This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1998).




Midwest Agriculture Warehouse Co.,

a Division of United Agricultural Products MN-IA,



Farmers and Merchants State Bank,


Sunrich, Inc.,


Northwood Co-op Elevator,


Filed January 26, 1999


Randall, Judge

Blue Earth County District Court

File Nos. C7-97-1002, C6-97-1007

Silas L. Danielson, Blethen, Gage & Krause, PLLP, 127 South Second Street, P.O. Box 3049, Mankato, MN 56001 (for appellant)

Noel L. Phifer, Gislason, Dosland, Hunter & Malecki, P.L.L.P., 2700 South Broadway, P.O. Box 458, New Ulm, MN 56073-0458 (for respondent Farmers and Merchants State Bank)

Brad J. Miller, Felhaber, Larson, Fenlon & Vogt, P.A., 30 East Seventh Street, 2100 Minnesota World Trade Center, St. Paul, MN 55101 (for respondent Sunrich, Inc.)

William S. Partridge, Farrish, Johnson & Maschka, 201 North Broad Street, P.O. Box 550, Mankato, MN 56002-0550 (for respondent Northwood Co-Op Elevator)

Considered and decided by Randall, Presiding Judge, Lansing, Judge, and Foley, Judge.[*]



Appellant asserts that the district court erred in granting respondents summary judgment. Appellant argues that it did not extinguish its claims against respondents by entering into a settlement agreement with debtors. We affirm.


Appellant Midwest Agriculture Warehouse Co. loaned Wayne and Linda Fett $140,000 for farm operating expenses, and the Fetts used their 1996 crop as collateral. The Fetts liquidated their entire crop in October and November 1996, selling it to respondent Sunrich, Inc. and respondent Northland Cooperative Elevator. Midwest was originally listed as a payee on one payment check from Sunrich but was later crossed off the check. Respondent Farmers and Merchants State Bank (F&M) honored the altered check.

Midwest commenced an action against Sunrich and Northland, alleging they converted an interest in the Fetts' crop and/or proceeds by not recognizing Midwest's security interest in the crop. Midwest also brought an action against F&M for processing the altered check. Midwest later amended its complaint against F&M to include a conversion claim against Sunrich.

The Fetts filed for Chapter 7 bankruptcy on December 23, 1996, and Midwest filed a complaint in the bankruptcy action. On September 24, 1997, Midwest entered into a settlement agreement with the Fetts. The settlement released all of Midwest's claims against the Fetts and included the following language:

ConAgra and [Midwest] * * * shall release and forever discharge the Fetts and their employees, agents, consultants, advisors, representatives, heirs, successors and assigns from any and all claims, demands, actions, proceedings, orders, obligations, contracts, agreements, debts and liabilities whatsoever, whether known or unknown, suspected or unsuspected, both at law and in equity, which either ConAgra or [Midwest] now has, has ever had, or may later have against either of the Fetts on account of or arising out of any matter, cause or event occurring at the time of or prior to the signing of this release.

The bankruptcy court approved the settlement agreement on November 25, 1997.

In December 1997, Midwest filed a motion for summary judgment on its conversion claims against Sunrich and Northwood. The district court denied this motion. On June 11, 1998, Midwest again moved for summary judgment in its action against Sunrich and Northwood, and all respondents moved for summary judgment. Sunrich also moved to consolidate the two actions. The district court granted Sunrich's motion to consolidate and granted respondents' summary judgment motions.


On appeal from summary judgment, a reviewing court must determine whether there are genuine issues of material fact and whether the district court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). Midwest and respondents all agree there are no material facts at issue here.

Midwest asserts that its case parallels Frost State Bank v. Peavey Co., 524 N.W.2d 739 (Minn. App. 1994). In Frost State Bank, a bank took a security interest in a debtor's personal property, including the debtor's crops. Id. at 740. An oil company later obtained a security interest in the debtor's crops. Id. A third party purchased the harvested crop, issuing checks to the debtor and the oil company. Id. The debtor filed for Chapter 12 bankruptcy two months later, and the bankruptcy court approved the debtor's reorganization plan. Id. The bank brought a conversion action against the crop purchaser, and the district court entered summary judgment for the bank. Id. On appeal, the purchaser argued, in relevant part, that the bank waived a security interest in the crop by approving the debtor's amended reorganization plan. Id. at 741. This court affirmed the district court and stated:

A discharge in bankruptcy, * * * unlike a settlement, does not extinguish the debt. Rather, a discharge in bankruptcy merely provides the debtor with a personal defense to debt collection actions. A third party's liability for debt is unaffected by the debtor's discharge.

Id. at 742 (citations omitted).

Contrary to Midwest's assertions, Frost State Bank is distinguishable from this case. Midwest's claims against the Fetts were not merely discharged in bankruptcy, as in Frost State Bank. Rather, Midwest and the Fetts entered into a settlement agreement extinguishing all of Midwest's claims against the Fetts.

This case is analogous to Farmers State Bank v. Easton Farmers Elevator, 457 N.W.2d 763 (Minn. App. 1990), review denied (Minn. Sept. 20, 1990). There, farmers entered into a security agreement with a bank in 1986, giving the bank a security interest in their crop, and its products and proceeds. Id. at 764. The farmers sold a portion of their crop to an elevator and accepted payment in October 1986, endorsing a check stating that they were sole owners of the crop and that the crop was free of liens and chattel mortgages. Id. The bank sued the elevator for conversion in August 1987. Id. In November 1987, the farmers filed a Chapter 12 bankruptcy petition. Id.

In December 1987, the farmers and the bank executed a settlement in bankruptcy court, releasing the farmers from their debt to the bank in exchange for the farmers conveying real estate to the bank. Id. The farmers' bankruptcy petition was later voluntarily dismissed. Id. at 765. The bank moved for partial summary judgment in an action against the elevator, asserting, in relevant part, that the stipulation between the bank and the farmers did not bar the bank's action against the elevator. Id. The district court denied the bank's motion and granted the elevator summary judgment. Id.

On appeal, this court held that "[a] settlement between the secured party and the farmer operates to discharge any secondary liability of the grain buyers." Id. at 766 (citing Austin Farm Ctr., Inc. v. Austin Grain Co, 418 N.W.2d 181, 186 (Minn. App. 1988)). In that situation, the buyers' liability

is vicarious and conditioned completely on proof that the secured party has a valid claim against the farmer, who is in a position analogous to a primary tort-feasor.

Id. (citations omitted).

In this case, Midwest concedes that a settlement between a secured party and a debtor discharges the liability of third parties. Midwest insists, however, that this rule does not apply to the facts in this case because (a) at the time Midwest entered into a settlement with the Fetts, Midwest was no longer a secured party; (b) the rule requires that the creditor receive proceeds in exchange for a release of the secured obligation, and Midwest did not receive proceeds; and (c) the purpose of the rule, to prevent the secured party from destroying a third party's indemnification right and then continuing to maintain a claim against that same third party, would not be served here.

Midwest first argues that it was no longer a secured party when it entered into the settlement agreement with the Fetts because the crop had been sold and the proceeds used to pay other debts. The district court rejected this argument in its first order denying Midwest's summary judgment motion.

As the district court noted, a security interest in collateral continues even after collateral is transferred and continues in any proceeds of a transfer. See id. ("A security interest continues in collateral after transfer and also continues in any proceeds of a transfer of collateral."). Pursuant to the U.C.C.:

Except where this article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.

Minn. Stat. § 336.9-306(2) (1998).

The security interest in proceeds is a continuously perfected security interest if the interest in the original collateral was perfected but it ceases to be a perfected security interest and becomes unperfected 20 days after receipt of the proceeds by the debtor unless * * *

(b) a filed financing statement covers the original collateral and the proceeds are identifiable cash proceeds * * * .

Minn. Stat. § 336.9-306(3) (1998).

Midwest does not dispute that it originally had a perfected security interest in the Fetts' crop, and the record demonstrates that Midwest filed a financing statement with the Minnesota Secretary of State. Further, the sale proceeds were identifiable. Midwest itself delineates in its brief the exact amounts of the crop payments. Therefore, after the Fetts sold their crop, Midwest retained a security interest in the crop and its proceeds.

Midwest next argues that the rule that settlement between a secured party and a debtor discharges the liability of third parties does not apply here because Midwest did not receive any proceeds from the settlement agreement. Midwest asserts that it is entitled to, at least, "one" recovery.

Settlement agreements are binding contracts. Chalmers v. Kanawyer, 544 N.W.2d 795, 797 (Minn. App. 1996). A valid contract cannot be formed absent consideration. Id. at 798. Midwest has not sought to vacate the settlement agreement for lack of consideration. Midwest cannot now insist that it is entitled to recovery from respondents because the settlement agreement did not give them a specific dollar amount. As respondents note, the settlement agreement specifically states, "NOW, THEREFORE, for valuable consideration, the parties, intending to be legally bound, agree as follows * * * ." Additionally, Midwest states in its complaint filed against the Fetts in bankruptcy court that Midwest, which was doing business as United Agri Products (UAP), was a wholly owned subsidiary of United Agra Products, which was, in turn, a wholly owned subsidiary of ConAgra, Inc. According to the settlement agreement, ConAgra will receive $80,000 from the Fetts.

Midwest's final argument is that the purpose of the rule that a settlement between a secured party and a debtor discharges third parties' liabilities will not be served in this case. Midwest insists that the purpose of this rule is to prevent a secured party from destroying a third party's indemnification right and then continuing to maintain a claim against that same third party. Midwest contends that respondents destroyed their own indemnification claims against the Fetts by failing to intervene in the bankruptcy action.

Midwest cites no authority in support of its interpretation of the purpose behind the rule. Further, rules may have more than one purpose. For example, the rule also prevents a creditor from receiving two recoveries. See Farmers State Bank, 457 N.W.2d at 766 (stating bank, having settled with farmers, had already received one satisfaction and was not entitled to more).

The district court did not err in granting respondents summary judgment. Midwest entered into a settlement agreement with the Fetts, and this settlement agreement discharged respondents' liability. See id. (holding secured party's claims against crop purchasers extinguished by settlement between secured party and farmers).


[*] Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.