United States v. Union Livestock Sales Company

• Decision Date: 12 January 1962
• Docket Number: No. 8314.,8314.
• Citation: 298 F.2d 755
• Parties: UNITED STATES of America, Appellee, v. UNION LIVESTOCK SALES COMPANY, Inc., a corporation, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

298 F.2d 755 (1962)

UNITED STATES of America, Appellee, v. UNION LIVESTOCK SALES COMPANY, Inc., a corporation, Appellant.

No. 8314.

United States Court of Appeals Fourth Circuit.

Argued October 5, 1961.

Decided January 12, 1962.

Howard Caplan, Clarksburg, W. Va. (Stewart McReynolds and McReynolds & Caplan, Clarksburg, W. Va., on brief), for appellant.

Robert E. Maxwell, U. S. Atty., Fairmont, W. Va. (Albert M. Morgan, former U. S. Atty., Fairmont, W. Va., on brief), for appellee.

Before SOPER and BELL, Circuit Judges, and MICHIE, District Judge.

SOPER, Circuit Judge.

This case relates to the liability of an auctioneer to the United States for the proceeds of the sale of two cows at Parkersburg, West Virginia, which were covered by a chattel mortgage recorded in Ohio in favor of the Farmers Home Administration. The proceeds of the sale were transmitted to the mortgagor at whose instance the cows were sold. The District Judge held that the auctioneer had constructive notice of the mortgage under the laws of these states and entered judgment for the United States.

Edward L. Miller and his wife, on April 4, 1957, executed a chattel mortgage in favor of the Farmers Home Administration covering eight cows described therein, including the two sold by the auctioneer. The mortgage was recorded pursuant to Sections 1319.01 and 1319.02 of the Revised Code of Ohio, which provides that such a mortgage shall be void as to creditors of the mortgagor, subsequent purchasers and mortgagees in good faith unless deposited with the appropriate county recorder.

The Union Livestock Sales Company, Inc., defendant in the District Court, is a West Virginia corporation which operates a public market for the sale of livestock at auction at Parkersburg, West Virginia. It operates subject to rules and regulations promulgated by the Commissioner of Agriculture of the State pursuant to Chapter 19, Article 2A of the West Virginia Code of 1955. It sold two cows covered by the chattel mortgage at public auction, one on January 25, 1958 and one on February 22, 1958, and remitted the net proceeds to the mortgagor. Information reached the representative of the Farmers Home Administration in Ohio that the mortgagor was attempting to sell some of the mortgaged cattle at auction at Athens, Ohio, and an investigation was made and all but two of the cows were recovered, although the mortgagor could not be found. The present suit was then brought and resulted in a judgment for the United States. At the trial the question was raised whether the case was ruled by the state law, as held in United States v. Kramel (8th Cir.), 234 F.2d 577, or by the federal law, since a federal activity is involved, as held in United States v. Matthews, (9th Cir.), 244 F.2d 626. The Judge did not find it necessary to answer this question since he was convinced that under either theory the defendant was liable. He held that the defendant had constructive notice of the mortgage by reason of the provisions of the recording statutes of Ohio, to which reference has been made, and also by reason of the recording statutes of West Virginia, Chapter 40, Article 1, Section 12 of the West Virginia Code of 1955, serial section 3996(12), which gives the mortgagee of chattels brought into the state three months to record the mortgage before his rights are cut off; and he also pointed out that irrespective of the recording statutes the decided weight of authority in this country holds an auctioneer liable to the true owner for property he sells without the owner's authority even if he is innocent of wrongdoing. The Judge, therefore, entered judgment for the United States in the case at bar.

The defendant attacks the judgment first on the ground that the evidence was insufficient to support the finding that the cows sold in Parkersburg were two of the animals covered by the mortgage. The record shows, however, that the District Superintendent of the Farmers Home Administration went to Athens when he heard that the mortgagor was attempting to sell some of the cows and also went to the Miller farm and succeeded in recovering six cows, four of which had been wrongfully sold by the mortgagor at Athens. He was unable to locate Miller but he made a search of the farm house and found sales slips for the two cows sold at auction at Parkersburg. We think this evidence was sufficient to justify the finding that these two cows were covered by the mortgage.

The principal question to be considered is whether this case is governed by the state or by the federal law; but before discussing this problem we first inquire what relevancy should be accorded the recording statutes of Ohio and West Virginia. It seems to have been assumed that if the state law prevails the Livestock Sales Company acquired constructive knowledge of the mortgage and is, therefore, liable to the United States. We think, however, that this is not true. The recording statute of Ohio gives notice of a mortgage to creditors of the mortgagor, subsequent purchasers and mortgagees in good faith. The Sales Company however, does not fall within any of these categories; and it is well settled that the recording of a legal instrument in accordance with the state statute does not give notice to all the world but only to those enumerated in the law. See City Loan and Savings Co. v. Morrow, 96 Ohio App. 476, 122 N. E.2d 635, 639; Jones Chattel Mortgages and Conditional Sales, 1933 Edition, Section 455, page 221; 14 C.J.S. Chattel Mortgages § 164b, page 771; 10 Am. Jur., Chattel Mortgages, Section 114, page 790, 45 Am.Jur., Records and Recording Laws, Section 86, page 468; accordingly, the auctioneer in this case was not bound by constructive notice of the recorded mortgage.

The courts are divided as to whether the state or federal law should be applied to a situation like that before us. Under precisely similar circumstances in the state of Missouri it was held, in United States v. Kramel (8th Cir.), 234 F.2d 577, that the state law controlled; and without reference to the local recording statutes the auctioneer was exonerated under the authority of a decision of the state court in Blackwell v. Laird, 236 Mo.App. 1217, 163 S.W.2d 91, which held that since the Federal Packers and Stockyards Act required marketing agents subject to its provisions to render services to everyone without discrimination, the agencies without guilty knowledge were not liable for wrongful conversion.

The opposite conclusion was reached in similar circumstances in California in United States v. Matthews (9th Cir.), 244 F.2d 626, on both points, again without reference to the recording statutes. It was held that the general federal law controls, and the court found, as did the District Court in the pending case below, that in the federal and state courts throughout the United States generally the rule is that a factor or commission merchant is liable to the owner of property if he takes part in wrongful conversion even though he has no knowledge that a wrongful conversion has taken place. Obviously, the question as to which law controls is not free from doubt but in our opinion the state law should control in a case like this where transfers of private property are made by the owners in accordance with state law in the course of business transactions. The leading case in the field is Clearfield Trust Company v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838. It involved the liability of a bank for the proceeds of a Government check which the bank had cashed upon the forged endorsement of the payee. The court held that the rights and duties of the United States on commercial paper issued by it should not be governed by the local law but by uniform federal law to be ascertained by reference to the federal law merchant developed during the hundred years under the regime of Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865, and that in the absence of an act of Congress it is the duty of the federal courts to fashion the governing rule according to their own standards. It was pointed out that the issuance of commercial paper by the United States is on a vast scale and that it is desirable to apply a uniform rule throughout the country rather than to follow the vagaries of the divergent laws of the several states. Again in United States v. Standard Oil Co., 332 U.S. 301, 305, 311, 67 S.Ct. 1604, 91 L.Ed. 2067, where the Government sought recovery of disability payments and medical expenses incurred by it by reason of injuries to a soldier caused by the negligence of the defendant, the court held that the case should be decided by the federal law since it involved the relationship between the Government and persons in its service.

However, it was shown in the Clearfield case, page 367, 63 S.Ct. page 575, that the Supreme Court in its choice of the applicable federal rule has occasionally selected state law, and in the Standard Oil case, pages 308-310, 67 S.Ct. pages 1608-1609, it was again indicated that the federal courts may accept the state law as the appropriate federal rule when, for instance, the Government places "itself in a position where its rights necessarily are determinable by state law, as when it purchases real estate from one whose title is invalid by that law in relation to another's claim", or the state law furnishes "convenient solutions in no way inconsistent with adequate protection of the federal interests." In accordance with these principles the Supreme Court in Royal Indemnity Co. v. United States, 313 U.S. 289, 61 S.Ct. 995, 85 L.Ed. 1361, applied the law of the...