Batey Land Livestock Co. v. Nixon

Opinion

No. 13369 & 13370

I N THE SUPREME COURT O THE STATE O MONTANA F F

B T Y L N & LIVESTOCK C M A Y a Montana C o r p o r a t i o n , AE AD O P N , P l a i n t i f f and A p p e l l a n t , -vs- ROBERT N I X O N , Defendant and T h i r d P a r t y P l a i n t i f f and A p p e l l a n t v e r s u s F r e d H a i l and Respondent t o B a t e y -vs- ROBERT BRAATON and HELEN BRAATON, h i s w i f e and FRED HALL, T h i r d P a r t y D e f e n d a n t s and Respondents. ............................................................ BATEY LAND & LIVESTOCK, a Montana C o r p o r a t i o n , P l a i n t i f f and A p p e l l a n t , -vs- ROBERT PAULEY, Defendant and T h i r d P a r t y P l a i n t i f f and A p p e l l a n t v e r s u s F r e d H a l l and Respondent t o Batey -vs- ROBERT BRAATON and HELEN BRAATON, h i s w i f e and FRED HALL, T h i r d P a r t y D e f e n d a n t s and Respondents.

Appeal from: D i s t r i c t Court of t h e S i x t e e n t h J u d i c i a l D i s t r i c t , Honorable A. B. M a r t i n , J u d g e p r e s i d i n g .

Counsel of Record:

For A p p e l l a n t s :

K r u t z f e l d t and Haker, M i l e s C i t y , Montana W. J . K r u t z f e l d t a r g u e d , M i l e s C i t y , Montana Anderson, Symrnes, F o r b e s P e e t e & Brown, B i l l i n g s , Montana James L . J o n e s a r g u e d , B i l l i n g s , Montana

F o r Respondents:

Lucas, J a r d i n e and Monaghan, M i l e s C i t y , Montana Thomas M. Monaghan a r g u e d , M i l e s C i t y , Montana

S u b m i t t e d : J a n u a r y 1 2 , 1977

Decided : WAR 2 1977 M r . J u s t i c e Gene B. Daly delivered t h e Opinion of t h e Court.

Batey Land & Livestock Company appeals from summary

judgment rendered f o r defendants Robert Nixon and Robert Pauley

by t h e d i s t r i c t c o u r t , Custer County, i n a c t i o n s f o r conversion.

Defendants Nixon and Pauley appeal from t h e d i s t r i c t c o u r t ' s

o r d e r dismissing t h e i r t h i r d p a r t y complaints a g a i n s t Fred H a l l

f o r indemnification.

O May 2 , 1968, B a b y Land & Livestock Company (Bgtey) n

s o l d 215 head of P e r e f o r d c a t t l e , 198 cows and 1 7 b u l l s , branded

Heart b a r H , t o Robert and Helen Braaton. Payment was made by

promissory n o t e i n t h e amount of $43,000 executed by Braatons

and payable i n i n s t a l l m e n t s of $10,000 p l u s i n t e r e s t on November

1st of each year commencing i n 1968. Braatons a l s o executed a

s e c u r i t y agreement on May 2, 1968, pledging t h e c a t t l e a s s e c u r i t y

f o r t h e indebtedness. A financing statement was f i l e d w i t h t h e

Rosebud C6unty c l e r k and recorder on May 6 , 1968.

O May 2, 1968 Braatons borrowed $13,570 from t h e Miles n

City Production Credit Association (PCA) and executed a s e c u r i t y

agreement l i s t i n g i t e m s of personal property, including c a t t l e ,

a s c o l l a t e r a l f o r t h e loan:

" 2. LIVESTOCK, EQUIPMENT ANDIOR OTHER-. G O S O D- All l i v e s t o c k , equipment, and/or o t h e r goods of every kind and d e s c r i p t i o n now owned o r h e r e a f t e r acquired by t h e Debtor, including, b u t n o t l i m i t e d t o , t h e following:

