Bunn v. Walch

• Decision Date: 09 July 1959
• Docket Number: No. 34892,34892
• Citation: 342 P.2d 211,54 Wn.2d 457
• Court: Washington Supreme Court
• Parties: Howard BUNN and Addie Bunn, husband and wife, Respondents, v. William J. WALCH and Flora B. Walch, husband and wife, C. O. Osgood, R. L. Wilkie, B. C. Moxley, Will Gordon, Robert Gordon, Jess Saivinski, Virgil Badget, Elvis Eaton, Crosby Valentine, Defendants, Art Payne, Appellant.

Page 457

54 Wn.2d 457

342 P.2d 211

Howard BUNN and Addie Bunn, husband and wife, Respondents, v. William J. WALCH and Flora B. Walch, husband and wife, C. O Osgood, R. L. Wilkie, B. C. Moxley, Will Gordon Robert Gordon, Jess Saivinski, Virgil Badget, Elvis Eaton, Crosby Valentine, Defendants Art Payne, Appellant.

No. 34892.

Supreme Court of Washington, Department 2.

July 9, 1959.

D. J. Cunningham, Chehalis, for appellant.

Everal Carson, Vancouver, for respondents.

HILL, Justice.

This appeal questions the liability of an auctioneer who, with knowledge that personal property was subject to a chattel mortgage duly filed for record, sold the personal property without the express consent of the mortgagees, but with their acquiescence, and paid the proceeds of the sale to the mortgagors.

The plaintiffs at one time operated a dairy farm in Grays Harbor county. They sold their dairy cattle and farm equipment to Mr. and Mrs. William J. Walch, who financed the purchase by giving a first mortgage on the property to the First National Bank of Montesano and a second mortgage (securing a note for $5,200) to the plaintiffs. The plaintiffs then moved to Clark county.

One year and one month later the Walches (the mortgagors) held a closingout sale at which all the livestock and machinery covered by these mortgages were offered for sale at auction. Art Payne, the appellant here, was engaged by them as auctioneer. This sale was approved by the bank which held the first mortgage, but no attempt was made to secure the consent of the plaintiffs, as second mortgagees. No attempt was made by the mortgagors or the auctioneer to notify them of the sale, and they learned of it only by chance, but in time to be present at the sale.

The auction was well advertised and well attended. The total proceeds of the sale were $8,347.15, apparently its fair market value. The auctioneer took his five per cent commission of $417.34, and the remainder of $7,929.80 was paid over to the mortgagors as the net proceeds of the sale. They used part of the proceeds to pay the amount secured by the bank's first mortgage, after which there was $4,230.36 remaining. Nothing, however, was paid to the plaintiffs on their note secured by the second mortgage.

This action was brought by the plaintiffs against the Walches, the purchasers at the auction sale, and the auctioneer.

Judgment was rendered by the trial court in favor of the plaintiffs against the mortgagors on their promissory note in the amount of $5,200, together with interest and attorney's fees. The mortgagors have not appealed.

The trial court dismissed the action against the purchasers, but gave the plaintiffs a judgment against the auctioneer, on the theory of conversion, in the sum of $4,230.36, and gave him a judgment over against the mortgagors for any sum paid on the judgment against him. This appeal is only from the judgment against the auctioneer.

There is seemingly no question but that the mortgagors have converted to their own uses $4,230.36 of the proceeds of the sale, which should have been applied on the note secured by the second mortgage. There is likewise no question but that the auctioneer was the agent of the mortgagors in conducting the sale, collecting the proceeds thereof, and that his delivery of the net proceeds to the mortgagors made it possible for them to convert those proceeds to their own uses. The auctioneer admittedly had actual knowledge of the plaintiffs' second mortgage, but disregarded their interests.

Under the case authorities an auctioneer selling mortgaged personal property, without the knowledge or consent of the mortgagee, would be liable for the conversion of the mortgaged property, if he had either actual or constructive notice of the mortgagee's interest therein.

United States v. Matthews, 9 Cir., 1957, 244 F.2d 626; United States v. Butt, 10 Cir., 1953, 203 F.2d 643; Mason City Production Credit Ass'n v. Sig Ellingson & Company, 1939, 205 Minn. 537, 286 N.W. 713; First National Bank of Pipestone v. Siman, 1937, 65 S.D. 514, 275 N.W. 347; Citizens State Bank of Dalhart v. Farmers Union Livestock Cooperative Co., 1948, 165 Kan. 96, 193 P.2d 636; Moderie v. Schmidt, 1940, 6 Wash.2d 592, 108 P.2d 331; Birmingham v. Rice Bros., 1947, 238 Iowa 410, 26 N.W.2d 39, 2 A.L.R.2d 1108. 2 Jones, Chattel Mortgages and Conditional Sales (6th Ed. 1933), § 460.

The first five of the cited cases deal with the right of a mortgagee to hold an auctioneer, a factor, or a commission merchant for the conversion of mortgaged property; and the latter two, while not mortgagee cases, are pertinent as to the obligations and liabilities of auctioneers, factors, commission merchants, etc.

In the Matthews case, the United States (one of whose credit agencies was the mortgagee of certain liverstock) was the owner of the mortgage and brought an action against an auctioneer for the reasonable market value of the livestock he had sold without the consent of the mortgagee and without actual knowledge that there was a mortgage. The district court gave a judgment, limited to the amount of the auctioneer's retained commissions. The United States appealed, and the 9th circuit court of appeals directed the entry of a judgment against the auctioneer for the full market value of the mortgaged livestock, less any amount that the mortgagor or the auctioneer may have refunded to the United States out of the proceeds of the sale.

The circuit court, in its opinion, recognized the existence of a different rule in Tennessee and Kentucky if the auctioneer does not have actual knowledge of the mortgage (Frizzell v. Rundle & Company, 1890, 88 Tenn. 396, 12 S.W. 918, 17 Am.St.Rep. 908), but points out that the great weight of authority supports the proposition that 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 if it has been duly filed for record, and that the factor or auctioneer, even though innocent, is liable if he assists in such a 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.

In the same opinion there is a quotation from 2 Jones, Chattel Mortgages and Conditional Sales (6th Ed. 1933), § 460, p. 230, which is, in part,

'* * * If a mortgagor, for the purpose of defrauding the mortgagee, sends the mortgaged goods to an auctioneer, by whom they are sold, and the proceeds paid over to the mortgagor, the mortgagee may maintain trover [for the goods] against the auctioneer, although the latter did not participate in the fraud and had no knowledge of the existence of the mortgage. * * * A commission merchant is under the same liability in this respect as an auctioneer. Although he sells mortgaged property without any notice of a duly recorded mortgage, he is liable in tort for conversion to the mortgagee.'

Our own case of Moderie v. Schmidt, supra, is quoted from extensively and relied upon as apposite authority in the Matthews case.

In the Mason City Production Credit Ass'n case, supra, M. O. McCoy mortgaged 113 steers, then on his farm in Winnebago county, Iowa, to the credit association, which mortgage was duly filed for record in that county. McCoy thereafter shipped 21 of the steers to the defendant Ellingson, a livestock-commission merchant at South St. Paul, who thereafter sold the steers as McCoy's agent. A judgment by the credit association against Ellingson for the conversion of the 21 steers was affirmed.

In First National Bank of Pipestone v. Siman, supra, one Harms gave a mortgage on sheep in Moody county, South Dakota, to The First National Bank of Pipestone, which mortgage was duly filed in that county. Harms thereafter transported the sheep to Sioux City, Iowa, and delivered them to Siman, a commission merchant, who sold them for Harms; and, after making deductions for yardage, insurance, commission, and trucking, Siman paid the balance to Harms. Siman had no knowledge of the mortgage and believed Harms had a lawful right to sell the sheep. The bank brought an action for wrongful conversion against Siman and recovered. The supreme court of South Dakota affirmed the judgment.

In Birmingham v. Rice Bros., supra, there is a quotation from Mau v. Rice Bros., 1933, 216 Iowa 864, 249 N.W. 206, as follows:

'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...