Home Bank & Trust Co. v. Cedar Bluff Cattle Feeders, Inc.

• Decision Date: 22 May 1998
• Docket Number: No. 77898,77898
• Citation: 25 Kan.App.2d 152,959 P.2d 934
• Parties: HOME BANK & TRUST COMPANY, A Kansas Banking Corporation, Appellee, v. CEDAR BLUFF CATTLE FEEDERS, INC., and Bank of Oklahoma, N.A., Appellants.
• Court: Kansas Court of Appeals

Page 934

959 P.2d 934

25 Kan.App.2d 152

HOME BANK & TRUST COMPANY, A Kansas Banking Corporation, Appellee, v. CEDAR BLUFF CATTLE FEEDERS, INC., and Bank of Oklahoma N.A., Appellants.

No. 77898.

Court of Appeals of Kansas.

May 22, 1998.

Syllabus by the Court

1. When there are conflicting security interests, priority is determined by the time of filing or perfection.

2. K.S.A. 84-9-312(4) is interpreted and applied.

3. Under K.S.A. 84-2-401(2), absent an explicit agreement to the contrary, title passes to the purchaser at the time the collateral is delivered.

4. The 20-day period for filing a financing statement under K.S.A. 84-9-312(4) generally begins to run upon the date the collateral is delivered.

5. To prevail on a claim of unjust enrichment, there must be a benefit conferred upon the defendant by the plaintiff, an appreciation or knowledge of the benefit by the defendant, and the acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without payment of its value.

6. Under the equitable doctrine of clean hands, no person may obtain relief in equity with respect to a transaction in which the person is guilty of inequitable conduct.

7. The general rule in Kansas is that prejudgment interest is allowable on liquidated claims. A claim becomes liquidated when both the amount due and the date on which it is due are fixed and certain or when the same becomes definitely ascertainable by mathematical computation.

8. The allowance of prejudgment interest under K.S.A. 16-201 is a matter of judicial discretion subject to reversal only when there is an abuse of discretion. If reasonable persons could differ regarding the propriety of the action taken by the district court, then it did not abuse its discretion.

Alan Joseph, Wichita, for appellants.

Terry C. Cupps and James D. Oliver, of Foulston & Siefkin, L.L.P., Wichita, for appellee.

Before MARQUARDT, P.J., GERNON, J., and DAVID PRAGER, Chief Justice Retired, Assigned.

MARQUARDT, Presiding Judge:

Cedar Bluff Cattle Feeders, Inc., and its assignee, Bank of Oklahoma, N.A., (Cedar Bluff) appeal from the decision of the district court that they did not have a purchase money security interest involving cattle. In the alternative, Cedar Bluff argues that it is entitled to be paid for the costs of caring for and feeding the cattle from the time that it repossessed them. Cedar Bluff also argues that the district court should not have awarded prejudgment interest to Home Bank & Trust Company (Home Bank).

C.C. Cattle Company, Inc., (C.C. Cattle) buys, grazes, and sells cattle. On March 4, 1991, Home Bank filed a financing statement covering C.C. Cattle's farm products, including livestock, and other property. On August 21, 1992, C.C. Cattle executed a $175,000 promissory note in favor of Home Bank and granted Home Bank a security interest in its inventory, farm products, livestock, accounts, and general intangibles whether owned at the time of the agreement or later acquired.

During August and September 1992, C.C. Cattle purchased 199 heifers and 125 steers for grazing and selling in January 1993. What happened to the cattle is not entirely clear from the evidence. The important point for this appeal is that Home Bank does not claim a purchase money security interest in the disputed collateral. In the priority dispute discussed below, Home Bank is a perfected secured creditor of C.C. Cattle.

Cedar Bluff, a feedlot, makes loans to customers to enable them to purchase cattle. C.C. Cattle and Cedar Bluff signed an agreement which provided that C.C. Cattle would "start 252 [head] of [heifers] beginning 2-9." This agreement, which was drafted and executed on March 5, 1993, provided that C.C. Cattle would own two-thirds of the cattle and that Cedar Bluff would own one-third. The president of C.C. Cattle testified that prior to signing the agreement, the parties had agreed to the terms over the phone. The vice president of C.C. Cattle testified that the agreement was reached before the cattle were shipped to C.C. Cattle.

Cedar Bluff delivered 252 heifers to C.C. Cattle between February 9, 1993, and February 28, 1993. C.C. Cattle executed a promissory note dated February 9, 1993, in favor of Cedar Bluff for $63,898.02. C.C. Cattle and Cedar Bluff also executed a loan and security agreement dated February 17, 1993, which referenced the promissory note by which C.C. Cattle granted Cedar Bluff "a continuing first priority, security interest in and to the Cattle." The president of Cedar Bluff testified that the promissory note and the security agreement were filled out by his secretary on March 8, 1993, and mailed to C.C. Cattle, which returned them on March 19, 1993.

