Summary of a Recent
Judicial Development in
Secured Transactions

Hauling Allowance Constitutes "Proceeds of the Crop"

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Western Farm Service, Inc. v. Olsen, 90 P.3d 1053 (Wash. 2004), the Supreme Court of Washington held that a hauling allowance provided for in a contract for the sale of farm products constituted proceeds of the crop and as such was subject to a creditor's perfected security interest.

Background

Key Bank financed Olsen's potato and onion farming operation and held a perfected security interest in "all general crops and proceeds thereof" and also in "instruments arising out of sales or other disposition of crops." Id. at 1054. Key Bank notified Simplot, the company buying Olsen's potatoes, of its security interest and informed them that any payment was to be paid jointly to Olsen and the Bank. Id. One of the contracts between Simplot and Olsen provided that Olsen was to deliver potatoes to a certain location at his own expense, but he would be given a hauling allowance along with the normal payment. Id. Simplot wrote the check for the hauling allowance to Olsen alone, and in a subsequent lawsuit Key Bank filed a counterclaim against Simplot for conversion. Id. The trial court granted summary judgment to Key Bank, and the appellate court reversed and held that the hauling allowance did not constitute crop proceeds, and the Bank appealed. Id.

Arguments

Key Bank argued that Simplot should have designated it as a copayee because its security interest covered the hauling allowance as crop proceeds. Id.

Simplot argued that because there was a separate contract section providing payment for hauling potatoes, the payment did not constitute proceeds of the crop. Id. at 1056.

Analysis and Holdings

The issue before the court was whether the hauling allowance constituted crop proceeds subject to Key Bank's security interest. Id. at 1054. The legislature had defined proceeds broadly, as "whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds." Id. The court reasoned that the broad definition was intended to ensure that the term would be all-encompassing. Id. The court concluded that because a hauling allowance is a payment received upon the sale of crops and is an integral part of the disposition of the crops, the payment made by Simplot constituted proceeds of the potato crops subject to Key Bank's security interest. Id. at 1056.

The case was decided on May 27, 2004.