FIRST STATE BANK OF ATHENS, MABANK BRANCH, APPELLANT v. PURINA AG CAPITOL CORPORATION, AND PURINA MILLS, INC. D/B/A PURINA CATTLE MANAGEMENT AND VAN ZANDT LIVESTOCK, INC., APPELLEES NO. 12-99-00062-CV COURT OF APPEALS OF TEXAS, TWELFTH DISTRICT, TYLER40 U.C.C. Rep. Serv. 2d (Callaghan) 161 October 28, 1999, Opinion DeliveredPRIOR HISTORY: Appeal from the 86th Judicial District Court ofKaufman County, Texas. ( Tr.Ct.No. 54489).DISPOSITION: Reversed and Remanded.COUNSEL: For APPELLANT: Mr. M. Keith Dollahite, Tyler, TX.For APPELLEE Purina: Mr. Steven C. Haley, Brenham, TX.For APPELLEE Van Zandt Livestock: Mr. Mark J. Calabria, Kauffman, TX.JUDGES: Panel consisted of Ramey, Jr., C.J., Hadden, J., and Worthen, J.OPINIONBY: ROBY HADDENOPINION: This case involves a dispute between two competing lien creditorsover proceeds from the sale of 818 head of cattle. One of the competingcreditors, Purina Ag Capital Corp. and Purina Mills, Inc. d/b/a PurinaCattle Management Services (collectively "Purina"), filed a motion forsummary judgment on the entire dispute between it and the other creditor,First State Bank of Athens, Mabank Branch ("Bank"), which the trial courtgranted. In five issues presented, the Bank appeals the trial court'sruling. We will reverse and remand.I.PROCEDURAL AND FACTUAL BACKGROUNDOn December 11, 1996, the Bank made a secured loan to James and KellyGrisham d/b/a J & K Cattle ("Grishams"), who signed a promissory note tothe Bank for $ 720,322.00. To secure this note, the Grishams granted theBank a security interest in certain collateral, including "all cattle nowowned [by the Grishams] or hereafter acquired, any increase, or theproducts or proceeds thereof, including but not limited to: 1565cows, 1000 calves and 42 bulls." In the loan documents, the Grishams agreedto refrain from selling the cattle unless they received written permissionto do so from the Bank. The loan documents also contained a provisionstating that:It is agreed and understood that any and all proceeds from the sale of anyand all livestock and increases thereof pledged as collateral will bepromptly forwarded to [the Bank], to be applied to [the Grishams']indebtedness.The Bank filed financing statements to perfect its security interests inthe cattle.On December 20, 1997, Appellee Van Zandt Livestock, Inc. ("Van Zandt")executed a promissory note to Purina in the amount of $ 552,000.00. VanZandt is a Texas corporation that owns and operates a livestock commissionsales barn. James and Kelly Grisham are its president, vice-president andsole shareholders. Van Zandt also executed a Credit Agreement granting asecurity interest to Purina in certain cattle to be purchased, fed andconditioned by Van Zandt with the loan proceeds. The cattle were to beplaced in a cattle ownership program administered by Purina. Purina filed afinancing statement to perfect its security interest in thesecattle.Between December 30, 1997 and March 7, 1998, Purina advanced the aggregateprincipal amount of $ 272, 537.40 to Van Zandt to purchase 818 head ofcattle. According to Purina, among these 818 head were 125 of the Grishamsown cattle which they sold to Van Zandt for $ 29,571.28 on December 20,1997. Van Zandt issued a check dated December 20, 1997 for this amount to"J & K # 1." On December 22, 1997, the Grishams endorsed this check to theBank as a payment on the Grishams' note with the Bank. The Bank issued areceipt to the Grishams. On the receipt, there was a notation stating"cattle sale to interest per James." With respect to the remaining 693 head(818 minus the 125 allegedly purchased from the Grishams), Purina assertsthat Van Zandt purchased all but four head from sellers other than theGrishams at public auction sales.Thereafter, the Grishams defaulted on their notes with the Bank and withPurina. On April 3, 1998, the Bank obtained a final judgment against theGrishams for $ 785,097.50 and for foreclosure of the Bank's securityinterests in the Grishams' cattle. To prevent the Bank from seizing andselling the 818 head discussed above, [n1] Purina filed suit againstthe Bank and obtained a temporary injunction preventing the Bank fromforeclosing on its security interests in these cattle. Subsequently, thetrial court ordered that the 818 head be sold by an independent third partyand that the proceeds be placed in the registry of the court. On June 1-2,1998, the cattle were sold and $ 332,187.76 was deposited by the court intointerest-bearing accounts pending final distribution.- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - -- -n1 Although the record before us is somewhat unclear, it appears that theBank was able to successfully seize and sell some of the of the Grishamcattle in partial satisfaction of the Bank's judgment. As Purina pointsout, these cattle were not collateral securing Purina's note and were nevermade a part of this case.- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - -- -After the proceeds had been deposited, Purina filed its Second AmendedPetition and Application for Temporary Injunction [n2] adding Van Zandt as adefendant and seeking a declaration from the trial court that its interestin all of the deposited funds was superior to the Bank's and VanZandt's interest. In its answer to Purina's petition, the Bank brought athird-party action against the Grishams and a cross-claim against Van Zandtalleging, essentially, that the Grishams and Van Zandt were "one in thesame" and that the Grishams used Van Zandt to perpetuate a fraud upon theBank when they transferred secured property to Van Zandt. Based on theseallegations, the Bank sought a declaration that its rights in the depositedfunds were superior to the rights of Van Zandt and the Grishams. The Bankalso brought a counterclaim against Purina contending, in essence, that theBank's interest in the funds was superior to Purina's because the Grishamsacted fraudulently by transferring secured property to a wholly ownedcorporation. By way of its counterclaim against Purina, the Bank sought adeclaration that its rights in the deposited funds were superior to thoseof Purina.- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - -- -n2 This application for temporary injunction sought to enjoin the Bankand/or Van Zandt from disposing of the deposited funds without a finaljudgment of the trial court determining the relative rights
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