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A secured party is entitled to take possession of the collateral after default, Ariz. Rev. Stat. § 47-9609, dispose of the collateral, Ariz. Rev. Stat. § 47-9610, and apply the proceeds of the disposition, Ariz. Rev. Stat. § 47-9615. Because more than one secured party may be entitled to possession of collateral, conflicting rights among secured parties are resolved by the priority rules.
In January 2007, Dayka & Hackett, LLC (D&H) agreed to finance and sell the 2007 grape crop of Rolando Castelo de la Rosa and Maria Olivia Aguirre Ramos (growers) to be grown in Sonora, Mexico. D&H entered into marketing and security agreements with the growers and, on January 18, 2007, it filed a financing statement pursuant to A.R.S. § 47-9307(C) in Washington, D.C. to perfect its interest. The growers defaulted on their obligations. Subsequently, Del Monte Fresh Produce, N.A., Inc. (Del Monte) entered into a marketing and security agreement with the growers. Under its marketing agreement, Del Monte was obligated to market and sell the crop it was advancing the growers funds to raise, and to pay the growers a portion of the sales proceeds. The growers granted Del Monte a security interest in collateral, which included the 2008 crop and any proceeds from its sale. In May 2008, Del Monte registered its security interest with the public registry in Sonora. In April 2008, D&H sent Del Monte a letter informing Del Monte of its security interest in the growers’ crops. Del Monte asserted that it has a superior interest in the crops. Del Monte marketed the 2008 crop and collected and retained all the sales proceeds. Consequently, D&H filed a complaint against the growers and Del Monte seeking to enforce its security interest in the growers' 2008 crop and its proceeds. The trial court granted summary judgment in favor of D&H on its conversion claim, and further held that D&H’s security interest in the 2008 crop and proceeds was superior to Del Monte’s interest. Del Monte appealed.
Was D&H’s security interest in the 2008 crop and proceeds superior to Del Monte’s interest?
The Court noted that under the Uniform Commercial Code (UCC) as adopted in Arizona, the local law of the jurisdiction where the debtor was located governed the perfection of security interest, provided that the requirements of § 47-9307(C) were met; otherwise, the debtor was considered to be located in the District of Columbia. In this case, the Court held that Mexico’s law did not meet the requirements of 47-9307(C), and, thus, the growers for the purpose of perfecting security interests in their property were located in the District of Columbia. Thus, D&H perfected its security interest by filing in the District of Columbia, and its security interest in the 2008 crop and its proceeds had priority over Del Monte's conflicting, unperfected security interest. The Court further held that neither Ariz. Rev. Stat. § 47-9610 nor 47-9615 precluded Del Monte’s liability for conversion. According to the Court, Ariz. Rev. Stat. § 47-9404 did not entitle Del Monte to a right of recoupment against the creditor's claim for conversion.