197301MAJ
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Court of Appeals Division III
State of Washington
Opinion Information Sheet
Docket Number: 19730-1-III
Title of Case: Western Farm Service, Inc V Lynn J Olsen,
II V Tri-River Chemical Company, Inc V Keybank National
File Date: 12/05/2002
SOURCE OF APPEAL
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Appeal from Superior Court of Franklin County
Docket No: 98-2-50174-2
Judgment or order under review
Date filed: 11/14/2000
JUDGES
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Authored by Kenneth H. Kato
Concurring: Dennis J. Sweeney
John a Schultheis
COUNSEL OF RECORD
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Counsel for Appellant(s)
Donald Louis Anderson
Attorney at Law
1201 Pacific Ave Ste 1200
Tacoma, WA 98402-4395
Clemencia Castro-Woolery
Attorney at Law
Wells Fargo Pza #1200
1201 Pacific Ave
Tacoma, WA 98402-4301
Counsel for Defendant(s)
Christopher Mark Alston
Attorney at Law
1111 3rd Ave 34th Fl
Seattle, WA 98101-3292
Dillon Edward Jackson
Attorney at Law
1111 3rd Ave Ste 3400
Seattle, WA 98101-3264
Counsel for Respondent/Cross-Appellant
Randy J. Fair
Lukins & Annis PS
1405 S Pioneer Way
Moses Lake, WA 98837-2458
Larry Washburn Larson
Attorney at Law
1405 S Pioneer Way
Moses Lake, WA 98837-2458
Jerome R. Aiken
Attorney at Law
PO Box 22680
Yakima, WA 98907-2680
Robert C. Tenney
Attorney at Law
PO Box 22680
Yakima, WA 98907-2680
Counsel for Other Parties
Jerry N. Stehlik
Attorney at Law
2003 Western Ave Ste 400
Seattle, WA 98121-2142
COURT OF APPEALS, DIVISION III, STATE OF WASHINGTON
WESTERN FARM SERVICE, INC., a )
Delaware corporation, )
) No. 19730-1-III
Respondent and )
Cross-Appellant, )
)
v. )
)
LYNN J. OLSEN II and JULIE OLSEN, )
husband and wife, )
)
Defendants, )
) ORDER DENYING MOTION
KEY BANK OF WASHINGTON, a ) FOR RECONSIDERATION;
National Banking Association, ) ORDER AMENDING OPINION
)
Appellant. )
)
J. R. SIMPLOT COMPANY, a foreign )
corporation, )
Respondent and )
Cross-Appellant, )
)
v. )
)
KEY BANK NATIONAL ASSOCIATION, )
a national banking association, )
)
Appellant, )
)
LYNN J. OLSEN II and JULIE OLSEN, )
husband and wife, )
)
Defendants, )
)
TRI-RIVER CHEMICAL COMPANY, )
)
Plaintiff, )
)
v. )
)
KEY BANK NATIONAL ASSOCIATION, )
a national banking association, )
)
Appellant. )
THE COURT has considered appellant KeyBank's motion for
reconsideration of this Court's opinion of December 5, 2002, and the answer
of respondents Western Farm Service, Inc., and J. R. Simplot Company, and
is of the opinion the motion should be denied. Therefore,
IT IS ORDERED, the motion for reconsideration of this Court's opinion
of December 5, 2002, is hereby denied.
IT IS FURTHER ORDERED, the above-referenced opinion is hereby amended
by deletion of the following sentence on page 10:
"There is also no testimony that any of the suppliers received the
handwritten budget containing the notice."
