
12 (Colo. App. 1985); Fleming v. Carroll Publ’g Co., 621 A.2d 829, 833
(D.C. 1993); Washburn v. Union Nat’l Bank & Trust Co. of Joliet, 502
N.E.2d 739, 742 (Ill. App. Ct. 1986); Five Points Bank v. Scoular-Bishop
Grain Co., 350 N.W.2d 549, 552 (Neb. 1984); Russell L. Wald,
34
Annotation, Secured Transactions—Waiver of Security Interest, 29 Am.
Jur. Proof of Facts 2d 711, 731 (1982) (stating “to constitute waiver other
than by express agreement there must be unequivocal acts or conduct
evincing an intent to waive, inconsistent with any other intention”). It is
not enough to show that a creditor was negligent or should have known
that its security position was being undermined by actions of a debtor.
Further, even when a creditor has knowingly and intentionally waived its
rights in the collateral, it may rescind its waiver by conduct inconsistent
with it. FS Credit Corp., 397 N.W.2d at 738.
5. Application of law to this case. For the sake of argument, it may
be assumed that until Peoples sent its notices pursuant to the Food
Security Act on March 30 and April 1, 2008, Peoples waived its security
interest in cattle sold to third parties. The critical issue posed in this
case, however, is not whether the bank surrendered its security interest
in the collateral. The critical question is whether the bank surrendered
its security interest in the proceeds. 3 The only question before us is
whether, on the summary judgment record, Security generated a fact
issue on the question of whether Peoples knowingly and intentionally
waived its interest in the proceeds of the sale of Gilley’s cattle through
clear, unequivocal, and decisive conduct. See Cent. Wash. Bank, 779
P.2d at 701.
There is circumstantial evidence to suggest that while Peoples did
not know of specific sales of cattle, it must have had some inkling that
Gilley was selling cattle subject to its security interest. Further, Brant
was told by Gilley in the summer of 2008 that Gilley planned to sell
3No claim has been made on appeal that the funds loaned by Security were
perfected purchase money security interests or that the funds sought to be recovered in
this case were not “identifiable proceeds.”
35
cattle and forward the proceeds to Peoples. Peoples did nothing to veto
the sale.
But Peoples offered evidence indicating that it had no knowledge of
the sales and the diversion of proceeds to another bank. While it is
arguable that Peoples, despite its denials, might have had knowledge of
some cattle sales, there is no reason to believe that Peoples had
knowledge that Gilley was forwarding proceeds in which Peoples had a
security interest to another bank. The record indicates that Peoples
became aware of a UCC filing by Security, but this filing was explained
away by Gilley as related solely to cattle on his lot that were being
custom fed. While the actions of Peoples may not have been a model of
diligence, and even rather gullible, there is no triable issue on the
question of an intentional and knowing waiver of Peoples’ interest in the
proceeds through clear, unequivocal, and decisive conduct. As a result,
we conclude that the district court did not err in granting summary
judgment to Peoples.
IV. Conclusion.
In summary, we conclude Security did not waive its right to appeal
by paying the judgment under the circumstances presented in this case.
Proceeding to the merits, however, we conclude that the district court
properly determined that Peoples was entitled to summary judgment on
its underlying conversion claim against Security. We therefore vacate the
decision of the court of appeals and affirm the judgment of the district
court.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT AFFIRMED.