## Facts

- Clovis National Bank loaned cattleman W. D. Bunch money secured by security agreements covering cattle branded “W D Bar,” including agreements executed March 27, 1963 and April 11, 1963.
- The security agreements restricted Bunch from selling the cattle without the bank’s consent.
- The bank knew Bunch sold cattle covered by the security agreements, accepted sale proceeds, and applied those proceeds to Bunch’s debt without objecting to the sales.
- In late 1963, the bank advanced additional funds; on November 12, 1963, Bunch executed a new note and security agreement covering 283 head branded “W D Bar.”
- Harold Thomas operated a licensed livestock commission business through which Bunch sold cattle; Thomas remitted proceeds by checks.
- Some earlier Thomas-issued checks to Bunch were deposited with the bank and applied to the debt, consistent with the bank’s practice of accepting sale proceeds.
- Disputed sales involved cattle handled under the brand “Swastika K” (associated with Bunch’s son); the bank asserted these cattle were also subject to its security interest.
- The bank notified Thomas of its claimed interest and asked that sale proceeds be protected (e.g., by making checks jointly payable), but Thomas issued checks payable solely to Bunch’s son at the consignor’s direction.
- The bank sued Thomas for conversion based on Thomas’s sale of the cattle and remittance of proceeds to Bunch (or Bunch’s son).

## Issues

1. Whether the bank’s course of conduct constituted implied consent to the debtor’s sales of collateral cattle, thereby waiving the bank’s right to recover against the commission merchant for conversion.
2. Whether the bank proved an enforceable security interest in the cattle branded “Swastika K” that were sold through the commission merchant.
3. Whether the bank’s notice to the commission merchant of its claimed interest negated any implied consent or waiver arising from prior dealings.

## Decision

- The New Mexico Supreme Court affirmed the judgment for Thomas after a bench trial verdict in his favor.
- The court held the bank’s consent to sales could be shown by implication from its course of dealing, and that the bank’s conduct amounted to a waiver of its rights as against third parties dealing in the ordinary course.
- The court held the bank did not carry its burden to show the “Swastika K” cattle were covered by the bank’s security instruments.
- The court declined to overturn the trial court’s factual findings because they were supported by substantial evidence.

## Legal Principles

- A secured party’s consent to the sale of collateral may be implied from a consistent course of conduct, even where the written agreement restricts sale without consent.
- A secured creditor that knowingly permits a debtor to sell collateral and regularly accepts the proceeds without objection may waive its right to treat such sales as wrongful against third parties acting in the ordinary course, including a commission merchant.
- Notice to a commission merchant of a claimed security interest does not necessarily defeat a waiver created by prior course of dealing when the creditor’s conduct reasonably signaled the debtor’s authority to sell.
- In a conversion action based on a security interest, the secured party bears the burden to prove the sold property was within the collateral description; failure of proof defeats the claim.
- Appellate review defers to trial-court fact findings supported by substantial evidence.

## Conclusion

The court affirmed judgment for the commission merchant because the bank’s repeated acceptance of proceeds from unauthorized sales implied consent and waived the bank’s ability to claim conversion against ordinary-course intermediaries, and because the bank failed to prove its security interest covered the cattle sold under the “Swastika K” brand.


Clovis Nat’l Bank v. Thomas, 77 N.M. 554, 425 P.2d 726 (N.M. 1967)