Case Name: In re BLACK & WHITE CATTLE CO., a California limited partnership, Debtor. BLACK & WHITE CATTLE CO., a California limited partnership, Debtor and Debtor in Possession, Plaintiff/Counter-Defendant/Appellee, v. SHAMROCK FARMS COMPANY, an Arizona corporation, and McLod Farms Company, an Arizona corporation, Defendants/Counter - Claimants/Appellants, and Modesto Production Credit Association, Defendant
Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1983-03-15
Citations: 30 B.R. 508
Docket Number: BAP No. CC-82-1390-KHAb; Bankruptcy No. LA-82-06631-CA; Adv. No. LA-82-3861-CA
Parties: In re BLACK & WHITE CATTLE CO., a California limited partnership, Debtor. BLACK & WHITE CATTLE CO., a California limited partnership, Debtor and Debtor in Possession, Plaintiff/Counter-Defendant/Appellee, v. SHAMROCK FARMS COMPANY, an Arizona corporation, and McLod Farms Company, an Arizona corporation, Defendants/Counter - Claimants/Appellants, and Modesto Production Credit Association, Defendant.
Judges: Before KATZ, HUGHES and ABRA-HAMS, Bankruptcy Judges.
Reporter: West's Bankruptcy Reporter
Volume: 30
Pages: 508–528

Head Matter:
In re BLACK & WHITE CATTLE CO., a California limited partnership, Debtor. BLACK & WHITE CATTLE CO., a California limited partnership, Debtor and Debtor in Possession, Plaintiff/Counter-Defendant/Appellee, v. SHAMROCK FARMS COMPANY, an Arizona corporation, and McLod Farms Company, an Arizona corporation, Defendants/Counter - Claimants/Appellants, and Modesto Production Credit Association, Defendant.
BAP No. CC-82-1390-KHAb.
Bankruptcy No. LA-82-06631-CA.
Adv. No. LA-82-3861-CA.
United States Bankruptcy Appellate Panels of the Ninth Circuit.
Argued Jan. 20, 1983.
Decided March 15, 1983.
Gerald K. Smith, Lewis & Roca, Phoenix, Ariz., for defendants/counter-claimants, appellants.
Jeffrey H. Davidson (Argued), Jeffrey C. Krause, Stutman, Treister & Glatt, Los An-geles, Cal., for plaintiff/counter-defendant/appellee.
Before KATZ, HUGHES and ABRA-HAMS, Bankruptcy Judges.

Opinion:
OPINION
KATZ, Bankruptcy Judge.
Shamrock Farms Company and McLod Farms Company (hereinafter collectively referred to as Shamrock), defendants, have appealed from a partial summary judgment in favor of Black and White Cattle Co., the debtor and debtor-in-possession. The judg ment was certified as final pursuant to Fed.R.Civ.P. Rule 54(b) and entered on August 11, 1982. The judgment held as follows:
(1) Black and White, as the debtor-in-possession, by virtue of 11 U.S.C. § 544(a) and 1107, may avoid Shamrock's claim of ownership to cattle in the possession of the debtor on April 12, 1982 — the date of the commencement of this case — as a result of Shamrock's failure to record the feeding agreement as required by Cal.Civ.Code § 2980.5.
(2) Neither Shamrock nor McLod are entitled to a lien against the cattle in the debtor's possession on April 23, 1982.
(3) Shamrock is compelled to pay the purchase price of $2,400,000 plus 12% per an-num (accruing from May 4, 1982) pursuant to the stipulated partial judgment entered by the court.
Having determined there to be no triable issues of material fact, the bankruptcy court's decision to grant partial summary judgment in favor of Black and White is hereby AFFIRMED, as required by Fed.R. Civ.P. Rule 56.
FACTS
Black and White Cattle Co. was formed as a California general partnership by Steven C. Voorhies and David H. Brown in 1979. In July of that year Black and White initiated operation of a feed lot on leased property in Santa Maria, California.
Shamrock, a major Arizona dairy concern, signed a cattle feeding agreement (hereinafter "agreement") with Black and White on November 21, 1980. According to the terms of the agreement, Shamrock was to deliver at least 2,000 head of cattle to the feed lot to be fed arid cared for until ready for return to the appellant's dairy herd for production. From November 21,1980, until April 23, 1982 — -the date the debtor filed its petition — Shamrock had delivered approximately 3,500 heifers and 57 bulls into the possession of the debtor. The acquisition cost of $1.4 million and subsequent feeding costs of $1.5 million were financed through loans extended by a creditor not a party to this appeal. It is agreed that the fair market value of the cattle in the possession of the debtor on the date of the commencement of this case is $2,400,000.
During the latter portion of 1981 Black and White found itself in need of additional capital. The fathers of the general partners each invested $500,000 and were added as limited partners. A certificate of limited partnership was executed in late August and recorded on September 21, 1981.
The restructured Black and White Cattle Co. filed a voluntary petition for reorganization under Chapter 11 of the Code on April 23,1982. At the same time Black and White, as debtor-in-possession, initiated an adversary proceeding by filing a complaint, seeking to avoid Shamrock's reservation of ownership in the cattle on the feed lot for the reason that it failed to record the feeding agreement as required by Cal.Civ.Code § 2980.5. The complaint also alleged Shamrock's refusal to pay for feeding costs and sought authority to immediately sell the cattle free and clear of Shamrock's claim.
On May 8, 1982, the court approved a stipulated partial judgment which authorized Black and White to sell the cattle to Shamrock for $2,400,000, plus 12% per an-num (to accrue from May 4,1982 to date of payment). The purchase price was to be secured by a lien in the cattle and a bond. The funds were to be placed in an interest-bearing escrow account pending the ultimate disposition of title to the cattle.
Black and White subsequently filed a motion for partial summary judgment on June 7,1982, seeking judgment on its claim to set aside Shamrock's claim to the cattle under Cal.Civ.Code § 2980.5, 11 U.S.C. § 544(a) and 1107. The motion also sought dismissal of Shamrock's counterclaim for the imposition of a lien against the cattle to compensate for the lesser of feed costs or the appreciation of the cattle in the event Black and White was successful in avoiding Shamrock's claim of ownership.
Following the submission of supporting documents and oral argument, the court entered its findings of fact, conclusions of law and partial summary judgment in favor of Black and White certified as final as provided by Fed.R.Civ.P. Rule 54(b).
Shamrock has asserted the following arguments on appeal:
(1) California Civil Code § 2980.5 defines and limits the avoidance powers granted to Black and White as the debtor-in-possession under 11 U.S.C. § 544(a) and 1107 to the rights of a creditor obtaining a lien in good faith and without knowledge of Shamrock's prior reservation of ownership in the cattle. Since the cattle bore Shamrock's brand, no good-faith creditor is even hypothetically possible here because branding gives constructive notice of ownership under California law.
(2) The debtor was not a party to the unrecorded feeding agreement. No creditors of Black and White Ltd. may claim the benefits of Cal.Civ.Code § 2980.5. Thus, there is no occasion for a hypothetical creditor of the debtor to avoid Shamrock's claim of ownership to the cattle.
(3) Alternatively, should Shamrock's interest be set aside, the appellant seeks an equitable lien against the cattle as provided by 11 U.S.C. § 550 to compensate for the lesser of feeding expenses or the appreciation in value of the herd from the date of delivery to the feed lot.
(4) If Shamrock's claim is avoided and vested in the debtor-in-possession, the appellant contends that it should not be compelled to pay the purchase price as required by the stipulated partial judgment entered below until a contribution is first sought from the general partners to cover any deficiencies in the estate.
(5) The appellant contends that Cal.Civ. Code § 2980.5 is unconstitutional because it irrationally imposes a burden to record exclusively on owners of dairy cattle subject to a feeding agreement, and not on owners of other cattle.
(6) The bankruptcy court is without jurisdiction to hear this matter.
Avoidance of Shamrock's Interest in the Cattle
The disposition of title in the cattle and the major issue in this appeal rest upon the application of Cal.Civ.Code § 2980.5. We, accordingly, address this matter at the outset.
By enacting § 2980.5 the California Legislature created a system to protect purchasers and creditors dealing with feed lot operators who are in possession of cattle belonging to another. The principle which deems the separation of ownership and possession to be presumptively fraudulent is deeply engrained in our jurisprudence. See e.g., Twyne's Case, 3 Co.Rep. 80b (1601). See gen. 37 C.J.S. Fraudulent Conveyances § 1-7. Accordingly, § 2980.5 requires the owner of dairy cattle which are delivered into the possession of a feed lot operator to record the feeding agreement so that others will be on notice of the owner's claim to the cattle. Calva Products v. Security Pacific Nat'l Bank, 111 Cal.App.3d 409; 168 Cal.Rptr. 582 (1980).
(1) Should the owner of the cattle fail to record the feeding agreement within 10 days of its execution, all terms reserving title in the bailed cattle after delivery to the feed lot are void as against any purchaser, creditor or encumbrancer who purchases, acquires a security interest, or seeks to enforce a lien upon the cattle in good faith and without knowledge prior to the recording of the agreement. In addition, the statute also protects a gap creditor who in good faith and without actual knowledge extends credit after delivery of the bailed cattle pursuant to an unrecorded feeding agreement despite the fact that the creditor obtains a lien after the agreement is recorded. As to the above-mentioned protected classes title in the cattle is "conclusively presumed" to have been transferred to the feed lot operator.
Shamrock concedes the application of Cal.Civ.Code § 2980.5 to the parties' feeding agreement. Nor is there an issue concerning the authority of a debtor-in-possession to avoid the ownership interests reserved in an unrecorded feeding agreement under § 2980.5, as a general principle of law, by virtue of 11 U.S.C. § 544(a) and 1107. Rather, the appellant contends that the presence of its registered brand and other identification on the cattle negates the possibility for any creditor, even one hypothetically created under 11 U.S.C. § 544(a), to obtain a lien in good faith and without actual knowledge of Shamrock's claim of ownership.
The appellant supports this reasoning upon two premises. First it is argued that § 2980.5 can benefit only those who could possibly rely on the misleading appearances created by the separation of ownership from possession; e.g., feed suppliers and other trade creditors directly aware of the cattle in Black and White's feed lot. Given the prevailing trade practice of brand inspection, any creditor refusing to acknowledge the presence of Shamrock's brand would not be extending credit in good faith as required by the statute. Secondly, it is argued that the very presence of the brand gives constructive notice of Shamrock's claim to the cattle. Thus, Black and White as debtor-in-possession by assuming the status of a trustee is similarly bound and precluded from avoiding Shamrock's claim in the cattle.
Shamrock's attempt to limit the protective scope of Cal.Civ.Code § 2980.5 to those relying on the misleading appearance of the cattle in the debtor's possession is unfounded. The express language of the statute provides the power to avoid the owner's reservation of title to all creditors extending credit after delivery of the cattle pursuant to an unrecorded feeding agreement regardless of whether such creditor knew of or relied on appearances. Furthermore, Cal.Civ.Code § 2980.5(c) extends the benefits to those creditors holding a security interest in after acquired cattle. Merced Production Credit Ass'n v. Bayer, 222 Cal.App.2d 793,35 Cal.Rptr. 511 (1963). Clearly there is no prerequisite for the creditor to rely on the state of the record before title may be "conclusively presumed" vested in the feed lot operator. Rather, Cal.Civ.Code § 2980.5(c) permits the creditor's interest to attach to the additions at the moment the debtor obtains possession regardless of whether the fact was ever brought to the attention of the creditor.
Placing limitations on Cal.Civ.Code § 2980.5 is not supported by any authority nor would such a construction further the intent of the legislature to provide maximum protection to uninitiated purchasers and creditors not familiar with the customs of the dairy trade. Moreover, even if reliance was necessary before a creditor may seek the benefit of § 2980.5, Black and White as the debtor-in-possession may hypothesize such reliance on the misleading record notwithstanding the existence of the brands. In re May, 19 B.R. 655, 659 (D.C.N.D.Fla.1982). We therefore reject Shamrock's limited construction of Cal.Civ.Code § 2980.5.
Good Faith
The appellant's contention that branding precludes even a hypothetical creditor from acting in good faith is premised upon a limited construction of § 2980.5. Having held that the statute benefits creditors who may be ignorant of the significance of branding cattle there is no longer any obstacle to the advent of a hypothetical creditor obtaining a lien in good faith notwithstanding the presence of Shamrock's brand. It is irrelevant that some creditors may exhibit a lack of good faith by extending credit while aware of Shamrock's claim to the cattle. Black and White assumes the status of the "ideal" creditor under 11 U.S.C. § 544(a). To attribute bad faith to the debtor-in-possession would be inconsistent with the Code's policy vesting the trustee with the rights of the ideal "most favored" creditor possible under state law. 4 Collier on Bankruptcy, ¶ 544.02 at 544-4 (15 ed. 1982). Furthermore, the California courts have defined "good faith" in the commercial setting to mean honesty in fact. Mueller v. MacBan, 62 Cal.App.3d 258, 282, 132 Cal.Rptr. 222 (1976). This definition conforms with that of the majority of jurisdictions and of the Uniform Commercial Code. See Summers "Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code", 54 Va.L.Rev. 195, 207-216 (1968). Good faith, therefore, implies a benign state of mind viewed subjectively. A creditor acting unreasonably or imprudently may still act in good faith so long as his mind is free of a malevolent intent. Hollywood National Bank v. International Business Machines, 38 Cal.App.3d 607, 113 Cal.Rptr. 494 (1974). Thus, a creditor's failure to acknowledge a brand upon bailed cattle does not necessarily indicate the absence of good faith. Accordingly, there is no basis for the assertion that Black and White by assuming the rights and powers of the ideal hypothetical creditor cannot satisfy the good-faith requirement of Cal.Civ.Code § 2980.5. The debtor-in-possession, as the "ideal creditor", acts in good faith by definition.
"Without Knowledge"
Cal.Food & Agri.Code § 20609 provides that the presence of a brand on cattle creates a rebuttable presumption of ownership in circumstances in which the title is subject to dispute. Appellant asserts the following syllogism.
The presumption of ownership arising from the presence óf a brand is at least equal in effect to possession. Since possession provides constructive notice, it must follow that branding gives constructive notice of ownership, thereby precluding resort to the Code's avoidance powers, see In re Richardson, 23 B.R. 434 (Bkrtcy.1982).
Appellant has not persuasively argued that branding under California law affords potential creditors constructive notice of its reservation of title to the cattle.
We must consider a rebuttable presumption to be a shorthand form of stating that, assuming a particular set of facts (i.e., branded cattle), an inference of ownership is appropriate if the trier of fact is not persuaded by contrary evidence. Cal.Evid. Code § 606 states:
The effect of a [rebuttable] presumption affecting burden of proof is to impose upon the party against whom it operates the burden of proof as to the nonexistence of the presumed fact.
Prof. Morgan has explained when a re-buttable presumption affects the burden of proof, as provided by Cal.Food and Agri. Code § 20609, the legislature's intent is to require a finding of the presumed fact in the absence of more persuasive contrary evidence. See Cal.Evid.Code § 601, Comments — Law Revision Commission (West 1974).
On the other hand the creation of a conclusive presumption of ownership, as established in favor of the bailee of cattle by Cal.Civ.Code § 2980.5 under an unrecorded feeding agreement, is a substantive rule of law upon which the trier of fact is required to accept the proffered evidence regardless of any controverting evidence. Gayton v. Pacific Fruit Express Co., 127 Cal.App. 50, 15 P.2d 217 (1932), Williams v. Moon, 98 Cal.App.2d 214, 219 P.2d 902 (1950).
With this distinction in mind we examine appellant's assertion that Cal.Food Agri. Code § 20609 creates a rebuttable presumption of ownership which is tantamount to constructive notice and overrides the conclusive presumption of transfer in the bailee as provided in Cal.Civ.Code § 2980.5.
Constructive notice has been described as "evidence of notice, the presumption of which is so violent that the court will not even allow of its being controverted", 58 Am.Jur.2d § 6 (1971). A California court of appeal has held that a party having constructive notice of a fact is "conclusively presumed" to have notice of the related facts not actually brought to his attention, Powers v. Perry, 12 Cal.App. 77 at 81, 106 P. 595 (1909).
If branding did give constructive notice under California law, one must question the reasoning of the court in Lawler v. Solus, 101 Cal.App.2d 816, 226 P.2d 348 (1951), and its inquiry as to whether, notwithstanding the presence of branded cattle, the secured creditor had knowledge of the owner's unrecorded interest in the cattle. Similarly in Merced Production Credit Association v. Bayer, 222 Cal.App.2d 793, 35 Cal.Rptr. 511 (1963), the court voided the seller's interest in cattle delivered into the possession of a farmer pursuant to an unrecorded conditional sales contract despite the presence of its brand.
Thus, we do not agree that branding provides the equivalent to constructive notice, nor are we ready to expand the concept of constructive notice to these circumstances where the California legislature has not done so. Furthermore we hesitate to adopt Shamrock's views concerning the strained co-existence of Food & Agri.Code § 20609 and Cal.Civ.Code § 2980.5 since, as appellant correctly observes, such a construction would necessarily result in the repeal of Cal.Civ.Code § 2980.5 by implication.
For the past half century the California legislature has periodically reviewed and amended the statute which is presently known as Cal.Civ.Code § 2980.5. All the while there existed the presumption of ownership created by the presence of branded cattle, as currently provided in Cal.Food & Agri.Code § 20609. Had the legislature considered branding to be a substitute for recording one must question the need for the series of amendments to the predecessors of § 2980.5 or question the reason for simply not articulating such intent. We must conclude, therefore, that the statutes do not conflict nor are they intended to serve the same function. Cal.Food & Agri. Code § 20609 merely creates an evidentiary presumption of ownership in a case where, for example, a title to a stray animal may be in dispute. Cal.Civ.Code § 2980.5, on the other hand, addresses an entirely different concern, to-wit, that of preventing the invidious results arising from secret, unrecorded liens.
The express, chosen remedy is to require the recording of feeding agreements. Shamrock has failed to do so and cannot escape the consequences by contending that its brand serves as a substitute. Thus, Black and White is not precluded from claiming the benefits of Cal.Civ.Code § 2980.5 by virtue of 11 U.S.C. § 544(a), 1107. The conclusive presumption of ownership in the debtor as transferee as provided in § 2980.5 serves as a basis upon which Black and White may avoid Shamrock's claim of ownership.
We are mindful of the recent opinion of the Court of Appeals for the Third Circuit entitled McCannon v. Marston, 679 F.2d 13 (3d Cir.1982). That case, construing Pennsylvania law, held that the provisions of 11 U.S.C. § 544(a), which permits a trustee to exercise rights and powers of certain creditors and purchasers without regard to any knowledge, does not permit a trustee to avoid an unrecorded purchase agreement of real property where the purchaser was in possession of the property. That possession obliged the trustee, under state law, to inquire into the purchaser/possessor's claimed interest, because under Pennsylvania law, clear and open possession of real property generally constitutes constructive notice to a subsequent purchaser of possible legal or equitable rights of the possessor.
McCannon is distinguishable from this case on two bases. First of all, we are not dealing here with a person in possession of real property, but most importantly, California state law provides that an unrecorded feeding agreement voids (emphasis added) all terms reserving title in the bailed cattle as against any purchaser, creditor or encumbrancer. Hence, possession, without a recorded instrument, does not require inquiry as to the ownership interest in the cattle.
Restructuring of Black and White Cattle Co.
On September 21, 1981, Black and White recorded a certificate of limited partnership. The appellant has raised the additional argument that no creditor of the debtor, even one hypothetical in nature, could avail itself of the benefits of Cal.Civ.Code § 2980.5 since the debtor was not a party to the unrecorded feeding agreement.
We cannot agree. The statute expressly voids any provision in the unrecorded agreement reserving title to the owner "after possession of the chattels is delivered to the lessee" (emphasis added). Subsection (a) defines "lessee" so as to include a person feeding dairy cattle. The debtor comes within the scope of this definition. To further the policy of protecting creditors from "secret liens" it is apparent that the application of Cal.Civ.Code § 2980.5 extends to creditors of a debtor actually operating the feed lot. A more limited application would simply frustrate the drafter's intent. See Calva Products, supra, 111 Cal.App.3d at 419, 168 Cal.Rptr. 582. Furthermore, the parties to the feeding agreement intended the rights and obligations to be "binding upon and shall inure to the benefit of the parties . their assigns and all other successors-in-interest." For either reason, Black and White's creditors are clearly protected by Cal.Civ.Code § 2980.5.
Shamrock's contention that the restructuring of the debtor has created a new legal entity thereby precluding the existence of a-hypothetical creditor under Cal.Civ.Code § 2980.5 is not supported by law. California Corporation Code § 15031(7) permits a general partnership to admit new partners without resulting in dissolution of the partnership provided there is a written agreement to that effect. There is every indication in this case that all partners signing the limited partnership agreement intended to have Black and White continue its existence. The primary purpose of the restructuring was evidently to obtain an infusion of needed capital. The essential aspects of the general partnership remained central components of the limited partnership.
We therefore agree with the trial judge's decision upholding the authority of the debtor-in-possession to set aside the appellant's reservation of title in the unrecorded feeding agreement.
Transferee's Lien for Improvements on Recovered Property. § 550(d)
It is to be observed that 11 U.S.C. § 550(d) permits a good-faith transferee of an avoided transfer which is subject to recovery by a trustee a lien on the property equal to the lesser of the cost of improvement or the appreciation in value. Shamrock has sought such a lien in compensation for the $1.5 million reflecting the cost of feeding or alternatively, the appreciation in value over the acquisition cost of the cattle, whichever is determined to be the lesser amount.
There is no basis within the Code for granting a lien on the cattle under these circumstances. Section 550(d) refers to the recovery of transfers avoided under § 544(a). The definition of transfer contained in the prior act has been retained in § 101(40) of the Code. Although the term is meant to be all encompassing, the essential aspect requires a "disposition of or parting with property." Collier on Bankruptcy, § 101(10) at 101-76 (15 ed. 1982). Section 544(a) incorporates the broad definition of transfer to enable the trustee to avoid dispositions of the debtor's property which are avoidable by a creditor under state law. In re Murrieta Hot Springs, 6 B.R. 73 (Bkrtcy.1980).
Shamrock's reservation of a claim to the cattle in the feeding agreement was clearly not a "disposition" or "parting with property" of the debtor's. Furthermore, the trustee under § 544(a) ascends to the rights of the protected creditor under Cal.Civ.Code § 2980.5. That statute's protective mechanism does not necessarily involve the avoidance of a transfer. Rather, as in the present case, the debtor-in-possession assumes the rights and powers of a favored judicial lien creditor to avoid a purported reservation of title. Consequently, there can be no recovery of a property interest which was never transferred in the first instance. The conclusion, therefore, must follow that § 550(d) is not available to Shamrock given the facts of this case.
Order Compelling Payment of the Purchase Price
The appellant has also objected to the payment of the stipulated purchase price ($2,400,000 plus 12% per annum accruing from May 4, 1982). Shamrock supports its argument for delaying payment pending the determination of any deficiency by maintaining that compliance with the order will inure to the benefit of debtor's general partners.
The Code's avoidance powers are intended for the benefit of the debtor's creditors. In re Wilson, 4 B.R. 605, 607 (Bkrtcy.1980). 11 U.S.C. § 728 is consistent in this regard by retaining the rule that general partners are primarily liable to the trustee in the event of a deficiency. In re Jercyn Dress Shop, 516 F.2d 864 (2nd Cir.1975).
Reference to § 723 may be necessary in confirming a plan of reorganization, 11 U.S.C. § 1129(a)(7)(A)(i), (ii), House Report No. 95-595, 95th Cong., 1st Sess. (1977) 112, U.S.Code Cong. & Admin.News 1978, p. 5787, notwithstanding the general restrictions contained in 11 U.S.C. § 103(b) on the application of the provisions of Chapter 7. We cannot agree, however, with the appellant that § 723 permits a delay in paying for the cattle as ordered. Section 723 clearly contemplates the imposition of liability upon the general partners only after it is determined that available partnership property is deficient for the satisfaction of partnership debts. 11 U.S.C. § 723(a). Turner v. Central National Bank of Mattoon, Illinois, 468 F.2d 590, 591 (7th Cir.1972). The $2,400,000 plus-interest purchase price owed by Shamrock is obviously a major asset of the debtor's estate which the debtor-in-possession must recover for the benefit of the creditors. The existence of any deficiency can only be determined after all such assets are marshalled and subject to an accounting. Only at this later stage of the case can § 723 have any bearing on the confirmation of a plan. This section is simply not applicable at an earlier stage of the debtor's reorganization.
