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Border State Bank of Greenbush v. Bagley Livestock Exchange

December 14, 2004

BORDER STATE BANK OF GREENBUSH, APPELLANT (A03-1973), PLAINTIFF (A04-86),
v.
BAGLEY LIVESTOCK EXCHANGE, INC., RESPONDENT (A03-1973), DEFENDANT (A04-86), BERT JOHNSON, D/B/A/ JOHNSON FARMS, RESPONDENT (A03-1973), DEFENDANT (A04-86), AND BERT JOHNSON, D/B/A/ JOHNSON FARMS, THIRD-PARTY PLAINTIFF, RESPONDENT (A03-1973), APPELLANT (A04-86),
v.
HAL ANDERSON, THIRD-PARTY DEFENDANT, RESPONDENT.



Roseau County District Court File No. C1-01-409.

Considered and decided by Toussaint, Chief Judge; Lansing, Judge; and Crippen, Judge.*fn1

SYLLABUS BY THE COURT

Under Minnesota law, a security interest attaches and is enforceable when the debtor has signed a security agreement that describes the collateral, value has been given, and the debtor has rights in the collateral; the debtor need not own the collateral.

The opinion of the court was delivered by: Lansing, Judge

Affirmed in part, reversed in part, and remanded

OPINION

This action arises from a dispute over the enforceability of a security interest and the interpretation of the cattle-sharing agreement that underlies the security interest. The district court, apparently relying on an incorrect argument that an ownership interest was necessary for the security interest to attach, made no findings on the disputed provisions of the agreement. We therefore reverse the district court's order directing a verdict against the bank, which attempted to enforce the security interest in a conversion claim, and remand for the court to address the disputed provisions. We affirm, however, the jury verdict adjudicating the claims between the cattlemen on the breach of the underlying cattle-sharing agreement. The record contains competent evidence to sustain the verdict, the special-verdict form conveyed a correct understanding of the law, and the damages assessed by the jury do not require remittitur.

FACTS

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 ...


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