Wegner, In re, 87-3615
| Decision Date | 06 November 1987 |
| Docket Number | No. 87-3615,87-3615 |
| Citation | 839 F.2d 533 |
| Parties | Bankr. L. Rep. P 72,172, 5 UCC Rep.Serv.2d 996 In re Albert J. WEGNER; Margie Wegner, Debtors. William C. GRIFFEL, Appellant, v. Gregory G. MURPHY, Bankruptcy Trustee, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Robert C. Smith, Billings, Mont., for appellant.
Doug James, Billings, Mont., for appellee.
Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit.
Before ANDERSON, NORRIS and HALL, Circuit Judges.
William C. Griffel (appellant) appeals from the Bankruptcy Appellate Panel of the Ninth Circuit (BAP) decision affirming the judgment of the United States Bankruptcy Court for the District of Montana, 61 B.R. 414 (1986). The bankruptcy court
found that cattle, equipment and money had been preferentially transferred to appellant within 90 days prior to Wegner's (debtor) filing for bankruptcy in violation of 11 U.S.C. Sec. 547, and therefore ordered appellant to turn over the property. We reverse.
Appellant owned and operated a ranch in Montana. In December 1981, appellant entered into a lease agreement with debtor. Debtor leased all of appellant's land, except the land on which appellant's house stood, for five years, in exchange for cash and a share of the crops.
On February 1, 1982, appellant and debtor entered into a "Contract for Sale and Purchase of Personal Property" whereby appellant sold debtor 178 cows, 90 yearling heifers, and machinery, for a total price of $169,188. Since debtor had already leased the land upon which the cattle and machinery stood, it was unnecessary to physically move the property to another location. Payments were to be made in annual installments as follows:
July 1, 1983 $ 4,000 principal plus interest
(14% on unpaid balance)
July 1, 1984 $40,000 principal plus interest
July 1, 1985 $40,000 principal plus interest
July 1, 1986 $40,000 principal plus interest
July 1, 1987 $45,188 principal plus interest
In the contract, the parties provided:
It is agreed between the parties that title to the property sold hereby shall remain in the seller until the balance of the purchase price or all the personal property is paid in full or until the buyer and seller make other arrangements which may be mutually agreeable. And it is further agreed that during the term of this contract, the seller's [appellant's] brand will remain on all of the livestock, as well as any increase in said livestock occurring during the term of this agreement.
In addition, the parties agreed that in the event of debtor's default on any one of the five annual payments due under the agreement, that appellant may give debtor 90 days' notice in writing specifying the nature and character of the default. If debtor does not cure the default within 90 days, appellant could retake the property and retain any payments as reasonable rental and liquidated damages.
By July 1, 1984, debtor was in default for failure to pay principal and interest. On December 10, 1984, debtor sent appellant a letter, along with three checks totaling $17,839.01. The letter informed appellant that debtor was in the process of filing for bankruptcy and would be unable to meet any other obligations on the purchase and sale contract or the lease agreement. The checks were the proceeds from the sale of some cull cows.
On December 12, 1984, debtor called appellant and told him that he was broke, could not pay on the contract, and was contemplating filing bankruptcy, and asked appellant to take over the feeding of the cattle. Appellant stated that he would be out of town, but would take over the feeding of the cattle in early January and asked if debtor could continue to do it until then. Debtor also had the electric accounts on the electric meters switched over to appellant's name on this date.
Debtor filed for Chapter 7 bankruptcy on January 3, 1985. Subsequent to the filing, appellant's attorney wrote to the debtor stating that the letter of December 10, 1984, acknowledged default, thus making notice of default under the agreement unnecessary and allowing repossession of the cattle and machinery. At trial, however, appellant testified that notwithstanding his attorney's letter, he already had possession of the property since the phone call on December 12, 1984.
The trustee filed an adversary complaint to void two preferences. The first was the transfer of the debtor's interest in the cattle and machinery to appellant in December 1984. The second is the payment of $17,839.01 the debtor made on December 10, 1984. The bankruptcy court found that because the contract for the sale of the cattle and machinery was not an executory contract, both transfers in question were preferential under section 547 of the Code.
Therefore, the court ordered appellant to surrender cash (representing the checks and the sale proceeds of some cattle), the remaining cattle, and the farm equipment.
