Farmers State Bank & Trust Co. v. Mikesell, CA1201

• Decision Date: 10 June 1988
• Docket Number: No. CA1201,CA1201
• Citation: 51 Ohio App.3d 69,554 N.E.2d 900
• Parties: , 11 UCC Rep.Serv.2d 1306 FARMERS STATE BANK & TRUST COMPANY, Appellee, v. MIKESELL et al., Appellants.
• Court: Ohio Court of Appeals

Page 69

51 Ohio App.3d 69

554 N.E.2d 900, 11 UCC Rep.Serv.2d 1306

FARMERS STATE BANK & TRUST COMPANY, Appellee, v. MIKESELL et al., Appellants.

No. CA1201.

Court of Appeals of Ohio, Second District, Darke County.

June 10, 1988.

Syllabus by the Court

1. An individual partner, acting without authority from the partnership may not assign his interest in partnership assets as security for his personal debts. (R.C. 1775.24[B].)

2. Although a partner may not assign his interest in particular assets of the partnership, he may assign his interest in the partnership, that is, his right to share in the partnership's profits and surplus.

3. Partners may be estopped from denying that another partner acted without authority in assigning partnership property, but only if they induced others to believe that the assignment was authorized.

4. A creditor's claim against a debtor for wrongful transfer of collateral by the debtor accrues when the creditor receives knowledge or constructive knowledge of the wrongful transfer. (R.C. 2305.09[B].)

5. A creditor receives constructive notice of a wrongful transfer of collateral when the debtor submits a financial statement which does not list the collateral as an asset, although previously submitted financial statements did list the collateral.

6. If a security interest states the location of collateral as a promise of the debtor to keep it there, as opposed to a description identifying the collateral, then its location in a different place does not affect the creditor's security interest.

7. The requirement of R.C. 1309.39 that a financing statement give the name of the debtor is not met by naming an individual partner where the debtor is a partnership.

8. A description in a security agreement of hogs as collateral may be sufficient even if it does not specify whether the security interest is in specific hogs or in any hogs that were part of the debtor's herd.

9. A security agreement's description of collateral as certain hogs plus "any and all additions, accessions, and substitutions" retains the creditor's interest in replacement hogs after the debtor periodically, in the normal course of business, sells off and replaces his entire stock.

William H. Bertram, Jr., Greenville, for appellee.

Craig D. Heckman, Greenville, for appellants.

FAIN, Judge.

Defendants-appellants Bob Mikesell, his wife Juanita Mikesell, his sons Kent and Bruce Mikesell, and Mikesell Brothers Farm (a partnership consisting of Bob, Kent, and Bruce Mikesell) appeal from a decision entered in the Darke County Court of Common Pleas holding that plaintiff-appellee Farmers State Bank & Trust Co. ("Farmers State") is entitled to possession of livestock and a tractor owned by Mikesell Brothers Farm. ¹ In the alternative, the trial court awarded Farmers State judgment in the amount of $31,103.13 plus interest.

After reviewing the record, we conclude that under the Uniform Partnership Act as enacted in Ohio (R.C. Chapter 1775), an attempt by a partner to secure a personal debt by pledging his interest in specific partnership assets does not create a lien in favor of the partner's creditor as to those assets. We further hold that an action by a creditor to recover collateral pledged by a debtor and then wrongfully transferred by the debtor is not timely when it is brought more than four years after the creditor had constructive notice of the transfer.

Defendants Paul Mikesell (another son of Bob) and Gro-Lean Gilts of Ohio not having appealed from the judgment, the judgment of the trial court against them will stand; in all other respects, the judgment of the trial court will be reversed, and judgment will be entered in favor of defendants-appellants Bob Mikesell, Kent Mikesell, Bruce Mikesell, Mikesell Brothers Farm, and Juanita Mikesell.

I

Bob Mikesell testified at trial that since the mid-1970s he has operated a hog farm located on Stephens Road in New Madison, Ohio. Bob Mikesell's farm is described in the record as a "farrow to finish operation," meaning that after hogs on the farm are bred, the resulting offspring are raised to a certain weight and then sold. According to Bob Mikesell, this process is repeated twice each year and approximately fifteen hundred to sixteen hundred young are produced in each breeding cycle.

On March 5, 1976, Bob Mikesell and his son Paul Mikesell entered into an unrecorded partnership agreement creating Gro-Lean Gilts of Ohio ("Gro-Lean Gilts"). According to the agreement, the purpose of Gro-Lean Gilts was to be " * * * the purchase, raising and selling of hogs and all things necessary and incident thereto." Section 10 of the partnership agreement stated that "[n]o partner shall assign, pledge or mortgage any of the partnership property or interest therein or do anything or permit any act whereby the firm's money, interest, or property of [sic ] his interest therein may be liable to seizure, attachment or execution without the expressed, written consent of the other partner."

The present case arises from a series of loan transactions between Paul Mikesell and Farmers State. On November 23, 1979, Paul Mikesell borrowed $21,800 from Farmers State in his own name and gave the bank a security interest in a 1973 International Harvester tractor and twenty-one Black Angus beef cows. It appears from the record that Paul Mikesell owned the tractor and the cattle individually. Farmers State perfected its interest in the collateral by filing a financing statement with the Darke County Recorder's office on November 28, 1979.

On July 18, 1980, Paul Mikesell individually borrowed $6,000 from Farmers State and gave the bank a security interest in a 1973 Hough front-end loader. Farmers State perfected its interest in the collateral by filing a financing statement on July 31, 1980.

Later in 1980, on December 15, Paul Mikesell borrowed an additional $14,000 from Farmers State and gave the bank a security interest in livestock owned by Gro-Lean Gilts. ² Farmers State filed a financing statement covering the livestock on December 17, 1980. Both the security agreement and the financing statement described the collateral as " 1/2 Interest in 350 Sows, 15 Boars, 1,000 Fat Hogs."

There is no indication in the record that Bob Mikesell knew of or authorized Paul Mikesell's pledge of partnership assets.

Bob Mikesell testified at trial that Paul Mikesell lost interest in hog farming and left Gro-Lean Gilts on January 1, 1982. According to Bob Mikesell, he acquired his son's interest in the partnership in return for agreeing to forgive certain debts owed to him by Paul. On November 29, 1982, a notice of dissolution was filed in the Darke County Recorder's office stating that Gro-Lean Gilts had been dissolved effective January 1, 1982.

David Shives, an officer of Farmers State, testified at trial that he had not seen the notice of dissolution. According to Shives, although the Mikesells had extensive dealings with Farmers State, they had not informed the bank that Paul Mikesell was no longer active in the hog farming business. Shives testified that he personally had seen no outward indications that there had been a change in the operation of the Mikesell farm.

It appears from the record that at some time, the Mikesell family formed another partnership, Mikesell Brothers Farm. ³ The original members of this partnership were Bob, Paul, and Kent Mikesell. Bruce Mikesell became a partner at a later time. Bob Mikesell testified at trial that Mikesell Brothers Farm was at first concerned solely with a grain-farming operation which was attendant to the hog farming business. However, according to Bob Mikesell, a decision was made at some point to informally merge the grain farming operation with the hog farming operation in order to obtain financing. Eventually, Mikesell Brothers Farm ran both operations.

It appears that sometime late in 1982, after the hog farming operation had been merged with the grain farming operation, Paul Mikesell left Mikesell Brothers Farm. ⁴ However, the record indicates that even after Paul Mikesell left the partnership, he occasionally worked on the Mikesell farm during busy periods. Bob and Kent Mikesell testified that although Paul Mikesell worked on the farm, they did not consider him an "employee" since he received no compensation. Rather, according to Bob and Kent, there was a tacit understanding that Paul would receive credit against some unspecified debt in return for his labor.

On April 14, 1984, Paul Mikesell borrowed $25,000 from Farmers State. The bank filed a series of statements with the Darke County Recorder's office continuing its security interest in the International Harvester tractor, the twenty-one beef cows, the Hough front-end loader, and the one-half interest in sows, boars, and hogs.

However, unbeknownst to Farmers State, Paul Mikesell had sold the International Harvester tractor to Mikesell Brothers Farm in 1980. ⁵ One of the exhibits at trial was a check drawn on the Mikesell Brothers Farm account at Farmers State made payable to the order of Paul Mikesell. The check, dated May 12, 1980, was for $40,000. According to Bob Mikesell, $14,000 of this amount represented payment to Paul Mikesell for the International Harvester tractor. The remaining $26,000 was for another piece of farm machinery the partnership had purchased from Paul Mikesell at the same time. Bob and Kent Mikesell testified that at the time Mikesell Brothers Farm purchased the tractor from Paul Mikesell, they did not know that it was subject to a security interest.

On February 7, 1985, Paul Mikesell filed for bankruptcy under Chapter 7 of the Bankruptcy Act (Section 701 et seq., Title 11, U.S.Code).

Shives testified at trial that he had gone to a meeting of creditors and had been told by the trustee in bankruptcy to go out to the Mikesell farm and pick up the collateral pledged by Paul Mikesell. ⁶ However, according to Shives, Bob and Bruce Mikesell had refused to...