United States v. Haddix & Sons, Inc., 18782.

• Decision Date: 14 August 1969
• Docket Number: No. 18782.,18782.
• Citation: 415 F.2d 584
• Parties: UNITED STATES of America, Plaintiff-Appellant, George S. McIntyre, State Director, Department of Agriculture, Plaintiff, National Bank of Detroit, Plaintiff-Appellee, v. HADDIX & SONS, INC., and Haddix & Sons Elevators, Inc., Defendants.
• Court: U.S. Court of Appeals — Sixth Circuit

415 F.2d 584 (1969)

UNITED STATES of America, Plaintiff-Appellant George S. McIntyre, State Director, Department of Agriculture, Plaintiff, National Bank of Detroit, Plaintiff-Appellee, v. HADDIX & SONS, INC., and Haddix & Sons Elevators, Inc., Defendants.

No. 18782.

United States Court of Appeals Sixth Circuit.

August 14, 1969.

Stephen R. Felson, Atty., Dept. of Justice, Washington, D. C., for appellant; Edwin L. Weisl, Jr., Asst. Atty. Gen., John C. Eldridge, Atty., Dept. of Justice, Washington, D. C., Lawrence Gubow, U. S. Atty., Detroit, Mich., on brief.

Patrick J. Ledwidge, Detroit, Mich., for appellee; George B. Martin, Jr., Detroit, Mich., on brief; Dickinson, Wright, McKean & Cudlip, Detroit, Mich., of counsel.

Before O'SULLIVAN, EDWARDS and PECK, Circuit Judges.

O'SULLIVAN, Circuit Judge.

The United States appeals from judgment entered in the United States District Court for the Eastern District of Michigan at Detroit which directed that Commodity Credit Corporation (referred to herein as Commodity), an agency of the United States, pay to the National Bank of Detroit $96,117.01 to satisfy the unpaid balance of a chattel mortgage purporting to cover grain that had been stored in a warehouse of a mortgagor, Haddix & Sons Elevators, Inc.¹ Upon discovery of defalcations and the insolvency of Haddix, the receivership proceedings in which the appealed judgment was entered were instituted.

Haddix owned several grain elevators in Michigan, devoted chiefly to storage of grain acquired by Commodity as part of the national government's program of price support for agricultural products. During this program, Commodity had acquired a large amount of corn stored in elevators around the country and, in 1961, the government decided to reduce the very large amount so held in storage. This operation moved swiftly, with the government issuing to warehouse operators what were called "load-out" orders directing them to ship to Commodity a specified number of bushels of corn or, in the alternative, to purchase such corn from Commodity at offered prices. In most instances, the warehousemen bought the corn and sold it on the open market. The fast moving program resulted in a very great reduction in the amount of corn theretofore held in storage. It is a fair inference that there were not a few warehousemen who were found to be short of the amount of corn called for by outstanding warehouse receipts. This was true of the Haddix elevator at Monroe, Michigan. It was stipulated that neither the Bank nor Commodity were aware of the Haddix shortages at the time of the transaction here involved.

Sometime prior to May, 1962, Haddix had received a "load-out" order from Commodity directing Haddix to ship to it 102,000 bushels of corn or purchase that amount from Commodity at a quoted price. Thereafter Haddix obtained an order from Ralston Purina Company to purchase 102,000 bushels at a profitable price. Haddix did not have enough money to purchase the corn needed to fill the Ralston order. On May 14, 1962, it borrowed $100,000 from appellee National Bank of Detroit for that purpose. Haddix gave the Bank its promissory note in that amount, secured by a chattel mortgage purporting to encumber 102,000 bushels of the corn then in the Monroe elevator. The Bank also obtained an assignment of whatever accounts receivable would accrue to Haddix from deliveries to the Purina Company.