F i f t y Head of Hereford C a t t l e , Branded: L e f t Rib, s u b j e c t t o p r i o r l i e n , and described a s follows:

48 Cows 2 Bulls

Two Hundred F i f t e e n Head of Hereford C a t t l e , Branded: Right Ribs, held by B i l l of S a l e , s u b j e c t t o p r i o r l i e n , and described a s follows:

198 Cows 17 B u l l s ALSO: One Hundred Per-Cent (100%) of t h e i n c r e a s e from One Hundred Ninety-Eight Head of Hereford Cows, branded : Right Ribs, s a i d i n c r e a s e t o be Right Ribs; @ branded:"

The s e c u r i t y agreement provided t h a t Braatons n o t s e l l o r d i s p o s e

of any of t h e c o l l a t e r a l without t h e consent of PCA.

On May 9 , 1968, Robert L. Batey, a c t i n g i n h i s c a p a c i t y a s

p r e s i d e n t of Batey Land & Livestock Company, executed a subordina-

t i o n agreement prepared by PCA. By t h e terms of : t h e agreement,

Batey consented t o g i v e P A a f i r s t l i e n on Braatons' p e r s o n a l C

p r o p e r t y , n o t t o exceed $13,570 t h e amount of t h e loan:

[May 9 , 1968 Subordination Agreement] " I n o r d e r t o a s s i s t him t o o b t a i n t h i s l o a n , I a g r e e t h a t any i n t e r e s t o r l i e n which I have o r may o b t a i n d u r i n g t h e l i f e o f such s e c u r i t y agreement, i n o r on h i s r e a l o r p e r s o n a l p r o p e r t y ( i n c l u d i n g c r o p s ) , and t h e i n c r e a s e from 198lHereford cows, b r a n d e d : w marked on r i g h t s i d e , w i l l b e considered j u n i o r and i n - f e r i o r t o t h a t l i e n which you may t a k e on such p r o p e r t y t o s e c u r e your loan. I f u r t h e r a g r e e t h a t I w i l l n o t d i s t u r b him i n t h e possession of e i t h e r h i s r e a l o r p e r s o n a l p r o p e r t y , f o r a p e r i o d n o t t o exceed e i g h t months from t h i s d a t e , without f i r s t s e c u r i n g your w r i t t e n consent."

On May 21 and May 28, 1968, P A f i l e d n o t i c e s of s e c u r i t y C

agreement w i t h t h e Montana Livestock Commission, Helena, Montana,

t o p e r f e c t i t s s e c u r i t y i n t e r e s t embodied i n t h e May 2 , 1968

s e c u r i t y agreement. Neither n o t i c e r e f e r r e d t o o r s p e c i f i e d any

l i v e s t o c k branded Heart b a r H. The only l i v e s t o c k s p e c i f i e d were

t h o s e c a t t l e branded Lazy H hanging H ( 3 )and M hanging 0 (w). Braatons n e g o t i a t e d a second loan w i t h P A f o r $21,610 C

and executed a second s e c u r i t y agreement on October 31, 1968. This

s e c u r i t y agreement a l s o l i s t e d items o f p e r s o n a l p r o p e r t y , i n c l u d i n g

c a t t l e , a s c o l l a t e r a l f o r t h e loan:

"LIVESTOCK, EQUIPMENT AND/OR OTHER G O O D W 1 1 l i v e s t o c k , equipment,and/or o t h e r goods of every kind and d e s c r i p - t i o n now owned o r h e r e a f t e r a c q u i r e d by t h e Debtor, i n - c l u d i n g , b u t n o t l i m i t e d t o , t h e following: F i f t y Head of Hereford C a t t l e , Branded: L e f t Ribs and T h i r t y Head of Hereford Calves, Branded: % Right 3 Ribs, described a s follows:

48 Cows 30 Calves 2 Bulls

Two Hundred Seventeen Head of Hereford C a t t l e , Branded: Right Ribs, s u b j e c t t o a f i r s t s e c u r i t y i n t e r e s t held by Batey Land & Lovestock Co., described a s follows:

200 Cows 17 B u l l s

ALSO: One Hundred Per Cent (100%) of t h e i n c r e a s e from Two Hundred (200) Head of Hereford Cows, B r a n d e d : m Right Ribs, s a i d i n c r e a s e t o be branded: Right Ribs ;'I

On October 31, 1968, Robert L. Batey, once again a c t i n g i n

h i s c a p a c i t y a s p r e s i d e n t of Batey Land & Livestock Company,

executed a second subordination agreement. I n t h e same language

used i n t h e f i r s t subordination agreement, Batey consented t o g i v e

PCA a f i r s t l i e n on Braatons' personal property, n o t t o exceed

$21,610 t h e amount of t h e second loan:

[October 31, 1968 Subordination Agreement] "In Order t o a s s i s t him t o o b t a i n t h i s loan, I a g r e e t h a t any i n t e r e s t o r l i e n which I have o r may o b t a i n during t h e l i f e of such s e c u r i t y agreement, i n o r on h i s r e a l o r personal property (including c r o p s ) , and t h e i n c r e a s e from 200 Hereford cows, b r a n d e d : m marked on r i g h t s i d e , w i l l be considered j u n i o r and i n f e r i o r t o t h a t l i e n which you may take on such property t o secure your loan. I f u r t h e r agree t h a t I w i l l n o t d i s t u r b him i n t h e possession of e i t h e r h i s r e a l o r personal property, f o r a period not t o exceed twelve months from t h i s d a t e , without f i r s t se- curing your w r i t t e n consent."

On November 19, 1968 P A f i l e d a n o t i c e of renewal of C

s e c u r i t y agreement with t h e Montana Livestock Commission i n o r d e r

t o p e r f e c t i t s s e c u r i t y i n t e r e s t embodied i n t h e October 31, 1968,

s e c u r i t y agreement. This n o t i c e , a s i n t h e case of t h e p r i o r two

n o t i c e s , f a i l e d t o r e f e r t o o r s p e c i f y Heart b a r H c a t t l e , s p e c i f y i n g

only c a t t l e branded Lazy H hanging H and M hanging 0. On A p r i l 21, 1969, Batey f i l e d a n o t i c e of s e c u r i t y

i n t e r e s t with t h e Montana ~ i v e s t o c kCommission t o p e r f e c t i t s

s e c u r i t y i n t e r e s t embodied i n t h e May 2 , 1968, s e c u r i t y agree-

ment. e his n o t i c e s p e c i f i e d l i v e s t o c k branded Heart b a r H as

being t h e s u b j e c t m a t t e r of t h e s e c u r i t y agreement dated May 2 ,

1968, and l i s t e d Robert and Helen Braaton a s t h e debtors.

Subsequent t o t h e above t r a n s a c t i o n s , Braatons s o l i c i t e d

t h e s e r v i c e s of Fred H a l l , a l i v e s t o c k broker, t o n e g o t i a t e

t h e s a l e of "Braatons"' cattle. On ~ e c e m b e r6 , 1969, H a l l

negotiatdd w i t h Robert Nixon f o r t h e s a l e of 80 head of c a t t l e ,

branded Heart b a r H f o r $18,400';' Hall further negotiated with

Robert Pauley t h e s a l e of 20 head of c a t t l e , branded Heart b a r H ,

f o r $4,200 on December 12, 1969. H a l l received payment of t h e

e n t i r e amount from both s a l e s ($22,600) and issued h i s own per-

sonal check made payable t o "Robert R. Braaton & P.C .A." i n the

amount of $21,990. ($22,600 l e s s $610 H a l l ' s commission f o r t h e

two s a l e s a t $10 p e r head.)

On A p r i l 26, 1971 Batey f i l e d s u i t a g a i n s t Braatons i n

Rosebud County t o recover sums owed by Braatons. The only gay-

ments made by Braatons on t h e $43,000 promissory n o t e appear t o be

a payment of $10,000 p l u s i n t e r e s t made on November 4 , 1968, and

a payment of ;510,000 p l u s i n t e r e s t made on November 11, 1969.

