Agriliance, LLC v. Farmpro Services, Inc.

Marvin and Marlene Mitchell farmed in Iowa and Louisiana. In 2001, Agriliance, LLC (plaintiff) extended a loan for over $950,000 to the Mitchells for their 2001 crop-input expenses. The Mitchells signed a promissory note and security agreement giving Agriliance a security interest in all 2001 crops and the proceeds of the sale of any collateral. Before making the loan, Agriliance required Farmpro Services, Inc. (Farmpro) (defendant), which had made several other large loans to the Mitchells, some of which were still unpaid, to subordinate its interest in the Mitchells’ 2001 crops and proceeds. In early 2002, Agriliance came to understand that the Mitchells had sold their crops to Maurice Mitchell, Sr., Marvin’s father, and were unwilling to part with possession of a check for $520,808.24 from Maurice Mitchell, Sr., payable to Agriliance, the Mitchells, and another entity. The Mitchells went on to sell their 2001 grain crop to ABC Grain. Citizens Bank took those proceeds and made a cashier’s check payable to Farmpro and drawn on Citizen’s Bank for $468,546.86. The Mitchells took that check and a smaller cashier’s check from Maurice and delivered them to Farmpro, constituting full satisfaction of the Mitchells’ debt to Farmpro. Farmpro’s CEO called a Central Bank (defendant) officer, asking if the check was good. The Central Bank officer told him that Maurice had been meeting with the president of Citizens Bank for two days and that the check was good. Farmpro deposited the checks and released the mortgages on the Mitchells’ property. Agriliance then filed suit, alleging conversion by Farmpro and Central Bank and breach of contract by Farmpro. Agriliance asserted that it was entitled to the funds under the subordination agreement and that Farmpro’s retention of the funds constituted conversion. Farmpro denied actual knowledge of the source of the funds, and argued it was a holder in due course of the check and would thus take the check superior to even perfected security interests.