Fricke v. Valley Production Credit Ass'n

• Citation: 721 S.W.2d 747
• Decision Date: 30 June 1986
• Docket Number: No. 49603,49603
• Parties: 1 UCC Rep.Serv.2d 943 William E. FRICKE, Plaintiff-Respondent, v. VALLEY PRODUCTION CREDIT ASSOCIATION, Defendant-Appellant.
• Court: Missouri Court of Appeals

Page 747

721 S.W.2d 747

1 UCC Rep.Serv.2d 943

William E. FRICKE, Plaintiff-Respondent, v. VALLEY PRODUCTION CREDIT ASSOCIATION, Defendant-Appellant.

No. 49603.

Missouri Court of Appeals,

Eastern District,

Division Three.

June 30, 1986.

Motion for Rehearing and/or Transfer to Supreme Court Denied

Aug. 8, 1976.

Case Transferred To Supreme Court Sept. 16, 1986.

Original Opinion Reinstated Jan. 22, 1987.

Richard D. Sabbert, St. Charles, Jason M. Rugo, St. Louis, Thomas P. Hohenstein, Clayton, for defendant-appellant.

Walter D. McQuie, Jr., Montgomery City, for plaintiff-respondent.

KAROHL, Presiding Judge.

Defendant appeals judgment for plaintiff rendered on November 16, 1984, after jury trial in the Circuit Court of Montgomery County. Plaintiff Fricke claimed below that Valley Production Credit Agency (VPCA) had converted his cattle when it repossessed cattle from its borrower-debtor, Robert Hartman, and sold these cattle at auction. VPCA filed a counterclaim asserting its right to proceeds of other cattle sales under its perfected security interest in Hartman's cattle. The jury found for Fricke on his claim and on VPCA's counterclaim, awarding Fricke $98,000. We reverse and remand.

BACKGROUND:

VPCA is a production credit association established by Congress as part of the farm credit system. It functions as a bank and is privately owned by the farmers who borrow from it. Robert Hartman was one of these farmers borrowing from VPCA. Hartman had a line of credit at VPCA upon which he drew using sight drafts. He used its funds as operating loans for several farms in the area, including four used primarily for cattle. By September, 1981, Hartman was $900,000 in debt to VPCA under promissory notes, a security agreement, its amendments and properly filed financing statements. The security agreement and amendments covered, among other farming assets, "all cattle and all farm livestock." It also covered "All additions, acquisitions, replacements, substitutions of collateral described in this Section 2 and any and all property of similar type and kind now owned or hereafter acquired by debtor ..." As Hartman purchased additional cattle, amendments were added to reflect the size, type and number of the new purchases. There is no dispute that VPCA's security interest in all of Hartman's cattle was current and perfected throughout the events here at issue.

Sometime in September, 1981, Hartman and Fricke agreed to buy and sell cattle together. There were two agreements drafted to define this business relationship. The first, dated September 14 and signed by Hartman alone, was written by Fricke or his wife following a meeting between the two men and stated in part:

"William E. Fricke is to furnish the capital needed to carry on the business expense but not to exceed $75,000.00 which will be secured by a deed of trust and a non-interest bearing note of $75,000.00 given by Robert D. Hartman and Barbara F. Hartman.

Fricke testified that he intended this document only to outline the basic understanding between himself and Hartman, and also stated that he considered it unnecessary for Hartman to give him a deed of trust because he thought his security lay in the cattle. Hartman gave the deed of trust as evidence of his good faith, according to Fricke. Fricke did, however, record the deed. Fricke denied this was a partner or joint venture agreement but acknowledged that he was to divide the profits with Hartman "at the end of the operation."

The second agreement was also dated September 14, 1981, although it was drafted in November by O.J. Mundwiller, Fricke's attorney. It was drafted in November 1981 and back dated to the date of the first agreement. The parties executed this contract in late November. The agreement stated that Hartman was the employee of Fricke, would receive a salary of $7 a head after sale, would split sale profits with Fricke and that Fricke would be the owner of the cattle.

TRANSACTIONS:

All the cattle purchases and sales by Fricke and Hartman took place between September 11 and October 8, 1981. All purchases occurred before the second agreement. Each cattle purchase except the last one was funded by direct sight draft on VPCA or by check drawn on a Hartman Farms account funded by deposits from the VPCA line of credit.

The first cattle purchase was for 149 head on September 11 and 12 from Tri-State and Farmer's Livestock Markets. This was before the first agreement. The sale invoice read "sold to RH." Hartman paid for these cattle by checks drawn on Hartman Farms, for which Fricke reimbursed him by two checks dated September 14 totalling $46,496.32. Fricke also reimbursed Hartman for trucking and insurance costs of $1,294.40, but directly paid a trucking bill for $1,336.20. Farmer's Livestock Market later corrected a math error in Fricke's favor by remitting $3,966.82 by check dated September 15. This check was made payable to Hartman and he endorsed it to Fricke.

