Bank of Stockton v. Diamond Walnut Growers, Inc.

In 1981, The Bank of Stockton (Bank) (plaintiff) issued a loan to a walnut-growing business called Bella-Farms Partnership (Bella-Farms). The Bank did not secure the loan. Bella-Farms was a member of an agricultural marketing association called Diamond Walnut Growers, Inc. (Diamond) (defendant). The members, including Bella-Farms, would give walnuts to Diamond to sell and then would receive proceeds called “member proceeds.” After the Bank’s loan, Diamond loaned Bella-Farms money and took a security interest in Bella-Farms’s 1983 walnut-crop member proceeds. Diamond filed a financing statement. Thereafter, Bella-Farms could not timely repay the Bank. The Bank agreed to renegotiate the loan and, at that time, took a security interest in Bella-Farms’s 1983 walnut crop and its proceeds. The Bank filed the requisite financing statements. Before Bella-Farms harvested the 1983 walnut crop, the Bank and Diamond learned of each other’s interest. Diamond and the Bank agreed that the crop could be delivered to Diamond and marketed. The agreement stated that each party reserved all rights and claims with respect to the 1983 crop and its proceeds. However, the agreement also stated that the transfer of the physical possession of the crop to Diamond will not change the parties’ rights and duties. When Diamond received the crop, it sold the walnuts and created member proceeds. The Bank sued seeking a determination of the parties’ competing claims to the member proceeds. The trial court ruled for the Bank.