Cassidy Commission Company v. United States, 9511.

• Decision Date: 08 November 1967
• Docket Number: No. 9511.,9511.
• Citation: 387 F.2d 875
• Parties: CASSIDY COMMISSION COMPANY, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

387 F.2d 875 (1967)

CASSIDY COMMISSION COMPANY, Appellant, v. UNITED STATES of America, Appellee.

No. 9511.

United States Court of Appeals Tenth Circuit.

November 8, 1967.

Clarence P. Green, Oklahoma City, Okl., for appellant.

Givens L. Adams, Asst. U. S. Atty., (B. Andrew Potter, U. S. Atty., on the brief), for appellee.

Before MURRAH, Chief Judge, and PHILLIPS and LEWIS, Circuit Judges.

ORIE L. PHILLIPS, Circuit Judge.

The United States brought this action against Cassidy Commission Company to recover the value of five cows which Cassidy received for sale from and sold for Edward F. Ferguson. From a judgment for the United States, Cassidy has appealed.

The basic facts are not in dispute. Only the inferences drawn therefrom by the trial court are challenged by Cassidy.

Cassidy is a livestock commission house engaged in the business of selling at auction livestock delivered to it for sale on a commission and yardage charge basis.

On October 9, 1962, Ferguson and Irma Lee Ferguson, his wife, executed and delivered to the United States a crop and chattel mortgage to secure loans aggregating $11,550 made to them by the United States through the Administrator of the Farmers Home Administration.

The chattel mortgage covered 49 head of cattle. In such mortgage, following a designating number covering one or more of the mortgaged cattle, were set forth the kind, breed, sex, color, brand, name or other description, and the weight of each of such cattle. Numbers 4, 12 and 15 each covered one cow, described as a black and white Holstein; Number 6 covered one cow, described as a black Holstein; and Number 27 covered five cows, each described as a black and white Holstein.

The age and weight of the Number 4 cow, as set forth in the mortgage, was four years and 1,400 pounds, of the Number 6 cow, five years and 1,450 pounds, of the Number 12 cow, six years and 1,200 pounds, of the Number 15 cow, three years and 900 pounds, and of each of the Number 27 cows as coming two years old and 800 pounds.

On March 14, 1963, the cattle described in the chattel mortgage were checked by a representative of the F.H.A. All were present and accounted for, except two heifers. Ferguson advised the inspector that the two heifers "had gotten out" the night before the inspection and he "had not found them." In August, 1963, a representative of the F.H.A. again checked the cattle covered by the chattel mortgage and found all present and accounted for, except seven cows. They were the four cows designated by Numbers 4, 6, 12 and 15, and three of the cows designated by Number 27 in the chattel mortgage.

James H. Slatten, County Supervisor for the F.H.A. for McClain County, Oklahoma, the county in which the mortgage property was located, made inquiry of Cassidy and was told by it that five cows had been delivered to it for sale by Ferguson and had been sold by it.

Records of Cassidy introduced in evidence show that it received from and sold for Ferguson one cow on March 25, 1963, weighing 1,475 pounds; one cow on April 10, 1963, weighing 1,025 pounds; one cow on May 7, 1963, weighing 1,260 pounds; one cow on June 11, 1963, weighing 1,340 pounds, and one cow on July 16, 1963, weighing 1,060 pounds.

The net proceeds of the sale of such cows aggregated $862.30, which was paid to Ferguson by Cassidy.

The applicable Federal Regulation governing the powers and duties of F.H.A. County Supervisors (6 CFR, Chapter III, § 371.5) in part reads:

"§ 371.5 Releasing security property.

* * * * * *

"(a) * * * County Supervisors are authorized hereby to release basic security when the property has been sold or exchanged for its fair market value, and the proceeds are used for one or more of the following purposes:

"(1) To pay on the debts owed to the Farmers Home Administration which are secured by liens on the property sold.

"(2) To purchase from the proceeds of the sale, or to acquire through exchange, property more suitable to the borrower\'s needs, subject to the following conditions: The new property, together with any proceeds applied to the indebtedness, will have security value to the Farmers Home Administration at least equal to that of the lien formerly held by the Farmers Home Administration on the old property. The new property must be made subject to a lien in favor of the Farmers Home Administration by * * * `after acquired property\' clauses in lien instruments."

Before the County Supervisor knew that the sales of the five mortgaged cows here involved had been made, Ferguson had received the proceeds of the sales of such mortgaged cows from Cassidy and had purchased property therewith, which Slatten, as County Supervisor, was not authorized under the Regulation to accept as security in place of such five cows and to release the mortgage as to them, and he had not undertaken so to do. He had not consented to the sales of such five cows before the sales were made, nor had he approved such sales after they were made. Slatten, as County Supervisor, had never undertaken to give his consent to a sale of mortgaged property by Ferguson or any other mortgagor. He had only exercised his authority to release mortgaged property from the mortgage when the mortgagor had complied with the requirements of the Regulations with respect to such a release.

Prior to the sale of the five cows here involved, Ferguson had made sales of eight cows covered by the mortgage. However, Slatten, as County Supervisor, had not given his consent to Ferguson to make any of such sales. After the making of each of the sales of such eight cows, Ferguson advised Slatten, as County Supervisor, of the sale, and it was only after the proceeds thereof had been used as a payment on the mortgage debt or after they had been used to acquire new property and such new property had been brought under the mortgage by the after acquired property provision thereof that Slatten, as such Supervisor, released any of the eight cows sold from the mortgage.

Subsequent to the sales of the cows here involved and the second security check, the balance of the mortgaged property was sold at a liquidation sale held on August 31, 1963, for a net of $6,977.50, leaving a substantial deficiency which exceeded what Ferguson had received from the sale of the five cows.

The chattel mortgage was properly executed and duly witnessed and was entitled to be filed for registration in the office of the County Clerk of McClain County, Oklahoma. It was so filed on October 9, 1962.

The court found the facts substantially as above stated; and it specifically found that the cows covered by the chattel mortgage were accounted for in March, 1963; that one of the sales by Ferguson took place on March 25, 1963; a second on April 10, 1963; a third on May 7, 1963; a fourth on June 11, 1963; and a fifth on July 16, 1963; that an inspection of the property covered by the chattel mortgage in August, 1963, disclosed that five of the mortgaged cows were not present and accounted for; that the weights of the five cows sold by Cassidy reasonably corresponded under the circumstances with the weights of the missing cows; that Ferguson had personal possession of the five cows he delivered to Cassidy for sale; and that he requested Cassidy to sell the five cows for him and that Cassidy did so.

From such subsidiary findings made by the trial court, it found that the five cows sold by Cassidy for Ferguson were covered by the mortgage; that neither the F.H.A. nor the County Supervisor had consented to such sales; and that neither the F.H.A. nor the County Supervisor had waived the lien of the mortgage on such five cows; and that the County Supervisor had not consented nor undertaken to consent to the sale of the eight cows, and had only released the eight cows from the lien of the mortgage after Ferguson had complied with the requirements of the Regulation respecting such releases.

The loans here involved were made through the F.H.A. pursuant to the provisions of the...