First National Bank & Trust Co. v. Atchison County Auction Co.

699 P.2d 1032, 10 Kan. App. 2d 382, 41 U.C.C. Rep. Serv. (West) 219, 1985 Kan. App. LEXIS 737
CourtCourt of Appeals of Kansas
DecidedMay 2, 1985
Docket56,678
StatusPublished
Cited by14 cases

This text of 699 P.2d 1032 (First National Bank & Trust Co. v. Atchison County Auction Co.) is published on Counsel Stack Legal Research, covering Court of Appeals of Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
First National Bank & Trust Co. v. Atchison County Auction Co., 699 P.2d 1032, 10 Kan. App. 2d 382, 41 U.C.C. Rep. Serv. (West) 219, 1985 Kan. App. LEXIS 737 (kanctapp 1985).

Opinion

Swinehart, J.;

Atchison County Auction Company (Atchison Auction) appeals from the judgment of the district court which found it liable to the First National Bank & Trust Company of Oklahoma City (Bank) for the proceeds from an unauthorized sale of seventy-five head of cattle covered by the Bank’s perfected security interest.

In September 1981, Dr. Wilbur Hilst, a Topekan, sought financing for the purchase of 1,955 calves to expand his ranching operation. At the time he was negotiating a loan with the Oklahoma Bank, he owned approximately 780 head of cattle, a majority of which were purchased with loans from the First National Bank of Wamego and subject to its perfected security interest. One hundred seventy-eight head of the cattle were purchased from Jim and Russell Winsor on credit, and subject to their security interest which was unperfected at the time the Oklahoma Bank perfected its security interest.

The Oklahoma Bank inspected Hilst’s holdings and agreed to grant Hilst a line of credit up to $950,000 for the purchase of the calves. In return they required Hilst sign a security agreement, a financing statement, and a loan agreement granting them a security interest in “all livestock . . . now owned or hereinafter acquired” by Hilst. The Oklahoma Bank paid the loans at the Wamego Bank, and its security interest was assigned to the Oklahoma Bank. The financing statement was properly filed with the Shawnee County Register of Deeds on September 28, 1981.

*384 Shortly after the loan was consummated the Bank learned of the Winsor security interest with an outstanding debt of approximately $66,000. An agisters’ lien of $16,000 had also been filed by the owners of the pasture in which these cattle were kept. Hilst was instructed by the Oklahoma Bank to clear up the liens on the Winsor cattle with funds other than those he had received from the Bank. The Winsor security interest was finally released in December 1981.

In April or May of 1982 the Oklahoma Bank learned that Hilst had sold seventy-five head of cattle at Atchison Auction on October 24, 1981. Hilst admitted to the Bank in writing that he sold the cattle without the knowledge of the Oklahoma Bank and without forwarding the proceeds of the sale to it.

The Oklahoma Bank then brought action against Atchison Auction, alleging conversion. The trial court found that the Oklahoma Bank had a valid security interest in the cattle, that it had not consented to the sale as required by the security agreement, and that Atchison Auction was liable to the Bank for $20,406.65 with interest at the rate of 10% per annum from October 24, 1981.

On appeal Atchison Auction contends the trial court erred in finding that the Oklahoma Bank had a perfected security interest in the seventy-five head of cattle sold, or, in the alternative, erred in concluding the security interest was not waived by the Oklahoma Bank’s consent to the sale.

Initially, Atchison Auction contends that the Oklahoma Bank failed to prove that the cattle sold were cattle covered by the security agreement. The following description of the collateral is found in the security agreement:

“ALL LIVESTOCK, FEED, FEED GRAIN AND FEED COMMODITIES NOW OWNED OR HEREINAFTER ACQUIRED BY THE DEBTOR AND ALL WAREHOUSE RECEIPTS, BANKING ACCOUNTS, DEPOSITS, COMMODITY FUTURES CONTRACTS, MARGIN ACCOUNTS, DOCUMENTS OF TITLE, INSTRUMENTS, CONTRACT RIGHTS, ACCOUNTS RECEIVABLE, GENERAL INTANGIBLES AND OTHER TANGIBLE AND INTANGIBLE PERSONAL PROPERTY RELATING THERETO, ALL INSURANCE POLICIES AND PROCEEDS PAYABLE WITH RESPECT TO ANY OR ALL OF THE FOREGOING, TOGETHER WITH ALL PROCEEDS, PRODUCTS AND INCREASES THEREOF.”

The security agreement further included the debtor’s covenant that

*385 “Said Goods are now in possession of Debtor, and are or when acquired by Debtor will be located at MAN RANCH; MAN RANCH; and WESTERN FEEDYARD, INC. in Shawnee; Wabaunsee; and Stanton County, State of Kansas.” (See Appendix 1, copy of security agreement.)

The description in the financing statement echoes the security agreement description, but contains no reference to the location of the livestock.

Atchison Auction contends that the language of the security agreement covers only those cattle in the stated location, that Hilst had cattle in other counties, and that the Bank failed to show that these cattle were covered by the security agreement. The district court found that the security agreement granted the Bank a security interest in “all livestock” owned by Hilst and that the cattle sold were subject to the security agreement. We agree.

Two provisions of the Uniform Commercial Code speak to the sufficiency of a description of collateral in a security agreement or financing statement.

K.S.A. 84-9-110 provides:

“[F]or purposes of this article, any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described.”

K.S.A. 84-9-402(1) further provides, in part:

“A statement of collateral in a financing statement is adequate if it generally identifies goods by one or more of the classifications listed in K.S.A. 84-9-109, or generally identifies other collateral by one or more of the following classifications: fixtures, documents, instruments, general intangibles, chattel paper or accounts. A statement of collateral in a financing statement shall not be deemed inadequate solely because it is broader than, or otherwise differs from, that found in the security agreement. A description of the location of the collateral is not necessary to an adequate statement except insofar as a description of location is specifically required by the uniform commercial code.”

The Code does not require that a description of livestock include a description of the location of the collateral. Furthermore, we find that the word “livestock,” one of the items included within the K.S.A. 84-9-109(3) definition of “farm products,” reasonably identified the covered collateral and was sufficient to create a security interest in all livestock owned by Hilst.

The debtor’s covenant to keep the collateral at a specific location is not part of the language granting the security interest, *386 but merely a promise on the part of the debtor to restrict the physical location of his livestock. As such it does not act as a limitation on the grant of the security interest. Cf. In re Little Brick Shirthouse, Inc., 347 F.Supp. 827 (N.D. Ill. 1972).

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Bluebook (online)
699 P.2d 1032, 10 Kan. App. 2d 382, 41 U.C.C. Rep. Serv. (West) 219, 1985 Kan. App. LEXIS 737, Counsel Stack Legal Research, https://law.counselstack.com/opinion/first-national-bank-trust-co-v-atchison-county-auction-co-kanctapp-1985.