{ "id": 716949, "name": "VALLEY FEDERAL SAVINGS BANK, f/k/a Valley Federal Savings and Loan Association, a federally chartered stock savings bank, Plaintiff, v. Vernon O. STAHL and Marcia Stahl, his wife, d/b/a V & M Stahl Dairy, et al., Defendants; ASSOCIATED MILK PRODUCERS, INC., Cross-Claimant and Cross-Defendant-Appellant, v. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Cross-Claimant and Cross-Defendant-Appellee", "name_abbreviation": "Valley Federal Savings Bank v. Stahl", "decision_date": "1990-06-18", "docket_number": "No. 18585", "first_page": "169", "last_page": "173", "citations": [ { "type": "official", "cite": "110 N.M. 169" }, { "type": "parallel", "cite": "793 P.2d 851" } ], "court": { "name_abbreviation": "N.M.", "id": 8835, "name": "Supreme Court of New Mexico" }, "jurisdiction": { "id": 52, "name_long": "New Mexico", "name": "N.M." }, "cites_to": [ { "cite": "627 P.2d 432", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10441630 ], "pin_cites": [ { "page": "436" } ], "opinion_index": 0, "case_paths": [ "/p2d/627/0432-01" ] }, { "cite": "92 N.M. 215", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1557031 ], "weight": 2, "year": 1978, "pin_cites": [ { "page": "217" }, { "page": "1098" } ], "opinion_index": 0, "case_paths": [ "/nm/92/0215-01" ] }, { "cite": "100 N.M. 708", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1588615 ], "weight": 4, "pin_cites": [ { "page": "712" }, { "page": "1011" }, { "page": "712" }, { "page": "1011" } ], "opinion_index": 0, "case_paths": [ "/nm/100/0708-01" ] }, { "cite": "3 B.R. 445", "category": "reporters:specialty", "reporter": "B.R.", "case_ids": [ 6539257 ], "weight": 3, "pin_cites": [ { "page": "448" }, { "page": "448" }, { "page": "448" } ], "opinion_index": 0, "case_paths": [ "/br/3/0445-01" ] }, { "cite": "68 B.R. 910", "category": "reporters:specialty", "reporter": "B.R.", "case_ids": [ 6120008 ], "weight": 3, "pin_cites": [ { "page": "917" }, { "page": "917-18" }, { "page": "917-18" } ], "opinion_index": 0, "case_paths": [ "/br/68/0910-01" ] }, { "cite": "40 B.R. 493", "category": "reporters:specialty", "reporter": "B.R.", "case_ids": [ 6554131 ], "weight": 6, "pin_cites": [ { "page": "495" }, { "page": "495" }, { "page": "495" }, { "page": "494" }, { "page": "495", "parenthetical": "because capital retains were subject to satisfying the debts of the cooperative, no right to payment existed" } ], "opinion_index": 0, "case_paths": [ "/br/40/0493-01" ] }, { "cite": "7 U.S.C. \u00a7\u00a7 291", "category": "laws:leg_statute", "reporter": "U.S.C.", "opinion_index": 0 } ], "analysis": { "cardinality": 603, "char_count": 13438, "ocr_confidence": 0.812, "pagerank": { "raw": 1.3550422300370003e-07, "percentile": 0.6343504968822506 }, "sha256": "de88973db64f18fd4ff73274d14f6a3c054410d3ca576da278fa149622974f7a", "simhash": "1:0d7aa803bb362db6", "word_count": 2150 }, "last_updated": "2023-07-14T22:33:30.469339+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "SOSA, C.J., and MONTGOMERY, J., concur." ], "parties": [ "VALLEY FEDERAL SAVINGS BANK, f/k/a Valley Federal Savings and Loan Association, a federally chartered stock savings bank, Plaintiff, v. Vernon O. STAHL and Marcia Stahl, his wife, d/b/a V & M Stahl Dairy, et al., Defendants. ASSOCIATED MILK PRODUCERS, INC., Cross-Claimant and Cross-Defendant-Appellant, v. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Cross-Claimant and Cross-Defendant-Appellee." ], "opinions": [ { "text": "OPINION\nRANSOM, Justice.\nThis action was initiated when Valley Federal Savings Bank sued Vernon and Marcia Stahl, doing business as V & M Stahl Dairy, to collect money due and to foreclose a real estate mortgage and personal property liens. On this appeal we consider only the issue of priority remaining between two cross-claiming subordinate lienholders, appellant Associated Milk Producers and appellee Bank of America. The crossclaims were presented to the district court upon a stipulation of facts and issues.