Minnesota

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

COURT OF APPEALS OF MINNESOTA

No. C8-95-476

1995.MN.22904

December 19, 1995

FIRST NATIONAL BANK IN MONTEVIDEO, RESPONDENT,

v.

THOMAS MAUS, ET AL., APPELLANTS.

Appeal from District Court, Chippewa County; Hon. Bruce W. Christopherson, Judge. Dist. Court File No. C491400.

For First National Bank in Montevideo, Respondent: Stephen L. Stennes, Prindle, Maland, Sellner, Stennes and Knutson, Chtd., Montevideo, Mn.

For Thomas Maus, et al., Appellants: Janice M. Nelson, David J. Torgelson, Nelson Oyen Torvik P.l.l.p., Montevideo, Mn.

Considered and decided by Peterson, Presiding Judge, Kalitowski, Judge, and Schumacher, Judge.

The opinion of the court was delivered by: Peterson

PETERSON, Judge

Appellant Warren Maus challenges the trial court's determination that respondent First National Bank in Montevideo had a perfected security interest in crops grown on his land, and that he converted those crops. Respondent contends the trial court erred in concluding that respondent is estopped from receiving the full value of the crops, and that no fraudulent transfer occurred between Warren Maus and his son, appellant Thomas Maus. We affirm in part, reverse in part, and remand.

FACTS

In April 1985, Thomas Maus signed a security agreement with respondent that gave respondent a security interest in Thomas Maus's present and future crops. Five years later, respondent timely filed a continuation statement keeping the security agreement in force for another five years. The security agreement specifically covered crops Thomas Maus grew on land he leased from his father. In 1991, Thomas Maus became insolvent and respondent refused to lend him any more money for his farming needs. Respondent did, however, lend Warren Maus $20,000, which it knew Warren Maus was going to lend to Thomas Maus to finance Thomas Maus's crops.

Warren Maus and Thomas Maus agreed in writing to vary the terms of their usual oral lease to permit Warren Maus to recoup the money he was lending Thomas Maus to pay for crop input costs. Under the written lease, Warren Maus was guaranteed to receive his usual one-third landlord share plus be repaid for all input costs. Respondent knew of the unusual terms of this lease when it gave Warren Maus the $20,000 loan.

The lease also provided that Thomas Maus would pay Warren Maus $10,600 that Thomas Maus owed Warren Maus from a previous debt. This money was never paid.

Proceeds from the crops grown on the land Thomas Maus rented from Warren Maus totalled $34,402.10. From this amount, Warren Maus received $26,190.05, and the remaining $8,212.05 went to respondent as a result of Thomas Maus's bankruptcy. At that point Thomas Maus still owed respondent more than $35,000.

Respondent commenced suit against Warren Maus and Thomas Maus in an effort to obtain the total proceeds received for crops grown on the rented land. Respondent claimed conversion and fraudulent conveyance. The trial court concluded that the lease between Thomas Maus and Warren Maus was void for vagueness, and thus Warren Maus had no interest in the crops. Warren Maus, therefore, converted the proceeds to the detriment of respondent, who had a perfected security interest. On the basis of equitable estoppel, Warren Maus was allowed to keep the amount he provided to pay for crop input costs.

DECISION

On appeal from a judgment, review is limited to whether the evidence sustains the findings of fact and conclusions of law. Tyroll v. Private Label Chems., Inc., 505 N.W.2d 54, 56 (Minn. 1993).

I.

Appellants contend that respondent does not have a perfected security interest in Thomas Maus's crops because respondent's financing statement did not state what years were covered by the security agreement. Respondent, however, filed its financing statement on April 25, 1985. At that time, the law did not require respondent to list the crop years covered by the security agreement. Minn. Stat. § 336.9-402(1)(1984). Nor was the continuation statement required to state the crop years covered. Minn. Stat. § 336.9-403(3) (Supp. 1989).

Appellants argue on the basis of public policy that the financing statement should have been amended to include the crop years. The purpose of the financing statement, however, is simply to put third parties on notice that the debtor's property is encumbered. World Wide Tracers, Inc. v. Metropolitan Protection Inc., 384 N.W.2d 442, 446 (Minn. 1986). Subsequent creditors are expected to do their own investigating to determine what collateral is already encumbered by a prior security interest. Production Credit Ass'n v. Bartos, 430 N.W.2d 238, 241 (Minn. App. 1988). A financing statement is adequate if it reasonably describes the type of collateral in a way that would induce a subsequent creditor to investigate further. Id.

Respondent's financing statement covered "all crops, whether annual or perennial * * * growing or to be grown on" certain parcels of Warren Maus's land. This language sufficiently describes the collateral securing respondent's loan to Thomas Maus. The trial court did not err in determining that respondent had a valid perfected security interest in Thomas Maus's crops.

II.

