Bert Johnson, doing business as Johnson Farms, and Hal Anderson entered into an oral cattle-sharing contract in


Bert Johnson, doing business as Johnson Farms, and Hal Anderson entered into an oral cattle-sharing contract in December 1997. Approximately one month later, they memorialized the oral contract in written form. Under the written instrument, Anderson agreed to care for and breed cattle owned by Johnson and Johnson would receive a ‘‘guaranteed’’ percentage of the annual calf crop. The contract further provided that the cattle Johnson placed with Anderson were ‘‘considered to be owned by Johnson Farms and any offspring is to be sold under Johnson Farms’ name.’’ The contract required Johnson Farms and Anderson mutually to agree when the calves would be sold and within thirty days of receiving money for the sale, Johnson Farms to pay the ‘‘remainder’’ to Anderson ‘‘for his keeping of [the] cattle.’’

   In the fall of 1998 and 1999, calves bred under the contract were sold under the provisions of the written contract. Anderson testified that in October 1999, Johnson asked him to care for additional cattle on the same terms. Anderson initially declined, explaining to Johnson that he was ending his cattle business because of adverse personal circumstances. Anderson said that his father had died, his mother was in a nursing home, his partner, Linda Peterson, was caring for an ill family member, he had no additional help at his farm, he had insufficient feed for the cattle, and he had not planted hay for the coming winter. Nevertheless, according to Anderson, they continued to discuss their cattle-sharing contract, and he eventually agreed to continue based on certain modifications: (1) the share percentage would be a straight 40/60 split, without Johnson’s ‘‘guaranteed’’ percentage; (2) Johnson would provide feed, including beet tailings; (3) Johnson would provide additional pasture; and (4) the agreement would include approximately 500 cattle, instead of the original 151 cattle. 

   Johnson testified that he discussed the cattle-sharing agreement with Anderson in October 1999 and that he agreed to send Anderson beet tailings, which were free to him, so long as Anderson paid the cost of shipping. Johnson also testified that he and Anderson agreed that approximately 500 cattle would be cared for under the cattle-sharing agreement, rather than the original 151 cattle. But Johnson denied that he had agreed to provide feed, other than the beet tailings, and denied that he had agreed to change the provision that ‘‘guaranteed’’ that his percentage of the calf crop would be calculated on the initial number of cows regardless of whether each produced a calf that survived.

   In March 2000, Anderson negotiated with Border State Bank for loans totaling $155,528. To secure these loans, Anderson granted Border State Bank a security interest in, among other things, all of Anderson’s ‘‘rights, title and interest’’ in all ‘‘livestock’’ then owned or thereafter acquired.

   After the modification of the cattle-sharing contract, Johnson made a number of shipments of beet tailings to Anderson. When Johnson stopped the shipments, he sent checks totaling $55,000 to Anderson for the purchase of feed. In November 2000, Anderson encountered difficulty caring for the cattle due to heavy rainfall and lack of feed. The cattle were reclaimed by Johnson, but the calves remained with Anderson for sale. At trial, Anderson testified that some of the cattle that Johnson reclaimed were actually Anderson’s cattle or were cattle that belonged to Evonne Stephens, another person with whom Anderson had a cattle-sharing contract.

   In December 2000, 289 calves that had remained with Anderson were sold at Bagley Livestock Exchange. The livestock exchange knew of Border State’s security interest in Anderson’s livestock but, after discussing the agreement with Johnson, determined the security interest did not attach to the calves. The livestock exchange issued a check to Johnson Farms in the amount of $119,403. Thereafter, Johnson gave Anderson a check for $19,404, representing Anderson’s share of the sale proceeds, less $55,000 that Johnson claimed as repayment for money advanced to Anderson to purchase feed.

   Border State Bank sued Bagley Livestock Exchange and Johnson, contending that they had converted Border State Bank’s perfected security interest in the calves sold in December 2000. In a third-party complaint, Johnson sought indemnity from Anderson, in the event that Border State Bank was successful on its conversion claim. Anderson served a counterclaim against Johnson, asserting breach of contract.

   These claims were tried to a jury in September 2003. Following Border State Bank’s case-in-chief, Johnson and Bagley Livestock Exchange moved for a directed verdict. The district court granted the motion, finding that, under the cattle-sharing agreement, Johnson did not ‘‘grant’’ Anderson an ‘‘ownership interest’’ in the calves. Border State Bank appeals from the directed verdict on its conversion claim.

