Birmingham v. Rice Bros.

• Decision Date: 11 February 1947
• Docket Number: 46932.
• Parties: BIRMINGHAM v. RICE BROS.
• Court: Iowa Supreme Court

26 N.W.2d 39

238 Iowa 410

BIRMINGHAM v. RICE BROS.

No. 46932.

Supreme Court of Iowa

February 11, 1947

As Modified on Denial of Rehearing May 9, 1947.

V. O. DeWitt and Crary, Munger & Crary, all of Sioux City, for appellant.

Myers & Snerly, of Chicago, Ill., and Stilwill, Brackney Stilwill & Wilson, of Sioux City, for appellee.

OLIVER Justice.

The 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 Brainman of Dell Rapids, S. D., 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 some time 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.A. § 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 recovery of the cattle or for damages for their wrongful conversion. 53 Am.Jur. 825. 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. 333:

'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, § 57, p. 465, states:

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

See also Note in 20 A.L.R. 132 et seq.

Sec. 349, Restatement of the Law of Agency states:

'An agent who does acts which would otherwise constitute conversion of a chattel, is not 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 Mechem on Agency, 2d Ed., Section 2583, there are a few decisions to the contrary. That text cites several decisions from Kentucky and Tennessee and a decision 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 v. Wheeler, 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 v. Siman, 65 S.D. 514, 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 codefendant 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, § 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, 258 § 328; 3 C.J.S., Agency, § 221, subsec. d, p. 132. 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 a licensed market agency operating at Sioux Falls stockyards under the Packers and Stockyards Act of 1921. Chap. 9, Title 7 U.S.C.A. § 181 et seq., Aug. 15, 1921, C. 64, 42 Stat. 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 nondiscriminatory 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 is '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...