
NO. 07-04-0489-CV

IN THE COURT OF APPEALS

FOR THE SEVENTH DISTRICT OF TEXAS

AT AMARILLO
 
PANEL C

NOVEMBER 22, 2005
______________________________

TRI-STATE CHEMICALS, INC., APPELLANT

V.

FIRST STATE BANK, STRATFORD, TEXAS;
B. A. DONELSON; AND DOAK CRABTREE, APPELLEES
_________________________________

FROM THE 69TH DISTRICT COURT OF SHERMAN COUNTY;

NO. 4,316; HONORABLE DAVID GLEASON, JUDGE
 _______________________________


Before QUINN, C.J., and REAVIS and HANCOCK, JJ.
OPINION
	Tri-State Chemicals, Inc. (Tri-State) appeals the trial court's grant of summary
judgment in favor of First State Bank (Bank).  The summary judgment ordered that Tri-State take nothing from Bank on its claims for conversion, conspiracy to convert,
assumpsit, money had and received (unjust enrichment), tortious interference with contract
and theft, under the Texas Theft Liability Act.  Concluding that genuine issues of material
fact exist as to all claims asserted by Tri-State, we reverse the judgment of the trial court 
and remand for further proceedings.
STANDARD OF REVIEW
 A party may prevail on a summary judgment motion by conclusively establishing the
absence of any genuine issue of a material fact and that the party is entitled to judgment
as a matter of law.  Tex. R. Civ. P. 166a(c).  We review the granting of such a conclusively-established summary judgment using the following standards: 
	1. The movant for summary judgment has the burden of showing that there
is no genuine issue of material fact and that it is entitled to judgment as a
matter of law.  
	2. In determining whether there is a disputed issue of material fact precluding
summary judgment, evidence favorable to the non-movant will be taken as
true.
	3. Every reasonable inference must be indulged in favor of the non-movant
and any doubts resolved in its favor.

Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex. 1985).  A general
issue, such as that presented by Tri-State, allows argument as to all possible grounds upon
which summary judgment should have been denied.  See Malooly Bros., Inc. v. Napier,
461 S.W.2d 119, 121 (Tex. 1970).
BACKGROUND
	As this appeal is a review of a conclusively-established summary judgment, we must
take all evidence favorable to Tri-State as true and indulge all reasonable inferences in
favor of Tri-State.  Nixon, 690 S.W.2d at 548-49.  Doing so, we find the evidence shows
the following. 
	Tri-State entered into a consignment agreement with Panhandle Agri-Tech, Inc.
(Panhandle) on April 24, 1995.  By this agreement, Panhandle acknowledged that it did not
take title to the consigned goods; that all payments received for sale of the goods, including
payments received on accounts, were the absolute property of Tri-State and were to be
kept separate from Panhandle's accounts; and that no creditor of Panhandle would have
any right to or interest in the goods or the proceeds from the sale of the goods.  Further,
the agreement expressly provided that the risk of loss, save for loss due to Panhandle's
negligence or willful misconduct, would remain with Tri-State.  
	In late 1995, Panhandle sought a small business loan from Bank.  Prior to its
approval of the loan, Bank was provided a copy of the consignment agreement between
Tri-State and Panhandle and even participated in negotiations regarding the terms of this
consignment agreement.  As collateral for the loan, Bank took a security interest, which it
perfected by filing with the Secretary of State, in all of Panhandle's inventory, equipment,
accounts or contract rights, and cash or non-cash proceeds thereof.  Six days after Bank
filed its security agreement, Tri-State filed a financing statement with the Secretary of State
covering its consigned goods.  However, Tri-State's financing statement did not specifically
address proceeds from the sale of the consigned goods.  
	In 1997, Panhandle, experiencing severe financial difficulties, began commingling
payments made on accounts created by the sale of Tri-State's consigned goods with its
own resources.  Although in dire financial circumstances, of which Bank was aware,
Panhandle paid off the loan.  Tri-State contends that the loan payments, at least to some
extent, came from payments made on open accounts owned by Tri-State.  Thus, Tri-State
seeks to recoup these proceeds, which were wrongfully appropriated by Panhandle.  
	Tri-State filed suit against Bank alleging conversion, conspiracy to convert,
assumpsit, money had and received (unjust enrichment), tortious interference with contract
and theft, under the Texas Theft Liability Act.  Bank filed a Motion for Summary Judgment
which was granted by the trial court, but reversed and remanded by this Court for
procedural defects.  See Tri-State Chems., Inc. v. First State Bank, No. 07-00-0180-CV,
2001 Tex.App. LEXIS 787, at *20-*21 (Tex.App.-Amarillo February 6, 2001, no pet.).  
	Upon remand, Bank filed an Amended Motion for Summary Judgment by which
Bank contended that it was entitled to summary judgment on the conversion, conspiracy
to convert, assumpsit, money had and received, and theft claims because the summary
judgment evidence conclusively established that, as a matter of law, Tri-State could not
prove that it had a superior right to or owned the money that it claimed.  Bank further
contended, by its motion, that the summary judgment evidence conclusively established,
as a matter of law, that Bank had exercised a superior or equal right to the subject matter
of the contract, which is an affirmative defense to a tortious interference with contract
claim.  The trial court again granted summary judgment in favor of Bank.
	Tri-State appeals contending that the trial court erred in granting summary judgment
in favor of Bank.  Within this general issue, Tri-State argues, inter alia, that Bank's actual
knowledge of the consignment between Tri-State and Panhandle prohibited transference
of title to Panhandle, see Tex. Bus. & Comm. Code Ann. § 2.326(c)(2) (Vernon 1968), (1) that
Bank's actual knowledge of the consignment makes Texas Business and Commercial
Code section 9.114 inapplicable, see Tex. Bus. & Comm. Code Ann. § 9.114 (Vernon
1994). (2)  In its response, Bank contends that this appeal, at its essence, presents a
question of who, as between a consignor and a creditor of the consignee, has priority to
proceeds generated through collection of open accounts or accounts receivable resulting
from the sale of consigned goods.  As all grounds for summary judgment asserted by Bank
were based on having superior or equal rights to the proceeds from the open accounts, a
determination of whether, based on the summary judgment evidence, Bank had superior
or equal rights to these proceeds as a matter of law will determine whether Bank was
entitled to summary judgment.
DISCUSSION
	As a general proposition, we note that the owner of personalty wrongfully taken from
him may recoup it, or the proceeds or mutations thereof, from the possession of one who
took it or his transferee.  Tri-State Chems., Inc. v. W. Organics, Inc., 83 S.W.3d 189, 195-96 (Tex.App.-Amarillo 2002, pet. denied).  This is true even if the possessor is a good faith
purchaser for value.  Id. at 199.  To recoup the property, the claimant need only trace his
property into the asset he seeks.  Id. at 196.  Thus, if Tri-State owned the proceeds paid
to Bank in satisfaction of Panhandle's loan, Tri-State is entitled to recoup those proceeds
to the extent that it can trace the proceeds back to the property that it owned. 
	Under section 2.326, goods delivered to another primarily for resale are considered
"sale or return" goods and are subject to claims of the "buyer's" creditors unless one of four
exceptions apply. (3)  Tri-State contends that the summary judgment evidence established
that the consignment was not a sale or return because Bank had actual knowledge that
Panhandle was "substantially engaged in the selling of the goods of others."  See §
2.326(c)(2).  In its motion, Bank contended that the undisputed evidence established that
the section 2.326(c) exceptions did not apply and, therefore, the "consignment" was a
deemed sale or return. (4)   Thus, the dispute presented to the trial court turned on whether
Bank established, as a matter of law, that the "consignment" was actually a sale or return
or whether the summary judgment evidence presented a genuine issue of material fact as
to whether the "general knowledge" exception of section 2.326(c)(2) applied. 
	Taking the evidence favorable to Tri-State as true and indulging all reasonable
inferences from the evidence in favor of Tri-State, we conclude that a genuine issue of
material fact exists as to whether Bank had actual knowledge that Panhandle was
substantially engaged in selling the goods of others.  However, the section 2.326(c)(2)
exception applies when the "consignee's" creditors generally know that their debtor is
substantially engaged in selling the goods of others.  Bank contends that its actual
knowledge is irrelevant to a determination of what Panhandle's creditors generally knew.
	The purpose of inclusion of the knowledge-based exceptions to section 2.326 was
to permit creditors to deal with a debtor "upon the assumption that all property in his
possession is unencumbered, unless the contrary is indicated by their own knowledge or
by public records."  Bufkor, Inc. v. Star Jewelry Co., 552 S.W.2d 522, 523-24
(Tex.Civ.App.-Beaumont 1977, writ ref'd n.r.e.) (emphasis added).  In furtherance of this
purpose, we hold that the exception contained in section 2.326(c)(2) is met, as to a
particular creditor, by proof that the creditor had actual knowledge, prior to its extension of
credit, that the debtor was substantially engaged in selling the goods of others.  Therefore,
the genuine issue of material fact that exists as to whether Bank had actual knowledge of
the consignment agreement between Tri-State and Panhandle prior to its extension of
credit to Panhandle precludes a finding that, as a matter of law, the goods were delivered
on sale or return.  As a result, we conclude that the trial court erred in granting Bank's
motion for summary judgment.
	Additionally, Bank argued that it had priority to payments made on accounts created
by the sale of Tri-State's consigned goods under section 9.114. (5)  However, the express
language of section 9.114 indicates that its application is limited to, "A person who delivers
goods under a consignment which is not a security interest and who would be required to
file under this chapter by Subsection (c)(3) of Section 2.326 . . . ." (emphasis added).  A
consignor that can establish that its consignment met one of the section 2.326(c)
exceptions other than the filing exception contained in (c)(3) is not required to file a
financing statement to protect its ownership interest in the consigned goods.  See In re
Alper-Richman Furs, Ltd., 147 B.R. 140, 149 (Bankr. N.D. Ill. 1992). (6)  Thus, as we have
previously determined that a genuine issue of material fact exists regarding whether Tri-State met the section 2.326(c)(2) exception, we cannot determine whether section 9.114
has any application to Tri-State's claims.
CONCLUSION
	Having found that a genuine issue of material fact exists as to whether Panhandle's
creditors generally knew that Panhandle was substantially engaged in selling the goods of
others, we reverse the summary judgment and remand the cause for further proceedings.



