John Slavens, individually and as parent and natural guardian of S.S., a minor, Appellant, vs. American Fire & Casualty Company, an Ohio Corporation, Respondent, Jacque I. Barnhart, et al., Defendants.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480 A. 08, subd. 3 (1998).

Northwest Grain, a division
of Harvest States Cooperative,
Appellant,

vs.

Farmer's Cooperative Grain
and Seed Association,
defendant and third-party plaintiff,
Respondent,

_____________________________

Jon L. Wilson,
Respondent,

vs.

Northwest Grain, a division
of Harvest States Cooperative,
Appellant.

Pennington County District Court
File No. C3-98-357

Michael L. Jorgenson, 119 West 2nd Street, PO Box 506, Thief River Falls, MN 56701 (for appellant)

Jerold O. Nelson, Scott B. Lundquist, 1012 Grain Exchange Building, 400 South 4th Street, Minneapolis, MN 55415 (for respondent Farmer's Cooperative Grain and Seed Association)

Kevin T. Duffy, 1008 West 2nd Street, PO Box 715, Thief River Falls, MN 56701 (for respondent Jon L. Wilson)

Considered and decided by Shumaker, Presiding Judge, Lansing, Judge, and Halbrooks, Judge.

Appellant Northwest Grain appeals from the trial court's decision following a bench trial on its conversion claim. Northwest Grain contends that the trial court erred in concluding it failed to prove damages. Respondent Jon Wilson contends that the trial court erred in its finding that the security agreements and promissory note he executed in favor of Northwest Grain were valid. Wilson and respondent Farmer's Cooperative Grain and Seed Association both challenge the trial court's award of costs and disbursements to Northwest Grain. We affirm the trial court's decisions on damages and the validity of the security agreements and promissory note, but we reverse the trial court's award of costs and disbursements.

Respondent Jon Wilson, a farmer in northwestern Minnesota, did business over the course of several years with appellant Northwest Grain, f/k/a St. Hilaire Elevator. Wilson purchased fertilizer, chemicals, and fuel from Northwest Grain and hired it to spread fertilizer for his farming operation. These purchases were made on credit and Northwest Grain provided Wilson with a monthly statement of his account. In addition to the purchases, Wilson periodically obtained cash advances from Northwest Grain.

On August 8, 1991, Wilson filed a Chapter 12 bankruptcy petition. At that time he owed Northwest Grain $102,799.59. The parties dispute whether Wilson listed Northwest Grain as a creditor under the Chapter 12 plan.

The Chapter 12 bankruptcy plan provided Wilson with

standing authority to (1) borrow for crop inputs, cultivation and harvesting expenses and to pledge crops and government payments for the year of the inputs, cultivation or harvest, and to repay those loans.

Wilson continued to farm and do business with Northwest Grain after he filed his bankruptcy petition. By the end of December 1991, Wilson's account with Northwest Grain had been reduced to $8,158.38. But by May 1995, Wilson's account had increased to $236,868.99.

In February 1993, Wilson granted Northwest Grain the first in a series of security interests to provide Northwest Grain with the protection it sought regarding Wilson's account. UCC financing statements were filed to evidence the interests taken by Northwest Grain in Wilson's machinery, equipment, and crops. In addition to granting Northwest Grain the security interests, Wilson signed a promissory note in the amount of $236,868.99 in May 1995. The note required Wilson to make payments to Northwest Grain in the amount of $5,000 on January 1 of each year until the debt was satisfied. Wilson made the January 1, 1996 and January 1, 1997 payments.

In December 1996, Northwest Grain bought out its barley contract with Wilson, resulting in an $8,000 credit being applied to Wilson's account. Northwest Grain also issued a $2,504.16 check dated December 31, 1997, payable to itself and Wilson for its purchase of Wilson's canola. The trial court found that both the credit and the check should have been applied as Wilson's payments on the promissory note for January 1, 1998 and January 1, 1999. As a consequence, Wilson was current with his promissory note obligation.

Between 1995 and 1998, Wilson sold crops to Farmer's Cooperative Grain and Seed Association ("Farmer's Co-op"). Those sales occurred without the written consent of Northwest Grain despite a provision in the security agreements requiring its written consent.

In January 1998, Northwest Grain initiated this lawsuit, alleging that Farmer's Co-op had converted the crops in which Northwest Grain had a security interest. Following a bench trial, the trial court found that Northwest Grain had not suffered any damages as a result of Wilson's sale to Farmer's Co-op. The trial court did, however, award Northwest Grain its costs and disbursements as a "sanction" against Wilson and Farmer's Co-op for their "knowing violation of the security agreement and Minnesota Statutes." It refused to award costs and disbursements to Wilson or Farmer's Co-op for the same reasons. The parties now appeal from the trial court's entry of judgment.

On appeal from a bench trial, the trial court's findings of fact will not be set aside unless they are clearly erroneous. Minn. R. Civ. P. 52.01. But the trial court's conclusions of law are reviewed de novo on appeal. Western Insulation Servs., Inc. v. Central Nat'l Ins. Co., 460 N.W.2d 355, 357 (Minn. App. 1990).

