Lewiston State Bank v. Greenline Equipment, LLC

In 1998 Pali Brothers Farms secured financing from New Holland Credit Company (New Holland) for the purchase of two combines, which resulted in a purchase-money security interest (PMSI). New Holland perfected its PMSI in the combines by filing a financing statement in March 1998. In 2000 and 2001, Pali Brothers Farms secured two loans from Lewiston State Bank (the bank) (plaintiff) and granted the bank security interests in all its current and future equipment, including farm equipment. The bank perfected these security interests by filing financing statements. Later, Pali Brothers Farms was unable to make its loan payments to New Holland. In January 2002, Greenline Equipment, LLC (Greenline) (defendant) stepped in and paid the balance remaining on Pali Brothers Farms’ loan with New Holland. New Holland provided Greenline with a lien release for both combines. Then, in February 2002, Eli and Bart Pali individually purchased the two combines from Greenline with financing from John Deere & Company. John Deere perfected its security interest in the two combines by filing a financing statement in March 2002. Greenline regarded these transactions as a refinance of Pali Brothers Farms’ loan. Unfortunately, Pali Brothers Farms later defaulted on the loan from the bank, and Eli and Bart Pali defaulted on their loan from John Deere. John Deere confiscated the combines, but when the bank sent a demand letter insisting that the bank had a priority interest, John Deere assigned Greenline its security interest. Greenline then sold the equipment and did not alert the bank to the sale. The bank filed suit, seeking disgorgement via return of the collateral or via the proceeds from the sale. Both parties moved for summary judgment. The trial court ruled that the bank had priority. Greenline appealed, asserting that Greenline had retained New Holland’s original PMSI upon refinance.