In re BLACK & WHITE CATTLE CO., a California limited partnership, Debtor. BLACK & WHITE CATTLE CO., a California limited partnership, Debtor and Debtor-in-Possession, Plaintiff-Appellee, v. GRANADA CATTLE SERVICES, INC., a Texas corporation, Integrated Cattle Systems IV, a Texas limited partnership, Premier Angus, Inc., a corporation, and Granada Corp., a Texas corporation, Defendants-Appellants.
C.A. No. 84-6098
United States Court of Appeals, Ninth Circuit
Argued Sept. 5, 1985. Submitted Sept. 12, 1985. Decided March 5, 1986.
783 F.2d 1454 | 42 UCC Rep.Serv. 1637
Grant Cook, Reynolds, Allen & Cook, Houston, Tex., for defendants-appellants.
Appeal from the United States District Court for the Central District of California.
Before: CANBY, BEEZER and CYNTHIA HOLCOMB HALL, Circuit Judges.
BEEZER, Circuit Judge:
This appeal involves thе rights of a financing buyer of cattle under California law and the Bankruptcy Code. Granada Cattle Services, Inc., Granada Management Corp., (formerly Premier Angus, Inc.), Granada Corp., and Integrated Cattle Systems IV (collectively “Granada“), appeal a partial summary judgment, granted by the bankruptcy court and affirmed by the district court, in favor of appellee Black & White Cattle Co. (“B & W“). The bankruptcy court held Granada has no interest in certain cattle held by B & W, the debtor and debtor in possession, рursuant to a cattle feeding agreement between the parties. We affirm in part and reverse in part.
B & W is a California limited partnership, currently in Chapter 11 bankruptcy proceedings, which operated a calf raising facility and a feed lot facility at two separate California locations. Granada is composed of various Texas corporations and partnerships in the business of buying feeder cattle for their customers, causing them to be fed and raised by third parties until they reach slaughter weight, and then selling them for beef.
In February 1981 Granada and B & W began negotiating a “Cattle Feeding Agreement” (the “Agreement“), which was finally executed on July 17. The Agreement provided that B & W would purchase approximately 6,000 day-old calves “on behalf of” or “for the account of” Granada‘s customers, which are referred to collectively throughout the Agreement as the “Owner,” and that “Owner” would retain title to any cattle that it “placed on the facilities.” B & W was obligated to reimburse “Ownеr” for certain losses suffered from the death of “Owner‘s animals.” The Agreement also provided that the cattle could be commingled with other cattle in the calf yard and feed lot facilities “[a]fter the cattle have been properly tagged and identified....” The Agreement was to last for three years.
Between May 15 and June 16, 1981, while the Agreement was being negotiated, B & W acquired numerous calves from its regular suppliers. Among the undifferentiated, commingled calves acquired at that time wеre 1,204 that B & W later identified as those covered by the Agreement (and the subject of this action). Granada contends, and the bankruptcy court found, that the 1,204 calves were purchased by B & W pursuant to an oral agreement entered into with Granada on May 14. Granada reimbursed B & W for the cost of the 1,204 calves and paid B & W‘s various monthly charges for caring for the animals, as required by the Agreement.
Although the Agreement was executed on July 17, it had an effective date of May 15 to cover the “Cattle on hand.”
After July 17, B & W continued to care for the calves at its calf yard until they were delivered to the feed lot as each reached the desired weight. The deliveries occurred between August 13 and October 15, 1981. Upon reaching the feed lot, B & W for the first time identified the 1,204 cattle as those covered by the Agreement by placing the animals in a separate pen and by giving each an identifying ear tag. The cattle were branded with a brand registered to one of B & W‘s general partners.
On April 23, 1982, some months after the last of the cattle were delivered to the feed lot, B & W filed a
The bankruptcy court granted partial summary judgment in favor of B & W. The court invalidated Granada‘s claim of ownership on the ground that Granada did not comply with
The court reasoned that
A. Bankruptcy Court Jurisdiction
Granada argues that the bankruptcy court was without jurisdiction to adjudicate this action. See Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). We recently rejected an identical argument. In re Thomas, 765 F.2d 926, 928-30 (9th Cir.1985). The bankruptcy court had jurisdiction to adjudicate this action.
B. Standard of Review
Our task in reviewing a summary judgment is identical to that of the trial court. Viewing the evidence in the light most favorable to the party opрosing the summary judgment, we must determine under a de novo standard whether there is no genuine issue of material fact, and whether the moving party was entitled to judgment as a matter of law.