\nAssociated Milk Producers is a cooperative marketing association of dairy farmers organized under and governed by the Cap-per-Volstead Act. See 7 U.S.C. \u00a7\u00a7 291, 292 (1988). The Stahl Dairy was a member producer of the Association. Under its bylaws, the Association retained, as a deduction from the proceeds of each month\u2019s sale of the Stahls\u2019 raw milk, a capital contribution (\u201ccapital retains\u201d) that was evidenced by an annual per unit capital retain certificate. During the six to seven years that the Stahls were members of the Association, a total of $134,276.89 was credited to and accumulated in the Stahls\u2019 capital retains account. By reason of the Stahls\u2019 purchase of dairy equipment from the Association in July of 1984, the Stahls owed the Association the sum of $71,124.72, plus interest, costs, and attorney\u2019s fees, less a credit of $7,500 for a payment received from Valley Federal Savings.\nThe capital retain certificates and the capital contributions represented thereby were non-negotiable and non-transferable, and could be redeemed only in accordance with the terms and conditions contained in the bylaws of Associated Milk Producers, when and as determined by its board of directors. The bylaws reserved to the Association a first lien upon a member\u2019s capital retains to the extent of any claim the Association had against the member. To further evidence the Association\u2019s security interest in the Stahls\u2019 dairy equipment, the Stahls signed security agreements. Financing statements were filed with the county clerk on August 20, 1984. The description of collateral included: \u201cAll equities issued or to be issued by [Associated Milk Producers].\u201d This latter description is claimed by the Association to describe the Stahls' capital retains. The bank does not dispute such claim. The Stahls\u2019 related security agreements with the Association contain the same quoted language as that in the financing statements.\nIncident to loan agreements between the Stahls and Bank of America, the Stahls granted to the bank a security interest in collateral later described in the financing statement as: \u201call accounts and contract rights arising from the sale or other disposition of dairy products.\u201d The financing statement was filed with the county clerk on December 7, 1983. Associated Milk Producers appeals the court\u2019s grant of priority in the capital retains to Bank of America, which the court granted because the latter\u2019s security interest became perfected on December 7, 1983, whereas the security interest of the Association was not perfected until August 20, 1984. Relying upon Article 9 of the Uniform Commercial Code, NMSA 1978, Sections 55-1-101 to 55-12-108 (Orig.Pamp., Repl.Pamp.1987, & Cum.Supp.1989), the bank\u2019s position has been that the creditor who perfects its security interest first has priority in the collateral, Section 55-9-312(5)(a), and the date the financing statement is filed establishes the date of perfection no matter when the security agreement was signed. Section 55-9-303.\nThe Association claims the trial court incorrectly concluded that the Stahls had rights in and to their capital retains that could be made subject to a lien (i.e., it argues capital retains are not property of the Stahls in which they could grant a security interest), and it alternatively claims that the lien reserved under its bylaws and evidenced by its financing statements and related security agreements are first in priority because \u201caccounts and contract rights\u201d as used in the bank\u2019s financing statement of December 7, 1983, did not adequately describe the capital retains. The capital retains account, argues the Association, is a \u201cgeneral intangible\u201d and is not an \u201caccount\u201d or \u201ccontract right\u201d under the express provisions of the UCC and other applicable authorities.\nThe Association also claims it has a right of set-off as in when its board of directors may determine and approve redemption of the Stahls\u2019 account. The basic premise of this claim is the Association\u2019s argument that, whereas Stahl had no right in the capital retains upon which to grant a lien to the bank, the Association\u2019s lien was reserved by its bylaws independent of the UCC. We see this claim as subsumed in and resolved by our consideration of the questions of attachment, perfection, and priority of the respective liens reserved, whether under the bylaws of the Association or other security agreements.