   Following the directed verdict, Anderson presented evidence on his breach-of-contract counterclaim against Johnson, and the counterclaim was submitted to the jury. In response to special-verdict questions, the jury determined that the written contract between Anderson and Johnson had been modified, Johnson breached the contract, and Johnson’s breach directly caused damages to Anderson in the amount of $92,360. Johnson moved for judgment notwithstanding the verdict ( JNOV), or, in the alternative, a new trial or remittitur. The district court denied Johnson’s posttrial motions. Johnson appeals from that denial.


   Article 9 of the Uniform Commercial Code, incorporated into Minnesota law, provides that a security interest attaches to collateral, and is enforceable against the debtor or third parties, when (1) value has been given; (2) the debtor ‘‘has rights in the collateral or the power to transfer rights’’; and (3) the debtor has signed a security agreement that contains a description of the collateral. [UCC] 9–203(b). To perfect the security interest, both the security agreement and financing statement must contain an adequate description of the collateral. [Citation.] We liberally construe descriptions in the security agreement and financing statement because their essential purpose is to provide notice, not to definitively describe each item of collateral. [Citation.]

   The parties do not dispute that Anderson signed a security agreement and that value was given. The security agreement stated that the collateral included, in part, ‘‘all livestock owned or hereafter acquired’’ and Anderson’s ‘‘rights, title and interest’’ in such livestock. The financing statements covered ‘‘all livestock,’’ whether ‘‘now owned or hereafter acquired, together with the proceeds from the sale thereof.’’ The parties also do not dispute the validity of these descriptions or the assertion that ‘‘livestock’’ includes cattle and calves. What is disputed is whether the bank’s security interest attached to the 289 calves sold in December 2000 under Anderson and Johnson’s cattle-sharing agreement. [Citation.]

   * * * The district court stated on the record that the cattle-sharing contract had not ‘‘granted’’ Anderson an ‘‘ownership interest’’ in the calves, specifically finding that ‘‘the modifications testified to by Mr. Anderson in the light most favorable to Border State Bank do not modify the terms of the agreement such that an ownership interest is granted.’’ Based on the arguments presented, the district court apparently determined that, for Border State Bank’s security interest to attach, Johnson would have had to grant Anderson an interest equivalent to ownership.

   The provisions of the Uniform Commercial Code’s Article 9, incorporated into Minnesota law, refer to ‘‘rights in the collateral,’’ not solely the ‘‘ownership’’ of the collateral. [UCC] §9–203(b)(2) (stating security interest may attach to collateral if ‘‘the debtor has rights in the collateral or the power to transfer rights in the collateral’’). Rights in the collateral, as the term is used in Article 9, include full ownership and limited rights that fall short of full ownership. [UCC]§9–203 U.C.C. cmt., para. 6. [Citations.] Simply stated, the UCC ‘‘does not require that collateral be owned by the debtor.’’ [Citation.]

   * * * For purposes of the UCC, ‘‘sufficient rights’’ arise with far less than full ownership. [Citation.] Ownership or title is not the relevant concern under Article 9; ‘‘the issue is whether the debtor has acquired sufficient rights in the collateral so that the security interest would attach.’’ [Citation.] The ‘‘rights in the collateral’’ language is a ‘‘gateway through which one looks to other law to determine the extent of the debtor’s rights.’’ [Citation.] Thus, ‘‘[a]ll or some of owner’s rights can be transferred by way of sale, lease, or license [and a] person with transferable rights can grant an enforceable security interest in those rights.’’ [Citation.] A ‘‘security interest will attach to the collateral only to the extent of the debtor’s rights in the collateral’’; mere possession of the collateral is insufficient to support an attachment, but the debtor need not have full ownership. [Citation.] * * *

   The district court did not analyze the modified cattle-sharing contract to determine the nature of Anderson’s rights in the calves or whether Anderson’s interests or rights were sufficient to permit attachment of a security interest. We conclude that the standard relied on by the district court is inconsistent with Minnesota law. The application of the incorrect standard prematurely terminated the analysis of the cattle-sharing agreement, which is necessary to determine whether Anderson’s rights in the collateral were sufficient for the bank’s security interest to attach. * * * Because the district court applied a standard of ownership that is inconsistent with Minnesota law, its finding that the security interest did not attach was influenced by an error of law.

   * * * On remand, the district court shall consider the cattle-sharing agreement to determine whether Anderson had ‘‘rights’’ in the calves, to which the bank’s security interest attached.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  answer-question

Smith and Roberson Business Law

ISBN: 978-0538473637

15th Edition

Authors: Richard A. Mann, Barry S. Roberts

Question Posted: