## Facts

- Bert Johnson (Johnson Farms) and Hal Anderson entered a cattle-sharing arrangement under which Anderson cared for and bred Johnson’s cattle, and calves were to be sold in Johnson Farms’ name with Anderson receiving a contractual remainder after sale.
- Border State Bank loaned Anderson funds and took a security interest in Anderson’s “rights, title and interest” in livestock he owned or later acquired; the bank perfected by filing a financing statement.
- After the parties’ relationship deteriorated, Johnson reclaimed breeding cattle, while Anderson retained the calves and delivered them to Bagley Livestock Exchange for sale.
- Bagley sold the calves and paid Johnson, not Anderson or the bank; Johnson later paid Anderson a remainder reduced by claimed feed advances.
- The bank sued Bagley and Johnson for conversion of its perfected security interest in the calves; Johnson pursued indemnity against Anderson, and Anderson counterclaimed for breach of the cattle-sharing agreement.
- The district court directed a verdict against the bank on the conversion claim, reasoning Anderson had no ownership interest in the calves and therefore could not grant an enforceable security interest; the contract claims between Johnson and Anderson were tried to a jury, which found for Johnson and awarded damages.

## Issues

1. Whether a security interest under Minn. Stat. § 336.9-203 attaches only if the debtor owns the collateral, or whether the debtor’s “rights in the collateral” are sufficient.
2. Whether the directed verdict dismissing the bank’s conversion claim was proper where the nature and extent of Anderson’s rights in the calves under the cattle-sharing agreement were disputed.
3. Whether the evidence, special verdict form, jury instructions, or damages in the Johnson–Anderson contract dispute required reversal or remittitur.

## Decision

- Reversed the directed verdict against Border State Bank on its conversion claim and remanded for further proceedings.
- Held the district court applied an incorrect legal standard by requiring Anderson to have ownership, rather than determining whether he had “rights in the collateral.”
- Left unresolved whether Anderson in fact had sufficient rights in the calves for the bank’s security interest to attach, requiring fact-finding on disputed terms of the cattle-sharing arrangement.
- Affirmed the jury verdict and judgment on the Johnson–Anderson contract claims, including the damages award and denial of remittitur.

## Legal Principles

- Under Minn. Stat. § 336.9-203, a security interest attaches and becomes enforceable when (1) the debtor signs a security agreement describing the collateral, (2) value is given, and (3) the debtor has “rights in the collateral.”
- Article 9 does not require the debtor to hold legal title; enforceability turns on whether the debtor possesses legally recognized rights in the collateral, which may be less than ownership.
- When attachment depends on disputed contractual arrangements defining a debtor’s rights, a court must determine those rights before rejecting the secured party’s claim based on lack of ownership.
- A directed verdict is improper when based on an erroneous legal standard that prevents adjudication of disputed facts material to attachment and enforceability.

## Conclusion

The court held that attachment of a security interest depends on a debtor’s “rights in the collateral,” not ownership, and therefore reversed the directed verdict dismissing the bank’s conversion claim and remanded to determine Anderson’s rights in the calves under the cattle-sharing arrangement, while affirming the jury’s resolution of the separate contract dispute between Johnson and Anderson.


Border State Bank of Greenbush v. Bagley Livestock Exch., Inc., 690 N.W.2d 326 (Minn. Ct. App. 2004)