\nThe property interest in capital retains. A member\u2019s right to payment of the capital retains is governed by the bylaws of the Association. In re Shiflett, 40 B.R. 493, 495 (Bankr.W.D.Va.1984). The bylaws provide that Associated Milk Producers \u201cmay retain from the proceeds received with respect to the sale of products marketed for each patron an amount which is fixed without reference to net earnings\u201d and which \u201cshall be considered a capital contribution.\u201d The member must treat as income, in the taxable year in which he receives the capital retain certificate, the amount of capital retains allocated to him. Additionally, the capital retains \u201cshall be subordinated to the claims of [the Association\u2019s] creditors and shall not be subject to realization or anticipation.\u201d The capital retains may also be used to offset net operating losses .that the Association may incur. The board of directors may redeem capital retain certificates if it determines that the redemption will not impair the financial condition of the Association. In the event of the dissolution of the Association, all money and assets available for distribution \u201cshall be ratably apportioned and paid to members * * * on the basis of the balances remaining in the patronage equity and capital accounts * *\nIn short, then, the capital retains are income to the member, in the form of an equity interest. They are subject to the claims of the creditors of Associated Milk Producers, and to being used to offset net losses of the Association. The redemption of certificates is at the discretion of the board of directors.\nA capital retains account virtually identical to that in the present case was described as a general intangible in Shiflett, 40 B.R. at 495. A general intangible is \u201cany personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments and money.\u201d Section 55-9-106. The Shiflett court decided that the capital retains were a general intangible and not an account because no \u201cright to payment\u201d existed since the retains were subject to use in satisfying the debts- of the Association. Id. at 495. The court said the retains were akin to a capital stock interest in a corporation. Id. Other courts also have classified capital retains (and patronage credits, which are similar) as general intangibles. In re Axvig, 68 B.R. 910, 917 (Bankr.D.N.D.1987); In re Cosner, 3 B.R. 445, 448 (Bankr.D.Ore.1980). We agree.\nPerfecting a security interest in capital retains. The attachment, perfection, and priority of a security interest in capital retains, therefore, are governed by Article 9 of the UCC, which specifically applies to general intangibles. See \u00a7 55-9-103(3); see also In re Axvig, 68 B.R. at 917-18; In re Shiflett, 40 B.R. at 494; In re Cosner, 3 B.R. at 448. For a security interest to be enforceable against the debtor, the security interest must first attach, and then be perfected. For a security interest to attach, the debtor must have rights in the collateral, Section 55-9-203(1)(c); and, upon the authority discussed above, we hold that the capital retains are property in which a debtor can grant a security interest. See, e.g., In re Axvig, 68 B.R. at 917-18; In re Cosner, 3 B.R. at 448.\nThe perfection of any such security interest in general intangibles is dependent upon an adequate filing. Sections 55-9-302(1), -305. Associated Milk Producers claims that the description contained in the financing statement filed by Bank of America on December 7, 1983, did not adequately describe the capital retains. The test for the adequacy of a description is whether it does the job it was assigned to do. State v. Woodward, 100 N.M. 708, 712, 675 P.2d 1007, 1011 (Ct.App.1983). The purpose of a financing statement is to notify third parties of the possibility of prior encumbrances and alert them to the need for investigation. Mogul Enterprises, Inc. v. Commercial Credit, 92 N.M. 215, 217, 585 P.2d 1096, 1098 (1978); accord Consolidated Equipment Sales, Inc. v. First Bank & Trust Co., 627 P.2d 432, 436 (Okla.1981) (purpose of financing statement is to place inquiring party on guard to further inquiry); see also J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code p. 961 (2d ed.1980) (purpose of financing statement is to put third parties on inquiry notice of existence of security agreement).