							Mackey K. Hancock
							         Justice


1. Acts 1967, 60th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2377,
amended by Acts 1999, 76th Leg., R.S., ch. 414, § 2.16, 1999 Tex. Gen. Laws 2739, 2739. 
As the 1999 amendments to section 2.326 are not applicable to this case, all further
references to "section 2.326" or "§ 2.326" will be references to the pre-amendment
provision.
2. Acts 1973, 63rd Leg., R.S., ch. 400, § 5, 1973 Tex. Gen. Laws 997, 1006, repealed
by Acts 1999, 76th Leg., R.S., ch. 414, § 1.01, 1999 Tex. Gen. Laws 2639, 2658.  As the
events giving rise to this case occurred prior to the 1999 repeal of section 9.114, all further
references to this provision will be by reference to "section 9.114" or "§ 9.114."
3. The exceptions, as applicable to this case, are found in section 2.326(c), which
provides, "Where goods are delivered to a person for sale and such person maintains a
place of business at which he deals in goods of the kind involved, under a name other than
the name of the person making delivery, then with respect to claims of creditors of the
person conducting the business the goods are deemed to be on sale or return . . . . 
However, this subsection is not applicable if the person making delivery
	(2) establishes that the person conducting the business is generally known by his
creditors to be substantially engaged in selling the goods of others, or
	(3) complies with the filing provisions of the chapter on Secured Transactions
(Chapter 9)."
4. On appeal, Bank takes the position that the consignment was not deemed a sale
or return by section 2.326 because Tri-State filed a financing statement.  See § 2.326(c)(3). 
However, this argument does not comport with the argument presented to the trial court
in Bank's motion.  To preserve an issue for appellate review, all theories in support of or
opposition to a motion for summary judgment must be presented to the trial court in writing. 
See Casso v. Brand, 776 S.W.2d 551, 553 (Tex. 1989).  Therefore, we will limit our review
to a determination of whether the arrangement between Tri-State and Panhandle would
constitute a deemed sale or return under section 2.326.
5. We note that section 9.114 is inapplicable to a "consignment" that is deemed a sale
or return by section 2.326.  However, we will construe Bank's argument under section
9.114 as being made in the alternative. 
6. "[A]s against the consignee's creditors, the consignor who fails to file a financing
statement has priority to the consigned goods if [another] of the § 2-326(3) exceptions
applies; otherwise, § 9-114 applies, and the consignee's secured creditors have priority. 
This view is in accord with the Uniform Commercial Code's mandate against reading its
provisions to render other provisions meaningless. See § 1-104. The majority of courts
considering the issue have also adopted this view.  See, e.g., In re State Street Auto Sales,
81 B.R. 215, 217-18 [(Bankr.D.Mass. 1988)] (§ 9-114 should be limited to situations where
the other exceptions to § 2-326(3) do not apply, noting that 'most courts and
commentators' have so held); Matter of Great American Veal, Inc., 59 B.R. 27, 32
(Bankr.D.N.J.1985) (§ 9-114 does not apply where other exceptions to § 2-326(3) do); In
re Lebus-Albrecht Lumber Co., 38 B.R. 58, 61 (Bankr.D.N.D.1984) (same)."