DATED:
FOR THE COURT:
Kenneth H. Kato
Acting Chief Judge
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
WESTERN FARM SERVICE, INC., a )
Delaware corporation, )
) No. 19730-1-III
Respondent and )
Cross-Appellant, )
)
v. )
)
LYNN J. OLSEN II and JULIE OLSEN, )
husband and wife, )
)
Defendants, )
)
KEY BANK OF WASHINGTON, a )
National Banking Association, )
)
Appellant. )
)
J. R. SIMPLOT COMPANY, a foreign ) Division Three
corporation, ) Panel Four
Respondent and )
Cross-Appellant, )
)
v. )
)
KEY BANK NATIONAL ASSOCIATION, )
a national banking association, )
)
Appellant, )
) PUBLISHED OPINION
LYNN J. OLSEN II and JULIE OLSEN, )
husband and wife, )
)
Defendants, )
)
TRI-RIVER CHEMICAL COMPANY, )
)
Plaintiff, )
)
v. )
)
KEY BANK NATIONAL ASSOCIATION, )
a national banking association, )
)
Appellant. )
KATO, A.C.J. - Key Bank National Association (KeyBank) loaned Lynn
Olsen money to finance his 1996 and 1997 farming operations. J. R. Simplot
Company's chemical and fertilizer division (Simplot) and Western Farm
Services (WFS) sold supplies to Mr. Olsen on credit. Both creditors signed
an agreement with KeyBank that subordinated their security positions.
Simplot and WFS claimed KeyBank improperly failed to pay either of them
under the terms of this agreement. A jury agreed. We affirm the judgments
in favor of Simplot and WFS.
KeyBank had also filed a counterclaim for conversion against Simplot
because it issued a check payable only to Mr. Olsen. KeyBank's motion for
summary judgment on the conversion counterclaim was granted. Simplot cross-
appeals this decision. We reverse the summary judgment in favor of
KeyBank.
KeyBank financed the farming operations of Lynn Olsen, d/b/a Olsen
Agriprises, for the crop years 1996 and 1997. Simplot, WFS, and H&R Ag,
Inc., sold fertilizer and other chemicals to Mr. Olsen on credit. Tri-
River Chemical Company supplied chemicals and fertilizer to H&R on a
wholesale basis for resale to Mr. Olsen. Mr. Olsen was a tenant farmer who
did not have land to pledge as collateral. KeyBank thus required Simplot,
WFS, and Tri-River to subordinate their lien rights before it would make a
loan to Mr. Olsen.
In 1996, the parties entered into a subordination agreement on a standard
bank form with a negotiated addendum. The terms of the 1996 addendum
provided that if a crop "meets the minimum gross income as budgeted per
Lynn Olsen's 1996 budget the income will be split 25% supplier, 75% Key
Bank." Exhibit 1. 1996 was a poor year for Mr. Olsen and the conditions
of the 1996 addendum were not met. As a result, the suppliers were
underpaid about $2,143,000.
The parties continued their relationship into 1997. KeyBank again
required the chemical and fertilizer suppliers to subordinate their
security positions. But the suppliers were concerned about continuing to
extend credit to Mr. Olsen. They did not want to extend credit without
assurances from KeyBank that the debt owing to them would be satisfied.
Negotiation of the 1997 subordination agreement and addendum began in
February 1997. Simplot was represented by Gil Shaw; WFS was represented by
Bruce Lee; Tri-River was represented by Gerald Hogan; H&R was represented
by Richard Underwood; and KeyBank was represented by Steve Lancaster.
Mr. Olsen submitted a handwritten budget for his farming operations.
KeyBank then typed this budget onto a final budget form, making no changes.
As part of his budget, Mr. Olsen included a production estimate showing the
number of acres he planned to farm, the yield he expected to achieve, and
the anticipated price. According to Mr. Olsen, the yield figures in the
production budget were based upon the "gross weight" of the potatoes
delivered to the processor. Report of Proceedings (RP) at 824. "Gross
weight" included the weight of all rock, dirt, and foreign material, as
well as all potatoes in the truck, as it came out of the field.
In negotiating the addendum, the suppliers were seeking assurance that
they would be paid. They wanted an objective benchmark that, once met,
would guarantee payment. The suppliers wanted the addendum to contain an
agreement that if 95 percent of the projected budget production of Mr.
Olsen's contract potatoes were met, KeyBank "will payoff" the fertilizer
and chemical suppliers. Exhibit 14.
On April 9, 1997, Mr. Lancaster requested credit approval from KeyBank
for the 1997 loan. As a condition of approval, he proposed that KeyBank
would agree to review performance in December 1997 to see if the budget met
the appropriate margins prior to allowing payments under the subordination
agreement. This proposal was consistent with a draft submitted to Mr. Shaw
of Simplot in March 1997.
The loan was approved. A condition of the approval was a subordination
addendum, which would include an agreement by KeyBank to review performance
in December 1997 to see if the budget met projected margins before allowing
payment to vendors. The addendum stated:
If borrower attains 95% of projected budget production of his contracted
potatoes, Bank shall review payoff of the undersigned creditors by 12-1-97.
Exhibit 20. The fertilizer company representatives indicated that Mr.
Lancaster assured them that "shall review" meant "shall pay" off. RP at
413.
After the parties signed the agreement, Mr. Lancaster told the others
that he was monitoring Mr. Olsen's 1997 operations and it looked like he
had an excellent crop. On November 21, 1997, Mr. Lancaster met with the
suppliers and reconfirmed that the suppliers would be paid if Mr. Olsen
obtained 95 percent of budget production for his contracted potatoes. He
also indicated Mr. Olsen had in fact met 95 percent of his budget
production.
Nonetheless, KeyBank did not pay the suppliers by December 15, 1997.
Simplot sued KeyBank and Mr. Olsen for breach of contract. KeyBank
counterclaimed against Simplot for conversion. WFS also sued KeyBank and
Mr. Olsen for breach of contract. The court consolidated these cases.
Tri-River then filed a complaint in intervention against KeyBank. KeyBank
was granted summary judgment on its counterclaim for conversion against
Simplot. The case proceeded to jury trial. The jury found in favor of
Simplot, WFS, and Tri-River.1 Verdicts were entered in favor of each.
KeyBank's Appeal
KeyBank contends the court erred by refusing to give the following jury
instruction:
Oral promises to lend money, extend credit, delay enforcement or to modify
or amend the terms under which a creditor has lent money are enforceable if
the creditor has provided the following written notice to the other party:
"Oral agreements or oral commitments to loan money, extend credit, or to
forbear from enforcing repayment of a debt are not enforceable under
Washington law."
As KeyBank provided plaintiffs with this written notice, you may only
consider the promises made by KeyBank to plaintiffs in writing when
determining whether or not KeyBank breached the parties' contract.
CP at 1467. This instruction was based upon RCW 19.36.100-.140, the credit
agreement statute of frauds.
The refusal to give a requested instruction is reviewed for an abuse of
discretion. Bulzomi v. Dep't of Labor & Indus., 72 Wn. App. 522, 526, 864
P.2d 996 (1994). Jury instructions are sufficient if they permit each
party to argue its theory of the case, are not misleading, and properly
inform the jury of the applicable law when read as a whole. Houck v. Univ.
of Wash., 60 Wn. App. 189, 200, 803 P.2d 47, review denied, 116 Wn.2d 1028
(1991). A party has a right to have its theory of the case presented to
the jury if there is substantial evidence to support it. Bulzomi, 72 Wn.
App. at 526.
RCW 19.36.100 defines a credit agreement as
an agreement, promise, or commitment to lend money, to otherwise extend
credit, to forbear with respect to the repayment of any debt or the
exercise of any remedy, to modify or amend the terms under which the
creditor has lent money or otherwise extended credit, to release any
guarantor or cosigner, or to make any other financial accommodation
pertaining to a debt or other extension of credit.
RCW 19.36.110 addresses the enforceability of such agreements:
A credit agreement is not enforceable against the creditor unless the
agreement is in writing and signed by the creditor. The rights and
obligations of the parties to a credit agreement shall be determined solely
from the written agreement, and any prior or contemporaneous oral
agreements between the parties are superseded by, merged into, and may not
vary the credit agreement. Partial performance of a credit agreement does
not remove the agreement from the operation of this section.
The underlying purpose of a statute of frauds is to prevent fraud, not be a
means of perpetuating one. Greaves v. Med. Imaging Sys. Inc., 71 Wn. App.
894, 898, 862 P.2d 643 (1993), rev'd on other grounds, 124 Wn.2d 389, 879
P.2d 276 (1994). The statute of frauds must be strictly construed by
courts and not applied to cases that are not squarely within its terms.
Sherwood B. Korssjoen, Inc. v. Heiman, 52 Wn. App. 843, 852, 765 P.2d 301
(1988).
The first question is whether the 1997 subordination agreement
addendum was a credit agreement. The addendum was an agreement relating to
the subordination of priority positions with respect to each creditor's
various loans or extensions of credit to Mr. Olsen. It also sets forth a
schedule for payment to the various creditors. The subordination agreement
stated that KeyBank was making financial accommodations on behalf of Mr.
Olsen and the suppliers. It provided that the suppliers would not be paid
until after the Bank was repaid. It set forth how and when creditors would
be paid. The subordination agreement and addendum dealt with the suppliers
forbearing their rights to be repaid the debt owed to them by Mr. Olsen.
These characteristics meet the definition of a credit agreement in RCW
19.36.100.
The subordination agreement and its addendum also provide financial
accommodations. Chapter 19.36 RCW does not define the term "financial
accommodations." In the absence of a definition, statutory construction
requires that we give undefined words their common and ordinary meaning.
One Pac. Towers Homeowners' Ass'n v. HAL Real Estate Invs., Inc., 108 Wn.
App. 330, 340, 30 P.3d 504 (2001). To ascertain this meaning, we may
consult a dictionary. State v. Argueta, 107 Wn. App. 532, 536, 27 P.3d 242
(2001). "Financial" is defined as "relating to finance." Webster's Third
New International Dictionary of the English Language 851 (1993). "Finance"
is defined as the raising of funds or the providing of capital. Id.
"Accommodation" is defined as "something that is supplied for convenience
or to satisfy a need." Id. at 12.
The subordination agreement and addendum relate to KeyBank's supplying
funding or capital to Mr. Olsen in order to allow him to operate his
farming enterprises. This was a financial accommodation and met that
criterion for a credit agreement under RCW 19.36.100.
But Chapter 19.36 RCW applies only if notice was given as required by
RCW 19.36.130. Notice must be given to the parties to a credit agreement
on a separate document or incorporated into one of the documents relating
to the credit agreement. RCW 19.36.140.
The notice shall be in type that is bold face, capitalized, underlined, or
otherwise set out from surrounding written materials so it is conspicuous.
The notice shall state substantially the following:
Oral agreements or oral commitments to loan money, extend credit, or to
forbear from enforcing repayment of a debt are not enforceable under
Washington law.
RCW 19.36.140. If this notice is not given, RCW 19.36.100-.140 will not
apply. RCW 19.36.130.
Nothing in the subordination agreement or the addendum complies with
the notice requirement of RCW 19.36.140. Notice language was on Exhibit 2,
Mr. Olsen's handwritten draft budget to KeyBank, but that language was
stricken from the exhibit. Although KeyBank claims the parties admitted
reading the notice provision, the record does not support its claim.
KeyBank also argues that it made an offer of proof. The record shows only
that counsel for KeyBank informed the court that Mr. Lee or Mr. Shaw, if
asked, would testify they saw the notice language. Aside from counsel's
assertion, no one stated they saw the language.
KeyBank retyped the information contained in Exhibit 2 and sent it to the
suppliers. But this retyped document did not contain any notice. The
notice required by RCW 19.36.140 was not provided to the parties, so RCW
19.36.100-.140 do not apply. KeyBank was therefore not entitled to a jury
instruction on this statute.2
KeyBank also appeals the court's denial of its motions for a directed
verdict. It asserted that, as a matter of law, there was no agreement
regarding the meaning of two of the essential terms of the alleged oral
contract, that is, "projected budget production" and "shall review payoff."
Exhibit 20. KeyBank also argued the suppliers could not have justifiably
relied on Mr. Lancaster's oral representation that "shall review payoff"
meant "shall pay."
In reviewing a trial court's decision to deny a motion for a directed
verdict, we use the same standard as the trial court, accepting as true the
nonmoving party's evidence and all favorable inferences from it. Stiley v.
Block, 130 Wn.2d 486, 504, 925 P.2d 194 (1996); In re Guardianship of Way,
79 Wn. App. 184, 191, 901 P.2d 349 (1995), review denied, 128 Wn.2d 1014
(1996). A directed verdict is appropriate if the nonmoving party's
evidence is insufficient to support the verdict. Stiley,130 Wn.2d at 504-
05; Way, 79 Wn. App. at 191.
KeyBank contends the court should have granted its motion for directed
verdict on whether the parties agreed to the meaning of "projected budget
production" as used in the 1997 addendum. That addendum provided:
If Borrower attains 95% of projected budget production of his contracted
potatoes, Bank shall review payoff of the undersigned creditors by 12-1-97.
Exhibit 20. The Addendum does not define "projected budget production."
We must initially determine if this term is ambiguous. "A contract
provision is ambiguous when its terms are uncertain or when its terms are
capable of being understood as having more than one meaning." Shafer v.
Bd. of Trustees of Sandy Hook Yacht Club Estates, Inc., 76 Wn. App. 267,
275, 883 P.2d 1387 (1994), review denied, 127 Wn.2d 1003 (1995).
"Projected budget production" can indeed have several meanings. The term
is therefore ambiguous. We must then interpret the term.
"Interpretation is a determination of fact; it is the process that
ascertains the meaning of a term by examining objective manifestations of
the parties' intent." Denny's Restaurants, Inc. v. Sec. Union Title Ins.
Co., 71 Wn. App. 194, 201, 859 P.2d 619 (1993). If only one reasonable
meaning flows from the agreement when viewed in context, that meaning
necessarily reflects the parties' intent; but a question of fact is
presented if two or more meanings are reasonable. Martinez v. Kitsap Pub.
Servs., Inc., 94 Wn. App. 935, 943, 974 P.2d 1261 (1999).
Here, the parties argued about what was meant by "projected budget
production." There was testimony that the parties intended this term to
refer to the yield or gross weight of the potatoes. There was also
testimony that the parties intended otherwise. Because there was evidence
supporting the jury's verdict, denial of the motion for directed verdict
was proper.
KeyBank also claims the court erred by denying its motion for directed
verdict as to the meaning of "shall review payoff." It can be argued that
this term means only one thing: If the 95 percent benchmark were met,
KeyBank had to review paying off the suppliers. But reading this provision
with the remainder of the agreement and addendum suggests the term means
something else: If the 95 percent benchmark were met, KeyBank had to pay
off the suppliers. KeyBank was required to pay off the suppliers if
certain conditions were met. If KeyBank had unfettered discretion in
paying off the suppliers upon its review, there would be no need for the
provision of the addendum at issue. The term is ambiguous.
Because there is an ambiguity as to the meaning of the term, a question of
fact exists. Evidence was presented that "shall review" actually meant
"shall pay." On the other hand, other evidence was to the contrary.
Again, there was evidence to support the jury's verdict. The motion for
directed verdict was properly denied.
KeyBank further contends the court erred by denying its motion for directed
verdict with respect to Mr. Lancaster's authority to make an oral agreement
that "shall review" meant "shall pay." Mr. Lancaster was undisputedly
KeyBank's agent. See Newton Ins. Agency & Brokerage, Inc. v. Caldonian
Ins. Group, Inc., Wn. App. , 52 P.3d 30, 34 (2002). He had the
authority to negotiate with the suppliers as to the terms of the 1997
addendum. What he specifically told the suppliers goes to the meaning of
the term as understood by those who signed the contract. The meaning of
the term was a question of contract interpretation. Mr. Lancaster's
authority was not at issue. The court's denial of the motion for directed
verdict was proper.
Simplot's Cross Appeal
Shortly before trial, KeyBank filed a counterclaim against Simplot that
alleged it had converted money by issuing a check payable only to Mr.
Olsen. KeyBank alleged that Simplot knew KeyBank had a security interest
in Mr. Olsen's crops and should thus have named KeyBank as a co-payee on
the check.
Mr. Olsen had contracted with the food division of Simplot for many of the
potatoes he had grown. One of the contract terms provided that Mr. Olsen
would be paid a separate sum for hauling the potatoes to Simplot's
processing site. Simplot paid Mr. Olsen $160,607.44 for hauling the
potatoes. The check was made payable only to Mr. Olsen because it was
solely for the hauling of potatoes.
Claiming KeyBank had no security interest in Mr. Olsen's reimbursement for
hauling charges, Simplot moved for summary judgment. KeyBank filed a cross
motion for summary judgment. The court granted KeyBank's motion and
entered a judgment in its favor for $160,607.44. Simplot cross-appealed.
When reviewing an order of summary judgment, we engage in the same inquiry
as the trial court. Wash. State Bank v. Medalia Healthcare L.L.C., 96 Wn.
App. 547, 553, 984 P.2d 1041 (1999), review denied, 140 Wn.2d 1007 (2000).
An order of summary judgment is appropriate if there is no genuine issue of
any material fact and the moving party is entitled to judgment as a matter
of law. Id.
KeyBank claimed that Simplot converted money when it issued a check payable
only to Mr. Olsen for hauling charge reimbursement. KeyBank asserted that
the hauling reimbursement was subject to its security interest. Conversion
is the willful interference with any chattel, without lawful justification,
whereby any person entitled to it is deprived of possession of the chattel.
Id. at 554.
It is undisputed that KeyBank had a security interest in Mr. Olsen's potato
crop and its proceeds and any payment for the crop or proceeds had to be
made jointly to Mr. Olsen and KeyBank. There is also no dispute that
Simplot failed to name KeyBank as a joint payee on its check to Mr. Olsen
for hauling potatoes. The issue is whether the payment for hauling
potatoes constitutes crop proceeds that are subject to KeyBank's security
interest.
The term "proceeds" includes whatever is received upon "the sale, exchange,
collection or other disposition of collateral or proceeds." Former RCW
62A.9-306(1) (1995).3 This "expansive definition of `proceeds' indicates
that it is to be given a `flexible and broad content.'" Rainier Nat'l Bank
v. Bachmann, 111 Wn.2d 298, 302, 757 P.2d 979 (1988) (quoting In re Munger,
495 F.2d 511, 513 (9th Cir. 1974)).
Mr. Olsen's contract with Simplot required him to deliver the potatoes to
Simplot's designated site. The contract also provided for a separate
hauling allowance. This allowance was intended to be a reimbursement for
any expenses incurred by the grower to deliver the potatoes to Simplot's
processing site.
By the terms of the contract itself, Simplot's allowance for hauling does
not
constitute proceeds. The money it paid to Mr. Olsen was not for the sale,
exchange, or other disposition of the potato crop. It was a reimbursement
for expenses Mr. Olsen incurred to deliver the potatoes to Simplot. The
payment for hauling potatoes was not proceeds, even if given a flexible and
broad reading.
KeyBank relies on Bachmann and Cent. Wash. Bank v. Mendelson-Zeller, Inc.,
113 Wn.2d 346, 361-63, 779 P.2d 697 (1989), to support its position. Both
are distinguishable on their facts. Neither involves a contract like the
one here nor a reimbursement for a service. The court erred by granting
summary judgment to KeyBank.
All parties have requested attorney fees on appeal based on the
subordination agreement. When a contract specifically awards attorney fees
and costs to the prevailing party in an action to enforce the contract,
that party is entitled to reasonable attorney fees and costs. RCW
4.84.330. A contract that provides for an award of fees at trial also
supports an award of fees on appeal. Marine Enters., Inc. v. Sec. Pac.
Trading Corp., 50 Wn. App. 768, 774, 750 P.2d 1290, review denied, 111
Wn.2d 1013 (1988). Because Simplot and WFS have prevailed, they are
entitled to fees.
The judgments in favor of Simplot and WFS are affirmed. The summary
judgment for KeyBank is reversed. The requests for attorney fees on appeal
by Simplot and WFS are granted. KeyBank's request for fees on appeal is
denied.
Kato, A.C.J.
WE CONCUR:
Sweeney, J.
Schultheis, J.
1 Tri-River and KeyBank settled prior to this appeal being heard.
2 Simplot has filed a motion to strike portions of Keybank's reply brief on
the ground that it contains the first mention of the application of the
parol evidence rule to this case. A party may not raise an issue for the
first time in its reply brief. Cowiche Canyon Conservancy v. Bosley, 118
Wn.2d 801, 809, 828 P.2d 549 (1992). But KeyBank's opening brief does
contain argument relating to the parol evidence rule. Moreover, Simplot
argued in its opening brief that the oral representations were admissible
under this rule. KeyBank is entitled to respond. The motion to strike is
denied.
In any event, KeyBank argued the court erred by not instructing the
jury on the credit agreement statute of frauds. Whether the court properly
instructed the jury on, or applied, the parol evidence rule is not an issue
raised by the parties.
3 Now codified in RCW 62A.9A-102(64)(A), (B).
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