\nWhether the description of the collateral is adequate is a question of law, and not of fact. State v. Woodward, 100 N.M. at 712, 675 P.2d at 1011. The issue on this appeal, therefore, comes down to whether as a matter of law the description \u201call accounts and contract rights arising from the sale or other disposition of * * * dairy products\u201d is sufficient to put third parties on inquiry notice of a prior encumbrance on the capital retains. Bank of America claims that the phrase \u201ccontract rights\u201d describes the capital retains. It does not seek to include the retains as an \u201caccount,\u201d which by definition requires a right to payment. Section 55-9-106.\nThe term \u201ccontract right\u201d is no longer used in Section 55-9-106, but was previously defined in that section as \u201cany right to payment not yet earned by performance and not evidenced by an instrument or chattel paper.\u201d NMSA 1953, Repl.Vol. 8 Part 1, \u00a7 50A-9-106 (1962). Contract rights for goods and services fall under the amended definition of accounts that currently includes any right to payment, whether or not it has been earned by performance. As discussed above, despite their own performance, the Stahls had no right to payment of the money in their capital retains account. See In re Shiflett, 40 B.R. at 495 (because capital retains were subject to satisfying the debts of the cooperative, no right to payment existed). Because no right to payment existed, capital retains would fall outside the definition of contract right just as they fall outside the definition of account.\nThe question of law before us, however, is whether the description in the financing statement was sufficient to put third parties on inquiry notice of a prior encumbrance on capital retains. For this purpose, we eschew technical distinctions. A description of apples would not, of course, put a third party on inquiry notice about a prior encumbrance on oranges. At the same time, the description \u201ccontract rights arising from the sale or other disposition of dairy products\u201d was sufficient to put a third party on inquiry notice about a prior encumbrance on a property interest in capital retains arising from the sale of dairy products. Under the bylaws of the cooperative marketing association of which the debtor dairyman was a member producer, the debtor had a contractual right (in a non-technical sense) to the capital retains held by the coop, and the bank\u2019s financing statement adequately gave notice to the public that the bank claimed an interest in this right. The district court did not err in finding that Bank of America had -a perfected security interest in the Stahls\u2019 capital retains.\nThe judgment of the district court is affirmed.\nIT IS SO ORDERED.\nSOSA, C.J., and MONTGOMERY, J., concur.\n. The relevant bylaw states: \"The Association shall have a first lien upon all such amounts to the extent of any claim the Association has against the respective member-patron or holder of such account.\" Associated Milk Producers claims this language creates a contractual lien, not controlled by the Uniform Commercial Code rules for the creation of liens. Associated Milk Producers cites no authority for this proposition.\n. An account is defined as \"any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance.\u201d NMSA 1978, \u00a7 55-9-106 (Repl.Pamp.1987). It is also defined in the official comment to Section 55-9-106 as \u201cordinary commercial accounts receivable.\u201d", "type": "majority", "author": "RANSOM, Justice." } ], "attorneys": [ "R. Russell Rager, Albuquerque, for appellant.", "Sheehan, Sheehan & Stelzner, Cindy S. Murray, Albuquerque, for appellee." ], "corrections": "", "head_matter": "793 P.2d 851\nVALLEY FEDERAL SAVINGS BANK, f/k/a Valley Federal Savings and Loan Association, a federally chartered stock savings bank, Plaintiff, v. Vernon O. STAHL and Marcia Stahl, his wife, d/b/a V & M Stahl Dairy, et al., Defendants. ASSOCIATED MILK PRODUCERS, INC., Cross-Claimant and Cross-Defendant-Appellant, v. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Cross-Claimant and Cross-Defendant-Appellee.\nNo. 18585.\nSupreme Court of New Mexico.\nJune 18, 1990.\nR. Russell Rager, Albuquerque, for appellant.\nSheehan, Sheehan & Stelzner, Cindy S. Murray, Albuquerque, for appellee." }, "file_name": "0169-01", "first_page_order": 197, "last_page_order": 201 }