RYAN BALDWIN,
Plaintiff and Appellant,
v.
CASTRO I, LTD.,
Defendant and Appellee.

[2004 SD 43]

South Dakota Supreme Court
Appeal from the Circuit Court of
The First Judicial Circuit
Charles Mix County, South Dakota

Hon. Boyd L. McMurchie, Judge

DOUGLAS R. KETTERING of
Law Offices
Yankton,

Attorney for plaintiff and appellant.

TIMOTHY R. WHALEN of
Whalen Law Office, P.C.

Attorney for defendant and appellee.

Argued

Opinion Filed

#22912

GILBERTSON, Chief Justice

[¶1.] A circuit court determined Castro County Feeders I, Ltd. () had an enforceable security interest in the proceeds of a sale of seventy-eight cattle owned by Ryan Baldwin ().  sold the cattle through Livestock Sales in .  On appeal, argues the circuit court erred in finding that had a security interest in the cattle, and he also disputes the circuit court’s conclusion that the proceeds of the sale were subject to arbitration.  We affirm the judgment of the circuit court.

FACTS AND PROCEDURE

[¶2.] Both parties to this controversy reside in the State of .  runs a feedlot operation wherein it contracts to feed cattle placed in its lots as well as to provide the vitamins, minerals, and medicine necessary for the proper care of the cattle.  owns and operates a business specializing in the purchase and sale of cattle.  As part of his business, often placed his cattle with .  would feed the livestock for a period of time and then release the cattle to for transport and sale in .  Generally, the sale proceeds were made payable to and in order to reimburse it for the feed and related services provided to ’s cattle.

[¶3.] filed suit in circuit court seeking a Declaratory Judgment ordering Livestock Sales to release to him the proceeds of the sale.  In response, Livestock Sales filed a motion to substitute parties and for removal of it as a defendant.  Based upon stipulation of the parties, Livestock Sales was released from the action.  was substituted as the only defendant in the action.  and stipulated to most of the facts in the case and agreed that only a question of law was before the court.  After considering the facts, reviewing the relevant documents, and hearing argument of the parties, the circuit court found in favor of .  The circuit court determined had a valid security interest in the cattle sold at Wagner.  The circuit court also ruled the proceeds were subject to arbitration by the Texas Cattle Feeders Association as outlined by the Agreement executed by and .  appeals the judgment of the circuit court and raises the following issues for our review:

1. Whether had a valid security interest in the proceeds of the sale of ’s cattle.
2. Whether the proceeds of the sale were subject to arbitration in as provided by the Cattle Feeding Agreement.

Affirmed.

STANDARD OF REVIEW

[¶4.] We review the circuit court’s findings of fact under the clearly erroneous standard.  City of v. Summit, Inc., 2000 SD 29, ¶9, 607 NW2d 22, 25.  The interpretation and application of ’s statutes governing secured transactions require de novo review by this Court.  Farm Credit Services v. First State Bank, 1998 SD 13, ¶6, 575 NW2d 250, 251.  Our construction of the state’s commercial code is also guided by SDCL 57A-1-102, which provides in pertinent part:

(1)   This title shall be liberally construed and applied to promote its underlying purposes and policies.

(2)   Underlying purposes and policies of this title are

(a)    To simplify, clarify and modernize the law governing commercial transactions;

(b)   To permit the continued expansion of commercial practices through custom, usage and agreement of the parties;

(c)    To make uniform the law among the various jurisdictions[.]

ANALYSIS AND DECISION

[¶5.] 1. Whether had a valid security interest in the proceeds of the sale of ’s cattle.

[¶6.] The circuit court determined had a valid security interest in ’s cattle sold in Wagner.  SDCL ch. 57A-9, ’s codified version of Article 9 of the Uniform Commercial Code, governs secured transactions.  Generally, in order to be considered secured, a party must have a security agreement executed by a debtor granting that party a security interest in collateral.  57A-9-203; SDCL 57A-9-102(72) and (73) (defining “secured party” and “security agreement”); see generally SDCL 57A-9-101 through 57A-9-507; see also Continental Grain Company v. Brandenburg, 1998 SD 118, ¶15, 587 NW2d 196, 200.  Specifically, SDCL 57A-9-203(b) lists three requirements that must be met before a security interest will be enforceable against a debtor:

Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if:

(1)   value has been given;

(2)   the debtor has rights in the collateral or the power to transfer rights in the collateral to a security party; and

(3)   one of the following conditions is met:

(a)   the debtor has authenticated a security agreement that provides a description of the collateral . . .

