DIANNA MEADE v. RICHARDSON FUEL, INC.
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RENDERED:
JUNE 10, 2005; 10:00 A.M.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO.
2004-CA-000531-MR
DIANNA MEADE
v.
APPELLANT
APPEAL FROM FLOYD CIRCUIT COURT
HONORABLE JOHN DAVID CAUDILL, JUDGE
ACTION NO. 02-CI-00317
RICHARDSON FUEL, INC.
APPELLEE
OPINION
AFFIRMING
BEFORE:
HENRY AND VANMETER, JUDGES; MILLER, SENIOR JUDGE.1
VANMETER, JUDGE:
Dianna Meade, as seller, entered an oral
agreement for the sale of mining equipment and supplies.
After
her buyer defaulted, she brought a conversion action against the
owner of the mine at which the equipment and supplies had been
used and/or consumed.
We must decide whether the absence of a
written agreement prevents Meade from maintaining a conversion
action against the mine owner, who retained possession of some
of the items under a contractual provision with the buyer.
1
As
Senior Status John D. Miller Sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and
Kentucky Revised Statutes 21.580.
we hold that it does, we affirm the judgment of the Floyd
Circuit Court dismissing the action.
Meade’s claim is that she entered into an oral
agreement with Carson Thacker for the sale of mining equipment
and supplies.
Under her version of the transaction, Meade
provided Thacker with supplies, parts, and mining equipment with
the understanding that title to the items would pass to Thacker
only as he paid for them, and that any items which were not paid
for would be returned to Meade.
Thacker then used the items
while mining premises leased from Richardson.
The agreement between Thacker and Richardson contained
a clause which provided:
Unless otherwise agreed to by the parties
hereto (i) [Thacker], covenants and agrees
to remove all personal property, excepting
those items which belong to RICHARDSON via
the provisions hereof or otherwise, from the
Contracted Premises within thirty (30)
calendar days from the termination of this
Agreement and (ii) all [Thacker’s] personal
property remaining on the Contracted
Premises after thirty (30) calendar days
from the termination of this Agreement shall
forthwith become the property of RICHARDSON
and the title, ownership, and the right of
possession thereof shall become vested in
RICHARDSON without the necessity of a Bill
of Sale for the same.
When Thacker’s operation subsequently failed, he left the
disputed items on the site and did not make a demand for them
until some sixty days later.
Meade, Thacker, and other
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allegedly interested parties made competing claims for the
items.
Richardson did not release the items, contending that
“no one had established a valid claim of ownership.”
Meade’s and Thacker’s complaint in the Floyd Circuit
Court against Richardson and other co-defendants alleged that
“[t]he defendant[s] wrongfully and willfully deprived the
Plaintiffs of their equipment and supplies by refusing to give
them to the Plaintiffs on demand.”
The trial court referred the
matter to the Floyd Circuit Court Master Commissioner.
Following a hearing, the master commissioner dismissed the other
defendants and made recommended findings, conclusions, and a
judgment dismissing the complaint.
The circuit court adopted
the master commissioner’s recommendations and denied Meade’s
motion to set aside the judgment.
This appeal followed.
Meade first contends that the trial court erred by
applying the statute of frauds, KRS 355.2-201, to her claim.
A
thorough reading of the trial court’s conclusions of law,
however, discloses that the trial court correctly concluded that
the transaction between Meade and Thacker was actually a
security agreement, whereby Meade attempted to claim a security
interest in the goods and to enforce that interest against
Richardson.2
Under KRS 355.9-203,
2
See KRS 355.1-201(37) (“‘Security interest’ means an interest in personal
property or fixtures which secures payment or performance of an obligation.”)
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(1) A security interest attaches to
collateral when it becomes enforceable
against the debtor with respect to the
collateral, unless an agreement expressly
postpones the time of attachment.
(2) Except as otherwise provided in
subsections (3) to (9) of this section, a
security interest is enforceable against the
debtor and third parties with respect to the
collateral only if:
(a)
Value has been given;
(b) The debtor has rights in the collateral
or the power to transfer rights in the
collateral to a secured party; and
(c) One (1) of the following conditions is
met:
1. The debtor has authenticated a
security agreement that provides a
description of the collateral and, if
the security interest covers timber to
be cut, a description of the land
concerned;
2. The collateral is not a certificated
security and is in the possession of
the secured party under KRS 355.9-313
pursuant to the debtor's security
agreement;
3. The collateral is a certificated
security in registered form and the
security certificate has been delivered
to the secured party under KRS
355.8-301 pursuant to the debtor's
security agreement; or
4. The collateral is deposit accounts,
electronic chattel paper, investment
property, or letter-of-credit rights,
and the secured party has control under
KRS 355.9-104, 355.9-105, 355.9-106, or
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355.9-107 pursuant to the debtor's
security agreement.
The requirement of authentication under KRS
355.9-203(2)(c)1 is that the debtor must sign a security
agreement.
KRS 355.9-102(1)(g).3
Since the record is clear that
Thacker did not authenticate a security agreement by his
signature or otherwise, under the unambiguous terms of KRS
355.9-203(1) and (2), Meade’s claimed security interest never
attached to the collateral, and it was not enforceable against
Thacker, or any third party such as Richardson.
In essence,
Meade was an unsecured creditor of Thacker.
Meade, who admits that Thacker and she had no written
contract, asserts that her claim against Richardson is one of
conversion rather than breach of contract.
Meade asserts that
Thacker and she “were free to live by their agreement and would
probably have done so had [Richardson] refrained from
interfering and confiscating the property and converting it to
their [sic] own use.”
The Kentucky Supreme Court recently noted
the elements necessary to establish the tort of conversion:
(1) the plaintiff had legal title to the
converted property; (2) the plaintiff had
possession of the property or the right to
possess it at the time of the conversion;
3
KRS 355.9-102(1)(g) allows for both written and electronic security
agreements, and “authenticate” permits more than a signature as the means of
accepting an agreement. See David J. Leibson, Richard H. Nowka, The Uniform
Commercial Code of Kentucky § 9.03[a] (3d ed. 2004). However, Meade makes no
claim that any electronic authentication occurred.
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(3) the defendant exercised dominion over
the property in a manner which denied the
plaintiff's rights to use and enjoy the
property and which was to the defendant's
own use and beneficial enjoyment; (4) the
defendant intended to interfere with the
plaintiff's possession; (5) the plaintiff
made some demand for the property's return
which the defendant refused; (6) the
defendant's act was the legal cause of the
plaintiff's loss of the property; and (7)
the plaintiff suffered damage by the loss of
the property.4
With respect to these elements, at a minimum Meade did
not retain legal title to the allegedly converted property, and
she had neither possession of the property nor the right to
possess it at the time of the alleged conversion.
Meade’s attempted reservation of title, pending
payment, was at best the attempted reservation of a security
interest.
KRS 355.2-401(1) provides that “[a]ny retention or
reservation by the seller of the title (property) in goods
shipped or delivered to the buyer is limited in effect to a
reservation of a security interest.”
In the instant case, Meade
was obliged to comply with the requirements of Article 95 in
order to protect her interests.6
As previously noted, since she
failed to do so, she has no rights to the collateral.
Thacker,
4
Kentucky Ass'n of Counties All Lines Fund Trust v. McClendon, 157 S.W.3d
626, 632 n. 12 (Ky. 2005) (quoting 90 C.J.S. Trover and Conversion § 4
(2004)).
5
KRS 355.9-101, et seq.
6
David J. Leibson, Richard H. Nowka, The Uniform Commercial Code of Kentucky
§ 2.08[1] (3d ed. 2004).
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therefore, was free to enter a contractual provision permitting
Richardson to retain the equipment and supplies if Thacker
failed to remove them within thirty days of defaulting and
abandoning the mine site.
Meade next contends that the trial court erred by
characterizing Richardson as a good faith purchaser7 of the
mining equipment.
A good faith purchaser is “one who takes by
purchase getting sufficient consideration to support a simple
contract, and who is honest in the transaction of the purchase."8
The evidence supported the court’s findings that
Richardson gave value for at least a portion of the goods.
Because Meade did nothing to protect her security interest in
the equipment, she cloaked Thacker with the appearance of
ownership.
Although Meade claims that Richardson knew that the
property did not belong to Thacker, she provides no reference to
evidence on the record to support her statement.
Absent any
encumbrances on the equipment or evidence of bad faith,
Richardson became a good faith purchaser when it gave value for
the equipment.9
Thus, the trial court did not err by finding
that Richardson was a good faith purchaser for value.
7
While the trial court characterized Richardson as a “bona fide purchaser,”
KRS 355.2-403(1) uses the term “good faith purchaser.” In fact, the term
“bona fide” means good faith, and the terms are interchangeable. Bryan A.
Garner, A Dictionary of Modern Legal Usage, p. 113 (2d ed. 1995).
8
United Road Mach. Co. v. Jasper, 568 S.W.2d 242, 244 (Ky.App. 1978).
9
KRS § 355.2-403(1).
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Meade finally contends that the circuit court erred or
abused its discretion by adopting unsupported findings of fact
and by overruling her objections to the master commissioner’s
report.
Under CR 52.01, “[f]indings of fact shall not be set
aside unless clearly erroneous . . . .
The findings of a
commissioner, to the extent that the court adopts them, shall be
considered as the findings of the court.”10
The record indicates that Meade admits the mining
equipment was sold “on time” and was delivered to Thacker.
She
further admits that no written contract memorialized the
agreement, and that no security interests were effectively
created in her favor.
In light of such admissions, which
support the commissioner’s findings, the court did not err by
adopting the commissioner’s findings of fact as its own.
The Floyd Circuit Court’s judgment is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
James Bates
Hindman, Kentucky
Clifford B. Lata
Prestonsburg, Kentucky
10
CR 52.01
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