Ninth District Production Credit Ass'n v. Ed Duggan, Inc.

Justice VOLLACK

dissenting:

The majority states that the central issue in this case is “[w]hether a creditor that holds a perfected security interest in collateral can be held liable to an unsecured creditor based on a theory of unjust enrichment for benefits that enhance the value of the collateral,” and then observes that “[s]uch a dispute involves tension between the priority system established in Article 9 of the Uniform Commercial Code (U.C.C.) and equitable principles of unjust enrichment.” Maj. op. at 793-794. I disagree because neither this issue, nor such a tension, is raised by the facts in this case. PCA’s status as a secured creditor is not relevant to whether an express or implied contract exists between Duggan and PCA. Duggan is not claiming a priority or interest in collateral or proceeds held by PCA under its perfected security agreement with Norman. Instead, Duggan is claiming that, by its conduct, PCA has an obligation under an implied contract theory to pay Duggan the reasonable value of the corn that Duggan delivered to Norman.

I.

The cases cited by the majority, which have addressed the relationship between Article 9 of the U.C.C. and unjust enrichment, do not in my opinion apply to the *802facts in this case because those cases involved disputes over specific collateral or identified proceeds in which one of the parties had a security interest. See Producers Cotton Oil Co. v. Amstar Corp., 197 Cal. App.3d 638, . 242 Cal.Rptr. 914 (1988); Borg-Warner Acceptance Corp. v. Valentine Assoc. Ltd., 192 Ga.App. 123, 384 S.E.2d 223 (1989). The present case does not involve a dispute over collateral or proceeds but, as stated above, is a dispute over whether PCA has an obligation to pay Dug-gan under an implied contract theory.

In Producers Cotton Oil, which the majority finds analogous to the facts in this case, Producers had a perfected security interest in the crops and proceeds of Bor-boa’s farm operation. Borboa contracted to sell his crop to Amstar. When Producers was informed of the crop sale, they sent Amstar an assignment of crop proceeds. Amstar agreed to assign the proceeds to Producers, subject to deduction for the indebtedness of Borboa. Producers Cotton Oil, 242 Cal.Rptr. at 916.

In 1981, Amstar mistakenly paid the harvesting expenses for Borboa’s crop. The 1981 crop yielded proceeds of $231,108.76. Amstar assigned $166,019.38 to Producers after deducting harvesting and other expenses. Producers demanded payment for these deductions. After Amstar refused to pay Producers, Producers brought an action against Amstar, claiming the deductions violated its security interest and constituted conversion of the proceeds. Id. at 917.

The dispute in Producers Cotton Oil concerned which party had the better right to the “proceeds” that were deducted by Amstar. Id. The court concluded that Producers had a valid security interest in the proceeds and that Amstar had a valid claim to the proceeds based on unjust enrichment. The court then had to determine which claim prevailed over the other. The court held that the unjust enrichment claim prevailed, but limited its decision to the particular facts of the case.1 Id. at 927.

The distinction between Producers Cotton Oil and the present case is apparent. In Producers Cotton Oil, the parties were disputing their rights to proceeds in which Producers had a secured interest, specifically, the amount that Amstar deducted from the crop proceeds.2 In the present case, no such dispute exists because Dug-gan’s implied contract claim does not assert a right to any secured interest held by PCA under the security agreement with Norman.3

In his complaint, Duggan did not assert any claim for relief based on a priority or interest in collateral or proceeds held by PCA. Moreover, Duggan did not contest PCA’s position as a secured creditor in Norman’s assets. Instead, Duggan based his claim for relief on PCA’s conduct. Specifically, Duggan asserts that the PCA/Norman relationship was not an ordinary lender/debtor relationship because PCA had control of the feedlot’s activities, including the ordering and delivery of corn.

In this case, without some dispute over a secured item, the fact that PCA was a secured creditor is not relevant to a determination of whether PCA is obligated to pay Duggan for the com based on a theory of implied contract to avoid unjust enrichment.4 A secured creditor, like anyone *803else, can enter into an implied (or express) contract that creates an obligation to pay. As PCA stated in its closing argument, the issue in this case is “whether the Production Credit Association [PCA] somehow stepped in and made an agreement, took on an obligation that it never intended to take on.” (Emphasis added.)

II.

Duggan’s claim for relief is one of contract. Thus, as the trial court instructed, contract law controls the disposition of the issues in this case, and the Uniform Commercial Code is not applicable. The trial court gave instruction No. 23,5 which in my opinion correctly stated the law applicable to the evidence and Duggan’s asserted claim of implied contract. The case was submitted to the jury on special interrogatories as to express and implied contract.6

In order to recover on a theory of implied contract to avoid unjust enrichment, Dug-gan had to prove, as provided in instruction No. 23, (1) that a benefit was conferred on the defendant by the plaintiff, (2) that the benefit was appreciated by the defendant, and (3) that the benefit was accepted by the defendant under such circumstances that it would be inequitable for it to be retained without payment of its value. Cablevision of Breckenridge, Inc. v. Tannhauser Condominium Assoc., 649 P.2d 1093, 1096-97 (Colo.1982). In the present case, the evidence clearly satisfies all three of these elements.

