Farmers Livestock Exchange of Bismarck, Inc. v. Ulmer, 11117

• Decision Date: 02 September 1986
• Docket Number: No. 11117,11117
• Citation: 393 N.W.2d 65
• Parties: 2 UCC Rep.Serv.2d 1194 FARMERS LIVESTOCK EXCHANGE OF BISMARCK, INC., Plaintiff and Appellant, v. Randy ULMER and Russell Ulmer, d/b/a Ashley Livestock Exchange, Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 65

393 N.W.2d 65

2 UCC Rep.Serv.2d 1194

FARMERS LIVESTOCK EXCHANGE OF BISMARCK, INC., Plaintiff and Appellant, v. Randy ULMER and Russell Ulmer, d/b/a Ashley Livestock Exchange, Defendants and Appellees.

Civ. No. 11117.

Supreme Court of North Dakota.

Sept. 2, 1986.

Vogel Law Firm, Mandan, for plaintiff and appellant; argued by Jos. A. Vogel, Jr.

Fleck, Mather, Strutz & Mayer, Bismarck, for defendants and appellees; argued by Daniel L. Hovland.

LEVINE, Justice.

The Farmers Livestock Exchange of Bismarck, Inc., appeals from a district court judgment dismissing its action against Randy and Russell Ulmer d/b/a Ashley Livestock Exchange. We hold that Section 36-05-12, N.D.C.C., [Operator to warrant title to purchaser--Dispute in title of animal sold], takes priority over Section 41-02-48, N.D.C.C., [U.C.C. Sec. 2-403, Power to transfer--Good faith purchase of goods--Entrusting]; that Section 36-05-12, N.D.C.C., was not intended to permit a livestock auction market to recover the net proceeds from the sale of cattle unless it was the "rightful owner" of the cattle; that Ashley Livestock was not a buyer in the ordinary course of business or a good faith purchaser for value; and that the trial court did not err in applying equitable principles. We therefore affirm.

On October 4, 1983, David Bernhardt, a cattle buyer licensed in North Dakota, purchased 53 head of cattle from Farmers Livestock. Bernhardt bought and paid for 5 head of cattle for himself and falsely represented to Farmers Livestock that he was purchasing the remaining 48 head of cattle on consignment for Herman Peopple and Gene Rudolph. The custom of Farmers Livestock and other auctions was to permit the person for whom cattle were purchased on consignment to pay for them after delivery. Bernhardt signed an invoice indicating that 48 head of cattle were purchased on consignment for Rudolph and Peopple. Bernhardt then obtained brand releases in his name for all 53 head of cattle from the Brand Inspector for the North Dakota Stockmen's Association. Brand releases are generally given in the name of the person for whom the cattle are purchased on consignment. Thereafter, Bernhardt had the cattle shipped to the Ashley Livestock Exchange.

Bernhardt had previously paid Randy Ulmer approximately $26,000 by check to satisfy an account owed by Bernhardt to Ashley Livestock. Bernhardt asked Ulmer to hold the check until October 4, 1983; however, on that date, there were insufficient funds in Bernhardt's account to cover the check. On October 5, 1983, Bernhardt met with Russell and Randy Ulmer's father, Edgar, to discuss payment of Bernhardt's account. Edgar Ulmer requested that Bernhardt apply the proceeds from the sale of the 53 head of cattle to his account at Ashley Livestock, and Bernhardt agreed. Ashley Livestock sold the 53 head of cattle at its October 5, 1983 sale and issued a check in the amount of $18,397.61 to Bernhardt who executed a certificate of ownership indicating that he owned the cattle and there were no liens on them. Bernhardt endorsed the check, and it was applied to his account with Ashley Livestock.

Bernhardt subsequently pleaded guilty to theft of property, and, contingent upon that plea, he executed a confession of judgment. He has since filed for bankruptcy.

Thereafter, Farmers Livestock commenced the instant action against Ashley Livestock pursuant to Section 36-05-12, N.D.C.C., seeking the proceeds from the sale of the 48 head of cattle, $17,031.74. After a bench trial, the district court determined that Section 41-02-48, N.D.C.C. [Uniform Commercial Code Sec. 2-403], was applicable to the action and, pursuant to that statute, Ashley Livestock took good title from Bernhardt and was entitled to keep the proceeds from the sale of the cattle which Bernhardt had applied to his account with Ashley. The district court found that Ashley Livestock had no reason to believe that anyone other than Bernhardt owned the cattle and that Bernhardt had voluntarily agreed to apply the proceeds from the sale to his account with Ashley Livestock. The district court also determined that both Farmers Livestock and Ashley Livestock were innocent parties but that Farmers Livestock's conduct enabled Bernhardt to perpetrate the fraud and, therefore, Farmers Livestock should bear the loss. Judgment was entered dismissing Farmers Livestock's complaint, and it has appealed.

Farmers Livestock asserts that it was the "rightful owner" entitled to the proceeds from the sale of the cattle and contends that the trial court erred in concluding that Section 36-05-12, N.D.C.C., was not applicable to its action. Section 36-05-12, N.D.C.C., provides:

"36-05-12. Operator to warrant title to purchaser--Dispute in title of animal sold. The operator of each livestock auction market shall warrant to the purchaser the title of all livestock bought by him through such auction market and shall be liable to the rightful owner of any livestock sold through the auction market for the net proceeds in cash received therefor. If the operator of an auction market is notified by an authorized brand inspector that there is a question as to whether or not any designated livestock sold through such auction market is lawfully owned by the consignor thereof, such operator shall hold the proceeds received from the sale of the livestock for a reasonable time, not to exceed sixty days, to permit the consignor to establish ownership. At the expiration of such time, if the consignor fails to establish his lawful ownership of the livestock to the satisfaction of the brand inspector, the proceeds shall be paid into the estray fund in accordance with the provisions of chapter 36-22." [Emphasis added.]

Ashley Livestock counters that the district court properly concluded that Section 41-02-48, N.D.C.C. [U.C.C. Sec. 2-403], governed the transaction and permitted it to take good title from Bernhardt.

Section 41-02-48, N.D.C.C. [U.C.C. Sec. 2-403] is part of Article 2 of the U.C.C. dealing with transactions in goods. The scope of Article 2 of the U.C.C. is defined in Section 41-02-02, N.D.C.C. [U.C.C. Sec. 2-102]:

"41-02-02. (2-102) Scope--Certain security and other transactions excluded from this chapter. Unless the context otherwise requires, this chapter applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this chapter impair or repeal any statute regulating sales to consumers, farmers, or other specified classes of buyers." [Emphasis added.]

We have previously applied Section 41-02-02, N.D.C.C. [U.C.C. Sec. 2-102], to give full force and effect to statutes regulating sales to consumers, farmers, or other specified classes of buyers where those statutes conflict with provisions in Article 2 of the U.C.C. Olson v. Molacek Brothers of Calloway, Minn., 341 N.W.2d 375 (N.D.1983); Hoffman Motors, Inc. v. Enockson, 240 N.W.2d 353 (N.D.1976). In Olson, supra, we recognized that some provisions of Article 2 of the U.C.C. may supplement statutes regulating sales to farmers, consumers, or other specified classes of buyers if the statutes are not in conflict and each can be given effect. See also Cugnini v. Reynolds Cattle Co., 687 P.2d 962 (Colo.1984); Security Pacific National Bank v. Goodman, 24 Cal.App.3d 131, 100 Cal.Rptr. 763 (1972).

In the instant case, Section 36-05-12, N.D.C.C., involves sales to farmers and other specified classes of buyers within the meaning of Section 41-02-02, N.D.C.C. [U.C.C. Sec. 2-102], and has not been impaired or repealed by Section 41-02-48, N.D.C.C. [U.C.C. Sec. 2-403]. ¹ We conclude that the specific language of Section 36-05-12, N.D.C.C., must be given effect by virtue of Section 41-02-02, N.D.C.C. [U.C.C. Sec. 2-102], and that Article 2 of the U.C.C. may supplement that specific statute only if there is no conflict and each can be given effect.

Thus, the narrower issue is whether Farmers Livestock is the "rightful owner" of the 48 head of cattle within the meaning of Section 36-05-12, N.D.C.C.

Section 36-05-12, N.D.C.C., is part of a statutory scheme regulating livestock auction markets. There is no doubt that that regulation is designed to protect the public and, in particular, buyers and sellers at livestock auction markets. The specific language of Section 36-05-12, N.D.C.C., makes the operator of a livestock auction liable to the "rightful owner" for the net cash proceeds received for livestock sold through the operator's auction. That statute speaks in terms of whether designated livestock is "lawfully owned" by the consignor and provides contingencies for the failure of a consignor to establish lawful ownership. The plain language of the statute indicates that it was intended to protect the rightful or lawful owner of the livestock from theft or fraudulent conduct and to ensure that the rightful or lawful owner realizes the net proceeds for livestock sold through a livestock auction market. We believe that the language of the statute indicates that it was not intended to protect livestock auction markets unless the auction market establishes that it is the rightful or lawful owner of the livestock.

During oral argument to this Court, Farmers Livestock conceded that the cattle had been consigned to it by a third party. However, the circumstances of that consignment were not developed before the trial court. Ordinarily when goods are consigned by a consignor, possession passes to the consignee and title remains in the consignor. Coverdell v. Erickson, 39 N.D. 579, 168 N.W. 367 (1918). See 32 Am.Jur.2d, Factors and Commission, Sec. 10 (1982). There is nothing in the record to establish that Farmers Livestock received anything other than possession of the 48 head of livestock on consignment, and, based on that record, we conclude that Farmers Livestock has not established that it was...