Michigan Nat. Bank of Detroit v. Michigan Livestock Exchange

• Citation: 418 N.W.2d 663,165 Mich.App. 243
• Decision Date: 22 March 1988
• Docket Number: Docket No. 92221
• Parties: , 5 UCC Rep.Serv.2d 690 MICHIGAN NATIONAL BANK OF DETROIT, a national banking association, Plaintiff- Appellee, v. MICHIGAN LIVESTOCK EXCHANGE, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 663

418 N.W.2d 663

165 Mich.App. 243, 5 UCC Rep.Serv.2d 690

MICHIGAN NATIONAL BANK OF DETROIT, a national banking association, Plaintiff- Appellee, v. MICHIGAN LIVESTOCK EXCHANGE, Defendant-Appellant.

Docket No. 92221.

Court of Appeals of Michigan.

Submitted May 13, 1987.

Decided Oct. 13, 1987.

Released for Publication Feb. 5, 1988.

Leave to Appeal Granted March 22, 1988.

David J. Vigna, Farmington Hills, for plaintiff-appellee.

Collison, Chasnis, Dogger & Grierson, P.C. by John A. Chasnis and Joseph T. Collison, Saginaw, for defendant-appellant.

Before DANHOF, C.J., and MacKENZIE and SWALLOW, ^* JJ.

PER CURIAM.

Defendant, Michigan Livestock Exchange, appeals by leave granted from an order granting partial summary disposition in favor of plaintiff, Michigan National Bank of Detroit. The Tuscola Circuit Court held that the exchange, which had auctioned off livestock in which the bank held a security interest, was liable to the bank for conversion. The circuit court reached this conclusion despite the fact that the exchange had no knowledge of the bank's security interest.

In June 1978, the bank loaned money to William and Rosemary Christacopulos. As security for the loan, the bank took a security interest in "all livestock and increase" owned by the Christacopuloses. In August of 1981, the bank loaned money to Trojan Farms, a partnership between the Christacopuloses and Ronald Haarer. The loan was secured by "all livestock and increase of Trojan Farms."

In January of 1982, the borrowers defaulted on the loans. From January to August of 1982, the borrowers attempted to work out the default. However, during this period of time, the borrowers were disposing of certain of their livestock through the exchange. The borrowers received the proceeds, less commission, from the sale of forty-one head of dairy cows.

On January 24, 1983, the bank filed the instant suit against the exchange, seeking to recover the sale price of the cattle under a theory of conversion. On April 28, 1986, the Tuscola Circuit Court entered an order of summary disposition in the bank's favor. The court found that M.C.L. Sec. 440.7404; M.S.A. Sec. 19.7404, the statute under which the exchange claimed it was immunized from liability for conversion, did not apply. The exchange appeals.

Section 7-704 of the Uniform Commercial Code, M.C.L. Sec. 440.7404; M.S.A. Sec. 19.7404, provides:

"A bailee who in good faith including observance of reasonable commercial standards has received goods and delivered or otherwise disposed of them according to the terms of the document of title or pursuant to this article is not liable therefor. This rule applies even though the person from whom he received the goods had no authority to procure the document or to dispose of the goods and even though the person to whom he delivered the goods had no authority to receive them."

The exchange asserts that it qualifies as a bailee and is entitled to the immunity offered by the above section. The circuit court found the exchange did not qualify as a bailee because the "trucker's receipts" pursuant to which the exchange held the livestock for sale did not qualify as documents of title under the Uniform Commercial Code. The court did not set forth on the record the basis for its conclusion that the trucker's receipts were not documents of title.

M.C.L. Sec. 440.7102(1)(a); M.S.A. Sec. 19.7102(1)(a) provides:

" 'Bailee' means the person who by a warehouse receipt, bill of lading or other document of title acknowledges possession of goods and contracts to deliver them."

Thus, whether the exchange is a bailee for purposes of the Uniform Commercial Code depends upon whether it held the goods pursuant to a document of title.

"Document of title" is defined at M.C.L. Sec. 440.1201(15); M.S.A. Sec. 19.1201(15):

" 'Document of title' includes bill of lading, dock warrant, dock receipt, warehouse receipt, or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers. To be a document of title a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass."

When livestock arrives at the stockyards, the exchange takes possession and issues a document which is known in the trade as a "trucker's receipt." The receipt identifies the owner's name, the trucker transporting the cattle to auction, the trucking charges, the livestock in question by tag number and type, and the weight of each animal. Once the livestock is sold, the purchase price, the buyer, and the commission price are indicated on the receipt.

The bank argues that trucker's receipts are not documents of title because they do not contain terms that "evidence the bailment and defendant's authority to sell and deliver the livestock."

M.C.L. Sec. 440.1201(15); M.S.A. Sec. 19.1201(15) does not require that a document of title contain the explicit terms of the contract to receive, hold, and dispose of the goods it covers. The statute only requires that "in the regular course of business ... [the document] is treated as adequately evidencing" the bailment contract. Official Comment 15 to Sec. 1-201 of the Uniform Commercial Code explicitly states that the definition of document of title was "left open so that new types of documents may be included" and that "[t]he definition is stated in terms of the function of the documents with the intention that any document which gains commercial recognition as accomplishing the desired result shall be included within its scope." Moreover, the terms of the contract may be derived from a course of dealing between the parties or any usage of trade. M.C.L. Sec. 440.1205(3); M.S.A. Sec. 19.1205(3).

In the instant case, it is uncontroverted that the trucker's receipts are treated by the sellers, the exchange itself, and the purchasers "as adequately evidencing" the right of the exchange "to receive, hold, and dispose" of livestock. The trucker's receipt adequately fulfills the requirements of a document of title.

The bank also asserts that the exchange's argument erroneously implies that the bailee is to be the holder of the document. The bank contends that Sec. 7404 contemplates that the ultimate recipient of the goods is to hold the document of title and surrender it to the bailee in exchange for the goods. The bank complains that there is no evidence in the record that the purchasers at auction held, and then surrendered a document of title. Section 7404 contains no requirement that the eventual purchasers surrender the document of title in exchange for the goods. Moreover, such an interpretation would be inconsistent with Sec. 1201(15), which expressly states that the document of title may be issued by a bailee. Nor are we aware of any situations in practice where the eventual purchasers hold a document of title prior to purchasing the goods covered by it.

We conclude that the circuit court erred in holding that trucker's receipts are not documents of title. Since the exchange held the livestock pursuant to a document of title, the exchange is...