By Sharla Ishmael
You’ve sold a bull to a new customer in a consignment sale and his check bounces. Or perhaps you’ve sold a trailerload of calves to a particular buyer before and had no problems, so you agreed to wait for payment until the calves are delivered. However, he has some excuse as to why he doesn’t have your check that day. And the excuses continue every time you call him: “The mail truck passed me by,” or “My wife is in the hospital.” What do you do?
Unfortunately, if you’re a seller these days, you are eventually going to run into a “buyer” who tries to take the animals without giving honest payment in return. With a weak economy and strong cattle prices, it’s a good bet that is happening now more than ever.
“I hate to say it, but my best advice is not to be so trusting,” says Larry Gray, executive director of law enforcement and theft prevention services at the Texas and Southwestern Cattle Raisers Association (TSCRA). Gray has 29 special rangers stationed throughout Texas and Oklahoma who handle every kind of livestock theft case imaginable.
“Business just isn’t like it used to be,” he says. “Ranchers take pride in doing business on a handshake, but there are definitely individuals who will take advantage of you.”
If you do get a bad check, Gray says, you legally have to send the person a certified letter and give him 10 days to respond. If he doesn’t pay in that time, you go to your county district attorney (DA) and file a claim on him. However, if you agreed to deliver the cattle without getting your check first, you may have a more difficult time recovering your money—or cattle.
“If they flat-out won’t pay up, that can be considered theft,” Gray explains. “However, it’s up to the prosecutor. Some consider it a civil matter of extending credit if you let them take the cattle without payment. If they send a portion of what they owe and you accept it, then for sure it is a civil matter because you have extended credit.”
Either way, ranchers tend to be at the mercy of the district attorney. Gray says that in rural areas, where officials’ constituents are farmers and ranchers, these cases tend to be taken more seriously. However, if your district attorney’s office is in a larger, urban area, your chances of getting help are slimmer.
Legal retaliation. Heath Hyde is a Charolais breeder who also has a private law practice in Dallas,
Texas, where he was an assistant district attorney for 10 years. Hyde says many county offices are overloaded. But he doesn’t understand why more of them don’t take livestock cases more seriously, considering the amount of money that can be involved—particularly in the registered business.
“In the registered business, you may have sold one cow for $6,000,” he says. “You are protected somewhat by the fact that the buyer won’t get registration papers, which decreases the value of the property. But even then, they can take her to the sale barn and get some money for their crime.
“Threat of criminal action is usually the only way to get your money or your cattle back,” Hyde says. “Another thing is that once you start sending checks across state lines, it can be considered wire fraud, which is a felony.”
For example, Dennis Adams, owner of Outfront Cattle Services, a sale management company, tried to help a client get redress from a buyer that hadn’t paid for cattle bought in a production sale. The buyer wouldn’t return calls, but Adams talked to another unhappy seller who gave him the phone number of the buyer’s mother. So he called her.
She wasn’t happy to hear that charges could be filed against her son. But it took a call from Adams’ lawyer impressing upon her that jail time was a possibility to convince her to act on his behalf. This time, the cattle were returned.
“Most of the time, you won’t have a lot of problems,” Adams explains. “But if something sounds too good to be true, it probably is. For example, if someone who is new to the business acts overly insulted when you ask for credit references, you might need to watch out.”
While checking credit references with a buyer’s bank is common for big operators, such as order-buying firms, it doesn’t guarantee a safe transaction. Take the case of Monte Sharp, an account of which appeared in the July issue of TSCRA’s The Cattleman. In 2005, Sharp ordered 1,300 head from Capitol Land & Livestock, a prominent order-buying firm in Texas. Capitol’s owner, Jim Schwertner, checked Sharp’s personal and credit references and sent him $700,000 worth of cattle.
Alerted by another cattle trader, Schwertner discovered the calves had been shipped to a feedlot even though Sharp had never paid a dime for them. Sharp had already received 70% of their value, with the rest of the money to be sent to him after the cattle were slaughtered. As it turned out, Capitol wasn’t the only livestock dealer this Oklahoma criminal had misled. He owed other cattlemen millions of dollars and had given them bad checks as well as disingenuous pledges to pay them back, knowing he couldn’t pay.
Capitol was able to recover its money four years later, having gained secured creditor status. But others weren’t so lucky. One Oklahoma cattleman Sharp owed money to had to sell three family farms and was nearly bankrupted by his dealings with Sharp. It was a complicated case and the only reason it ever saw the light of day was the diligence of a county assistant district attorney named Michael Jarrett.
Jarrett found the case in a file drawer, where it had sat for three years. He learned as much as he could about the cattle business and followed the case through bankruptcy proceedings and other delays. In December 2009, Sharp was sentenced to 20 years in prison.
By the book. Lengthy delays seem to be the norm even when the justice system is working for you. Adams cites a case where one of his customers pursued the matter for three years, eventually getting a warrant for the arrest of the man who had failed to pay for a show heifer. The man paid in order to get out of jail. An important lesson was learned: If you’ve sold cattle in a sale, it’s up to you, not the sale manager, to file charges.
What if you know where the cattle are and you just want to get them back? Don’t go by yourself; contact local authorities. “You have to get a court order from a judge to go and retrieve them,” Gray explains. And it might be a smart idea to have a law enforcement officer go with you in case things get ugly.
If the cattle have been sold to someone else already, you are doubly jinxed—you are out the cattle (assuming you can locate them) and you have to get your money back from the unauthorized seller. You may not get full price for it; however, market animals do have an expiration date.
Adams warns that you can’t expect to show up at the sale of someone who owes you money, buy an animal and not pay for it as a way to recoup your losses. That’s only going to get you in hot water, even if it makes sense from a layman’s perspective.
Donors and donees. There are some tax issues to consider if you get too creative in seeking a remedy. Someone once suggested that a jilted seller turn the bad debt into a gift to the buyer on his income tax return. Better not!
“If a seller did not get paid for his cattle, he would not want to claim the purchaser received a gift,” explains Larry May, a CPA in Sweetwater, Texas. “Gifts are not taxable income to the recipient. In addition, the donor may need to file a gift tax return if the amount of the gift is in excess of $13,000 to one person.
“The donor could be liable for payment of gift taxes if he had used up his gift tax exclusion,” he adds. “If the seller were to claim that a gift had been made, he could lose his legal claim for civil or criminal action against the nonpaying purchaser.
“The seller could take a bad debt deduction if his operation is on the accrual basis,” May says. “If it’s on the cash basis, the deduction would be limited to his basis in the cattle sold. There is a Form 1099-C that can be used to report cancellation of debt, which might be taxable to the debtor, but most cattle operators would not meet the criteria of those who may file the form.”
Unless you know who you are dealing with, it’s the seller rather than the buyer who should beware! BT
- October 2010