The jury could reasonably conclude that Duggan conferred a benefit on PCA and that PCA appreciated the benefit. PCA was informed each time that corn was ordered and never objected, and for a period of time specifically approved each order. A PCA representative was present at the feedlot on several occasions when corn was delivered. A PCA representative actively reviewed records that evidenced the amount of corn being delivered to Norman. PCA directed that the feedlot remain open in anticipation of a proposed sale.

The jury’s verdict that it would be inequitable to retain the benefit without payment is supported by Norman’s showing Duggan the September 17 memorandum that indicated PCA’s intent to permit Norman to purchase dry corn. Also, PCA was the source of all operational funds for Norman’s feedlot operations, controlled payments of all its obligations, and received the proceeds of all its accounts receivable. Norman was not permitted by PCA to retain or expend funds collected by the feedlot. Duggan knew that payment for corn deliveries to Norman historically came from advances made by PCA to Norman.

*804III.

The majority’s new standard and requirement that an additional instruction be given to inform the jury of the interrelation of the doctrine of unjust enrichment and Article 9 of the U.C.C. is misplaced.7 The instructions given by the trial court were proper and do not need to be supplemented by additional instructions to provide the jury with an understanding of the law of implied contract. The jury, in applying the evidence to the instructions of law, concluded that Duggan was entitled to damages.

The fact that PCA is a secured creditor would only be relevant if Duggan were claiming that PCA's priority was junior to his claim of an implied contract to avoid unjust enrichment. In such a case, the court would have to decide whether PCA’s security interest or Duggan’s contract claim controls. The majority does not identify the security, if any, in which Duggan is claiming an interest. Without such a dispute, Article 9 of the U.C.C. is not applicable. I agree with the trial court and the court of appeals that the instructions should not include any reference to PCA’s U.C.C. interest. I would affirm the jury verdict.

I am authorized to say that Chief Justice ROVIRA and Justice ERICKSON join in this dissent.

. Notably, the court did not establish a standard for all future cases.

. The majority also cites Borg-Warner Acceptance Corp. v. Valentine Associates Ltd. Corp., 192 Ga.App. 123, 384 S.E.2d 223 (1989), in which a court allowed a claim for unjust enrichment to prevail over a party’s security interest. In Borg-Wamer, the parties were disputing who had the better right to a mobile home and the proceeds from the sale of the mobile home. Borg-Wamer had a security interest in both the mobile home and the proceeds.

. While Duggan did not claim unjust enrichment to recover specific proceeds, as Amstar did in Producers Cotton Oil, he did discuss PCA’s collection of the monies placed in escrow by Streit as an example of a benefit that PCA received from Duggan’s corn.

. As the trial court stated:

The Court is not giving the instructions as to the U.C.C. aspects. That might be appropriate if the case was tried under another type of theory. If the plaintiff was attempting to get back its corn, the question would then be pursuant to law, what lien or possession *803rights, rather, pursuant to the Uniform Commercial Code might the defendant have, so the security interest is not applicable to the expressed or implied contract issues shown by the evidence of this case.

. This instruction was based on pattern jury instruction CJI-Civ.3d 30:31.

. These special interrogatories, with the jury’s responses, were as follows:

1. Was there an "express contract” to pay for corn delivered to Norman Land and Livestock company between Plaintiff, Ed Duggan, Inc. and Defendant, Ninth District Production Credit Association? (yes or no)
ANSWER NO. 1: No
2. Did the Plaintiff, Ed Duggan, Inc., incur damages as a result of the express contract which you have found existed between Plaintiff, Ed Duggan, Inc., and Defendant, Ninth District Production Credit Association? (yes or no)
ANSWER NO. 2:
3. State the amount of damages, if any, incurred by the Plaintiff, Ed Duggan, Inc., due to its express contract with the Defendant, Ninth District Production Credit Association?
ANSWER NO. 3: $_
4. Was there an "implied contract” to pay for corn delivered to Norman Land and Livestock Company between Plaintiff, Ed Duggan, Inc., and Defendant, Ninth District Production Credit Association? (yes or no)
ANSWER NO. 4: Yes
5. Did Plaintiff, Ed Duggan, Inc., incur damages as a result of the implied contract which you have found existed between Plaintiff, Ed Duggan, Inc., and Defendant, Ninth District Production Credit Association? (yes or no)
ANSWER NO. 5: Yes
6. State the amount of damages, if any, incurred by the Plaintiff, Ed Duggan, Inc., due to its implied contract with Defendant, Ninth District Production Credit Association?
ANSWER NO. 6: $101,586.38

. Additionally, the majority’s decision sets a precedent that changes future equity claims brought under § 4-1-103, 2 C.R.S. (1973). The majority is essentially adding a requirement to § 4-1-103 that does not exist in the statute. The statute does not require a plaintiff to meet a special standard before asserting one of these claims.