De novo review is appropriate even though this action was filed before the bankruptcy court and the district court applies state law. We review bankruptcy court conclusions of law de novo.... [W]e need not accord special deference to a district judge‘s interpretation of the law of the state in which he sits. Our review is therefore de novo.
In re New England Fish Co., 749 F.2d 1277, 1280 (9th Cir.1984) (citations omitted); accord In re Nash, 765 F.2d 1410, 1412 (9th Cir.1985) (“The bankruptcy court‘s grant of summary judgment, affirmed by the district court, is subject to de novo review.“).
C. Effect of Cal.Civ.Code Sec. 3440
The Agreement that B & W purchase calves “on behalf of” or “for the account of” Granada was signed on July 17 and made retroactive to the day the first animal was purchased. Granada contends that under the terms of the Agreement the cattle were acquired by B & W as agents for Granada, that Granada had title to the cattle at all times and B & W never hаd title, and that there was therefore no transfer to be set aside by the operation of
B & W bought the newborn calves directly from suppliers in its own name. B & W spent its own funds and paid suppliers with checks drawn on B & W‘s account. B & W took possession of the calves and branded them with a brand registered to a general partner of B & W. B & W agreed to and in fact did bear the risk of loss of the newborn calves. At the time of purchase, moreover, the calves were not identified to B & W‘s contract with Granada. In short, B & W possessed sufficient indicia of ownership to be called the owner of the calves. Although contracting parties may agree to transfer or divest title retroactively, it would be stretching the fiction to say that B & W never had title. The very purpose of
Granada contends that although it did not have actual possession of the cattle, the tagging and segregation of the animals at the feed yard constituted constructive possession sufficient to satisfy the statute. The only facts relevant to this issuе are undisputed, namely, that the cattle were at all times in B & W‘s actual possession, that after they arrived at the feed lot they were segregated from the other animals and given ear tags identifying them as Granada animals, and that they bore a brand registered to a B & W general partner.4
If delivery is practicable, segregation and labeling will not satisfy the delivery and possession requirements. See, e.g., O‘Connor v. O‘Connor, Rice & Barnes, 44 Cal.App.2d 1, 111 P.2d 656 (1941) (books and maps); Vance v. Boynton, 8 Cal. 554 (1857) (500 sacks of barley). On the other hand, where the property is “not property of whiсh manual possession could be taken,” labeling has been held to satisfy a similar Washington statute. McFarland v. Wendorf, 1 F.2d 850 (9th Cir.1924) (unspecified number of piles of cut logs, each pile containing from 50 to 1,000 logs, labeled and left next to a public roadway). Even in the absence of labeling or segregation, constructive delivery has been found where the property was “bulky and not readily transferable by manual delivery.” See Shepherd v. Gamble, 95 Cal.App.2d 890, 214 P.2d 403 (1950) (large tractor kept in remote location); Rosenthal v. Taylor, 87 Cal.App. 399, 262 P. 395 (1927) (pumps and cone tank); cf. Montgomery v. Hunt, 5 Cal. 366, 369 (1855) (merely pointing out cattle that were grazing on open range constituted sufficient change оf possession). Although no case has decided directly whether penned cattle are too bulky to make actual delivery impracticable, or whether they may be constructively delivered by tagging or segregation, every case in which penned cattle have been sold but not physically delivered has held the sale void. See Della v. Home Bank of Porterville, 105 Cal.App. 106, 286 P. 1064 (1930); George v. Pierce, 123 Cal. 172, 55 P. 775 (1898); see also Shepherd v. Gamble, 95 Cal.App.2d 890, 214 P.2d at 405 (distinguishing Della on the ground that it “involved a sale of cattle which could have been removed under their own power but remained in possession of the seller.“). These cases, along with the prior transfer of the same animals from the calf yard to the feed lot, and the generally ambulatory nature of the healthy living animals, strongly imply that physical delivery of cattle in general and these animals in particular was entirely practicable,5 with the result that constructive delivery will not satisfy the requirements of
Therefore, no genuine issue of material fact regarding the delivery and possession of the animals existed, and the bankruptcy judge correctly ruled that the tagging and segregation of the cattle did not satisfy the statutory possession and delivery requirements.7
D. Effect of Cal.Comm.Code Sec. 2402(2)
The foregoing analysis, however, does not end our inquiry into the operation of
(2) A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him a retention of possession by the sellеr is fraudulent under any rule of law of the state where the goods are situated, except that retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification is not fraudulent.