This court has previously held that a third-party purchaser's liability for conversion 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." Farmers State Bank v. Easton Farmers Elevator, 457 N.W.2d 763, 766 (Minn. App. 1990) (citations omitted) (emphasis in original), review denied (Minn. Sept. 20, 1990). The trial court correctly noted in its memorandum that Northwest Grain did not have a valid claim for conversion against Wilson. It stated:

In reality, [Northwest Grain] received their payments prior to when they were due. Even though they had a security interest in the grain, they would not have been able to apply any of the proceeds from the sale to the note because Wilson was current in his payments.

In other words, because Wilson was current on his loan payments, he did not convert Northwest Grain's rights in his grain.

Northwest Grain correctly asserts that Wilson's sale to Farmer's Co-op without Northwest Grain's written consent was a technical violation of the security agreement. But conversion is a tort claim. See Franklin Auto Body Co. v. Wicker, 414 N.W.2d 509, 511 (Minn. App. 1987); Restatement (Second) of Torts § 222A (1965). Although Northwest Grain may have a claim against Wilson for breach of the security agreement, that claim is separate and distinct from any claim it may have for the tort of conversion.

Northwest Grain's rights in Wilson's crops in any given year are limited by the terms of the promissory note for the purpose of a conversion claim. In other words, the question is whether Wilson did anything to interfere with Northwest Grain's right to collect $5,000 per year or Northwest Grain's right to enforce payment through its security interest in Wilson's crops. The answer to this question must be in the negative because Northwest Grain received the payment it was entitled to each year. The fact that Wilson remained current on the note precluded a claim for conversion by Northwest Grain against him because Northwest Grain was not damaged. Likewise, Northwest Grain cannot prevail on a conversion claim against Farmer's Co-op because Farmer's Co-op's liability is vicarious to Wilson's liability. See Farmers State Bank, 457 N.W.2d at 766.

The trial court did not err in concluding that Northwest Grain failed to prove it was damaged.

Wilson contends that the promissory note is invalid because it is not supported by consideration, it constitutes an improper reaffirmation agreement, and it was executed without the approval of the bankruptcy court. We do not find these arguments persuasive.

Contrary to Wilson's contention, there is consideration supporting the promissory note. At a minimum, consideration can be found in the negotiation of the terms of repayment. Northwest Grain decided that it would allow Wilson to repay a $236,868.99 loan at $5,000 per year with zero interest. This represents valuable consideration because Northwest Grain obtained additional security and Wilson obtained favorable repayment terms. Where valuable consideration is found to exist, this court will not seek to determine the adequacy of that consideration. Brooksbank v. Anderson, 586 N.W.2d 789, 794 (Minn. App. 1998), review denied (Minn. Jan. 27, 1999).

Wilson also contends that the promissory note was an improper reaffirmation agreement under 11 U.S.C. § 524 (1994). But 11 U.S.C. § 524 only applies if a debt has been or will be discharged at the conclusion of bankruptcy proceedings. Id. at § 524(c). The majority of Wilson's debt to Northwest Grain was incurred subsequent to Wilson's filing of his bankruptcy petition. That debt was not subject to discharge, and, therefore, not subject to reaffirmation.

Finally, Wilson contends that the promissory note is not valid because the bankruptcy court did not approve it. We disagree. The plan approved by the bankruptcy court contains the following provision:

The debtor shall have the standing authority to * * * borrow for crop inputs, cultivation and harvesting expenses and to pledge crops and government payments for the year of the inputs, cultivation or harvest, and to repay those loans.

This provision granted Wilson "standing authority" to borrow certain additional sums and to make arrangements to "repay those loans." In other words, Wilson did not need to obtain court approval each time he arranged the financing necessary to keep him farming. Furthermore, it would be unconscionable to permit Wilson to borrow the money from Northwest Grain while at the same time allow him to avoid the necessity of repayment by arguing that he did not obtain bankruptcy court approval.

The trial court did not err in dismissing Wilson's claims.

The trial court's award of costs and disbursements is reviewed under an abuse of discretion standard. Carlson v. Mutual Serv. Cas. Ins. Co., 527 N.W.2d 580, 584 (Minn. App. 1995), review denied (Minn. Apr. 27, 1995). The trial court found that Northwest Grain was entitled to costs and disbursements. It ordered that Wilson and Farmer's Co-op were jointly and severally liable for those costs and disbursements "as and for sanctions due to their knowing violations of the security agreement and Minnesota Statutes."

Pursuant to Minn. Stat. § 549.02 (1998), costs and disbursements are available to the "prevailing party" in all cases in district court.

In determining who qualifies as the prevailing party in an action, "the general result should be considered, and inquiry made as to who has, in the view of the law, succeeded in the action."

Borchert v. Maloney, 581 N.W.2d 838, 840 (Minn. 1998) (quoting Haugland v. Canton, 250 Minn. 245, 254, 84 N.W.2d 274, 280 (1957)). Given the outcome in this case, neither party was the "prevailing party." Therefore, neither party is entitled to costs and disbursements.

Because the trial court abused its discretion in awarding costs and disbursements to Northwest Grain, that portion of the trial court's order is reversed.

 Affirmed in part and reversed in part.