Ag Services of America, Inc. v. Empfield

587 N.W.2d 871, 255 Neb. 957, 37 U.C.C. Rep. Serv. 2d (West) 840, 1999 Neb. LEXIS 9
CourtNebraska Supreme Court
DecidedJanuary 15, 1999
DocketNo. S-97-1097
StatusPublished
Cited by3 cases

This text of 587 N.W.2d 871 (Ag Services of America, Inc. v. Empfield) is published on Counsel Stack Legal Research, covering Nebraska Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ag Services of America, Inc. v. Empfield, 587 N.W.2d 871, 255 Neb. 957, 37 U.C.C. Rep. Serv. 2d (West) 840, 1999 Neb. LEXIS 9 (Neb. 1999).

Opinion

Wright, J.

NATURE OF CASE

Ag Services of America, Inc. (Ag Services), brought this action for conversion against Darrell E. Empfield after Empfield sold certain com crops that were stored on his property. The crops were grown on Empfield’s land by C.M.R., Inc., a debtor of Ag Services. Ag Services claimed its security interest in the com crops was superior to Empfield’s claim pursuant to a lease agreement with C.M.R. The trial court granted Ag Services’ motion for summary judgment, and Empfield appeals.

SCOPE OF REVIEW

In reviewing an order granting a motion for summary judgment, an appellate court views the evidence in a light most favorable to the party opposing the motion and gives that party the benefit of all reasonable inferences deducible from the evidence. Zimmerman v. FirsTier Bank, ante p. 410, 585 N.W.2d 445 (1998).

FACTS

On November 18, 1994, Ag Services loaned C.M.R. the principal sum of $240,000. Contemporaneously, C.M.R. gave Ag Services a security agreement covering, but not limited to, all of C.M.R.’s farm products, inventory, annual and perennial crops, and stored or harvested crops.

On December 19, 1994, Ag Services filed financing statements in the office of the Brown County clerk, which statements listed C.M.R. as the debtor and Ag Services as a secured party and described real estate owned by Empfield as the land upon which C.M.R.’s crops were growing or were to be grown.

On April 5, 1995, C.M.R. leased certain farmland located in Brown County from Empfield for the amount of $53,541, which was payable in two installments. The written lease agreement specified that to secure performance of the terms and conditions of the lease, Empfield had a right to a chattel mortgage upon all or any part of the crops growing or gathered on the premises during the term of the lease. The record does not show that [959]*959Empfield ever made a filing in the office of the Brown County clerk concerning the lease agreement.

Following the com harvest in late November or early December 1995, C.M.R. placed the com in bins owned by Empfield. According to Clark Keim, the president and sole shareholder of C.M.R., some of the 1994 crop was still stored in Empfield’s bins. C.M.R. paid Empfield the first rental installment, but failed to pay the second installment in the amount of $27,750. On December 23, 1995, in order to pay the defaulted rent and other amounts allegedly due, Empfield sold the com harvested by C.M.R. that was stored in bins located on Empfield’s property. Empfield received $32,175 from the sale.

C.M.R. was unable to fully pay the balance due on the promissory note to Ag Services, and the balance was carried forward to a 1996 operating note, which was executed March 26, 1996, in an amount greater than $32,175. On August 7, Ag Services commenced suit against Empfield, alleging, inter alia, that Empfield had unlawfully converted the com in which Ag Services had a perfected security interest superior to any interest of Empfield’s. At the time the action was commenced, there was due and owing from C.M.R. to Ag Services $133,217.45 plus interest.

The trial court entered summary judgment in favor of Ag Services, and Empfield appeals.

ASSIGNMENT OF ERROR

Empfield claims that the trial court erred in entering summary judgment in favor of Ag Services.

ANALYSIS

This is a conversion action brought by Ag Services against Empfield. When property is subject to a security interest, an exercise of dominion or control over the property that is inconsistent with the rights of the secured party constitutes, as to that secured party, a conversion of the property. Battle Creek State Bank v. Preusker, 253 Neb. 502, 571 N.W.2d 294 (1997). In its first theory of recovery, Ag Services alleged that it had a perfected security interest by virtue of its promissory note and security agreement and the financing statements filed in the [960]*960office of the Brown County clerk; that Empfield did not have a perfected security interest in the com; and that Empfield’s interest, if any, was subordinate to Ag Services’ interest. In its second theory of recovery, Ag Services alleged that Empfield’s interest, if any, was subordinate by virtue of a subordination agreement allegedly signed by Empfield.

Ag Services’ first theory of recovery relies on article 9 of the Nebraska Uniform Commercial Code (U.C.C.). Neb. U.C.C. § 9-312(5) (Reissue 1992) states that unless governed by a special priority under another subsection, priority between conflicting security interests in the same collateral shall be determined according to the following rules:

(a) Conflicting security interests rank according to priority in time of filing or perfection. Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfected, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection.
(b) So long as conflicting security interests are unperfected, the first to attach has priority.

Section 9-312(5) is a “pure race” type statute. See Todsen v. Runge, 211 Neb. 226, 318 N.W.2d 88 (1982). Under § 9-312(5), the secured party who is first to perfect or file his or her security interest will have priority over all unperfected security interests even though such party had actual or constructive knowledge of a prior unperfected security interest. Todsen v. Runge, supra. Section 9-312(5) was adopted to promote certainty in commercial transactions by placing reliance on the filing records. It requires a secured party to exercise diligence to perfect his or her security interest. If a party fails to perfect, then the party runs the risk of having his or her interest subordinated. Todsen v. Runge, supra.

In Todsen, we determined that § 9-312(5) governed the priority between the tenant farmer’s creditor and the farmer’s landlords. We explicitly held that a contractual landlord’s lien must comply with the filing requirements of article 9 of the U.C.C. in order to perfect a security interest. Because the creditor in that case was first to file and perfect its security interest, it had priority over the landlords’ lien. See, also, McCoy v. Steffen, 227 [961]*961Neb. 72, 416 N.W.2d 16 (1987) (security interest of tenant fanners’ creditor had priority over interest of tenants’ landlord where creditor’s financing statement was filed earlier).

Similarly, in Lone Oak Farm Corp. v. Riverside Fertilizer, 229 Neb. 548, 428 N.W.2d 175 (1988), a landlord leased farmland to a tenant for the purpose of growing crops. The lease agreement provided that the landlord would have a security interest in the crops to be grown on the land. The landlord did not file the agreement in the appropriate place and manner. In order to obtain certain goods and services necessary to produce crops, the tenant subsequently entered into an agreement with a fertilizer company.

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Bluebook (online)
587 N.W.2d 871, 255 Neb. 957, 37 U.C.C. Rep. Serv. 2d (West) 840, 1999 Neb. LEXIS 9, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ag-services-of-america-inc-v-empfield-neb-1999.