Birmingham v. Rice Bros.

26 N.W.2d 39, 238 Iowa 410, 2 A.L.R. 2d 1108, 1947 Iowa Sup. LEXIS 311

• Court: Supreme Court of Iowa
• Decided: February 11, 1947
• Docket: No. 46932.
• Status: Published

Opinions

Oliver, J.

Tbe facts in this case are not in dispute. Appellant Birmingham, a livestock dealer at the stockyards in Sioux City, Iowa, owned fifteen cattle. June 6, 1945, a stranger, falsely and fraudulently representing himself to be John Brain-man, of Dell Rapids, South Dakota, wrongfully and fraudulently obtained said cattle from appellant by making in said name and issuing to appellant a false and worthless check for the purchase price thereof. Pretended Brainman told appellant he proposed to feed the cattle on his farm at Dell Rapids. However, pretended Brainman engaged a trucker to transport and deliver said cattle, not to Dell Rapids but to appellee Rice Bros., a commission broker or factor selling and handling livestock for others at the stockyards in Sioux Falls, South Dakota. Appellant did not learn of this delivery to appellee for immediate resale (which probably would have warned him of the fraudulent scheme) until sometime later. As factor for pretended Brainman, appellee sold said cattle to a third party and collected and paid to pretended Brainman the proceeds of said sale, less expenses and its commission. Appellant made no investigation of pretended Brainman prior to his dealings with him nor is it contended appellee did so-. Apparently both dealt with pretended Brainman in good faith and relied upon his representations.

Thereafter appellant instituted this action against appellee for damages for the wrongful conversion of said cattle. Appellee’s defenses may be divided into two classes: one, that it acted in good faith and without notice of appellant’s ownership of the cattle, and appellant’s "loss was due to his failure to investigate pretended Brainman; and two, that the Packers and Stockyards Act, 7 U. S. C., chapter 9, section 181 et seq., absolved it from liability. At the conclusion of the evidence each side moved for a directed verdict. The trial court sustained appellee’s motion generally and (we assume, in -the absence of objection, though the printed record is inadequate) judgment was entered thereon. Birmingham has appealed.

I. Unquestionably, by reason of the fraud practiced by pretended Brainman upon appellant in obtaining the cattle, title thereto, as between said parties, did not pass, and appellant could have maintained an action against him for the re-. covery of the cattle or for damages for their wrongful conversion. 53 Am. Jur., Trover and Conversion, section 31; Mulroney Mfg. Co. v. Weeks, 185 Iowa 714, 171 N. W. 36. However, the question here concerns appellant’s right of recovery against appellee, who sold the cattle to a third person and remitted the proceeds to pretended Brainman. The general rule in such cases is thus stated in 22 Am. Jur., Factors, section 48:

“As a general rule, a factor or commission merchant-who receives property from his principal, sells it under the latter’s instructions, and pays him the proceeds of the sale is guilty .of a conversion if his principal had no title thereto or right to sell the property; and the factor may not escape liability to the true owner for the value of the property by claiming that he acted in good faith and in ignorance of his principal’s want of title.”

35 C. J. S., Factors, section 57b, states:

“* * * this rule is particularly applicable * * * where the principal had stolen the goods or obtained them through fraud or forgery * *

See, also, annotation in 20 A. L. R. 132 et seq.

Restatement of the Law, Agency, section 349, states:

“An agent who does acts which would otherwise constitute conversion of a chattel is hot relieved from liability by the fact that he acts on account of his principal and reasonably, although mistakenly, believes that the principal is entitled to possession of the chattels.”

The general rule, above noted, is not unanimous. As pointed out in 2 Mechem on Agency, section 2583, there are a few decisions to the contrary. That text cites several decisions from Kentucky and Tennessee and decisions from several other states as so holding. Among these is an earlier Minnesota decision. However, Kentucky and Tennessee, and perhaps one or two others, seem to be the only jurisdictions now apparently committed to the minority rule. One decision cited by Mechem, and also by a note in 50 L. R. A., N. S., 52, 56, as enunciating what may be called the minority, or Tennessee-Kentucky doctrine, is Abernathy & Long v. Wheeler, Mills & Co., 92 Ky. 320, 17 S. W. 858, 36 Am. St. Rep. 593, upon which appellee places much reliance and to which we will later refer.