O t h e same d a t e a s t h e f i l i n g i n Rosebud County, Batey n

f i l e d t h e i n s t a n t a c t i o n s i n t h e d i s t r i c t c o u r t of Custer County

a g a i n s t Nixon and Pauley, f o r conversion of t h e Heart b a r H

cattle. Batey obtained a judgment a g a i n s t Braatons i n t h e amount

of $15,000 on J u l y 22, 1974. That judgment remains e n t i r e l y unpaid,

t h e Braatons apparently being judgment proof. On February 11,

1974, Nixon and Pauley f i l e d amended t h i r d p a r t y complaints a g a i n s t

t h e Braatons and H a l l , a l l e g i n g breach of warranty of title. , After the district court, Rosebud County, determined the liability of Braatons, and upon submission of the instant matters to the district court,;Custer County, Nixon, Pauley and Hall moved for summary judgment. Batey responded by filing a cross-motion for summary judgment. On March 7, 1975 the district court entered its ;memorandum and order denying all defendants' motions for summary judgment and granting Batey's motion on its theory of wrongful conversion. The district court concluded Batey had a perfected security interest in the cattle and Nixon and Pauley had converted the collateral by their purchases. The court found Hall to be a joint tortfeasor in the conversion of the cattle, but failed to find sufficient proof establishing fraud. Subsequent to the district court's order, Nixon and Pauley discovered the subordination agreements which gave PCA a paramount lien. By order dated April 30, 1975 the district court granted " a , motion to set aside the court's order granting summary judgment in favor of Batey. A trial without jury was ordered. The district court granted summary judgment for Nixon and Pauley on March 22, 1976. In its order and memorandum the

district court found PCA had a security interest in the Heart bar H cattle for $35,360, the amount of the two loans; that Batey signed agreements subordinating its security interest to the security interest held by PCA; that the subordination agreement signed by Batey was not ambiguous; thatthe security interest agreement between Braatons and PCA gave Braatons the right to sell the Heart bar H cattle with the consent of PCA; that PCA's acceptance of the proceeds from the sales constituted con- sent to the sales; that Nixon and Pauley ,had no actual notice of Batey's security interest; and that the sale of the cattle to Nixon and Pauley was conducted openly, fairly and.at market value. The d i s t r i c t c o u r t f u r t h e r ordered t h e a c t i o n s a g a i n s t t h e

t h i r d p a r t y defendants be dismissed with prejudice.

A s i n t h e d i s t r i c t c o u r t , t h i s Court w i l l t r e a t t h e

s e p a r a t e a c t i o n s a g a i n s t defendants Nixon and Pauley a s one,

because of t h e s i m i l a r i t y of f a c t s and l e g a l i s s u e s presented.

O review, i n i t i a l l y Batey conterids t h e - d i s t r i c t c o u r t n

e r r e d when i t granted defendants' motion f o r summary judgment.

I n o t h e r words, it i s argued t h e d i s t r i c t c o u r t e r r e d when it

found t h e P A possessed a perfected f i r s t l i e n ; t h a t t h e Heart C

b a r H c a t t l e were t h e s u b j e c t matter of t h e unambiguous subor-

d i n a t i o n agreement executed by Batey;and t h e r e was no i s s u e of f a c t

t o be decided by a jury.

A summary judgment can be granted only where t h e p r e t r i a l

record d i s c l o s e s (1) t h e absence of any genuine i s s u e of m a t e r i a l

f a c t and (2) t h a t t h e moving p a r t y i s e n t i t l e d t o judgment a s a

matter of law. Rule 5 6 ( c ) , M.R.Civ.P. For an e x t e n s i v e d i s -

cussion of t h e p r i n c i p l e s of summary judgment under Rule 56(c)

see: Harland v. Anderson, Mont . , 548 P.2d 613, 33 St.Rep.

363.

