Opinion ID: 727230
Heading Depth: 2
Heading Rank: 1

Heading: The Loan Checks

Text: 26 The trustee first contends that the treasurer checks, which represented the proceeds of the two loans and were produced at the closing on August 1, were property of the estate because they were made payable to Kelton Motors and were endorsed by Charlie Kelton, acting as Kelton Motors's agent, at the closing. We disagree. 27 Under applicable Vermont law in 1988--the original version of Article 3 of the Uniform Commercial Code--only a holder of a negotiable instrument could enforce its payment. 1 Vt. Stat. Ann. tit. 9A, § 3-301 (1966) (The holder of an instrument whether or not he is the owner may transfer or negotiate it and, except as otherwise provided in section 3-603 on payment or satisfaction, discharge it or enforce payment in his own name.); Miller v. Merchants Bank, 138 Vt. 235, 415 A.2d 196, 199 (1980) ([I]t is only a holder who can enforce payment on the instrument....). Vermont law in 1988 stated that a  '[h]older' means a person who is in possession of ... an instrument ... drawn, issued or indorsed to him or to his order or to bearer or in blank. Vt. Stat. Ann. tit. 9A. § 1-201(20) (1966); Miller, 415 A.2d at 199 ([T]o qualify as a holder one must have possession of the instrument ....); see also State v. Kamuda, 98 Vt. 466, 129 A. 306, 309 (1925) (noting that under Vermont law possession is presumptive evidence of ownership). Thus, because there is no dispute here that the checks were drawn to Kelton Motors, it was a holder--and therefore entitled to enforce payment of the checks--only if Kelton Motors was ever in possession of the checks. 28 The Uniform Commercial Code nowhere defines possession. See First Nat'l Bank v. Lamoni Livestock Sales Co., 417 N.W.2d 443, 447 (Iowa 1987). Accordingly, we look to other sources for the meaning of possession, insofar as that term is used in § 1-201(20). It is hornbook law that [p]ossession of personal property involves the power to control and the intent to control. 63A Am.Jur.2d Property § 35, at 267 (1984) (footnote omitted); see 73 C.J.S. Property § 28, at 218 (1983) (A person is in possession of a chattel when he has physical control of a chattel with the intent to exercise that control.) (footnote omitted). 29 Although Vermont courts have never addressed specifically the requirement of an intent to control in the civil context, many courts have. See, e.g., Warren v. Yocum, 223 N.W.2d 258, 260 (Iowa 1974) (Possession involves power of control and intent to control. (quotation omitted)); Baltimore Gas & Elec. Co. v. Lane, 338 Md. 34, 656 A.2d 307, 312 (1995) (Possession involves both the present intent to control the object and some ability to control it.); New England Box Co. v. C & R Const. Co., 313 Mass. 696, 49 N.E.2d 121, 130 (1943) (A person is in possession of a chattel if he has control of it and intent to exercise such control.); Yarbrough v. John Deere Indus. Equip. Co., 526 S.W.2d 188, 191 (Tex.Civ.App.1975) (also quoting Restatement of Torts § 216). Given that previously we have noted that, in the criminal context, in Vermont, as elsewhere, unhindered possession of an item, particularly when accompanied by use of the item as one's own, is strong evidence of ownership, Damon v. Secretary of Health, Educ. & Welfare, 557 F.2d 31, 34 (2d Cir.1977) (citing cases), we easily conclude that in Vermont an intent to control is required to show possession as that term is used in § 1-201(20). 30 We cannot say that the bankruptcy court clearly erred in concluding that Kelton Motors had no interest in the checks. Although custody of the checks by Charlie Kelton when he endorsed them and handed them to the Bank of Vermont can serve as evidence of Kelton Motors's possession of the checks, the bankruptcy court was also free to conclude that, taken as a whole, the evidence did not support a finding that Charlie Kelton had the requisite intent to control the checks. In this particular case, Charlie Kelton never testified as to his intent, but the testimony of LSB's attorney--which the bankruptcy court credited--was that he, and not Charlie Kelton, controlled the checks and that Charlie Kelton would never have been allowed to leave the closing on August 1 with the checks. Certainly there was sufficient evidence before the bankruptcy court for it to conclude that Charlie Kelton did not intend to control the checks on August 1. We therefore have no difficulty affirming the district court's finding that Kelton Motors was never in possession of the checks.