Appellants next argue that respondent's security interest does not have priority over Warren Maus's ownership interest in the crops, and therefore Warren Maus did not commit conversion by retaining the crop proceeds. Decades ago, a landowner and sharecropper shared title in the crops until the crops were divided. First Nat'l Bank v. St. Anthony & Dakota Elevator Co., 171 Minn. 461, 463-64, 214 N.W. 288, 289 (1927); Strangeway v. Eisenman, 68 Minn. 395, 398, 71 N.W. 617, 618 (1897). In 1986, however, the legislature enacted a statute giving a landlord who leases property for agricultural production a lien for unpaid rent on the crops produced. 1986 Minn. Laws ch. 398, art. 15, § 1 (codified as amended at Minn. Stat. § 514.960 (1990). The statute does not distinguish between cash rent leases and sharecropper leases. If a landlord perfects a lien by filing a lien statement within "30 days after the crops become growing crops," the lien has priority over all other liens. Minn. Stat. § 514.960, subds. 2, 4(a) (1990).

Respondent states in its complaint that Warren Maus filed a lien statement on June 24, 1991. While there was testimony regarding when the crops were planted, the trial court made no finding as to whether the lien statement was timely. If the lien statement was filed within the 30-day period, Warren Maus's lien on Thomas Maus's crops for unpaid rent has priority over respondent's lien on Thomas Maus's crops. The lien may cover some crops and not others, depending on when the crops became "growing crops."

If the lien was not timely filed for all or some of the crops, Warren Maus has an unperfected security interest in those crops. Minn. Stat. § 514.960, subd. 4(b)(1990). An unperfected security interest has a lower priority than respondent's perfected interest. Minn. Stat. § 336.9-312(5)(a)(1990). If Warren Maus had a lower priority, he had no right to retain the crops or their proceeds. Thus, Warren Maus converted crops or crop proceeds on which he did not file a timely lien, notwithstanding our decision on equitable estoppel discussed below.

The issue of whether all or some of Thomas Maus's crops are covered by Warren Maus's lien statement is remanded for such further proceedings as the trial court deems necessary. Because Warren Maus and respondent's respective rights to Thomas Maus's crops do not depend upon the lease, we do not determine whether the lease was valid.

III.

Respondent argues that the trial court erred in estopping respondent from receiving the full value of Thomas Maus's crops. There are three elements to equitable estoppel: (1) a promise or inducement was made; (2) a party reasonably relied upon the promise or inducement; and (3) that party will suffer harm if estoppel is not applied. Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d 913, 919 (Minn. 1990). The inducement need not have consisted of affirmative acts or words; silence or failure to act when there is a duty to speak or act will suffice. Alwes v. Hartford Life & Accident Ins. Co., 372 N.W.2d 376, 379 (Minn. App. 1985). Furthermore, knowledge of the facts can be imputed to the party being estopped. Id. Finally, the party to be estopped need not have acted with intent to deceive "if that person should have known it was natural and probable the plaintiff would rely on those actions." Id.

Respondent knew that its loan to Warren Maus was going to be used to finance Thomas Maus's input costs, and that under the lease Warren Maus was to be repaid out of Thomas Maus's crops, in which respondent had a security interest. By not restricting the loan in any way, respondent induced Warren Maus to accept the loan and use it for the purpose for which it was intended. Warren Maus relied on this inducement by financing Thomas Maus's input costs. Damages exist because, absent application of estoppel, Warren Maus provided the money to pay for Thomas Maus's crop input costs, but will receive nothing from the harvested crops. Under these circumstances, the trial court did not err in applying the doctrine of equitable estoppel.

IV.

Respondent argues that the lease provision requiring Thomas Maus to pay Warren Maus $10,600 that was due on a previous debt constituted a fraudulent transfer. Under the Uniform Fraudulent Transfer Act, a transfer is defined as

every mode * * * of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.

Minn. Stat. § 513.41(12) (1990). A monetary transfer is not made, until it

is so far perfected that a creditor on a simple contract cannot acquire a judicial lien otherwise than under [this act] that is superior to the interest of the transferee.

Minn. Stat. § 513.46(1)(ii) (1990).

Trial testimony indicates that Thomas Maus never paid Warren Maus. As discussed above, it was possible for Warren Maus to obtain a landlord's lien that has priority over respondent's security interest, but that lien could only be for unpaid rent. Even if we assume that the lease is valid, the provision requiring Thomas Maus to pay Warren Maus $10,600 does not require this amount to be paid as rent. It requires that the payment be made from Thomas Maus's share of the crops. Because this attempt to obtain payment for an existing debt did not create a lien with priority over respondent's security interest, respondent's security interest remained superior to Warren Maus's interest and the trial court did not err in determining that a fraudulent transfer did not occur.

Affirmed in part, reversed in part, and remanded.

Randolph W. Peterson

December 13, 1995

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