Summary of a Recent
Judicial
Development in
Secured Transactions
Court Finds Cattle Buyer Was Not a Good Faith Purchaser for Value
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Carter v. Cookie Coleman Cattle Co., Inc., 271 S.W.3d 856, 2008 WL 4976280 (Tex. App. 2008), the Texas Court of Appeals held that substantial evidence supported a finding that a purchaser of cattle was not a bona fide purchaser under the statutory definition of the term, and thus affirmed the trial court's judgment finding the purchaser liable for conversion of collateral.
Background
Rob Bradley, an order buyer of cattle, purchased cattle from Cookie Coleman Cattle Co. and resold them to Kevin Carter. Id. at *1. Bradley subsequently died, and his bank refused payment of the check he had written to Coleman because his estate had insufficient funds. Id. Carter had obtained financing from the Farm Service Agency to pay Bradley for the cattle, and he subsequently resold the cattle to repay the FSA loan, and Coleman sued him for conversion. Id. The trial court found in favor of Coleman on the conversion claim, and Carter appealed. Id.
Arguments
Carter argued that he was a "good faith purchaser for value" and thus could not be liable for conversion. Id.
Coleman argued that Carter did not properly plead the claimed "good faith purchaser for value" status and had thus waived reliance on the theory. Id. at *2.
Analysis and Holdings
The court explained that for Carter to qualify as a good faith purchaser, he had to prove that he purchased cattle from Bradley in good faith, for valuable consideration, and he made the purchase without actual or constructive knowledge of any outstanding claims of a third party. Id. at *1; see also Tex. Bus. & Comm. Code Ann. § 2.403. The court found that the lower court's finding that Carter was not a good faith purchaser was supported by substantial evidence because Carter gave conflicting testimony regarding whether he was aware that Bradley did not actually possess the cattle at the time he purchased them, and there was also testimony that the Carter-Bradley purchase and sale arrangement was a departure from industry standards because Carter had paid for the cattle in full before delivery. Id. at *3. The court therefore dismissed Carter's appeal and affirmed the trial court's judgment. Id.
The case was decided on November 24, 2008.