The loan proceeds were deposited in the Haddix bank account and two checks on this account totalling $102,879.28 were drawn to the order of, and were delivered to, Commodity in payment for 102,000 bushels of corn. Warehouse receipts representing 102,000 bushels of the corn which had been stored in the Monroe warehouse by Commodity were surrendered to Haddix. No question is involved as to the proper execution and recording of the involved chattel mortgage. A small amount of the corn contracted to be sold to Purina was delivered and paid for prior to the institution of the receivership, leaving $96,177.01 unpaid on the bank's note and chattel mortgage when the receivership proceeding was commenced in the District Court on July 16, 1962.

Since most of the corn remaining in the Monroe warehouse unquestionably belonged to Commodity, the receiver forwarded all of it to that agency upon the government's promise to indemnify anyone who could be shown to have a prior interest in it. As of July 16, 1962, the corn shortages at Monroe totaled at least 220,000 bushels. Haddix is hopelessly insolvent. This shortage of corn is not questioned.

The bank claims that the balance due on its chattel mortgage — $96,177.01 — represents a claim that should be paid out of the receivership before any satisfaction is made to Commodity as owner of the corn remaining in the warehouse. Alternatively, the Bank asserts that it should ratably share in the total receivership fund in the proportion that 102,000 bushels of corn bears to the total amount of corn called for by the warehouse receipts outstanding in the hands of the Commodity Credit Corporation.

Opposing these contentions is the government's claim that by virtue of Sections 8 and 13 of the Michigan Farm Produce Storage Act, M.S.A. §§ 12.119(8) and (13), Compiled Laws of Michigan, 1948 §§ 285.68 and 285.73, and its possession of warehouse receipts for more corn than remained in the warehouse it is entitled to the ownership or proceeds of all such corn to the exclusion of the Bank's claim as a chattel mortgagee. This was the contest before the District Judge. He resolved it in favor of the Bank, ordering Commodity to pay in full the unpaid balance of its chattel mortgage. His conclusions were supported by strong arguments set out in his well-considered opinion, reported as United States v. Haddix & Sons, Inc., 268 F.Supp. 825 (E.D.Mich. 1967). We are constrained to reverse. We order that the Bank's cause be dismissed and its claim denied.

The District Judge, viewing the case before him as one in equity, found the Bank's position of greater appeal to him as a chancellor and, notwithstanding the literal context of the Michigan statute, construed it to allow the equitable relief provided in his order.

The relevant statutes are Sections 8 and 13 of the Michigan Farm Produce Storage Act. Section 8, M.S.A. § 12.119(8), provides:

"Acceptance of farm produce for storage by any warehouseman for which a warehouse receipt is issued shall be a bailment and not a sale, and in no case shall the farm produce so stored be liable to seizure upon any process of any court in any action against such bailee, except upon action by owners of such warehouse receipts to enforce the terms thereof, but such farm produce shall at all times, in the event of the failure or insolvency of such bailee, be first applied exclusively to the redemption of outstanding storage receipts for farm produce so stored with such bailee, and in such event, farm produce on hand in any particular warehouse of the bailee shall be first applied to the redemption and satisfaction of the warehouse receipts issued by said warehouseman as the bailee." (Emphasis supplied.)

Section 13, M.S.A. § 12.119(13), provides:

"If authorized by agreement or custom, warehousemen may commingle fungible farm produce with other farm produce of like kind and grade. In such case, the various depositors of the mingled goods shall own the entire mass in common, and each depositor shall be entitled to such portion thereof as the amount deposited by him bears to the whole, and the warehouseman shall be liable, severally, to each depositor for the care and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate, and a warehouseman may dispose of only that quantity of any part of any fungible mass of farm produce that shall be in excess of the amount covered by any outstanding warehouse receipts issued by him." (Emphasis supplied.)

It is undisputed that at the time Haddix obtained the $100,000 loan from the Bank and gave the chattel mortgage, the corn in the warehouse — including the 102,000 bushels purchased by Haddix — was substantially less than the bushels represented by warehouse receipts still held by Commodity. This was so at the beginning of the transaction, at the...