C.C. Cattle gave Cedar Bluff a $16,800 check dated March 6, 1993. Cedar Bluff filed a financing statement on March 23, 1993, listing C.C. Cattle as the debtor and covering all cattle placed in partnership with Cedar Bluff. On March 31, 1993, Cedar Bluff assigned its rights under the loan and security agreement to the Bank of Oklahoma, N.A.

The president and general manager of Cedar Bluff testified that the heifers were delivered for grazing and that C.C. Cattle was to determine if it wanted to buy them. The district court found that the agreement was completed in January 1993 and that it went into effect on February 9, 1993, the date the first cattle were delivered. The district court rejected Cedar Bluff's assertion that the transaction was a sale on approval.

On April 8, 1993, Cedar Bluff picked up "its heifers" from C.C. Cattle. There was conflicting testimony as to whether all of the cattle belonged to Cedar Bluff. If all of the cattle did belong to Cedar Bluff, 53 head were missing and numerous others were dead. Based on the testimony of the various parties, the district court concluded: "[T]he Court is satisfied that the parties do not know whether these were heifers purchased with the Cedar Bluff or the Home Bank loans. The court concludes that these cattle were all commingled in the same pasture, could not be accurately distinguished and thus were fungible."

On April 15, 1993, Home Bank sent a notice to Cedar Bluff and others stating that Home Bank had a security interest in all cattle owned by C.C. Cattle. On April 23, 1993, Home Bank sent a letter to Cedar Bluff, requesting copies of the loan documents between Cedar Bluff and C.C. Cattle. On May 5, 1993, Home Bank sent a demand letter to Cedar Bluff, seeking possession of the cattle or proof that Cedar Bluff had a superior interest in the cattle. Cedar Bluff did not respond to any of these letters. On May 11, 1993, Home Bank filed this action seeking to enforce its security interest. Cedar Bluff sold the heifers in the summer and fall of 1993 for $136,802.34. Cedar Bluff deducted $49,888.98 from the sale proceeds for feed bills that it claimed were owed by C.C. Cattle and applied the remainder of the proceeds to C.C. Cattle's note with Cedar Bluff.

Cedar Bluff and Home Bank each claimed a superior security interest in the Cedar Bluff cattle. The district court concluded that Cedar Bluff's financing statement was filed more than 20 days after the purchase and delivery of the heifers; therefore, Cedar Bluff did not qualify for the purchase money security interest super priority available under K.S.A. 84-9-312(4). The district court also held that Home Bank's perfected security interest was superior to Cedar Bluff's interest pursuant to the first to file or perfect rule. See K.S.A. 84-9-312(5)(a). The district court held that Home Bank was entitled to recover two-thirds of the proceeds of the sale of the heifers, $91,110.36, plus interest from the date of the sale at the rate of 10 percent.

Cedar Bluff argues that the district court erred in holding that it did not perfect its purchase money security interest in the heifers within 20 days of possession by C.C. Cattle.

This court reviews factual findings to determine whether they are supported by substantial evidence and whether they are sufficient to support the conclusions of law. See In re Estate of Hessenflow, 21 Kan.App.2d 761, 770, 909 P.2d 662 (1995), rev. denied 259 Kan. 928 (1996); see also J.I. Case Credit Corp. v. Foos, 11 Kan.App.2d 185, 187, 717 P.2d 1064, rev. denied 239 Kan. 694 (1986) (evaluating priority of security interests under Article 9 of [25 Kan.App.2d 156] the Uniform Commercial Code). This court's review of conclusions of law is unlimited. Foos, 11 Kan.App.2d at 187, 717 P.2d 1064.

Also at issue is the interpretation of the Uniform Commercial Code (UCC) as adopted by the Kansas Legislature. Interpretation of a statute is a question of law subject to unlimited review by this court. Community Nat'l Bank v. Moyer, 17 Kan.App.2d 218, 219, 836 P.2d 1198, rev. denied 251 Kan. 937 (1992) (interpreting K.S.A.1991 Supp. 84-9-401 ).

When there are conflicting security interests, priority is determined by the time of filing or perfection. K.S.A. 84-9-312(5)(a). See Foos, 11 Kan.App.2d at 188-89, 717 P.2d 1064. When there are two perfected security interests, the first to file or perfect prevails. See Clark, The Law of Secured Transactions Under the Uniform Commercial Code § 3.08 (2d ed.1988). Because Cedar Bluff filed its financing statement on March 23, 1993, well after Home Bank, Home Bank prevails under the first to file or perfect rule unless Cedar Bluff qualifies for the super priority for timely perfected purchase money security interests provided by K.S.A. 84-9-312(4). See Moyer, 17 Kan.App.2d at 220, 836 P.2d 1198.

K.S.A. 84-9-312(4) provides:

"A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter."

K.S.A. 84-9-105(1)...