The issue we must decide is whether the BAP erred when it concluded that the contract for sale and purchase of personal property between debtor and appellant was not an executory contract and that the transfers in question were preferential under 11 U.S.C. Sec. 547.
Because this court is in as good a position as the BAP to review the bankruptcy court's findings, the bankruptcy court's decision is reviewed independently. Acequia, Inc. v. Clinton (In re Acequia, Inc.), 787 F.2d 1352, 1357 (9th Cir.1986); Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir.1986). This court reviews the bankruptcy court's findings of fact under a clearly erroneous standard and its conclusions of law de novo. Pizza of Hawaii, Inc. v. Shakey's, Inc. (In re Pizza of Hawaii, Inc.), 761 F.2d 1374, 1377 (9th Cir.1985).
The first issue to be decided is whether the contract for the sale of cattle and machinery was an executory contract. Whether a contract is executory within the meaning of the Bankruptcy Code is a question of federal law. Benevides v. Alexander (In re Alexander), 670 F.2d 885, 888 (9th Cir.1982). Although the Code does not define "executory contract," courts have generally defined such a contract as one on which performance is due to some extent on both sides. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 522 n. 6, 104 S.Ct. 1188, 1194 n. 6, 79 L.Ed.2d 482 (1984). Also, in executory contracts the obligations of both parties are so far unperformed that the failure of either party to complete performance would constitute a material breach and thus excuse the performance of the other. Pacific Express, Inc. v. Teknekron Infoswitch Corp. (In re Pacific Exp., Inc.), 780 F.2d 1482, 1487 (9th Cir.1986). The question of the legal consequence of one party's failure to perform its remaining obligations under a contract and whether one of the parties' failure to perform its remaining obligations would give rise to a material breach is an issue of state contract law. Hall v. Perry (In re Cochise College Park, Inc.) 703 F.2d 1339, 1348 n. 4 (9th Cir.1983).
It is undisputed that debtor had remaining obligations to pay monies due under the contract. We must, therefore, examine the obligations of appellant. Under the terms of the contract, appellant had two duties to perform. First, he was required to turn over legal title to the cattle and machinery after debtor has paid in full. Second, appellant was obligated to provide a bill of sale on demand whenever the debtor decided to sell some of the cattle. The question is whether these obligations were enough to make the agreement an executory contract.
Since we find that the obligation of providing a bill of sale is a material obligation, we shall discuss this issue first.
Appellant argues that Montana's branding statutes make the duty to provide a bill of sale on demand a material obligation. Under Montana law, it is required that the transfer of ownership of cattle cannot be accomplished by the mere taking of possession, unless the livestock have been inspected for brands. MCA Sec. 81-3-211(2). Section 81-3-211 requires a bill of sale signed by the seller for presentation to a livestock inspector whenever a change of ownership inspection is required. Furthermore, it is unlawful to transfer livestock in any manner contrary to these provisions. The branding statutes also provide that a brand is prima facie evidence of ownership. MCA Sec. 81-3-105.
Based upon these provisions, appellant submits that if he were to fail to provide a bill of sale to the debtor upon request, a material breach would occur. The BAP and bankruptcy court found the duty of providing bills of sale on demand was not a material obligation. Instead, they found that this was a "menial task" as compared to the contract's overall purpose of transferring ownership of the cattle and machinery to the debtor.
The BAP also applied sections of the Uniform Commercial Code (UCC) to the facts of this case. It looked to section 2-401 which provides that any retention or reservation by the seller of title in goods delivered to the buyer is limited in effect to a reservation of a security interest. MCA Sec. 30-2-401. The BAP also looked to Article 9 which governs the treatment of security interests which arise from the sale of goods. MCA Sec. 30-9-113. Under UCC Sec. 9-202, title to collateral is immaterial. MCA Sec. 30-9-202. Thus, these UCC provisions, coupled with the debtor's complete control over all the property, overcame the presumption of ownership in appellant created by the brand. Based upon this, the BAP found that appellant's duty of providing legal title was not a material obligation.
In this appeal, we consider the general Montana provision that when a local non-UCC statute governs a specific point, it prevails over a general provision of the UCC. See Martel Constr., Inc. v. Gleason Equipment, Inc., 166 Mont. 479, 534 P.2d 883, 16 UCCRS 1228 (1975). Section 1-2-102, MCA, provides that:
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