The men then co-signed as sellers for 59 head at Callaway Stock Sales although the exact date and selling price are unclear in the record. Fricke reimbursed Hartman for handling fees of $413.00 by check dated September 17.

The second purchase was for 71 head at the Jonesboro Livestock Market on September 14. The two invoices were marked "sold to RH." Hartman paid for these cattle by VPCA sight draft for $25,343.39. Fricke reimbursed Hartman by checks for the purchase price with additional transport, insurance and feeding costs of $1,595.95.

There was a second sale of cattle on September 15, when Fricke and Hartman co-signed as sellers of 29 head. The record does not indicate the proceeds.

On September 18, there was a third purchase of 78 head for $15,977.18. The three invoices were marked "sold to RH." Hartman drew a VPCA sight draft dated September 24 payable to his employee, Roland Linneman, who apparently purchased the cattle as agent at the market for $15,977.18. Fricke reimbursed Hartman for this purchase sum by check dated September 22 and also on that date paid him $135 for feed of 5 head lost off the transport truck. These 5 cattle were not recovered.

The fourth and final purchase was of 187 head at Tri-State Live Stock Market on September 25. The invoice read "Sold to RH" and the total purchase price, according to the record, was $38,175.35. Hartman paid for the 187 head from his own account and Fricke reimbursed him by three separate checks for $10,000 on September 29, $12,115.34 on October 6 and $2,990.87 on October 8. These checks total $25,106.21. Hartman's original purchase check bounced and the seller repossessed 175 head plus $2,000 (or $3,000) to cover the difference. To raise additional funds for this fourth purchase, Fricke and Hartman had to sell 87 cattle and use sale proceeds because Fricke's original $75,000 investment was depleted. Because Fricke reimbursed Hartman for $25,106.21 of the $38,175.35 total price, the sale proceeds for 87 head seem to be $13,069.14 although the record before us is silent. These 87 cattle were shipped to Texas for sale on October 7.

Additional sales took place during the first week of October. On October 2, the men sold 64 head for $12,337.84 and on October 6, they sold 19 head for $2,990.87. ¹

Trial testimony indicates that a certain death loss is to be expected when raising cattle but no actual figures are available to show what death loss occurred in this herd. Roland Linneman, who lived at the Gleeson farm and cared for the cattle, estimated this loss at 2 to 5 percent at most.

COURSE OF DEALING:

Hartman hit on a cattle selling plan while travelling in the mid-Atlantic states during 1981. He noticed cattle prices seemed to be lower in that region than in Missouri so he planned to purchase blocks of cattle in Virginia and Maryland for immediate resale in Missouri. Needing money, Hartman met with Fricke in September of 1981 and they began purchases under the first agreement discussed above. Fricke had borrowed his $75,000 investment from People's Savings Bank and, at the close of the two weeks of cattle purchases and sales, all was spent. During the purchases and sales, Fricke never went to the livestock markets or made any direct cattle purchases. Instead, Hartman would purchase the cattle at market with his name on the sale invoice, present the invoice to Fricke as proof of purchase and receive Fricke's check in reimbursement. Hartman also paid trucking costs and took out insurance naming himself as beneficiary. Fricke also reimbursed him for these costs.

Occasionally, Roland Linneman would purchase cattle as agent for Hartman. Linneman lived on the Gleeson farm and worked for Hartman. He testified that he had no dealings with Fricke in 1981 and took no instructions from him. Linneman represented himself at auction as dealing for Hartman, and had no information that Fricke was involved in any of the cattle on the Gleeson farm prior to October, 1981.

Hartman had much discretion in making purchases and sales. Fricke only went up to Hartman's Gleeson Farm to count cattle or to review how Hartman was handling the situation. Fricke could only recall two occasions when he even helped select any cattle to be sold. He did not consider himself "a cattle man" and relied on Hartman's expertise to make purchase or sale decisions.

Fricke did not know exactly how the cattle were pastured but thought they were unloaded into a lot on the Gleeson Farm and then moved to a southern pasture where they were left free to roam. Hartman, by deposition, agreed and stated that the cattle were eventually commingled with his own. Fricke was not personally aware of any distinguishing marks on the disputed cattle, although Hartman stated by deposition that his cattle had an unregistered "BH" brand to distinguish them from the cattle at issue and that some of these cattle were marked by notched ear.

During the fourth and final series of purchases, 175 head of cattle were repossessed when...