Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-85-02788/USCOURTS-ca10-85-02788-0/pdf.json

Parties Involved:
United States of America
Appellee
Winter Livestock Commission Co.
Appellant

Document Text:

{ 

\ 

PUBLISH FILED 

United States Court of Appeals 

IN THE UNITED STATES COURT OF APPEALS Tenth Circuit 

FOR THE TENTH CIRCUIT 

UNITED STATES OF AMERICA, ) 

) 

Plaintiff-Appellee, ) 

) 

v. ) 

) 

) 

WINTER LIVESTOCK COMMISSION, ) 

) 

Defendant-Appellant. ) 

JAN 311991 

ROBERT L. HOECKER 

Clerk 

No. 85-2788 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. 85-F-455) 

Jerry R. Atencio, Assistant U.S. Attorney, Denver, Colorado 

(Robert N. Miller, United States Attorney, with him on the brief), 

for Plaintiff-Appellee. 

Wiley Y. Daniel of Gorsuch, Kirgis, Campbell, Walker & Grover, 

Denver, Colorado (Arun Das of Gorsuch, Kirgis, Campbell, Walker & 

Grover, Denver, Colorado; Barton Brown of Wallace, Saunders, 

Austin, Brown & Enochs, Overland Park, Kansas; and James T. 

Malysiak of Freeman, Freeman & Salzman, P.C., Chicago, Illinois, 

were with him on the brief), for Defendant-Appellant. 

Before HOLLOWAY, Chief Judge, ANDERSON, Circuit Judge, and 

SAFFELS, District Judge* 

HOLLOWAY, Chief Judge. 

* The Honorable Dale E. Saffels, United States District Judge for 

the District of Kansas, sitting by designation. 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 1 
' ,, ' 

The United States District Court, District of Colorado, 

granted summary judgment in favor of plaintiff United States of 

America (Government) in an unpublished order. 

Livestock Commission Company (Winter) appeals. 

Defendant Winter 

This action involves a conversion claim against Winter by the 

Government. The Government charges that Winter is liable for the 

fair market value of cattle sold through Winter's facilities for 

Danny L. and Pamela Plagge who obtained loans from the Farmers 

Horne Administration (FrnHA), giving the FrnHA a security interest in 

the cattle. We affirm the grant of summary judgment on Winter's 

liability for conversion, but remand for a determination of 

damages. 

I 

The record confirms the district court's account of the facts 

as accurate and essentially undisputed. In summary, the Plagges 

received four loans in 1979 and 1980 for $111,200, $13,200, 

$78,000 and $54,660, The security interest in the Plagges' 

livestock was properly executed and perfected with a proper filing 

of the financing statement. The terms of the security agreement 

required written consent from the FrnHA before the collateralized 

livestock could be sold or transferred. 1 

On five separate occasions between July 29, 1980 and July 21, 

1981 the Plagges sold cattle through Winter's services. After 

deducting charges for its services, Winter issued checks to the 

1 

We note also that the loan agreement stated that the Plagges 

"agree[d] not to make any capital purchases or contract for other 

credit without the consent of the FrnHA and further agree not to 

use proceeds from the sale of mortgaged property ... for any 

purpose without the consent of FrnHA." Wysock Deposition Ex. 10. 

2 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 2 
< • 

. . 

Plagges for the sum total of 2 $65,712.77. The Plagges never 

brought any of these proceeds into the Springfield FmHA office, 

and none of the proceeds were applied to repay the loan. 

After these sales the Plagges filed a Chapter 7 bankruptcy 

petition. Some time later the Government executed a settlement 

agreement with them, reserving its right to obtain the balance of 

the Plagges' outstanding debt from any and all third parties. The 

Government then sued Winter in this action charging conversion. 

Winter claims that it had no actual knowledge that the livestock 

served as the security interest for the FmHA lien. 

The district court granted summary judgment for the 

Government. Based on the regulations as the governing federal 

law, the court found there was no FmHA consent, authorization, or 

approval of the sale and that the FmHA's lien continued beyond the 

sale so as to make Winter liable. Winter timely appealed. 

II 

Under the principles of the Supreme Court's decision in 

United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979), federal 

law governs with respect to claims arising from the FmHA program, 

but incorporates, absent congressional directives otherwise, 

nondiscriminatory state law. The parties' real dispute here is 

over the content of the federal law governing this case. 3 

2 

At this juncture we note that the district court's assessment 

of damages was in error, as both parties agree that the 

Government's stated damage amount, listed as $65,842.40, should 

instead have read $65,712.77. Appellee-Government's Brief at 2. 

Because of our disposition of this case, this error is rendered 

moot. 

3 

The Government argues that the content is the federal 

(Footnote continued on next page) 

3 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 3 
This Court abated proceedings on this appeal pending our gn 

bane decision in FDIC v. Bank of Boulder, 911 F.2·d 1466 (10th Cir. 

1990), which involved the application of Kimbell. We now have 

supplemental briefs on Bank of Boulder. There plaintiff-FDIC 

sought to enforce a standby letter of credit previously issued to 

Dominion Bank of Denver by Defendant-Bank of Boulder. Dominion 

Bank's insolvency resulted in transfer of the letter first to 

FDIC/Receiver, and then to FDIC/Corporation. The Bank of Boulder 

refused to honor the letter because Colorado law barred its 

transfer. As an alternative to our federal preemption analysis, 

this Court held that although Colorado law specifically provided 

that the letter of credit was non-assignable, "federal common law 

requires a uniform rule of transferability of letters of credit to 

FDIC/Corporation [from FDIC/Receiver] in the course of [Purchase 

and Assumption] transactions." Id. at 1474. Thus, for purposes 

of that dispute, federal common law became the content of the 

federal law under Kimbell. 

The parties continue to urge that we decide, as a general 

rule for this circuit, whether federal regulations or the state 

(Footnote continued): 

regulations promulgated by the FmHA, specifically 7 C.F.R. 

§§ 1962.17 and 1962.18 (1979). Since the Plagges failed to comply 

with the regulations requiring sale approval and adequate 

accounting before release of the lien, the FmHA security lien 

continued beyond the unauthorized sales, making Winter liable for 

conversion. 

Winter argues that the content of the applicable federal law 

is the Colorado Uniform Commercial Code (UCC), incorporated as 

mandated by Kimbell, 440 U.S. at 740 (absent congressional 

directives, the priority of FmHA liens is to be determined by 

nondiscriminatory state laws). Under that state law, Winter's 

defense is that the FmHA consented to the sales by a course of 

dealing and performance. This consent extinguished the 

Government's security interest. Colo. Rev. Stat., §§ 4-1-205, 4-

2-208, 4-9-306(2) (1973). 

4 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 4 
UCC constitutes the content of federal law for government 

initiated conversion claims. On reflection, however, we believe 

that on this record, our Bank of Boulder decision is not 

dispositive of the real issue presented here, that of the FmHA's 

consent. We need not enter the inter-circuit conflict4 since that 

is unnecessary and an alternate approach adequately resolves the 

instant dispute. Accordingly, we need not resolve the regulation 

versus UCC conflict, because under either approach, the defendant 

must demonstrate that the FmHA gave actual or implied consent 

which ultimately terminated the Government's security lien. 

The district court held here that no consent occurred. As 

shown below, we also conclude that Winter has not carried its 

burden to raise a reasonable inference of FmHA consent, and thus 

has failed "to make a showing sufficient to establish the 

existence of an element essential" necessary to overcome the 

4 

The district court in this instance relied upon United States 

v. New Holland Sales Stable, 603 F. Supp. 1379 (E.D. Pa. 1985), in 

holding that the federal regulation constitutes the governing 

federal law. New Holland has since been reversed by the Third 

Circuit Court of Appeals, which determined that state UCC law 

forms the content of the federal law in cases involving FmHA farm 

loan security interests. United States v. Walter Dunlap & Sons, 

Inc., 800 F.2d 1232 (3rd Cir. 1986). Compare United States v. 

Tugwell, 779 F.2d 5 (4th Cir. 1985) (pursuant to Kimbell, state 

UCC is the content of federal law); contra United States v. 

Missouri Farmers Association, Inc., 764 F.2d 488 (8th Cir. 1985) 

(FmHA regulations govern the release of liens in accord with 

Kimbell guideline to protect federal interest); but see United 

States v. Progressive Farmers Marketing Agency, 788 F.2d 1327 (8th 

Cir. 1986) (in absence of federal law, Kimbell is followed to 

apply state law as content of federal law). 

Tenth Circuit decisions after Kimbell have not decided the 

content issue for Government conversion claims. See,~, United 

States v. Lattauzio, 748 F.2d 559 (10th Cir. 1984) (state UCC is 

content of federal law in Small Business Administration loan 

action); In Re Murdock Machine and Engineering Co. of Utah v. 

Ramco Steel, Inc., 620 F.2d 767 (10th Cir. 1980) (state UCC 

constitutes the controlling federal law in case involving seller's 

rights in federal project dispute). 

5 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 5 
Government's motion. Celotex Corp. v. Catrett, 477 U.S. 317, 322 

(1986); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 

247-48 (1986). 

Putting aside the Kimbell choice of law question, the 

parties' arguments distill down to the following: Winter asserts 

that there was implied or actual consent given for the first two 

sales, and that it would be inequitable to hold them on 

constructive notice of the final three sales because the recording 

system is flawed and would not have revealed the lien, had proper 

inquiry been made. Even if no consent occurred, the proceeds were 

adequately applied in the second sale in accordance with federal 

regulations; thus the lien was released or attached to 

replacement collateral held by the Plagges. Moreover, the sale 

was not the proximate cause of injury, but rather the injury was 

caused by later misapplication of the proceeds by Plagge. 

The Government's position is that Winter was on constructive 

notice of FmHA's lien for all five sales. In any event, the 

County Supervisor was without authority to release any liens where 

the proceeds were not applied as required by federal regulations. 

With respect to the second sale, even assuming that the proceeds 

were adequately applied sufficiently to empower the County 

Supervisor to release the lien, there remains a deficiency 

unaccounted for in the repurchase of cattle. The conversion 

occurred when Winter ignored FmHA's security interest and released 

the cattle proceeds solely to Plagge. 

I. Consent and Release. 

The district court found 

procedures for releasing liens on 

6 

that the Springfield office 

serviced FmHA loans were as 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 6 
follows: 

[I]n practice, the FmHa did not require prior written 

consent before a borrower could sell collateral. The 

FmHA did require, however, that the borrowers bring the 

proceeds in to the FmHA office, whereupon the FmHA would 

review the sale and apply the proceeds either to the 

amounts due on the borrowers [sic] loans, or release 

some of the proceeds for other allowable purposes, such 

as the purchase of replacement collateral. . . . This 

approval of sale and release of proceeds constitutes a 

release of the government's lien. Absent such 

approval, however, both the sold property and the 

proceeds from sale remain subject to the lien. 

United States v. Winter Livestock Commission Co., No. 85-F-455 

(D.Colo. Sept. 30, 1985)(Unpublished Order) at 2 (citations 

omitted). 

Winter challenges this view of the Springfield office's 

release procedure, contending instead that the practice of the 

FmHA was to acquiesce in any sales referred to in the Farm and 

Home Plan, thereby constituting a release under the UCC. 

According to Winter, 

[i]t is clear from the actions and conduct of the FmHA 

that Plagge had authority to sell the collateral subject 

to his duty to account for the proceeds. Any argument 

that Plagge never fully accounted for the proceeds is 

irrelevant because consent for the sale existed and the 

government security interest terminated at the time of 

the sale. 

Brief of Appellant at 32 (citation omitted)(emphasis added). We 

do not agree with this view of FmHA lending practices, which is 

unsubstantiated. 

The record facts, and simple business sense, contradict 

Winter's concept a of pre-approved release of FmHA's security 

interests. The Plagges' Farm and Home Plan was completed as part 

of their loan application. Wysock Deposition at 54. An 

examination of the plan plainly shows it to be only a prediction 

of how the the parties expected the business to be operated. The 

7 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 7 
fact that a column for actual (in addition to predicted) 

transactions is provided on the plan form shows that the plan was 

meant as a predictive worksheet only, and therefore cannot 

constitute specific consent on specifically secured collateral by 

the FmHA. It is inconceivable that FmHA would make a loan, 

require a security interest in property purchased, and then 

immediately place the power to release that interest back into the 

borrower's hands, without even requiring notice of the 

collateral's disposition. Without stronger evidence to support 

Winter's view, which directly contradicts the express terms of the 

security agreement and the affirmative statements of an FmHA 

official, see Kasselder Deposition at 28-33, we accept the 

district court's holding that borrowers were expected to report 

sales and properly account for the proceeds, and that any release 

was based on this notification and accounting procedure. 

Having determined the procedure required, we examine the 

specific sales. The first disputed transaction was a sale of 15 

"cull cows" (i.e., cows which are no longer productive) on July 

29, 1980, for $5502.75. There is no evidence indicating that this 

sale was ever reported to the FmHA, much less approved, except for 

a conclusory statement in Plagge's affidavit that the "FmHA were 

aware of and approved of the sale of the 15 cull cows." Plagge 

Affidavit at 2, 11 6. Plagge and Winter Livestock rely on the Farm 

and Home Plan, Wysock Deposition Ex. 9, which indicates that 

fifteen cull cows were "planned to be sold," as Plagge's affidavit 

put it. However, as explained above, this Plan cannot constitute 

notice of the sale or its approval because the plan was merely a 

predictive tool. There is no evidence at all that the FmHA was 

8 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 8 
ever aware of the actual sale, nor has Winter presented evidence 

specifying the ultimate use of the proceeds. Thus, summary 

judgment for the Government on this transaction was appropriate. 

The same is true with respect to the last three cattle sales 

(dated March 3, July 14, and July 21, 1981). These sales were 

made under the name "Plagge Farms" rather than under the name 

Danny Plagge. Keffeler Affidavit at 1. 5 Like the first one, 

there is no indication that Plagge ever notified the FmHA of these 

transactions, or ever applied the proceeds to a permissible 

purpose. Plagge does not specifically mention these sales in his 

affidavit. Apparently, the FmHA discovered them only by examining 

Winter Livestock's sales logs. Kasselder Deposition at 52-54; 

Finkner Deposition at 75-77; Finkner Deposition Ex. 5. Winter 

Livestock does not argue that these sales were approved 

specifically, except to say that all sales were approved because 

the FmHA did not require prior or written consent. However, we do 

not agree that consent was not needed. Notification and 

accounting were always expected under the office's procedures. We 

believe that given the dearth of evidence presented relating to 

these sales, a reasonable finding cannot be made that the FmHA 

consented. Thus, there is no genuine issue of material fact and 

the grant of summary judgment was also appropriate on these last 

three cattle sales. 

The second and largest sale, dated October 21, 1980, for 

$53,440.44, involved 175 head of cattle. This sale gives us some 

5 

According to the affidavit, 

"Ragge Farms." However, upon 

difficult to read, we believe it 

Affidavit Ex. A. 

9 

one of the sales was made by 

looking at the receipt, which is 

also says "Plagge." Keffeler 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 9 
pause. Unlike the other sales, there is uncontested evidence in 

the agency's· "running record," as well as deposition testimony, 

that FmHA Assistant County Supervisor Laner, now deceased, was 

informed of this transaction. Wysock Deposition Ex. 12; Finkner 

Deposition at 71-74; Finkner Deposition Ex. 4. The transaction 

was recorded on the FmHA's security disposition sheet, but there 

is no indication that it was were either approved or disapproved. 6 

The government points to this as evidence that the sale was 

"expressly disapproved," Government's Brief at 14, and in fact 

deposition testimony indicated that the last column was probably 

left blank for that reason. Finkner Deposition at 43-44. 

However, given the FmHA's less than consistent record-keeping 

practices, see Christopher Deposition at 47, and taking the facts 

in the light most favorable to Winter, we do not believe that an 

inference favoring the Government can be so drawn of express 

disapproval. 

The analysis must then focus on whether the sale was 

authorized. Clearly, the Plagges failed to abide by the terms of 

the security agreement by not obtaining written consent before 

sale. But just as clearly, the practice in the Springfield office 

did not always require prior written consent. Winter argues that 

6 

On the copy made available to us, there is no indication of 

any approval or disapproval. Wysock Deposition Ex. 12. However, 

some testimony suggests that on the original copy, a "no" is 

written in the approval column. Wysock Deposition at 99-100; 

Christopher Deposition at 45; but see Finkner Deposition at 43 

(noting that the approval column is blank). Even if "no" appears 

on the form, it is unclear how long ago it was written, 

Christopher Deposition at 45, or who wrote it. Compare Wysock 

Deposition at 99-100, with Christopher Deposition at 45. Viewing 

the evidence in the light most favorable to Winter Livestock, 

Ewing v. Amoco Oil Co., 823 F.2d 1432, 1437 (10th Cir. 1987), we 

will treat the approval column as being blank. 

10 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 10 
the authorization for this sale was implied, under Colorado law. 

Brief for Appellant at 31-32. The Government, on the other hand, 

argues that compliance with the federal regulations is a precondition to the County Supervisor's exercise of the power to 

release sufficient to bind the government. Brief of Appellee at 

6-9. We conclude that under either view Winter must lose, and 

therefore summary judgment was proper for the Government on the 

second sale. 

Under the terms of 7 C.F.R. § 1962.17(a)(b) in effect at the 

time of the Plagge loans, the cattle were categorized into basic 

security (foundation herd) and normal income security (such as 

calves). The regulation provided that the FmHA County Supervisor 

"may release" basic security "when the property has been sold or 

exchanged" and the proceeds· are either applied to the loan, or 

used to buy replacement security to which the lien attaches. 

Normal income security may be released only when sold at fair 

market value and the proceeds are applied to approved farm and 

home expenditures, or other designated purposes. Id. Moreover, 

as the Government notes, the ability of a government official such 

as the County Supervisor to bind the Government arises only where 

there has been strict compliance with the authority delegated. 

See generally, Federal Crop Insurance Corp. v. Merrill, 332 U.S. 

380, 384 (1947); Albrechtsen v. Andrus, 570 F.2d 906, 910 (10th 

Cir.), cert. denied, 439 U.S. 818 (1978). The evidence shows that 

the Plagges did not comply with the regulations by applying all 

proceeds to the loans or to other permissible uses. Accordingly, 

the County Supervisor was without power to authorize the sale and 

11 

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release the lien, and any unauthorized transfer was an unlawful 

conversion. 

Under Colorado law, the result would be no different. 

Colorado's version of the UCC provides that: 

Except where this article otherwise provides, a security 

interest continues in collateral notwithstanding sale, 

exchange, or other disposition thereof unless the 

disposition was authorized by the secured party in the 

security agreement or otherwise, and also continues in 

any identifiable proceeds including collections received 

by the debtor. 

Colo. Rev. Stat. 1973, § 4-9-306(2). Notably, the Colorado UCC 

does not define "authorized." But we need not delve into the 

intricacies of Colorado agency law to resolve this case because at 

least one Colorado court has applied§ 4-9-306(2) to a claim of 

implied consent. See Western Nat'l Bank of Casper v. ABC Drilling 

Co., Inc., 599 P.2d 942· (Colo. App. 1979). To paraphrase the 

Colorado Court of Appeals in ABC Drilling: the evidence here 

reveals that at most the FmHA would have consented to the sale 

only if the Plagges had brought in the proceeds for application to 

the FmHA loans. Id. at 945; see also Southwest Washington Prod. 

Credit Ass'n v. Seattle-First Nat'l Bank, 593 P.2d 167, 169 (Wash. 

1979)(en banc)(holding that the UCC permits conditioning the 

authorization to sell on a specified application of the 

proceeds). 7 Since the uncontested evidence shows that none of the 

7 

We are aware that this court distinguished the Seattle-First 

case in coming to a contrary conclusion while construing 

Oklahoma's version of UCC § 9-306(2). See First Nat'l Bank and 

Trust Co. of Oklahoma City v. Iowa Beef Processors, Inc., 626 F.2d 

764, 768-69 (10th Cir. 1980). Although the Oklahoma and Colorado 

versions of§ 9-306 are identically worded, we do not believe that 

Iowa Beef controls. The Seattle-First case was distinguished in 

Iowa Beef primarily because it, as in the instant case, involved a 

security agreement requiring written consent before the sale of 

(Footnote continued on next page) 

12 

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proceeds from this sale were applied to the FmHA loan, there was 

no consent and release, and summary judgment as to Winter's 

liability for conversion was appropriate. 

Winter contends, however, that Plagge deposited the proceeds 

in his personal bank account, and a few weeks after this second 

sale, replaced the sold cattle. See Plagge Affidavit at 2 

(stating that replacement 

approximate amounts of 

cattle 

$17,460, 

"purchases were in the 

$11,160, and $6,300"). 

Consequently, Winters argues, its liability should be reduced by 

$34,920 in any event. The Government responds that this claim is 

"uncorroborated" and even if true, leaves a shortfall of nearly 

$18,500 unaccounted for. For these reasons we believe that with 

respect to the damages, but not the liability for conversion, 

there exists a genuine issue of material fact as to .alleged 

purchases of replacement cattle to which the FmHA's lien would 

have attached, which would reduce Winter's liability. Thus, 

summary judgment on the amount of damages only was improper and on 

that issue we remand. 

