In re Clark

• Decision Date: 29 August 1996
• Docket Number: Bkrtcy. No. 95-30222(7),A.P. No. 3059 and 3060.
• Parties: In re Kenneth R. CLARK, Debtor. BOWLING GREEN LIVESTOCK MARKET, INC., Interpleading Plaintiff, v. George M. YOUNG, Counterclaimant.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Kentucky

206 B.R. 439 (1996)

In re Kenneth R. CLARK, Debtor BOWLING GREEN LIVESTOCK MARKET, INC., Interpleading Plaintiff, v. George M. YOUNG, Counterclaimant.

Bkrtcy. No. 95-30222(7), A.P. Nos. 3059 & 3060.

United States Bankruptcy Court, W.D. Kentucky.

August 29, 1996.

David Cantor, Louisville, for Debtor/Defendant Kenneth Clark d/b/a B & B Angus Service.

Quinton B. Marquette, Bowling Green, for Plaintiff Bowling Green Livestock Market, Inc.

Lisa Koch Bryant, Louisville, for Defendant/Counterclaimant George M. Young d/b/a Deep Down Ranch.

Brent Travelsted, Bowling Green, for Defendants, John Kiker; William Brockman; Brockmere Farms, Inc.; Jack Lowderman; and Myron Alexander.

Bruce A. Brightwell, Louisville, for William Stephen Reisz, Trustee.

MEMORANDUM

DAVID T. STOSBERG, Bankruptcy Judge.

This case involves cattle — cattle brought to a stockyards, Bowling Green Livestock Market, Inc. (hereinafter referred to as "BGLM"), by a convicted larcenist, the Debtor in this involuntary bankruptcy case. George Young ("Young"), is the owner of a ranch in Texas where he raises Black Angus Cattle.

Findings of Fact

The story unfolds around the middle of October in the year 1994, when Jay Wright, Young's ranch manager, was preparing Young's cows for the annual production sale. As Wright explained at trial, the particular cattle raised by Young were purebred Black Angus cattle, normally sold as breeding stock. (Wright, TR 9-10). In prepping these special cattle for the highly-advertised production sale scheduled for October 30, 1994, Jay Wright ran them through a shoot where they were trimmed and groomed to look their very best. (Wright, TR 54-55).

Prior to the production sale, Ken Clark (hereinafter referred to as "Clark"), the Debtor in this involuntary proceeding, contacted Young about buying fifty head of these Black Angus cattle at the October 30, 1994 sale. The year before, Clark had purchased cattle from Young, so the parties had some familiarity with each other. (Wright, TR 29). Young and Clark entered into a contract for Clark's purchase of fifty head of Young's purebred Black Angus cattle. (Defendant's Exhibit 16). The contract provided that Clark, operating through an entity called B & B, would pay for one-half of the total purchase price on or before December 31, 1994, and pay the balance on or before March 1, 1995. The sale transaction between Young and Clark was clearly a "credit transaction." The contract further provided that the registration certificates, certifying that the Black Angus cattle were purebred, would be tendered to Clark upon Young's receipt of payment in full from Clark. Young signed the contract on August 15, 1994 and forwarded the contract to Clark for his signature. Young testified that the handwriting on the bottom of the contract was added by Clark, who executed the contract on September 7, 1994, and mailed the contract back to Young. (Young, TR 117). The handwritten portion of the contract provided that Clark was to be the only announced purchaser at the production sale and that whatever Clark did with the cattle subsequent to the sale would be of no concern to Young. (Defendant's Exhibit 16). Young stated at trial that he had no problem with the handwritten additions made by Clark to the contract. (Young, TR 118). Young testified further that he had "no clear idea" of what Clark intended to do with the cattle once they left Young's ranch. (Young, TR 121).

On November 10, 1994, Clark's trucker, Brent Yates, picked up the cattle and hauled them, per Clark's instructions, directly to BGLM, where they were sold the following day. Clark had telephoned Harlan Stice (owner of BGLM) and Jerry Belcher (employee of BGLM) and told them both to expect these Black Angus cattle. Clark told representatives of BGLM two variations of the following story: he was dispersing a herd of Black Angus cattle for an elderly gentleman in his 80's who could not keep up the registration papers. Clark was acting as a "Consignor," who is a person who sells cattle as the agent for the owner, for which the Consignor receives a commission. Several experts in the stockyard industry testified at trial that it is standard in the industry for Consignors to bring cattle (or have them delivered at their direction) to the stockyards for sale and that it is also commonplace for the stockyards to pay the sale proceeds directly to the Consignor. (Pearce, TR 69; Gibson, TR 86-87).

