Agricredit Acceptance, LLC v. Hendrix

82 F. Supp. 2d 1379 (2000)

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Nature of the Case

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Facts

Hendrix's (D) 1997 cotton crop was financed by a loan from P. The loan was secured by the cotton crop. P's security interest was properly perfected by filing the Security Agreement in the real estate records of the counties wherein the cotton was grown and with the County clerks' offices. Sea Island Cotton Trading was designated as a selling agent through which Hendrix (D) would sell the cotton crop, and P notified Sea Island of its security interest in accordance with the provisions of the Food Security Act (FSA), 7 U.S.C. § 1631. The crop was ginned, baled, and stored in various warehouses, including Collins Gin & Warehouse, Candler Gin & Warehouse, Goldkist, Inc., Growers Gin & Warehouse, Inc., and Bulloch Gin. The warehouses issued electronic warehouse receipts (EWRs) for the cotton in the central filing system of the EWR provider to which they were subscribed. These receipts were eventually placed in the name of Sea Island. The defendant merchants buy cotton stored in warehouses and resell it to textile mills. They execute these transactions electronically. They receive a recap sheet from a prospective seller, which describes a number of bales being offered for sale by grade, quantity, and warehouse in which the bales are stored. The merchant then telephones the seller and submits an offer involving either a fixed price or an 'on call' price which is based on the price of cotton futures on the New York market. Once an agreement is reached the seller transfers the EWRs for the bales sold into the name of the merchant, and the merchant receives a confirmation of this transaction from the EWR provider. The sale is completed when the merchant pays the seller for the cotton represented by the EWRs. The merchants paid Sea Island and the EWRs representing the bales were transferred by Sea Island into the names of the purchasing merchants. Sea Island never paid P or Hendrix (D) for the cotton in violation of its obligations under the FSA notice. P sued Ds seeking foreclosure of its security interest, a writ of possession against anyone in possession of the cotton, and a finding of conversion and an award of damages against the cotton merchants, among other things. The merchants claimed that the EWRs were duly negotiated to them by Sea Island and because P entrusted the cotton to Hendrix (D) with apparent authority to sell it, and thus the cotton is no longer subject to P's security interest. Ds eventually moved for summary judgment.