Johnson v. Martin, 87 Minn. 370, 92 N. W. 221, 59 L. R. A. 733, 94 Am. St. Rep. 706, distinguishes some earlier Minnesota decisions and holds a factor who sold grain acquired by his principal by a forged instrument is liable to the true owner for conversion, and it is no defense that the factor, throughout the entire transaction, acted in good faith, without negligence, and in the supposition that the forger was the real owner.

Both Iowa, where the cattle were fraudulently procured from appellant, and South Dakota, where appellee received and disposed of them, follow the general rule.

First National Bank of Pipestone v. Siman, 65 S. D. 514, 517, 275 N. W. 347, 348 (first appeal), states:

“However, we are of the opinion that the question of notice or knowledge of the mortgage by these defendants [factors] is not decisive of their liability in this case. If the defendants were not purchasers of these sheep, and we agree with respondent that they were not, they were the agents of Harms in selling and disposing of the sheep to the packing company. By the great weight of authority an agent who assists his principal in converting property of a third person to the use of the principal or master is personally liable to the true owner for the loss thereby inflicted # * * The only defense is that the defendants acted innocently and without knowledge or notice of plaintiff’s mortgage. However, we are convinced that innocence or lack of notice or knowledge is no real defense.”

Mau v. Rice Bros., 216 Iowa 864, 868, 249 N. W. 206, 208, states:

“It is in evidence that the defendant handled the hogs on a commission basis and that it received but a small commission for its services. Appellant contends that it is not liable for the conversion of the hogs because of its representative relationship with Lenz. There is no merit in this contention. In the case of Warder-Bushnell & Glessner Co. v. Harris, 81 Iowa 153, 46 N. W. 859, this court said:

“ ‘The defendant Harris took and converted this property. He is liable for damages. The fact that he was agent of his co-defendant does not discharge him from this liability. The act was not done under a contract. It was done in violation of plaintiff’s rights, and without the sanction of law. It was therefore a tort, for which he is presumably liable.’

“In other jurisdictions the courts are almost a unit in holding that a broker, factor, or commission merchant cannot escape liability for the wrongful sale of property by reason of their agency relationship. 25 C. J. 411, section 143; 20 A. L. R. 132. The fact that the defendant’s profit from the transaction was small is immaterial, because it is not necessary that profit flow to the party guilty of the conversion to create liability for the conversion.”

This rule is merely an application of the rule of liability ordinarily applicable to agents. 2 Am. Jur., Agency, section 328; 3 C. J. S., Agency, section 221d. The factor, even though innocent, is liable if he assists in such conversion, because he stands in the shoes of his principal. The liability of both principal and factor is based not upon contract but upon tort.

So in the case at bar (aside from the defense of the Packers and Stockyards Act, which will be hereinafter considered) appellee’s defenses were without merit and, under the undisputed facts, its liability for conversion was established as a matter of law.

II. Appellee is aTieensed market agency operating at Sioux Falls stockyards under the Packers and Stockyards Act of 1921. 7 U. S. C., chapter 9, section 181 et seq., August 15, 1921, 42 Stat. at L., chapter 64, 159 et seq. The Act makes it the duty of every stockyard owner and market agency, “to furnish upon reasonable request, without discrimination, reasonable stockyard services at such stockyard. * * * to establish, observe, and enforce just, reasonable, and nondiseriminatory regulations and practices in respect to the furnishing of stockyard services, and every unjust, unreasonable or discriminatory regulation or practice is prohibited and declared to be unlawful. * * * It shall be unlawful for any stockyard owner, market agency, or dealer to engage in or use any unfair, unjustly discriminatory, or deceptive practice or device in connection with the receiving, marketing, buying, or selling on a commission basis or otherwise * *

Appellee contends the act requires it, as a public utility, to serve all comers promptly and receive and sell all livestock consigned to it for sale; that it could not select whom it would serve, and hence was not liable for selling livestock to which its principal had no title, in the absence of knowledge or notice to it. The theory is that the act affects and destroys certain legal rights of members of the public whose livestock may be wrongfully taken to such stockyard by a thief or other wrongdoer and sold for said wrongdoer by his factor.

It may be here said that the specific provisions of the act substantially accord with the common-law rule applicable to public utilities in general. The rule is thus stated in 51 C. J., Public Utilities, section 16:

“A public utility is obligated by the nature of its business to furnish, its service or commodity to the general public, or that part of the public which it has undertaken to serve, without arbitrary discrimination, and it must, to the extent of its capacity, serve all who apply, on equal terms and without distinction, so far as they are in the same class and similarly situated. Accordingly, a utility must act toward all members of the public impartially, and treat all alike; and it cannot arbitrarily select the persons for whom it will perform its service or furnish its commodity, nor refuse to one a favor or privilege it has extended to another, since the term ‘public utility’ precludes the idea of service which is private in its nature and is not to be obtained by the public. Such duties arise from the public nature of a utility, and statutes providing affirmatively therefor are merely declaratory of the common law.”

The text in 43 Am. Jur., Public Utilities and Services, section 22, states:

“* * * the public utility is under a legal obligation to render adequate and reasonably efficient service impartially, without unjust discrimination, and at reasonable rates, to all members of the public to whom its public use and scope of operation extend who apply for such service and comply with the reasonable rules and regulations of the public utility.”

In the language of this court, in Phelan v. Boone Gas Co., 147 Iowa 626, 628, 125 N. W. 208, 209, 31 L. R. A., N. S., 319:

“Corporations or persons who undertake to supply a demand which is ‘affected with a public interest’ are not a law unto themselves, but are required to supply all alike who are alike situated, and are not permitted to discriminate in favor of or against any.”

Although there may be statements in some decisions that a public utility must serve all comers, courts are in general agreement as to the limitations and exceptions above stated. For example, a railroad is not required to receive' and transport property, the transportation of which is illegal, property of a dangerous character, or property not properly packed (13 C. J. S., Carriers, section 28), and it may refuse to transport persons wbo refuse to comply with its reasonable regulations or are likely to interfere with the safe and convenient conduct of its business (13 C. J. S., Carriers, sections 538-540). Many other examples might be given. Neither by common law nor any statute (called to our attention) is any public utility required to serve all. The conduct prohibited is always unjust discrimination, unfair rates or practices, or unreasonable rules.

That is the interpretation placed upon this act by the courts. United States v. American Live Stock Comm. Co., 279 U. S. 435, 437, 49 S. Ct. 425, 426, 73 L. Ed. 787, 788, involved a boycott of Producers Commission Association by market agencies. The-court held the agencies were required to deal with the Producers as to livestock of its members but had the right to refuse to deal with it as to livestock bought or sold for others. “ * * * some at least of its business was legitimate” and the decision was expressly limited to this legitimate business. This holding was followed in Farmers Livestock Comm. Co. v. United States, D. C., Ill., 54 F. 2d 375, 380, in which the court stated that if the boycotted firms insisted upon doing business only on an irregular basis, “inasmuch as it is not in the usual course of business, plaintiffs are justified in refusing to deal.”

These holdings recognize the right of market agencies to require some reasonable showing that each proposed transaction is a legitimate one which the other party has the right to make. Under the act, reasonable rules and regulations to this end would be proper. Hence the conclusion is warranted that such an agency is not required to handle stolen livestock or livestock to which the title of its principal is defective and may make reasonable requirements that one proposing to deal with it establish his identity and the ownership of and title - to the livestock involved.

Certainly Congress did not adopt the Packers and Stockyards Act to encourage and protect the operation of fences for handling property stolen or procured by fraud. The act merely makes it the duty of such agencies to furnish upon reasonable request, without discrimination, reasonable stockyard services. It is not wrongful discrimination to refuse to aid a criminal in his crime, nor is a request that one dispose of property fraudulently procured or stolen a reasonable request.

However, the proposition just considered is not the ultimate one before us. The precise question here is not what regulations the act imposes upon market agencies but what legal rights, if any, it takes away from the general public. Even though the act did burden the operations of market agencies to the extent asserted by appellee, it would not necessarily follow that Congress intended, in exchange therefor, to relieve such agencies from liability in tort for wrongful conversion and thus abrogate legal rights subsisting in the general public under state laws. Every decision of a court of last resort, brought to our attention, which has determined the question, holds the Packers and Stockyards Act does not absolve the factor from liability for conversion in cases of this nature.

Mason City Production Credit Assn. v. Sig Ellingson & Co., 205 Minn. 537, 541, 286 N. W. 713, 715, states:

“The chief effort of defendant on this appeal is to establish that it ‘being a federal public utility, licensed by the federal government to act as such-and required to conduct its business in accordance with the federal law, the question of its liability is to be determined by the federal law, and not by the laws of the state of Iowa, or the state of Minnesota.’ In short, the contention is that by the Packers and Stockyards Act (42 Stat. 159, 7 ITSCA, §§181-229) congress took over the entire field of raising and marketing livestock for human consumption, and that defendant, registered thereunder as a market agency, must for a fixed commission sell any shipment consigned to it for sale and account to the consignor for the proceeds regardless of the consignor’s title or interest in the consignment. It is the law that defendant, registered as a buyer and seller of livestock on commission, at the stockyards of South St. Paul, is a market agency under the act 'and must conform to the lawful rules and regulations made in virtue thereof by the secretary of agriculture. United States v. American Livestock Comm. Co. 279 U. S. 435, 49 S. Ct. 425, 73 L. ed. 787; Tagg Bros. & Moorhead v. United States, 280 U. S. 420, 50 S. Ct. 220, 74 L. ed. 524; United States v. Donahue Bros. Inc., (8 Cir.) 59 F. (2d) 1019. Defendant says that since it is not at liberty to select its customers or principals for whom it sells it is unreasonable to hold it liable in conversion where, as a mere agent, it is required by law to make a sale of mortgaged livestock.

“The Packers and Stockyards Act was passed to remedy abuses that had grown up in the large stockyards located in various places of the nation, whereby, among other wrongs, raisers, feeders, and shippers of livestock were charged unequal and excessive rates for services rendered in handling and selling the stock after reaching the yards. The occasion for and the purpose of the act we find exhaustively treated in Stafford v. Wallace, 258 U. S. 495, 42 S. Ct. 397, 66 L. ed. 735, 23 A. L. R. 229. It is hard to believe that congress by this act intended to take over the entire field of the livestock industry, not only the marketing thereof at the stockyards, but also to control all the steps of those who raise livestock for such market. It is common knowledge that raisers and feeders of livestock for slaughter often borrow money in order to carry on -and can do so only by giving as security chattel mortgages upon the stock being raised and fed for the market. There is no indication in the history of this legislation nor in the act itself of an intention to shield either purchasers or market agencies from liability on account of wrongful sales in the stockyards of livestock not owned by the consignors or covered by chattel mortgages of which the purchasers or market agencies may be in fact ignorant. Courts should be slow to conclude that the act was designed to supersede local law respecting the force and effect of chattel mortgage security upon livestock received at public stockyards.

“Defendant cites and relies on cases holding common carriers not liable in conversion for transporting stolen property or property covered by chattel mortgages which forbid tbe property being moved * * *. It is, however, to be noted that tbe carrier in transporting does not undertake to deal with or affect in any manner the rights or title of the owners or chattel mortgagees in the shipments. The same applies to the cases of warehousemen cited by defendant * * *

“Defendant contends that this. judgment obstructs and unduly burdens interstate commerce and thus violates the commerce • clause of the federal constitution; and also that it deprives defendant of its property and of the equal protection of the law guaranteed by the fourteenth amendment to that constitution.

“The losses occasioned a market agency like defendant from disposing of stolen livestock or of livestock mortgaged and wrongfully consigned to it contrary to the terms of the' duly filed mortgage cannot be assumed to be of a magnitude sufficient to unduly burden interstate commerce. ’ ’

The Minnesota decision was followed in First National Bank of Pipestone v. Siman, 67 S. D. 118, 289 N. W. 416, which case was previously before that court in 65 S. D. 514, 275 N. W. 347, from which we quoted in the first part of this opinion.

The Supreme Court of Washington decided the same proposition in Moderie v. Schmidt, 6 Wash. 2d 592, 597, 108 P. 2d 331, 334, holding a commission company liable in conversion to the owner of cattle after said factor paid the proceeds of the sale to the drover from whom it réceived the cattle, and stating:

“The trial court’s opinion was pronounced before the recent opinion in Mason City Production Credit Ass’n v. Sig Ellingson & Co., 205 Minn. 537, 286 N. W. 713, appeared in the law reports. In this ease, the court distinguished the common carrier cases relied on by respondents in this case, and, in discussing the packers and stockyards act, said, in part: ‘There is no indication in the history of this legislation nor in the act itself of an intention to shield either purchasers or market .agencies, from liability bn account of wrongful sales' in the stockyards of livestock not owned by the consignors or covered by chattel mortgages of which the purchasers or market agencies may be in fact ignorant.’

“The supreme court of the United States denied a petition for a writ of certiorari (308 U. S. 599, 84 L. Ed. 501, 60 S. Ct. 130), and later, a motion for a rehearing of the petition (308 U. S. 637, 84 L. Ed. 529, 60 S. Ct. 178). We note that the solicitor general of the United States appeared in the supreme court and opposed the granting of the writ. It seems reasonable to infer that the decision of the Minnesota supreme court was satisfactory to the Federal authorities charged with the administration of the packers and stockyards act.” (Italics supplied.)

The only contrary holding brought to our attention is by an intermediate court of appeals, Blackwell v. Laird, 236 Mo. App. 1217, 163 S. W. 2d 91. That ease holds a market agency under the act is not liable when it accepts and sells stolen cattle on commission if it does not know the cattle were stolen and is not negligent. Cresswell v. Leftridge, Mo. App., 194 S. W. 2d 48, cites the Blackwell case but does not mention the act. It concludes the factor was a mere bailee or conduit pipe. See 2 Am. Jur., Agency, section 328.

Both Missouri decisions are influenced by the Tennessee-Kentucky rule which is contrary to the Iowa (majority) rule followed in Division I of this opinion. Both cases approve a lengthy quotation from Abernathy & Long v. Wheeler, Mills & Co., supra, 92 Ky. 320, 17 S. W. 858, 36 Am. St. Rep. 593, a case which, as we have already pointed out, was listed by Professor Mechem as following the minority doctrine. Appel-lee argues the Abernathy ease is “almost squarely in point with the instant case.” Were this conclusion correct it would not persuade us to discard the majority rule long in effect in Iowa.

We are satisfied to adopt the essential reasoning of the Sig Ellingson case concerning the Packers and Stockyards Act. It is unnecessary that we repeat that discussion, herein-before quoted, in the same or similar language. It may be that some of the language in that decision, concerning chattel mortgages and tbe effect or necessity of recording where the principal has actual knowledge thereof, is susceptible to an interpretation not wholly in accord with some of our pronouncements. We regard that as here immaterial. Nor are we concerned with appellee’s complaint that said decision misinterprets the Abernathy (Kentucky) case. We have already referred to that case as contrary to the majority rule.

That the South Dakota and Washington Supreme Courts have been content to rest their decisions on the reasoning of the Sig Ellingson case attests to their determination that it is sound and adds ‘ to its persuasive force. The construction placed upon the act by the federal authorities charged with its administration, for whom the solicitor general of the United States appeared in the United States Supreme Court and resisted (successfully) the granting of a writ of certiorari from the Sig Ellingson decision, is also entitled to weight.

It is our conclusion that the Packers and Stockyards Act does not absolve appellee from liability for wrongful conversion in this ease. We hold such liability was established as a matter of law and that the trial court should have sustained appellant’s motion for directed verdict. With instructions that said motion be sustained and judgment for appellant and against appellee be rendered accordingly, the cause is — -Reversed and remanded with instructions.

Garfield, Hays, Mtjlroney, and Bliss, JJ., concur. Smith, J., and WenNerstrum, C. J., t and Hale and Mantz, JJ., dissent.