II. Course of Dealing, Inequity, Conversion and Ignorance. 

Winter's remaining arguments are unpersuasive. Winter claims 

that a course of dealing between the FmHA and the Plagges made 

consent unnecessary. We have already refuted this argument above, 

(Footnote continued): 

collateral. Id. Moreover, in Iowa Beef, the plaintiff-bank 

conceded that "[T]he borrowers had standing consent to sell 

cattle." Id. at 767. In light of the difference in attitudes 

toward collateral sale, and the different approaches to the UCC of 

the respective state courts, a differing view of Colorado's§ 9-

306 is permissible. Iowa Beef applies Oklahoma law, and to the 

extent that the Colorado court in ABC Drilling construes the UCC 

to permit such restraints on authorization, we would follow this 

lead were Colorado law dispositive here. 

13 

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I 

outside the UCC ~ontext. But even assuming that the Colorado UCC 

governs, Winter's argument fails under the very terms of the UCC 

provisions cited. 

First, the statute and official comment to the course of 

dealing provision restrict this defense "literally to a sequence 

of conduct between the parties previous to the agreement." Colo. 

Rev. Stat., § 4-1-205(1) and Official Comment 2 (emphasis added). 

Winter's factual contentions do not address this type of conduct. 

Second, course of performance looks to "repeated occasions" of 

performance by the parties after or under the contract, which in 

certain circumstances would be relevant to show a waiver or 

modification of the agreement. Colo. Rev. Stat., § 4-2-208; see 

also§ 4-1-205, Official Comment 2. Winter, however, fails to 

allege or demonstrate that ·the Plagges' specific conduct regarding 

the five sales was recurring conduct between the parties. The 

implied consent and consequent waiver of the security lien, 

authorizing conduct which could "otherwise" alter the express 

agreement, has not been demonstrated. Absent express or otherwise 

demonstrated authorization for the Plagges' conduct, the UCC 

mandates that the express terms of the agreement are controlling. 

Id. at§§ 4-1-205(4); 4-2-208(2). 

Winter's claim that it would be inequitable to hold it 

accountable for the last three sales because of imperfections in 

the lien recording system lacks merit. We do not find it 

inequitable to hold a tortfeasor accountable on constructive 

notice of a lien which it chose to ignore, merely because the 

security interest "might" have been missed had Winter checked. 

Winter never looked; thus its argument is mere speculation. 

14 

Appellate Case: 85-2788 Document: 010110016448 Date Filed: 01/31/1991 Page: 14 
The trial court properly held that Winter had engaged in 

conversion through the unauthorized transfer or disposal of the 

livestock. See,~, Cassidy Commission Co. v. United States, 

387 F.2d 875, 880 (10th Cir. 1967)(placing the risk of failure to 

obtain release on the party receiving the secured property); 

Colorado Bank and Trust Company v. Western Slope Investments, 539 

P.2d 501, 503-504 (Colo. App. 1975) (auction company liable in 

absence of clear, unequivocal, and decisive act by lender to 

consent to or ratify sale). Ignorance of the FmHA's lien is not a 

defense. Winter is liable for its actions under the terms of the 

UCC and federal common law. Colo. Rev. Stat., § 4-9-306(2), 

Official Comment 3; w. P. Keeton, D. B. Dobbs, R. E. Keeton, & 

D. G. Owen, Prosser and Keeton on Torts 96-97 (5th ed. 1984) 

(auctioneer liable as converter notwithstanding his innocence). 8 

Accordingly, we AFFIRM the grant of summary judgment on 

liability for conversion, but REMAND for a determination of 

damages in accord with this opinion. 

8 

The Food Security Act of 1985, Sec. 1324, 7 u.s.c. § 1631, 

effective December 1986, was passed to govern situations like this 

case. Under the UCC, § 9-307(1), the farm products exception, 

the buyer in the ordinary course of business could not take free 

of the security interest. The Food Security Act invalidated the 

farm products rule in§ 9-307(1) and protects commission merchants 

and selling agents from being held liable for conversion or held 

accountable to the seller's secured party for the proceeds. The 

farm products exception is part of the Colorado UCC and would have 

r applied at the time of the Plagges' loans and transactions with 

Winter. Colo. Rev. Stat.,§ 4-9-307(1). 

15 

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