This Court's i n i t i a l inquiry concerns t h e presence o r

absence of a genuine i s s u e of m a t e r i a l f a c t . Batey contends PCA's

f a i l u r e t o s p e c i f y Heart b a r H c a t t l e i n i t s n o t i c e s of s e c u r i t y

agreement and n o t i c e of renewal of s e c u r i t y agreement i s proof of

PCA'S l a c k of i n t e n t t o secure a f i r s t l i e n on t h e Heart b a r H

cattle, I n l i g h t of t h i s evidence, Batey contends t h e subordina-

t i o n agreements a r e ambiguous and t h e i r i n t e r p r e t a t i o n i s a

genuine i s s u e of m a t e r i a l f a c t . It i s argued we must look t o t h e

i n t e n t of t h e p a r t i e s and t h e underlying circumstances surrounding the execution of the subordination agreements in resolving

the legal effect of the subordination agreements. We disagree.

The subordination agreements executed by Batey aredear and specific. Each of the instruments contains language sub- ordinating Batey's lien on Braatons' real or personal including crops and the increase from the Heart bar H cattle, to PCA1s lien. Sections 13-704 and 13-705, R.C.M. 1947, are controlling: Section 13-704: "Intention to be ascertained from language. The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." Section 13-705: "Interpretation of written contracts. When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this chapter." The subordination agreements fail to present a question of fact. The plain and clear meaning of the instruments is control and the intent of the parties is to be ascertained from the instruments. Fulton V. Clark, 167 Mont. 399, 538 P.2d 1371, 32 St. Rep. 808. As a matter of law, the subordination agreements give PCA a first lien on the Heart bar H cattle in the amount of $35,350. Since the proceeds of the sale, which the district court found to be open, fair and at market value, were less than this amount, the PCA did not exceed its security interest in the collateral. Batey contends that even if the subordination agreements are found to give PCA a superior lien, PCA failed to perfect its security interests when it failed to specify Heart bar H cattle as being the subject matter of the security agreements in the notices of security agreement and the notice of renewal of security agreement. This argument may be resolved by defining the purposes of the various instruments. The security agreement is the instrument which places the encumbrance on the debtor's property. The financing statement is to evidence an encumbrance on the real or personal property of a debtor and is filed with the county clerk and recorder where the debtor resides for the purpose of giving notice to third parties and perfecting the security interest, in compliance with the Uniform Commercial Code, section 87A-9-401, R.C.M. 1947. The filing of notices of security agreement and notices of renewal of security agreement with the Montana Livestock Commission is in compliance with section 52-319, R.C.M. 1947, which seeks to protect livestock markets from liability for conversion arising out of the sale of livestock burdened with liens. Montana Meat Co. v. Missoula Livestock Auction Co., 125 Mont. 66, 230 P.2d 955. The PCA perfected its security interest when it filed its financing statement on May 13, 1968, and listed "all livestock" as being the collateral for the security agreement. This instru- ment,:+dSlyfiled in the county where the debtor resided, gave notice to third parties that PCA had a perfected lien on Braatons' cattle. PCA's failure to adequately describe the Heart bar H cattle in the notices of security agreement and the notice of renewal of security agreement would act as a bar to PCA only if the cattle were sold by a livestock market and PCA was attempting to satisfy its lien by an action against the livestock market for conversion. Going one step further, Batey in executing the subordina- tion agreements, had actual notice of PCA's superior lien. Such actual notice estops Batey from coming before the courts and claiming that a sale of the Heart bar H cattle defeated his security interest in the collateral. The conclusive legal effect of the subordination agreements is to subordinate Batey of any interest in the proceeds from the sale of Heart bar H cattle, up to the amount of PCA's lien. We find it unnecessary to discuss defendants' appeal of the district court's order dismissing the third party complaints that against Fred Hall having resolvedlthe district court, in'granting defendants' motion for summary judgment, was not presented with any genuine issue of material fact and as a matter of law de- fendants were entitled to judgment. The judgment of the district court affirmed. ,

We Concur: