## Facts

- Diamond Walnut Growers, Inc. operated as a nonprofit agricultural marketing cooperative that marketed walnut crops of its members.
- Bella-Farms Partnership grew walnuts and became a Diamond member, agreeing to deliver all walnuts to Diamond for marketing and to receive “member proceeds” from pooled sales distributions.
- Diamond made loans to Bella-Farms secured by Bella-Farms’s right to receive member proceeds from the 1983 walnut crop and perfected its security interest by filing a financing statement.
- Bank of Stockton later loaned money to Bella-Farms secured by the 1983 walnut crop and all proceeds of its sale, and filed a financing statement covering the crop and proceeds.
- Before harvest, Diamond and the Bank learned of each other’s asserted security interests and signed an agreement permitting delivery of the 1983 crop to Diamond for marketing while stating they did not intend to change their respective rights and duties.
- Diamond marketed the crop and generated member proceeds; the parties disputed which creditor had priority to those funds.
- The trial court declared the Bank’s interest prior and ordered Diamond to pay the proceeds to the Bank; Diamond appealed.

## Issues

1. Whether both creditors held perfected security interests in the same member proceeds, and if so, whether priority was governed by the UCC first-to-file rule.
2. Whether the Bank’s security interest in “proceeds” of the crop could defeat Diamond’s earlier-perfected security interest in the same funds as an “account.”
3. Whether the parties’ agreement allowing delivery and marketing of the crop altered statutory priority or constituted a waiver or subordination by Diamond.

## Decision

- The Court of Appeal reversed the judgment for the Bank and directed entry of judgment for Diamond.
- The court held both parties had perfected security interests in the same member proceeds.
- The court held Diamond had priority because it filed its financing statement first.
- The court held the agreement permitting delivery for marketing, while preserving each party’s rights, did not change priority and did not subordinate Diamond’s interest.

## Legal Principles

- When conflicting security interests in the same collateral are perfected by filing, priority dates from the time of the first filing covering the collateral, regardless of attachment timing (Cal. U. Com. Code § 9312(5)(a)).
- A cooperative member’s right to receive distributions from sale of delivered crops can constitute an “account” (a right to payment) under the UCC and can also constitute “proceeds” of the crop for a creditor holding a crop security interest.
- An agreement that expressly states it does not change the parties’ respective rights and duties will not, without clear subordination language, alter the UCC’s statutory priority scheme.

## Conclusion

Because Diamond’s financing statement covering the member proceeds was filed before the Bank’s filing, Diamond’s perfected security interest had priority in the proceeds from the 1983 walnut crop, and the parties’ marketing agreement did not alter that result.


Bank of Stockton v. Diamond Walnut Growers, Inc., 199 Cal. App. 3d 144, 244 Cal. Rptr. 744 (Ct. App. 3d Dist. 1988)