Producers Cotton Oil Co. v. Amstar Corp.

Statement of the Case

Appellant, Amstar Corporation (Amstar), appeals from a money judgment rendered against it in an action for conversion of crop proceeds. The case presents a number of novel issues in California involving the interplay of sections 9306, 9307 and 9318 of the California Uniform Commercial Code.

We are called upon to determine two main issues. The first is whether a secured creditor’s implied authorization of sale of collateral relinquishes the creditor’s security interest in collateral proceeds. We hold that the creditor’s security interest in the proceeds continues where the creditor does not waive its interest by conduct or by the language of the sales contract.

The second issue is whether a claim based upon equitable principles of unjust enrichment can, in certain circumstances, supersede the rights of a secured creditor whose interest is fully perfected. We hold that such an equitable claim prevails in this case.

Statement of the Facts

Producers Cotton Oil Company (Producers) financed Cecil Borboa’s farm operations for crop years 1976 through 1981. It was Producers’s practice to take a security interest in all crops that it financed and send a…