BGLM sold the cattle on November 11, 1994, at the direction of Clark and made a check payable to Ray Clark in the sum of $21,894.70 (which consisted of the $22,815 in sales proceeds less BGLM's commission).

Young now seeks to recover the full value of fifty head of cattle sold at BGLM on November 11, 1994, relying on the theory of conversion. Jay Wright testified that each cow had a value of approximately $1,200 as breeder cattle. Through the testimony elicited by Young's counsel at trial, Young also appeared to be pursuing a theory of negligence, which would require the Court to find that BGLM had a duty to inquire into the true ownership of the cattle either before selling the cattle, or before disbursing the sales proceeds to Clark.

Conclusions of Law

We will address the two legal theories of recovery in the context of the facts presented through both trial and deposition testimony, which the Court has reviewed in toto.

I. WHETHER BGLM CONVERTED YOUNG'S CATTLE.

The tort of conversion has three elements (which Young had the burden of proving at trial):

1). Young\'s ownership or right to possession of the cattle at the time of the sale by BGLM;

2). BGLM\'s conversion by a wrongful act or disposition of Young\'s property rights; and

3). Damages resulting from the conversion.

See 18 Am.Jur.2d CONVERSION § 2, pages 146-47 (2d ed. 1996).

With reference to the first element, the issue of passage of title arises. Specifically, the Court must determine whether Clark had title to the cattle when he delivered them to BGLM for sale. An action for conversion lies where there is an unauthorized disposition of collateral. Ranier v. Gilford, 688 S.W.2d 753, 755 (Ky.Ct.App.1985) (citing White-Sellie's Jewelry Co., Inc. v. Goodyear Tire & Rubber Co., 477 S.W.2d 658 (Tex.Civ.App.1972) and Chemical Bank v. Miller Yacht Sales, 173 N.J.Super. 90, 413 A.2d 619 (1980)). In order to prevail under this first element of conversion, Young must show either: (1) absolute and unqualified title; or (2) qualified, limited title, provided that such title carries with it a right of possession. 18 Am.Jur.2d at § 75 (citing to, among other cases, Pacific Finance Corp. v. Crouch, 243 S.W.2d 432 (Tex.Civ.App.1951)). This first element is where Young's conversion argument goes awry as he failed to satisfy his burden of proving ownership.

In Kentucky, passage of title is governed by KRS 355.2-401(2), which provides:

Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place.

There is no dispute that cattle are "movable goods" as defined by Kentucky\'s Uniform Commercial Code. KRS 355.2-105(1). The title dispute in this case centers around the registration certificates that accompany Black Angus Cattle. Young argues that title did not pass either by law or by agreement, because Young never effectuated a transfer of the cattle\'s registration papers to Clark. Young put on extensive factual and expert testimony with regard to the proper method for transferring the registration certificates that accompany Black Angus cattle. The Court, however, finds the procedure for the transfer of these certificates irrelevant based on the circumstances surrounding the Young-Clark credit sale transaction.

First of all, Young transferred possession of these cattle to Clark prior to receipt of any payment from Clark, in accordance with the terms of their contract. (See Defendant's Exhibit 16). The Court found Young's testimony with regard to the contract compelling. Young testified that he had no problem with the handwritten additions made by Clark to the contract. (Young, TR 118). The handwritten additions made to the contract by Clark provided that Young had no interest in what Clark did with the cattle once they left Young's ranch. (Defendant's Exhibit 16). The critical factual point is that Young sold these fifty head of cattle to Clark on credit, in the ordinary course of business, with the expectation that Clark would resell these cattle. Young, according to his own testimony, had "no clear idea" of what Clark intended to do with these cattle once they left Young's ranch. Young's only concern was receiving payment from Clark. (Young, TR 121).

Based on Young's testimony with regard to the circumstances surrounding the parties' contract, Young clearly intended to transfer title to the cattle to Clark at the time of delivery. Young "cloaked" Clark with all indicia of ownership, even though Young eventually became the victim of a fraud. See Foley v. Production Credit Ass'n, 753 S.W.2d 876, 878 (Ky.Ct.App.1988).

We find that Young transferred free and unfettered possession and title to Clark at the time of delivery, pursuant to ...