United States v. Matthews

• Decision Date: 13 May 1957
• Docket Number: No. 15245.,15245.
• Citation: 244 F.2d 626
• Parties: UNITED STATES of America, Appellant, v. Henry W. MATTHEWS and Nettie Matthews, Doing Business Under the Firm Name and Style of Yuba Livestock Auction Company, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

244 F.2d 626 (1957)

UNITED STATES of America, Appellant, v. Henry W. MATTHEWS and Nettie Matthews, Doing Business Under the Firm Name and Style of Yuba Livestock Auction Company, Appellees.

No. 15245.

United States Court of Appeals Ninth Circuit.

May 13, 1957.

George Cochran Doub, Asst. Atty. Gen., Samuel D. Slade, Alan S. Rosenthal, Attys., Dept. of Justice, Washington, D. C., Lloyd H. Burke, U. S. Atty., San Francisco, Cal., for appellant.

Weis & Weis, Alvin Weis, Yuba City. Cal., for appellees.

Before STEPHENS, POPE and LEMMON, Circuit Judges.

LEMMON, Circuit Judge.

Some readers of a comparatively recent Supreme Court decision may discern a trace of nostalgia for Swift v. Tyson¹ and its holding that state law should govern Federal courts only in matters "strictly local", and not as "to question of a more general nature".

Be that as it may, almost exactly one hundred years after Swift, in a case involving a fraudulently cashed Government check, the Supreme Court said:

"In our choice of the applicable federal rule we have occasionally selected state law. Case cited. But reasons which may make state law at times the appropriate federal rule are singularly inappropriate here. The issuance of commercial paper by the United States is on a vast scale and transactions in that paper from issuance to payment will commonly occur in several states. The application of state law, even without the conflict of laws rules of the forum, would subject the rights and duties of the United States to exceptional uncertainty. It would lead to great diversity in results by making identical transactions subject to the vagaries of the laws of the several states. The desirability of a uniform rule is plain. And while the federal law merchant developed for about a century under the regime of Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865, represented general commercial law rather than a choice of a federal rule designed to protect a federal right, it nevertheless stands as a convenient source of reference for fashioning federal rules applicable to these federal questions." Emphasis supplied.²

As Professor Arthur E. Sutherland, of Harvard University, has observed in an article in the Stanford Law Review of December, 1955:³

"But the national economy has come to be largely unitary. Purchases and sales do not neatly divide into two classes, those purely local and those involving more states than one. Transportation between two points within a state affects transportation across state boundaries. The production of goods within a state affects the market for goods coming from outside. In the late 1930\'s and the early 1940\'s Robert Jackson, as a lawyer for the Government and as a Justice of the Supreme Court, had much to do with establishing the doctrine that in the commerce clause there are no discernible limits to the legislative power of the national government."

The "federal question" here before us is whether, under the Farmers' Home Administration Act of 1946, hereinafter "the Act",⁴ the appellees are liable in conversion for the full value of the mortgaged livestock here involved, less any amount refunded to the appellant out of the proceeds of the sales.

1. Statement of Facts

With the exception of the appellant's assertion that the chattel mortgagor's "debt to appellant is still due and owing in a sum exceeding $1,526.22, and cannot be satisfied out of the mortgagor's current assets", the appellees accept the appellant's statement of facts. Omitting any reference to the amount that the mortgagor now owes the appellant and to the ability of the mortgagor to respond out of his current assets, both of which matters will be discussed infra, we accordingly adopt as our own the rest of appellant's statement of facts.

On March 17, 1951, one Wheaton executed a crop and chattel mortgage in favor of the Farmers' Home Administration, an agency of the United States, on certain of his farm chattels, including the livestock which are the subject of this suit, which also includes after-acquired livestock. The mortgage, which represented security for a Production and Subsistence loan extended by the Farmers' Home Administration to Wheaton, contained the customary provision that the mortgagor was not to sell any of the mortgaged property without first obtaining the consent of the mortgagee. It further provided that, upon the failure of the mortgagor to perform any of the covenants of the mortgage, the mortgagee was to become entitled to immediate possession of the mortgaged property. On the date of execution, the mortgage was duly recorded in Yuba County, California, the county in which Wheaton then resided and in which the mortgaged property was then located.

Despite his obligation not to do so between November 19, 1951, and March 2, 1953, Wheaton, without the consent or knowledge of appellant, periodically removed certain of the mortgaged livestock to adjoining Sutter County, California. The livestock was there delivered to appellees for sale by them at auction in the regular course of business. On each occasion, Wheaton warranted in writing that the animals delivered to appellees were free and clear of all liens and other encumbrances. Appellees did not have actual knowledge of the existence of the Farmers' Home Administration mortgage.

Upon each sale, appellees turned the proceeds (which totalled $1,526.22) less their customary 3% commission (which totalled $46.79) over to Wheaton.

On September 30, 1954, this action was brought in conversion against appellees to recover the reasonable market value of the sold livestock, i. e., the price which had been received at auction. On February 29, 1956, the District Court filed its memorandum opinion holding that appellant was entitled to recover from appellees only the commission which the latter had withheld. Recognizing that, under California law, appellees would be liable to appellant for the full market value of the livestock, the court determined that federal law governed. Relying on the decision of the United States District Court for the Northern District of Iowa in Drovers' Cattle Loan & Investment Co. v. Rice, 10 F.2d 510, the court then ruled that under federal law a commission merchant is liable to the mortgagee in these circumstances solely for that portion of the proceeds of the sale which is retained by him.

On May 11, 1956, judgment was entered in favor of appellant in the amount of $46.79. This appeal followed.

2. The District Court Correctly Held That the Liability of the Appellees Is Governed by Federal Law.

The District Court held 139 F.Supp. 688 that "the law governing plaintiff's action is the common law prevailing in the federal courts when no choice of state law is indicated by Congress", citing the Clearfield Trust Co. case, supra.

The appellant agrees with that holding, asserting that "In the absence of an express statutory provision to the contrary, Federal law governs the rights and liabilities of the United States in the administration of programs of this character".

The appellees, too, concur in the view that "the case should be decided in accordance with Federal rather than local law."

Despite this complete unanimity on the rule of decision, however, the appellant has seen fit to devote more than a third of its brief to laboring the point. We have already indicated our views on the subject, and we do not believe that any useful purpose will be served by further elaborating this self-evident and completely accepted proposition.

We simply hold that Federal law governs the rights and liabilities of the parties.

3. The Weight of Federal Authority Imposes Liability on Livestock Commission Merchants in Situations Like the One at Bar.

We have seen that the Clearfield Trust Co. case, supra, teaches that general commercial law "stands as a convenient source of reference for fashioning federal rules applicable to these federal questions".

Citing many authorities in support of its position, the Court of Appeals for the Tenth Circuit, in United States v. Butt, 10 Cir., 1953, 203 F.2d 643, 644-645, said:

"The United States is the owner of the mortgage in question. Generally, a mortgagee who has suffered a loss may maintain an action against a person who has wrongfully converted to his own use property included in the mortgage which has been duly filed for record."

Referring to the rule "that a broker, factor, or commission merchant cannot escape liability for the wrongful sale of property", in Birmingham v. Rice Brothers, 1947, 238 Iowa 410, 26 N.W.2d 39, 42, 2 A.L.R.2d 1108, 1115-1116, the Supreme Court of Iowa used the following language:

"The factor, even though innocent as in the case at bar, 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." Emphasis supplied.⁵

In their brief, the appellees repeatedly insist that "Wheaton's debt * * * could have been satisfied out of Wheaton's remaining personal property subject to the mortgage". They assert that "Not unless and until the Government shall have foreclosed its mortgage and actually sustained some loss after realizing on its remaining security, should any thought be given to holding Appellees for any damages resulting to the Government from the sales of livestock involved herein." Emphasis supplied.

In making these statements the appellees have fallen into serious error. The mortgagee need not first establish that, like a honey-bee, he has flitted from security flower to security flower, and still has not been able to collect sufficient property pollen to satisfy his hunger.

In Bank of Havelock v. Western Union Telegraph Co., 8 Cir., 1905, 141 F. 522, 526, a leading case that seems to have escaped the notice of counsel, Judge Sanborn used the following language:

"Nor can the defendant escape judgment for the loss inflicted because the plaintiffs have other security sufficient to

...