(emphasis added).[1]  In this case, provided value in the form of feed and related services to the cattle in question.  In fact, claims owes it in excess of $94,000.  Although disagrees with this figure, he does not dispute that he owes some amount of money.  Thus, the value-given requirement under subsection one is clearly met.  In addition, since stipulated he owned the cattle placed in ’s feedlots and subsequently sold in , the second requirement has been established.

[¶7.] The primary question raises on appeal is whether the Agreement between himself and functions as a valid security agreement as required by SDCL 57A-9-203(b)(3)(A), set out above.  First, questions whether the Agreement was properly “authenticated.”[2]  He points out the Agreement twice refers to a “Rick Baldwin” as opposed to “Ryan Baldwin.”  A brief study of the document, however, shows “Ryan Baldwin” actually signed the document twice and scratched out the name “Rick” below the signature line.  Furthermore, at trial admitted he entered into the Agreement with and stipulated the document into evidence.  Given these facts, we find ’s argument that the Agreement was not authenticated to be without merit.

[¶8.] Second, questions whether the Agreement provides a sufficient description of the collateral.  SDCL 57A-9-108 provides in relevant part:

(a)    Except as otherwise provided in subsections (c), (d), and (e), a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.

(b)   Except as otherwise provided in subsection (d), a description of  collateral reasonably identifies the collateral if it identifies the collateral by:

(1)   specific listing;

(2)   category;

(3)   except as otherwise provided in subsection (e), a type of   collateral defined in the Uniform Commercial Code;

(4)   quantity;

(5)   computational or allocational formula or procedure; or

(6)   except as otherwise provided in subsection (c), any other   method, if the identity of the collateral is objectively determinable.

(c)    A description of collateral as “all the debtor's assets” or “all the debtor’s personal property” or using words of similar import does not reasonably identify the collateral.[3]

In particular, argues the Agreement insufficiently described the collateral because it gave a security interest in all cattle “being specifically located in #_______________ at Castro County Feeders, I, Ltd., Hart, .”[4]  In other words, believes the Agreement failed to sufficiently identify the cattle at issue in this case because it did not specify the feedlots in which his cattle were located.  We disagree:

The parties often adopt Code definitions to describe collateral in their security agreement.  In many cases, a creditor argues that its interest in “inventory,” “equipment,” “general intangibles,” “account,” “proceeds,” or such, includes the very property at issue and the debtor, bankruptcy trustee or other creditor(s) assert the contrary.  Disputes of this nature should also be resolved by the Code’s two-stage analysis: could the description plausibly be read to include the property claimed, and if so, did the parties so intend?  In these cases, most courts resolve the problem solely as one of law.

4 White & Summers, Uniform Commercial Code § 31-3 (5th ed 2002).

[¶9.] To determine whether the description was sufficient, we must look to SDCL 57A-9-108.  Pursuant to subsection (a), the “test” for sufficiency is whether the description (specific or not) “reasonably identifies what is described.”  In the instant case, the description was “livestock.”  This is an example of an identification of collateral by category, which is specifically permitted under 57A-9-108(b)(2).  (“Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by . . . (2) category[.]”)  Comment 2 to UCC § 9-108 states:

The purpose of requiring a description of collateral in a security agreement under Section 9-203 is evidentiary.  The test of sufficiency of a description under this section, as under former Section 9-110, is that the description do the job assigned to it: make possible the identification of the collateral described.  This section rejects any requirement that a description is insufficient unless it is exact and detailed (the so-called “serial number” test).

[¶10.] Moreover, “livestock” is included in the definition of “farm products.”  Therefore, even if the agreement had only provided for an interest in ’s “farm products,” the description would have been sufficient to include “livestock.”  Specifically, SDCL 57A-9-102(34) provides:

“Farm products” means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:

(A) crops grown, growing, or to be grown, including: