IN RE: CALUMET FARM, INC. CASE NO. 91-51414

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

CALUMET FARM, INC. CASE NO. 91-51414

DEBTOR IN POSSESSION

CALUMET FARM, INC. PLAINTIFF

V. ADV. NO. 92-5003

BLACK CHIP STABLES, a Partnership composed and comprised of TERRY BEALL and WILLIAM ALLEN; DORIC, INC.; CRAIG B. SINGER d/b/a SINGER FARM, INC.; AXMAR STABLE, a division of AXMAR INVESTMENT COMPANY; THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.; FIRST CITY TEXAS-HOUSTON, N.A.; J. T. LUNDY; VINCENT TIMPHONY; DUE PROCESS STABLE; WOODROW MARRIOTT; CACOTIN STUD; F.E.N. STABLES CORPORATION and J.M.J. STABLES CORPORATION d/b/a MANGANARO STABLES, a Kentucky Partnership; ROBERT PEREZ; MRS. CARLTON COLE; CALUMET-GUSSIN NO. 1; HILL 'N' DALE FARM; MATCHMAKER FINANCIAL CORPORATION; EQUINE CAPITAL CORPORATION; BAKER, ECKERT & GENDRON, P.S.C. d/b/a WOODFORD VETERINARY CLINIC; and COMMONWEALTH OF KENTUCKY REVENUE CABINET

DEFENDANTS

MEMORANDUM OPINION

This matter is before the court on several motions for summary judgment on issues respecting the nature, extent, validity and priority of the assignments and security interests of the parties in breeding rights primarily to the thoroughbred stallion WILD AGAIN and coincidentally to the stallion SECRETO.

By its counterclaim against the debtor in possession and cross-claim against the co-defendants, The Riggs National Bank of Washington, D.C. alleges that the defendant Calumet-Gussin No. 1 owns $1.5 million in annual breeding nominations to stallions in the Calumet Farm stud group, in which only Riggs has a perfected security interest. By their joint motion for partial summary judgment against the defendant First City, Texas-Houston, N.A., Riggs and Calumet-Gussin No. 1 seek a determination that their right, title and interest in and to $1.5 million in annual breeding nominations to the thoroughbred stallions WILD AGAIN and SECRETO, and to any products or proceeds therefrom, is prior and superior to the right of First City to such breeding seasons, and to any products or proceeds therefrom.

The ultimate question presented is whether any of the defendants hold assignments of breeding rights or security interests in breeding rights to either stallion that entitle such defendants to any of the monies in the WILD AGAIN or SECRETO stallion accounts or to any of the proceeds of sale of either of the stallions.

WILD AGAIN was purchased as a yearling in 1981 by Black Chip Stables, a parthership, for $35,000. On April 18, 1985, after the thoroughbred had concluded a successful racing career, Black Chip Stables and Calumet Farm, Inc. entered into the "WILD AGAIN Syndicate Agreement" pursuant to which ownership of the stallion was divided into 40 shares, each representing an undivided 1/40 interest in the stallion. The partners in Black Chip Stables, William Allen, Terry Beall, and Ron Volkman, retained 20 of the shares and agreed to sell the other 20 shares to Calumet Farm, Inc. for $6,000,000, payable in part in cash, in part with breeding seasons to Calumet stallions plus a share in one stallion, and in part by notes payable to individual partners of Black Chip Stables. Under the agreement WILD AGAIN was retired to stud in 1985. The agreement provides that the owners of shares are co-owners of undivided interests in the stallion and further that each co-owner is entitled to one free nomination (the right to breed one mare to the stallion during a breeding season) for each share owned. Thus Black Chip Stables and Calumet Farm, Inc. are each entitled to breed 20 mares to the stallion during each breeding season.

In addition, the agreement provides that the trainer, Vincent Timphony, is to receive two nominations to the stallion during the life of the stallion without cost and the syndicate manager is to receive as compensation for his services four free nominations in each breeding season. Consequently, the normal book of the stallion in each year was expected to be 46 mares plus such additional nominations as might be determined by the syndicate manager in his sole discretion.

J. T. Lundy, then president of the buyer, Calumet Farm, Inc., was designated as syndicate manager. The court has previously determined that his status as syndicate manager was not contingent upon his remaining in office as president of Calumet Farm, Inc., a position from which he resigned prior to bankruptcy.

On July 11, 1991, Calumet Farm, Inc. filed a petition for relief under chapter 11, title 11, United States Code and immediately commenced the orderly liquidation of its assets. The stallion WILD AGAIN is among the few assets remaining on the books of the debtor in possession. SECRETO has been sold, and Calumet's share of the sale proceeds is being held subject to further orders of the court.

On January 8, 1992, Calumet Farm, Inc., now known as Phoenix Corporation, the debtor in possession, commenced this action by filing a complaint against the above-named defendants. The debtor in possession requested: (1) a declaration of rights of parties asserting an ownership, lien, or other interest in and to the thoroughbred stallion WILD AGAIN, and (2) an order authorizing the sale of both the estate's interest and the interest of co-owners in WILD AGAIN.

On May 29, 1992, after hearing, the court entered an order establishing a briefing schedule for cross-motions for summary judgment to be filed by parties claiming an interest in WILD AGAIN. The motions for summary judgment now before the court were heard on August 6, 1992. Following is a discussion of the claims of each of the movants.

AXMAR STABLE. On August 10, 1987, Axmar Stable, a division of the Axmar Investment Company, and Calumet Farm, Inc. executed an agreement which created a general partnership, known as the Calumet-Axmar Partnership, for the stated purpose of acquiring, owning, breeding, racing and selling thoroughbred horses. The facts relevant to the creation and operation of the Calumet-Axmar partnership are set forth in detail in a Memorandum Opinion entered July 29, 1993, in Axmar Stable v. IBJ Schroder Bank and Trust Co. and Calumet Farm, Inc., Adv. No. 91-5231. Axmar and Calumet each transferred to the partnership their respective interests in nine thoroughbred yearlings as their initial capital contribution of $5,000,000 each to the partnership. Calumet and Axmar were the only partners of the partnership for its duration; both entities were general partners.

Calumet and Axmar subsequently took steps intended to terminate the partnership. On December 11, 1989, Calumet, Axmar, and Calumet-Axmar Partnership executed a Redemption Agreement whereby Axmar transferred to the partnership any and all of Axmar's right, title and interest in the property and business of the partnership. As partial consideration therefor and in accordance with the provisions of the Redemption Agreement the partnership executed a promissory note in the principal amount of $1,675,000, payable to Axmar in two installments of $837,500 each on December 1, 1990 and December 1, 1991 (hereinafter "redemption note"). See Redemption Agreement, ¶3, at 2. The Redemption Agreement provides that until the redemption note is paid in full, 50% of net proceeds received by the partnership or Calumet from the sale of any partnership horse, and any net racing income in excess of $500,000 earned by any partnership horse, shall be paid to Axmar and applied to the indebtedness of the partnership in accordance with certain provisions of the Redemption Agreement. Redemption Agreement, ¶6, at 6-7.