Purposes of Changes and New Matter: To avoid confusion on ordinary issues between current sellers and buyers and issues in the field of preference and hinderance by making it clear that:
... 2. The retention of possession of the goods by a merchant seller for a commercially reasonable time after a sale or identification in current course is exempted from attack as fraudulent.
The effect of
The bankruptcy court‘s primary objection to the application of
section [2402(2)] basically restates the rule of
Sec. 3440 . The rationale of this rule likewise parallels that ofSec. 3440 . It seeks to protect creditors against a debtor who gives a deceptive appearance of ownership by retaining possession after title has passed to a third party. UnlikeSec. 3440 , this section provides a very limited exception where goods are retained for a commercially reasonable period of time.
The bankruptcy court‘s reasoning essentially reads the statutory exception out of existence. The legislativе history of
Prior to 1963,
The Legislature recognized the potential conflict between
Recognition of a buyer‘s rights under
The court also expressed concern regarding the indefiniteness of the time of retention of possession by B & W. The agreement between B & W and Granada provided that B & W would deliver the cattle to Granada‘s customers when the cattle reached slaughter weight. Although this provision did not specify a particular date of delivery, it did specify a definite and identifiable condition precedent to B & W‘s duty to deliver the cattle. See e.g., Houghland v. Rothblum Packing Co., 99 Cal.App. 631, 279 P. 159 (1929) (contract requiring seller to deliver sheep “after fattening” held enforceable on grounds that industry practice indicated that delivery was within reasonable time). The time of delivery, therefore, was definite.
The evidence offered by Granada in opposition to the motion for summary judgment indicated that Granada and B & W had valid business reasons for delaying delivery. B & W‘s primary obligation was to raise and feed the cattle for distribution to California customers of Granada. Although delivery to Granada in Texas was possible, such a course of action would have defeated Granada‘s purpose for hiring a California feed lot operator. Moreover, Granada offered affidavit testimony indicating that such feeding arrangеments are common in the cattle industry. This evidence created a genuine issue of material fact regarding the commercial reasonableness of the time of retention of possession of the cattle. Summary judgment, therefore, was improper on this issue.9
E. Federal Improvement Lien
Granada contends that, if it is not found to be the owner of the cattle, it is entitled to an improvement lien upon the animals held in Granada‘s name by B & W.
Similarly, B & W argues that since it at all times retained physical possession of the animals, it merely avoided the transfer rather than recovered the property transferred, making
Finally, B & W argues that only transferees in possession should obtain improvement liens, while transferees who contributed to “misleading” the debtor‘s creditors by failing to obtain possession should be denied such a lien. The statute refers broadly to “transferees,” and there is nothing in the statute or case law to suggest that Congress meant only transferees in possession.
We therefore hold that there was a “transfer” and “recоvery” of an interest in property sufficient to invoke the improvement lien statute.
Section 550(d) permits only a “good faith transferee” to obtain an improvement lien on recovered property. B & W argues, and the bankruptcy court held, that because of the conclusive presumption of constructive fraud under
The bankruptcy court‘s determination that B & W transfered title to Granada without sufficient change of possession to satisfy
On remand, the court shall consider the customs and practices of the cattle industry to determine whether B & W‘s retention of possession was commercially reasonable.
If the court on remand determines that B & W‘s retention of possession was not commercially reasonable within the meaning of
AFFIRMED IN PART, REVERSED IN PART and REMANDED.
Notes
The several recent amendments toConclusive presumption of fraud. Every transfer of personal property and every lien on personal property made by a person having at the time the possession or control of the property, and not accompanied by an immediate delivery followed by an actual and continued change of possession of the things transferred, is conclusively presumed fraudulent and void as against the transferor‘s creditors while he remains in possession and the successors in interest of those creditors, and as against any person on whom the transferоr‘s estate devolves in trust for the benefit of others than the transferor and as against purchasers or encumbrancers in good faith subsequent to the transfer.
* * *
Subdivision (2) of
Section 2402 of the Commercial Code is not restricted by the provisions of this section.
CREDITOR‘S RIGHTS AGAINST SOLD GOODS IN SELLER‘S POSSESSION. Where a person having sold goods continues in possession of the goods, or of negotiable documents of title to the goods, and such retention of possession is fraudulent in fact or is deemed fraudulent under any rule оf law, a creditor or creditors of the seller may treat the sale as void.Cal.Civ.Code Sec. 1746, repealed, 1963 Cal.Stat. c. 819, p. 1997, Sec. 2, effective January 1, 1965.
B & W also argues that since