In addition, Shamrock's reliance on the cited case law is inappropriate. As discussed above, we are not here concerned with recovery of an avoided transfer. The appellant has retained no interest in the cattle. By the terms of the stipulated partial judgment entered below, Shamrock has been relegated to the status of any other third party obligated to satisfy a matured contractual obligation. 11 U.S.C. § 542(b). See also, In re Verco, 10 B.R. 347, 351 (9th Cir.Bkrtcy.App.1981). The debtor-in-possession is therefore entitled to the prompt payment of the purchase price as required.
Constitutional Challenge
The California courts have expressly sustained the validity of Cal.Civ.Code § 2980.5 against a constitutional challenge. Calva Products, supra, 111 Cal.App.3d at 417-421, 168 Cal.Rptr. 582. We are not inclined to relieve Shamrock of its obligation in light of the ruling by the state court.
Finally, the bankruptcy court had jurisdiction to hear the case and enter the judgment on appeal. The judgment was entered on August 11, 1982, well within the period preceding the effective date of the Marathon decision. Christian Life Center Litigation Defense Committee v. U.S. Bankruptcy Appellate Panels (C-830318AJZ) (U.S.D.C.N.D.Cal.1982). We therefore conclude that the bankruptcy court had jurisdiction to enter the challenged judgment.
We hold upon reviewing the record that the entry of summary judgment in favor of Black and White Cattle Co., debtor-in-possession, is appropriate, there being no tria-ble issues of material fact, Fed.R.Civ.P. Rule 56. Judgment AFFIRMED.
. § 2980.5 Livestock contracts
(a) Definitions. As used in this section "contract" means any agreement, other than one intended to create a security interest (Section 9102(l)(a) of the Uniform Commercial Code), for the leasing of livestock or other animate chattels, or any agreement for the bailment or feeding of cattle of such breeds or crossbreeds as are primarily used for the production of milk for human consumption (hereinafter termed "dairy cattle"); "lessor" means the lessor of any such chattels, or the bailor or person owning dairy cattle under a feeding agreement; "lessee" means the lessee of any such chattels or the bailee or person feeding dairy cattle. For the purposes of this section bovine animals of the Galloway, Hereford, Polled Hereford, Aberdeen Angus, shorthorn (other than milking shorthorn), and Brahma breeds or crossbreeds within any of said breeds, and steers of any breed or crossbreed, including dairy breeds and crossbreeds, are not "dairy cattle."
(b) Recording. Unless any such contract is recorded in accordance with subsection (d) of this section within 10 days after the contract is executed, every provision therein reserving title or property in any such chattels to the lessor after possession of the chattels is delivered to the lessee shall be void as to any purchaser, creditor or encumbrancer who, without actual knowledge of such provision, in good faith and for value purchases the chattels from the lessee or acquires a security interest therein or lien thereon by security agreement, attachment or levy, before the contract is so recorded, and as to any other creditor who, without actual knowledge of such provision, in good faith and for value becomes a creditor after possession of the chattels is delivered to the lessee and before the contract is so recorded, and as against any such purchaser, creditor or secured party title or property in any such chattels shall be conclusively presumed to have been transferred to the lessee unless the contract is so recorded.
(c) Security interest; acquisition; priority. Without limiting the generality of subsection (b) of this section, for the purposes of this section a secured party having a security interest in livestock or other animate chattels and whose security agreement provides that it shall cover any such chattels subsequently acquired by the debtor shall be deemed to acquire a security interest upon any such chattels, the possession of which is thereafter delivered to the debtor under any contract as above defined, at the time possession thereof is acquired by the debtor, and such security interest shall be prior and superior to the right, title or interest of the lessor under any such contract unless the contract is recorded within 10 days after the contract is executed.
(d) Acknowledgment; proof; certification; recordation; residence. Any such contract must be acknowledged or proved and certified and must be recorded in the office of the county recorder of the county where the chattels are located at the time the contract is executed and also in the county where the lessee resides unless the lessee is a nonresident. Where the lessee is a corporation or a partnership the county of residence thereof for the purpose of recording such contract shall be deemed to be the county wherein such corporation or partnership has its principal place of business within this State.
. See note 1 at p. 510, supra.