The controversy now before the court concerning Axmar's interest in WILD AGAIN or in the breeding capabilities of WILD AGAIN arises from paragraph "4" of the Redemption Agreement which provides that the partnership shall convey to Axmar certain 1990 live foal seasons as described below and other "follow-up" and "substitute follow-up" seasons as hereinafter defined which have an aggregate value of $1,700,000:

See Redemption Agreement, ¶4(a), at 2-3.

The Redemption Agreement provides that Axmar may sell any seasons it elects not to use; however, as long as neither Calumet nor the partnership is in breach of the Redemption Agreement and J. T. Lundy remains the president and chief executive officer of Calumet, Axmar shall use Calumet as its agent for such sales. Calumet shall sell such seasons on behalf of Axmar upon request from Axmar and at no charge to Axmar, on terms and conditions no less favorable to Axmar than those set forth in the preprinted form stallion service agreement customarily used by Calumet and attached as an exhibit to the Redemption Agreement, and for a price no lower than the fair market value of the live foal season at the time of the sale. Redemption Agreement, ¶4(b), at 3. Each sale shall be evidenced by written contract between Axmar as seller and the buyer of such season which shall provide that the stud fee payable thereunder shall be paid directly to Axmar rather than to Calumet as Axmar's agent or otherwise. Calumet shall provide to Axmar a copy of the written contract for each such sale. Any sale of live foal seasons by Calumet on behalf of Axmar shall be made within 30 days after the commencement of the 1990 breeding season or within 30 days after Axmar requests such sale, whichever is later. Redemption Agreement, ¶4(b), at 3. In the event proceeds from sales of any 1990 live foal seasons that produce a live foal are lower than the value assigned to the seasons in the Redemption Agreement, the partnership shall pay to Axmar in cash or in the form of additional live foal seasons an amount equal to the amount by which the assigned value exceeds the amount of proceeds from the sale. Redemption Agreement, ¶4(c), at 4.

The partnership may elect, in its sole discretion, to pay all or a portion of the $1,700,000 obligation to provide live foal seasons in cash. To the extent the partnership elects to pay a portion of the obligation in cash, Axmar shall be entitled to select from among the live foal seasons set forth above seasons having an aggregate value equal to the unpaid balance of the $1,700,000 obligation, and the partnership shall convey to Axmar such seasons on or before December 1, 1989. If for any reason the partnership is unable to convey any of the seasons selected by Axmar, the partnership shall, on or before December 1, 1989, pay to Axmar an amount in cash equal to the aggregate value of the seasons which cannot be conveyed or shall convey other 1990 live foal seasons as Axmar and the partnership shall mutually agree. Redemption Agreement, ¶4(c), at 4.

In the event a breeding on any live foal season does not produce a single live foal which can stand alone and nurse, then on December 1 preceding the next succeeding breeding season the partnership shall either pay to Axmar in cash an amount equal to the value of each season as assigned by the parties in the Redemption Agreement or convey to Axmar a live foal season to the same stallion for the next succeeding breeding season. The Redemption Agreement refers to this replacement season as a "follow-up season." Redemption Agreement, ¶4(d), at 4.

In the event a follow-up season to the same stallion is not available, the partnership shall convey to Axmar live foal seasons to other stallions selected by Axmar, subject to the stallions' availability in the next breeding season, with such seasons having the same aggregate value as the unavailable season. The Redemption Agreement defines these as "substitute follow-up seasons." Redemption Agreement, ¶4(d), at 4-5.

Axmar may sell any follow-up seasons or substitute follow-up seasons which it elects not to use, but must use Calumet as its agent for any sale. Sales of such follow-up seasons or substitute follow-up seasons are subject to the same terms and conditions described with respect to the sale of 1990 live foal seasons. Redemption Agreement, ¶4(d), at 5.

Calumet, the sole remaining "partner" upon execution of the Redemption Agreement, guaranteed performance of the obligations of the partnership to Axmar and agreed "to take whatever actions may be necessary or advisable, including making additional capital contributions to the Partnership in cash or in stallion seasons or other property, in order to enable the Partnership to perform fully its obligations" under the terms of the Redemption Agreement. Redemption Agreement, ¶16, at 12. Calumet further agreed that its liabilities to Axmar are primary and not secondary, and that its liabilities are joint and several with those of the partnership.

During the period in which the partnership was in existence the only assets owned by the partnership were the nine thoroughbred horses initially conveyed to the partnership by the partners. The seasons to be conveyed to Axmar by the partnership pursuant to the Redemption Agreement presumably were provided by Calumet which was able to provide the seasons by reason of Calumet's ownership of the stallions or fractional interests therein.

Axmar bred a mare to WILD AGAIN on one of the 1990 seasons identified in the Redemption Agreement, thereby reducing the partnership's obligation to Axmar for seasons from $1,700,000 to $1,650,000. Axmar further states:

Axmar's Memorandum in Support of Motion for Summary Judgment, June 17, 1992, at 7-8.

Axmar seeks a determination that:

Axmar's Memorandum in Support of Motion for Summary Judgment, June 17, 1992, at 8-9.

Axmar argues that the Redemption Agreement resulted in a conveyance to Axmar by the partnership and Calumet of seasons, which are contract rights, enforceable by Axmar against the WILD AGAIN syndicate. Axmar relies on the court's opinion entered in In re Calumet Farm, Inc., Case No. 91-51414, on May 19, 1992, in which the court sustained the motion of Due Process Stables for an order permitting it to exercise a 1992 season to WILD AGAIN (hereinafter "Due Process opinion").

The Due Process opinion provides in part:

Due Process opinion at 22-23.

THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.. The defendants Calumet-Gussin No. 1 and The Riggs National Bank of Washington, D.C. have filed a joint motion for partial summary judgment seeking a determination that their right, title and interest in and to $1.5 million in annual breeding seasons to the stallions WILD AGAIN and SECRETO and to any products and proceeds thereof is superior to the lien of First City, Texas-Houston, N.A. in seasons to these stallions.

On June 20, 1987, Calumet Farm, Inc., Renwar Corporation, a subsidiary of Calumet Farm, Inc., and Frederic and Paul Gussin formed a Kentucky limited partnership known as Calumet-Gussin No. 1. The partnership was formed in conjunction with an anticipated loan transaction with The Riggs National Bank of Washington, D.C.

On August 20, 1987, The Riggs National Bank of Washington, D.C. entered into a Revolving Credit and Term Loan Agreement with Calumet-Gussin No. 1 whereby the bank agreed to grant to the partnership a revolving line of credit in the maximum amount of $3,000,000 and a term loan in the amount of $20,000,000. Renwar Corporation and the Gussins signed the agreement as general partners of the partnership and as guarantors. Calumet Farm, Inc. signed the agreement as limited partner and as guarantor.

The loans by the bank to the partnership are evidenced by a revolving credit note in the principal amount of $3,000,000 and a term note in the principal amount of $20,000,000. Although possibly executed on August 20, 1987, the notes were by agreement dated as of September 15, 1987.

To secure payment of the indebtedness evidenced by the revolving credit note and term loan note Calumet-Gussin No. 1 executed a security agreement conveying to Riggs National Bank a security interest in horse collateral, horse related collateral, and equine collateral. The security agreement, like the Revolving Credit and Term Loan Agreement, is dated August 20, 1987. Prior to August 20, 1987 the partnership did not possess an interest in the collateral pledged to the bank.

The purpose of the loan transaction between the partnership and the bank appears to have been to enable the partnership to acquire from Calumet Farm, Inc. the assets pledged to the bank. The partnership acquired its interest in the collateral pledged to the bank by a series of agreements between the partnership and Calumet Farm, Inc., dated August 20, 1987, and an Agreement of Purchase and Bill of Sale dated September 15, 1987, which coincides with the date of the notes executed by the partnership to the bank.

The agreements executed by the partnership and Calumet Farm, Inc. on August 20, 1987 were:

Also, on August 20, 1987 Calumet Farm, Inc. executed a Calumet Partnership Guarantee in favor of the partnership unconditionally guaranteeing payment of the debts of the partnership to Riggs National Bank. The agreement recites that the partnership intends to assign all of its right, title and interest under the Guarantee to the bank as collateral pursuant to the security agreement of the same date. Further, on August 20, 1987, to induce Riggs National Bank to make loans or otherwise extend credit to Calumet-Gussin No. 1 pursuant to the Revolving Credit and Term Loan Agreement, Calumet Farm, Inc. executed a Hypothecation Agreement granting to the bank a security interest in collateral described as the mare SUGAR AND SPICE, in foal to SEATTLE SLEW, the Criminal Type Maintenance and Training Agreement, the Sugar and Spice Lease Agreement, and all proceeds and products of any and all of the foregoing.

The Alydar Seasons Agreement provides as follows:

The Alydar Seasons Agreement also provides that in the event of default of Calumet-Gussin under the financing agreement with Riggs, the breeding service may be transferred or sold by Riggs subject to both a right of first refusal in favor of Calumet Farm and the right of Calumet Farm to sell the seasons on the same terms as any offer received by Riggs. Alydar Seasons Agreement, ¶7, at 4-5.

The Secreto Seasons Agreement is virtually identical to the Alydar Seasons Agreement with the exception in paragraph 3 wherein Calumet-Gussin ("Mare Owner") agrees to breed any four (4) of its mares on an annual basis to the stallion SECRETO in each breeding season of the stallion during the term of the agreement.

The document referred to in the Alydar and Secreto Seasons Agreements as "Schedule A" contains a list of the thoroughbred mares of Calumet-Gussin. On the list are eight broodmares identified by name.

Pursuant to the Sugar and Spice Lease Agreement Calumet Farm leased to Calumet-Gussin the breeding qualities of the thoroughbred mare SUGAR AND SPICE until the indebtedness of the partnership to Riggs National Bank is paid in full. Any foal resulting from breeding the mare during the term of the lease is to be the absolute property of the partnership.

The eight broodmares of the partnership and the mare under lease resulted in the partnership having nine mares to breed to Calumet stallions. This number coincides with the number of seasons assigned to the partnership by Calumet Farm pursuant to the Alydar and Secreto Seasons Agreements.

The Alydar Foal Sharing Agreement and the Secreto Foal Sharing Agreement between Calumet Farm and Calumet-Gussin obligate Calumet Farm to annually transfer and assign to the partnership free and clear of liens and encumbrances and adverse claims all of Calumet Farm's right, title and interest in one live foal of each of the stallions produced as a result of a foal sharing agreement between Calumet and a mare owner. Under the agreements the partnership is to receive one-half of the net sale proceeds when the foal is sold by the mare owner.

Pursuant to the Maintenance and Training Agreement between Calumet-Gussin (owner) and Calumet Farm (manager) the partnership obligated itself to pay Calumet Farm the current daily board rate for boarding the horses of the partnership and all other expenses incurred in the care and maintenance of each horse, including ordinary veterinary, blacksmith, transportation and advertising expenses. The agreement also obligates the partnership to reimburse Calumet Farm for maintenance and training and other expenses of horses in training.

The Criminal Type Maintenance and Training Agreement obligates the partnership to pay Calumet Farm one-fourth of the daily board rate and other expenses incurred in the care and maintenance of the thoroughbred CRIMINAL TYPE. This horse was then in training or racing in France and later became one of the stallions standing at Calumet Farm.

On September 15, 1987, Calumet Farm and Calumet-Gussin executed an Agreement of Purchase and Bill of Sale whereby in consideration of a purchase price of $20,000,000, receipt of which was acknowledged, Calumet Farm sold and transferred to Calumet-Gussin thoroughbred horses and rights identified on Exhibit A to the agreement. Twenty-two thoroughbred horses are identified on Exhibit A, including the eight broodmares identified on Annex A to the Alydar and Secreto Seasons Agreements and the mare SUGAR AND SPICE. The sale agreement makes clear that it is only the right to receive ownership of the progeny of SUGAR AND SPICE and not the ownership of the mare that is being conveyed. Other horses conveyed were nine 1987 foals of the broodmares, and three horses engaged in racing, plus a one-fourth interest in the colt CRIMINAL TYPE, then racing in France.

The controversy before the court centers on the provisions of paragraphs 1 and 3 of the Agreement of Purchase and Bill of Sale and Item 25 on Exhibit "A" to the agreement, identifying annual breeding nominations (seasons) to Calumet stallions committed by Calumet Farm to Calumet-Gussin pursuant to the terms of the agreement. The language of paragraph 1 is qualified by the language of paragraph 3 and Item 25 of Exhibit "A" with respect to the finality of the transfer of seasons to Calumet stallions accomplished by the agreement.

Paragraph 1 of the Agreement of Purchase and Bill of Sale provides:

Paragraph 3 of the Agreement of Purchase and Bill of Sale provides:

1987

1988

1989

1990/1991 1992

ALYDAR

$300,000

$240,000

$180,000

$120,000

SECRETO

100,000

80,000

60,000

40,000

WILD AGAIN

40,000

32,000

24,000

16,000

HIGHLAND BLADE

25,000

20,000

15,000

10,000

SAGACE

50,000

40,000

30,000

20,000

SEATTLE SLEW

300,000

240,000

180,000

120,000

Item 25 of Exhibit "A" to the Agreement of Purchase and Bill of Sale provides:

The security agreement dated August 20, 1987 executed by Calumet-Gussin to Riggs National Bank to secure payment of the indebtedness represented by the Revolving Credit Loan and the Term loan, the proceeds of which were used by the partnership to acquire from Calumet Farm the assets described in the Agreement of Purchase and Bill of Sale dated September 15, 1987, grants to the bank a security interest in collateral, described in paragraph 1.01 of the security agreement, as follows:

Annex B to the security agreement describes "horse related collateral" as follows:

It should be noted that the Grantor (Calumet-Gussin) had no breeding rights in thoroughbred stallions except such rights as were or might be conveyed to it by Calumet Farm, Inc. or others.

Riggs perfected its security interest in the collateral proffered by Calumet-Gussin by filing financing statements in the offices of the County Clerk of Fayette County, Kentucky; the Secretary of State of the Commonwealth of Kentucky; the Department of State, New York; the Clerk of the County of Nassau County, New York; the Secretary of State, New Jersey; the Clerk of Bergen County, New Jersey; the Secretary of State, Illinois; and the Recorder of Cook County, Illinois, on September 2-4, 1987. Each financing statement incorporates by reference "Schedule A" thereto, which mirrors the description and adopts the definitions of "horse collateral" and "horse related collateral" as set forth above.

The Calumet-Gussin No. 1 partnership filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991, concurrently with the petition of Calumet Farm, Inc. The thoroughbred mares belonging to the partnership were sold, and the proceeds of sale have been disbursed to The Riggs National Bank. The partnership no longer owns any mares which can be bred to stallions in the Calumet stud group. The bankruptcy of the partnership is an event of default which entitles Riggs to sell the seasons to SECRETO in which the bank has a security interest.

FIRST CITY, TEXAS-HOUSTON, N.A. (now known as Texas Commerce Bank). On July 21, 1988, pursuant to the terms of a loan agreement of that date, Calumet Farm executed two notes to First City, a term note evidencing a loan of $15,000,000 and a revolving line of credit note for $50,000,000. To secure payment of the indebtedness evidenced by these notes, Calumet Farm executed a security agreement granting to First City a security interest in all of the debtor's right, title and interest in certain equine collateral as more particularly described as follows:

Eight stallions, including ALYDAR, WILD AGAIN, SECRETO, HIGHLAND BLADE, and JUDGE SMELLS, and a number of broodmares are identified in Exhibit A to the agreement. First City perfected its security interest in this equine collateral by causing a financing statement to be filed in the offices of the county clerk of Fayette and Woodford Counties on July 26, 1988, and thereafter in Marion County, Florida and in the office of the Secretary of State of Florida. One of the stallions listed on Exhibit A to the agreement was standing at stud in Florida, another in Woodford County, and the remainder at Calumet Farm in Fayette County.

On December 29, 1988 Calumet Farm executed a First Amendment and Supplement to Security Agreement to First City for the purpose of substituting certain equine collateral. On February 28, 1989 Calumet Farm executed a Second Amendment and Supplement to Security Agreement for the purpose of adding collateral. On August 23, 1990 Calumet Farm executed a Third Amendment and Supplement to Security Agreement for the purpose of adding collateral.

On October 25, 1990 two renewal notes for the principal sum of $42,250,000 and for the principal sum of $2.5 million were executed by Calumet Farm in favor of First City. Also on October 25, 1990 a Fourth Amendment and Supplement to Security Agreement was executed by Calumet Farm to First City for the purpose of adding as collateral certain specified broodmares, foals and racing stock and removing from the list of collateral three stallions, leaving the five stallions identified above.

On November 19, 1990 Calumet Farm executed a note in the principal amount of $2,578,488.38 in favor of First City. It appears this note may be an extension of the $2.5 million renewal note dated October 25, 1990. On or about November 19, 1990, Calumet Farm executed a Fifth Amendment and Supplement to Security Agreement to add as collateral, among other things, Calumet Farm's interest in and to the thoroughbred horse CRIMINAL TYPE and to redescribe other collateral. The stallion-related collateral was not changed. First City filed a financing statement on December 10, 1990 to reflect the amended security agreement.

The validity of the security interest of First City is not contested, nor is the fact that Calumet owed First City in excess of $32,000,000 when bankruptcy intervened on July 11, 1991.

On December 4, 1990, First City filed a partial release of its security interest in 1991 seasons and retained its security interest in proceeds from the sale of 1991 seasons. The motion of First City for summary judgment does not seek an adjudication of the rights of parties in and to seasons or proceeds thereof for 1991 or prior breeding seasons but "addresses only the present ownership interest in WILD AGAIN, including all rights to breed to the stallion from this year (1992) forward." Memorandum in Support of Motion by First City, Texas-Houston, N.A. for Summary Judgment, June 17, 1992, at 6.

COMMONWEALTH OF KENTUCKY, REVENUE CABINET. On October 25, 1990, the Commonwealth of Kentucky, Revenue Cabinet filed a notice of tax lien with the Fayette County Clerk to secure an indebtedness for unpaid corporation license taxes, sales and use taxes, omitted intangible taxes, and penalties and interest thereon, in the total amount as of July 30, 1992 of $4,316,346.58 plus additional accrued interest. The Revenue Cabinet's lien is attached to all property and rights to property owned or subsequently acquired by the person neglecting or refusing to pay the tax. KRS 134.420(2).

The Revenue Cabinet and Calumet Farm entered into a Settlement and Assignment Agreement dated March 25, 1992 and approved by the court on May 8, 1992, pursuant to which the Revenue Cabinet agreed to reduce its claim to the amount of $1,000,000 and agreed to assign to Calumet all of the Cabinet's claims and liens related thereto, with certain exceptions not here relevant.

Pursuant to the settlement agreement, the Cabinet's claim of $1,000,000 shall be paid from proceeds of assets securing the Cabinet's claim as follows. The Cabinet is to receive all of the interest of Calumet Farm or the Cabinet in and to proceeds from the sale of the stallion MOGAMBO which are presently the subject of litigation in First National Bank and Trust Co. v. Calumet Farm, Inc., Adv. No. 92-5010. In the event the Cabinet receives less than $500,000 then the Cabinet's claim is unsecured to the extent $500,000 exceeds any amount received by the Cabinet. The Cabinet also is to receive up to $500,000 from proceeds of the sale of other assets of Calumet Farm. In the event recovery of MOGAMBO sales proceeds exceeds $500,000 the Cabinet's claim to other assets shall be reduced accordingly. The Cabinet retains all of its interest in the claims and liens assigned to Calumet Farm to the extent they relate to the MOGAMBO proceeds and retains jointly with Calumet Farm a "participating interest" in claims and liens in other assets until the $500,000 claim in and to such other assets is fully satisfied.

The Revenue Cabinet requests summary judgment determining that its tax lien arose on the date of recordation of the lien and takes precedence over any unperfected interests in property of the debtor.

Riggs objects to the motion of the Revenue Cabinet for summary judgment to the extent the Revenue Cabinet seeks to assert a lien in seasons to WILD AGAIN (and other stallions) which Riggs argues were no longer property of Calumet Farm after the conveyance of such seasons to Calumet-Gussin No. 1.

MANGANARO STABLES. Calumet has filed a motion for summary judgment against F.E.M. Stables Corp. and J.M.J. Stables Corp. d/b/a Manganaro Stables which is not contested. The facts underlying the motion are briefly summarized as follows.

On March 28, 1990, Calumet and Manganaro entered into an agreement whereby Calumet conveyed to Manganaro two 1991 ALYDAR live-foal seasons, two 1991 DANZIG seasons (no live-foal guarantee), one 1991 SEATTLE SLEW season (no live-foal guarantee), and two DEPUTY MINISTER seasons (no live-foal guarantee), and in exchange therefor Manganaro conveyed to Calumet one 1990 SEATTLE SLEW season (no live-foal guarantee) and two 1990 ALYDAR seasons (no live-foal guarantee). Subsequent to the execution of this agreement ALYDAR died. To compensate Manganaro for its loss of two 1991 ALYDAR seasons with live foal guarantees, Calumet on January 9, 1991 executed a promissory note in the amount of $300,000 in favor of Manganaro and granted to Manganaro a security interest in four 1991, 1992, and 1993 seasons to WILD AGAIN and four 1991, 1992, and 1993 seasons to CRIMINAL TYPE. J. T. Lundy executed the promissory note and the agreement wherein Calumet granted to Manganaro a security interest in the WILD AGAIN and CRIMINAL TYPE seasons both in his capacity as president of Calumet Farm, Inc. and in his individual capacity. Manganaro filed a financing statement on March 19, 1991.

Calumet seeks to avoid the lien of Manganaro in 1991, 1992, and 1993 WILD AGAIN seasons pursuant to 11 U.S.C. § 547 or § 548 and states in its memorandum in support of its motion for summary judgment its arguments therefor. The seasons have been sold by Calumet. The controversy concerns the right of Manganaro to the proceeds of these sales to apply to the indebtedness represented by the note.

Manganaro filed an answer and counterclaim on February 26, 1992 wherein it claimed a valid security interest in the WILD AGAIN seasons, but did not file a response to Calumet's motion for summary judgment.

WOODROW MARRIOTT. On December 28, 1989, Woodrow Marriott purchased from Doric, Inc. for the sum of $135,000 one lifetime breeding right to the stallion WILD AGAIN which entitles Marriott to breed one thoroughbred mare to WILD AGAIN each year during the lifetime of the stallion. The terms of the sale are memorialized in and governed by an agreement executed on December 28, 1989 by J. T. Lundy as stallion manager, William Allen as president of Doric, Inc., J. T. Lundy as president of Calumet Farm, Inc., and Woodrow Marriott. Marriott requests the court to enter judgment in his favor adjudging him to be the owner of one lifetime breeding right in and to the stallion WILD AGAIN.

MATCHMAKER FINANCIAL CORP. AND EQUINE CAPITAL CORP.. The WILD AGAIN syndicate agreement provides that J. T. Lundy as syndicate manager is to receive as compensation four annual nominations to the stallion during the life of the stallion. On April 1, 1991, J. T. Lundy and Maricopa Ranch, Inc., an entity wholly or principally owned by Lundy, executed a note in the principal amount of $2,325,725 payable to Matchmaker Financial Corporation. To secure payment of the indebtedness evidenced by the note, Lundy and Maricopa executed a security agreement dated April 4, 1991 conveying to Matchmaker a security interest in "4 Lifetime Breeding Rights" to WILD AGAIN. The security agreement recites that it likewise secures indebtedness of Maricopa and Lundy to Equine Capital Corporation. On April 1, 1991, J. T. Lundy and Maricopa Ranch, Inc. executed a note in the principal amount of $179,125.30 payable to Equine Capital Corporation. To secure payment of the indebtedness evidenced by the note Lundy and Maricopa on April 4, 1991 executed a security agreement conveying to Equine Capital a security interest in stallion shares and breeding rights described in exhibit "A" to the agreement. There are no stallion shares or breeding rights listed on exhibit "A" to the agreement. Matchmaker and Equine Capital perfected their security interests by filing financing statements in the Fayette County Clerk's office on July 31, 1989 and February 6, 1991.

Matchmaker and Equine Capital as creditors of J. T. Lundy have moved the court for partial summary judgment adjudging that these creditors hold a prior perfected security interest in whatever rights or interests Lundy may be determined to hold in and to WILD AGAIN, its proceeds or progeny.

AXMAR STABLE. Axmar Stable argues that the Redemption Agreement operated as a conveyance by Calumet and the partnership to Axmar of seasons, which are contract rights, enforceable by Axmar against the WILD AGAIN syndicate.

Axmar Stable claims it is entitled to receive as "follow-up" or "substitute follow-up" seasons annual breeding seasons to WILD AGAIN with an aggregate value of up to $1.7 million until the indebtedness of the Calumet-Axmar partnership to Axmar, as guaranteed by Calumet Farm, is paid. Alternatively, Axmar claims it is entitled to a portion of any sale proceeds of WILD AGAIN equal to the $1.7 million value in breeding seasons Axmar was to receive, subject to a credit of the fair market value of foals of the 1991 follow-up or substitute follow-up seasons used by Axmar.

Pursuant to the provisions of the Redemption Agreement, Axmar acquired five 1990 live-foal seasons to the stallion WILD AGAIN. The 1990 breeding season had expired and the 1991 breeding season had virtually expired when Calumet Farm, Inc. filed its petition for relief under chapter 11 of the Bankruptcy Code on July 11, 1991. The right to breed mares to WILD AGAIN during the 1990 breeding season "evaporated" at the end of the season, North Ridge Farms, Inc. v. Trimble, 37 U.C.C. Rep. Serv. 1280, WESTLAW at *27 (Ky. Ct. App. 1983), aff'd on other grounds, 700 S.W.2d 396 (Ky. 1985), except with respect to "follow-up" seasons for mares actually bred to WILD AGAIN during the 1990 breeding season or perhaps "substitute follow-up" seasons for mares actually bred to other Calumet stallions during the 1990 breeding season. "Follow-up seasons" were available to Axmar only in the event a breeding on any live-foal season during 1990 did not produce a single live foal which could stand alone and nurse. "Substitute follow-up seasons" were to be available only in the event a breeding on any live-foal season during 1990 did not produce a single live foal which could stand alone and nurse, and the stallion to which the mare was bred in 1990 was not alive and breeding sound during the next breeding season.

Axmar bred a mare to WILD AGAIN on one of the five 1990 WILD AGAIN live foal seasons. Presumably the breeding produced a live foal because Axmar acknowledges that the $1,700,000 obligation of the Calumet-Axmar Partnership and Calumet Farm to provide live foal seasons has been reduced. The other four 1990 WILD AGAIN live foal seasons were not utilized and therefore expired.

Axmar states that three of its mares were bred to WILD AGAIN during the 1991 breeding season on follow-up or substitute follow-up seasons, thereby potentially further reducing the amount owed to Axmar under the Redemption Agreement. It is clear, however, that the three Axmar mares bred to WILD AGAIN during the 1991 season were not bred on follow-up seasons to WILD AGAIN available to Axmar under the terms of the Redemption Agreement. The right to follow-up seasons did not exist under the terms of the agreement with respect to the four unutilized 1990 WILD AGAIN live foal seasons, and the one season that was utilized resulted in a live foal. Perhaps the three mares bred to WILD AGAIN in 1991 had been bred unsuccessfully during 1990 to one of the other four Calumet stallions mentioned in the Redemption Agreement, and the 1991 breedings were substitute follow-up seasons because seasons were not available in 1991 to the stallions to whom those mares were bred in 1990. There is no contention that the 1991 breedings on such "substitute follow-up" seasons were unsuccessful. Consequently, it is perfectly clear that Axmar Stable is not entitled to any follow-up or substitute follow-up seasons to WILD AGAIN under the terms of the Redemption Agreement.

Axmar claims it is entitled to future seasons in WILD AGAIN or the value thereof in satisfaction of Calumet's obligation to sell 1990 seasons on behalf of Axmar. Calumet's failure to sell for the benefit of the partnership at Axmar's request 1990 seasons to Calumet stallions, including WILD AGAIN, or to remit to Axmar proceeds from any such sales merely gives rise to an unsecured claim in favor of Axmar against the estate.

The Calumet-Axmar partnership did not itself own any seasons in the Calumet stallions named in the Redemption Agreement and therefore could not assign seasons to Axmar until such seasons were assigned to the partnership by Calumet. The only seasons specifically assigned by Calumet to the partnership by the Redemption Agreement were 1990 seasons having an aggregate value of $1,700,000 in the Calumet stallions named in the agreement.

Calumet guaranteed performance of the obligations of the partnership to Axmar and agreed "to take whatever actions may be necessary or advisable, including making additional capital contributions to the partnership in cash or in stallion seasons or other property, in order to enable the partnership to perform fully its obligations" under the terms of the Redemption Agreement. This language does not constitute an assignment of future seasons to any specific Calumet stallion for any specific future year. The obligation could have been satisfied by payment of cash or the transfer of other property, such as thoroughbred horses, to Axmar. The assignment of future seasons in Calumet stallions would require further action by both parties, agreement as to the identity of the seasons to be assigned and the actual assignment of the seasons. Axmar does not own any specific future seasons in WILD AGAIN which must be honored by the WILD AGAIN syndicate.

THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.. The priority of liens controversy between Riggs, as a creditor holding a security interest in property of the Calumet-Gussin No. 1 partnership, and First City, as a creditor holding a security interest in property of the debtor, Calumet Farm, Inc., centers on the question of the extent to which the Agreement of Purchase and Bill of Sale of September 15, 1987 operated as an immediate, unequivocal, completed assignment by the debtor to the partnership of breeding nominations (seasons) to stallions standing at stud at Calumet Farm.

Riggs argues the conveyance from Calumet Farm to Calumet-Gussin on September 15, 1987, of breeding rights exercisable in the years 1987, 1988, 1989, 1990, 1991, and 1992 divested Calumet Farm of any interest in those seasons, that Calumet Farm lacked "rights in the collateral" on July 21, 1988 when Calumet Farm purported to grant a security interest to First City in all breeding rights, and that First City's security interest therefore did not attach to and is not enforceable against these breeding rights under KRS 355.9-203(1).

If, as contended by Riggs, the September 15, 1987 Agreement of Purchase and Bill of Sale operated as a completed assignment to the partnership of seasons in Calumet stallions to which the security interest of Riggs in property of the partnership then attached, the security interest of Riggs in seasons to Calumet stallions would thereby preempt the subsequent grant by Calumet to First City on July 21, 1988 of a security interest in all of the Calumet stallions and in all seasons and rights to breed mares or participate in income from breeding mares to the stallions. If it should be determined that the security interest of Riggs preempts the security interest of First City in seasons to any of the stallions, then there arises the further question of whether the rights of Riggs to such seasons entitles Riggs to monies accumulated in the stallion accounts or to proceeds realized by the debtor in possession from the sale of the estate's interest in any of the stallions.

The language of paragraph 1 of the Agreement of Purchase and Bill of Sale dated September 15, 1987 provides that the "Seller [Calumet Farm, Inc.] hereby bargains, sells and transfers all of the right, title, and interest, and Buyer [Calumet-Gussin No. 1] hereby purchases from Seller the thoroughbred horses and rights identified on Exhibit "A" attached hereto and made a part hereof (the "Horses")" (underscoring added).

The "rights" so transferred include breeding nominations (seasons) to thoroughbred stallions in the Calumet stud group as identified in Item 25 on Exhibit "A" to the agreement.

The seemingly unequivocal transfer of breeding nominations pursuant to paragraph 1 of the Agreement of Purchase and Bill of Sale is qualified by the language of both paragraph 3 of the agreement and Item 25 on Exhibit "A" to the agreement.

Paragraph 3 states: "Seller shall provide seasons to the thoroughbred stallions identified in Item 25 on Exhibit "A" in 1987, 1988, 1989, 1990, 1991 and 1992" (underscoring added).

It should be noted that all the broodmares listed on Exhibit "A" are shown as in foal and further that the 1987 thoroughbred breeding season had concluded before the Agreement of Purchase and Bill of Sale between Calumet and Calumet-Gussin was consummated. Consequently, it is obvious there was no transfer of seasons in Calumet stallions to Calumet-Gussin for the initial year of the agreement. The year 1987 was apparently included as a benchmark or year of reference for determining the value of seasons.

It should also be noted that neither the language of paragraph 1 nor of paragraph 3 of the Agreement of Purchase and Bill of Sale conveys to the Buyer, Calumet-Gussin, any specific number of seasons in any specific stallion or stallions for the years enumerated. Both paragraphs rely on Item 25 on Exhibit "A" to provide specificity as to the seasons conveyed. Unfortunately, Item 25 on Exhibit "A" does not provide any such specificity, except with respect to seasons to the stallions ALYDAR and SECRETO.

Item 25 provides, in effect, that until the indebtedness of the partnership to Riggs is paid in full Calumet-Gussin shall have "annual breeding nominations (seasons) to the thoroughbred stallions HIGHLAND BLADE, SECRETO, WILD AGAIN, SAGACE, ALYDAR, and any other stallions added to the Calumet stud group, or nominations otherwise provided by Calumet which are acceptable to Calumet-Gussin No. 1, . . . and having an annual total live foal season value based on 1987 prices or comparables of not less than $1,500,000 as demonstrated by A.T.P.S.I. . . ."

This language obligates Calumet Farm to provide annual seasons to stallions in the Calumet stud group or alternatively to other stallions acceptable to Calumet-Gussin, in all having an annual total live foal season value of not less than $1,500,000. Such language does not operate as an assignment to the partnership of any particular number of seasons to any particular stallion during any particular year. Obviously further action on the part of Calumet and the partnership was required for designation of seasons to be transferred to the partnership.

The lack of specificity of the foregoing language is illustrated by the more specific language of the second and final sentence of Item 25 and the interrelationship of the two sentences. The second sentence provides that notwithstanding the provisions of the preceding sentence, "unless the Partnership otherwise determines, [until the indebtedness to Riggs is paid in full], each year the Partnership shall have five (5) breeding nominations to ALYDAR, assuming he is then breeding sound, and four (4) breeding nominations to SECRETO, assuming he is then breeding sound, to use or otherwise deal in or with as the Partnership may determine."

Although this language purports to permit the partnership to deal in or with the ALYDAR and SECRETO seasons as it may determine, the ALYDAR and SECRETO seasons agreements provide that the Mare Owner (the Partnership) agrees to breed five of its mares to ALYDAR and four of its mares to SECRETO in each breeding season during the term of the agreements. Because the partnership had only nine mares to breed (eight owned and one leased), there were no mares available to breed to other stallions in the Calumet stud group until such time as the partnership acquired more mares. Accordingly, it may have been the intention of the parties that the partnership could traffic in extra seasons, that is, sell them to third parties, but in order for the partnership to do so, Calumet would have had to deliver to the partnership assignments of the seasons in the form of breeding contracts. There is no evidence that any such assignments to other stallions were made.

The Agreement of Purchase and Bill of Sale obligated Calumet Farm to assign seasons to Calumet-Gussin but did not operate as an actual assignment of seasons to stallions in the Calumet stud group. This is born out by the fact the parties did not rely on the language of the last sentence of Item 25 on Exhibit "A" to effectuate a transfer to the partnership of five annual seasons to ALYDAR and four annual seasons to SECRETO. They chose to accomplish the transfer by execution of the separate ALYDAR and SECRETO seasons agreements.

It is not at all clear from the language of Item 25 on Exhibit "A" whether the five annual seasons to ALYDAR and four annual seasons to SECRETO which the partnership is to have under the last sentence of Item 25 are included in or are in addition to the $1,500,000 in annual seasons to be provided to the partnership pursuant to the first sentence of Item 25. Under either interpretation the partnership had access to seasons which it could not utilize other than by sale of seasons to third parties. The fact the partnership did not exercise control over such seasons or attempt to sell the seasons to third parties indicates an understanding that further action on the part of both parties was required for the partnership to acquire ownership of the seasons to the thoroughbred stallions identified in Item 25 on Exhibit "A" to the Agreement of Purchase and Bill of Sale.

To effect a legal assignment "there must be evidence of intent to assign or transfer the whole or part of a specific thing, debt, or chose in action, and the subject matter should be sufficiently described to make it capapable of being identified." 6 Am. Jur. 2d "Assignments" §1 (1963; 1993 Supp.) (footnotes omitted).

In Kentucky a valid assignment is achieved not by use of any prescribed form or wording but by evidencing the parties' intentions to effect an assignment. Roberts v. Powers, 198 S.W.2d 58, 60 (Ky. 1946). However, "the intention of the parties . . . must be gathered from what they said 'and not by what they may have intended to say but did not.'" Id.

The court concludes there was a valid assignment of five annual seasons to the stallion ALYDAR and four annual seasons to the stallion SECRETO to remain in effect until the indebtedness of Calumet-Gussin No. 1 to Riggs is paid in full. There was no effective assignment of seasons to other stallions in the Calumet stud group. ALYDAR is deceased. There remains an issue as to the priority of the liens in the SECRETO seasons.

A breeding season is considered a "general intangible" as that term is defined by article 9 of the Uniform Commercial Code. "'General intangibles' means any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments and money." KRS 355.9-106 (effective July 1, 1987).

Customarily the conveyance of a breeding nomination is accomplished by execution of a contract by the transferor to convey or assign a season to the transferee.

An assignment is defined as follows:

Black's Law Dictionary (1979) (emphasis added).

6 Am. Jur. 2d "Assignments" §1 (1963; 1993 Supp.) (footnotes omitted) (emphasis added).

The scope of article 9 of the Uniform Commercial Code is circumscribed by KRS 355.9-102.

KRS 355.9-102 (as amended July 1, 1987). The official comment to the Uniform Commercial Code states: "A sale of an instrument or general intangible is not within the Article [article 9], but a transfer intended to have effect as security for an obligation of the transferor is covered by subsection 1(a) [U.C.C. §9-102(1)(a); KRS 355.9-102(1)(a)]." Official Code Comment to §9-102, reprinted in 8 Anderson, Uniform Commercial Code §9-102:1, at 444-45 (3d ed. 1985). See also Morrison v. Helms, 28 U.C.C. Rep. Serv. 172, 1979 WESTLAW 30083 (Tenn. Ct. App. 1979).

A strong argument could be made that the transfer to the Calumet-Gussin partnership pursuant to the Agreement of Purchase and Bill of Sale was a transfer for purposes of security subject to the recording requirements of article 9 of the Uniform Commercial Code. Calumet Farm, Inc. and its affiliate Renwar Corporation held a controlling interest in the Calumet-Gussin No. 1 partnership to which the thoroughbred horses were transferred and stallion seasons were conveyed or were to be conveyed. The horses, except those engaged in racing, remained on Calumet Farm and all of them remained subject to the control of Calumet Farm under the terms of the Maintenance and Training Agreement. Calumet Farm guaranteed payment of the indebtedness to Riggs. However, Calumet-Gussin No. 1 paid cash for the thoroughbred horses and rights it acquired pursuant to the terms of the Agreement of Purchase and Bill of Sale, and the security arrangement is between the partnership and Riggs rather than the transferor, Calumet Farm, and Riggs.

The debtor in possession suggests a different ground for invalidating the transfer of seasons to Calumet stallions because there was no recordation of the transaction between Calumet Farm, Inc. and Calumet-Gussin No. 1. The debtor in possession argues that because the Agreement of Purchase and Bill of Sale was not recorded, the transfer pursuant thereto of seasons to stallions in the Calumet stud group, unaccompanied by a transfer of possession, is a fraudulent conveyance under Kentucky law which is avoidable by the debtor in possession under 11 U.S.C. § 544(b).

KRS 378.040 provides:

KRS 378.040. This statute is inapplicable to property incapable of being delivered. Kenton v. Ratcliff, 49 S.W. 14 (1899); First National Bank of Lexington v. Bowman, 182 S.W. 195 (Ky. 1916); see also Clarke, Right of Creditors to Attach Personalty in the Hands of a Vendor Who Retains Possession After Sale, 31 Ky. L.J. 180 (1943).

Obviously a breeding nomination is not moveable. The conveyance of a season cannot be accomplished by actual delivery of the property. The custom in the thoroughbred industry is that the mare is brought to the farm at which the stallion stands and is there bred to the stallion.

It is the conclusion of the court that the assignment of the seasons to SECRETO is not subject to the provisions of article 9 of the Uniform Commercial Code or the foregoing Kentucky fraudulent conveyance statute because an assignment or sale of a general intangible not intended to have effect as security need not be recorded to be effective as against subsequent creditors of the assignor. Furthermore, the determination of priority of claims of creditors of the assignor in and to the property transferred vis-a-vis the assignee is made by reference to non-code law.

Riggs relies on the case of Trimble v. North Ridge Farms, Inc., 700 S.W.2d 396 (Ky. 1985), which involved competing claims to a 1982 breeding season to the stallion AFFIRMED. In February of 1980 Anita Arbour purchased from Louis Wolfson, AFFIRMED's owner and syndicator, a share in the syndicate representing a 1/36 ownership interest in the stallion syndicate. Arbour paid $100,000 of the $400,000 purchase price in cash and executed a promissory note to Wolfson for the balance. Wolfson retained and perfected a security interest in the share to secure payment of the note. Arbour subsequently defaulted on the note to Wolfson.

Ownership of a share in the stallion entitled the share owner to one free breeding nomination each year. On May 26, 1980, Arbour conveyed her 1982 nomination to North Ridge Farm. When North Ridge Farm notified the syndicate manager of its purchase of the 1982 season, the syndicate manager advised North Ridge that Arbour was in default of her obligations. Wolfson subsequently repossessed the share and sold it on October 5, 1981 to Stathatos and Malisos, who claimed the right to use the 1982 breeding right. Stathatos and Malisos argued that Arbour's sale to North Ridge Farm was subject to Wolfson's security interest by operation of KRS 355.9-306(2). The Kentucky Supreme Court found in favor of North Ridge, holding the sale by Arbour to North Ridge was a disposition of collateral that was authorized by the secured party and therefore was free and clear of Wolfson's security interest pursuant to KRS 355.9-306(2). Trimble v. North Ridge Farms, 700 S.W.2d at 397. The court found the syndicate agreement, to which Wolfson was a party, authorized the sale of nominations by members of the syndicate, and although the syndicate agreement expressly barred the sale of nominations by any member who is in default of the syndicate agreement, which Arbour was not at the time of the sale, neither the syndicate agreement nor the security agreement prohibited the sale of nominations by a person in default of the security agreement. Trimble v. North Ridge Farms, 700 S.W.2d at 398.

The case reached the conclusion that Arbour's sale in 1980 of a 1982 breeding right to North Ridge Farm was not subject to Wolfson's preexisting security interest. Because of the importance to the outcome of the case of the finding of consent to the assignment by the security interest holder, the case is apposite only in that it recognizes and implicitly sanctions the common practice of assignment of future seasons to stallions.

Spurlin v. Sloan, 368 S.W.2d 314 (Ky. 1963) is more in point. In that case the court held that a judgment lien creditor's garnishment of funds due an assignor was ineffective against the funds for which an absolute assignment had been executed. Because the assignment was not within the purview of article 9 of the Uniform Commercial Code the assignment was valid although not recorded. In Spurlin, Burchett assigned to Sloan an account receivable for application to payment of a preexisting obligation. Sloan sent a copy of the assignment to the account debtor but did not "perfect" the assignment under article 9 of the Uniform Commercial Code by filing or otherwise. Thereafter, but before the assignment was honored, Spurlin obtained a judgment against Burchett and caused a garnishment to be served on the account debtor. Spurlin argued Sloan had nothing more than an unperfected security interest which is subordinate to the rights of a judicial lien creditor under KRS 355.9-301. The court held the assignment for payment of a past due obligation was not intended to create a security interest and therefore was not within the ambit of article 9. Under non-code law an attachment by a creditor of the assignor is ineffective as against the assignee of the account.

The opinion in Spurlin v. Sloan has been the subject of much discussion; some commentators disagree with its holding. See D. Leibson & R. Nowka, The Uniform Commercial Code of Kentucky §8.1(B)(1) at 647-48 (1983). Nevertheless, the case is controlling in this jurisdiction and applies in determining the priorities of a judgment lien creditor of an assignor vis-a-vis the assignee of a general intangible the assignment of which falls outside the scope of article 9 of the Uniform Commercial Code.

See also Morrison v. Helms, 28 U.C.C. Rep. Serv. 172, 1979 WESTLAW 30083 (Tenn. Ct. App. 1979) (the sale of unearned record company royalties was a sale of general intangibles for which no filing was required by article 9 to protect the purchaser from claims of a subsequent judgment lien creditor of the seller).

Priority of claims of successive assignees in the same property is determined by a "first in time, first in right" rule. Kentucky adopts the position that as a result of an assignment the assignor is divested of all rights in the property conveyed and therefore has nothing else to assign. Columbia Finance & Trust Co. v. First National Bank, 76 S.W. 156 (Ky. 1903); accord Salem Trust Co. v. Manufacturers' Finance Co., 264 U.S. 182 (1924).

The assignment by Calumet Farm, Inc. to Calumet-Gussin No. 1 of four annual seasons to SECRETO, and the security interest of Riggs therein, takes precedence over the subsequent consensual lien in these seasons granted by Calumet to First City, the subsequent statutory lien of the Revenue Cabinet, and the judgment lien acquired by the debtor in possession upon the commencement of this case.

However, the fact that the Calumet-Gussin partnership holds, subject to the security interest of The Riggs National Bank, a valid assignment of four annual breeding seasons to the stallion SECRETO to remain in effect until the indebtedness of the partnership to Riggs is paid in full, does not confer on the partnership or Riggs an ownership interest in the stallion.

In a prior opinion in an adversary proceeding arising in this case this court concluded that -

Phoenix Corporation v. Hill 'N Dale Farm of Gormley, Ontario, Canada, Adv. No. 92-5048, memorandum opinion at 13-14 (September 16, 1993).

The provision in paragraph 15 of the Secreto Seasons Agreement reciting that any sale of the stallion shall be subject to the terms of the agreement and shall not defeat the breeding service acquired by the Calumet-Gussin No. 1 partnership does not enhance or elevate the breeding rights assigned to the partnership to an ownership interest in SECRETO. Calumet Farm, Inc. v. Revenue Cabinet, 793 S.W.2d 830 (Ky. Ct. App. 1990); see also In re Calumet Farm, Inc., Case No. 91-51414, memorandum opinion at 4-6 (May 28, 1993) (concerning the sale of the stallion JUDGE SMELLS).

For the foregoing reasons Riggs National Bank of Washington, D.C. is not entitled to any proceeds derived or to be derived from the sale of the estate's interest in stallions in the Calumet stud group, including WILD AGAIN and SECRETO. The joint motion of Riggs and Calumet-Gussin No. 1 for partial summary judgment against First City, Texas-Houston, N.A. shall be overruled.

FIRST CITY, TEXAS-HOUSTON, N.A.. First City has a first and prior lien in Calumet's interest in monies in the WILD AGAIN and SECRETO stallion accounts and in any proceeds of sale of the stallions WILD AGAIN and SECRETO.

COMMONWEALTH OF KENTUCKY, REVENUE CABINET. The Revenue Cabinet has a lien that is second in priority to the lien of First City in Calumet's interest in proceeds of the sale of the stallions WILD AGAIN and SECRETO.

MANGANARO STABLES. The motion of Calumet Farm for summary judgment against Manganaro Stables should be sustained.

WOODROW MARRIOTT. The motion of Woodrow Marriott for summary judgment finding he is the owner of a lifetime breeding right in WILD AGAIN which was purchased from Doric, Inc. should be sustained.

MATCHMAKER FINANCIAL CORP. AND EQUINE CAPITAL CORP.. The motion of Matchmaker Financial Corporation and Equine Capital Corporation for summary judgment adjudging they have a prior perfected security interest in whatever rights or interests J. T. Lundy may have in WILD AGAIN should be sustained. However, for the reasons stated by the court in its decision in Phoenix Corporation v. Hill 'N Dale Farm of Gormley, Ontario, Canada, herein cited, Lundy's four annual lifetime breeding rights to the stallion WILD AGAIN do not rise to the level of an ownership interest in the stallion and do not entitle him or Matchmaker or Equine Capital to any of the proceeds of the sale of the estate's interest in the stallion.

Dated:

By the court -

Chief Judge

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All counsel of record