Rapid City Production Credit Ass'n v. Transamerica Ins. Co., 10776

• Decision Date: 25 February 1971
• Docket Number: No. 10776,10776
• Citation: 184 N.W.2d 49,85 S.D. 395
• Parties: RAPID CITY PRODUCTION CREDIT ASSOCIATION, Plaintiff-Respondent, v. TRANSAMERICA INSURANCE COMPANY, Defendant-Appellant.
• Court: South Dakota Supreme Court

Page 49

184 N.W.2d 49

85 S.D. 395

RAPID CITY PRODUCTION CREDIT ASSOCIATION, Plaintiff-Respondent, v. TRANSAMERICA INSURANCE COMPANY, Defendant-Appellant.

No. 10776.

Supreme Court of South Dakota.

Feb. 25, 1971.

Bangs, McCullen, Butler, Foye & Simmons, Rapid City, for plaintiff-respondent.

Overpeck, Hamblin & Mueller, Belle Fourche, for defendant-appellant.

RENTTO, Presiding Judge.

The plaintiff, a membership association consisting of farmers and ranchers formed under the laws of the United States for the purpose of extending credit to its members for their operations, brings this action to recover from the defendant as surety for Madden's Livestock Market, Inc., of St. Onge, South Dakota, for the wrongful conversion of cattle by Madden's Market. Mr. J. M. Madden was its principal owner and manager. The bond involved is one required by the laws of South Dakota and the United States to secure a license to operate a livestock market agency, and covers only transactions occurring after December 1, 1966.

Ray Smith, a member of the association, with his residence and ranching operations in Lawrence County, South Dakota, became a borrower from it. As security for the funds advanced he mortgaged cattle. From time to time Madden's Market sold groups of these cattle on commission for Smith. The proceeds of a number of such sales were not remitted by Smith to the association. In this action the court found for the association and awarded judgment in the amount due it from Smith. The defendant surety appeals.

The borrowings here involved were initiated by Smith on March 7, 1966 when he borrowed $18,615 and secured it by a mortgage on 133 head of cattle branded with his brand. On August 3, 1966 he obtained an additional loan and executed a supplemental mortgage covering 108 head of mixed yearlings which had been purchased and were to be branded with his brand and 71 calves branded with his brand. On October 24, 1966 he executed another supplemental mortgage covering 113 head of cattle purchased and to be branded. On November 15, 1966 as security for another advancement he executed another chattel mortgage which specifically described 30 head of cows purchased and to be branded.

These mortgages were filed in Lawrence County on March 23, August 4, October 25 and November 17, respectively, all in 1966. Each supplemental mortgage expressly preserved the terms of the original mortgage. All of them antedate the effective date specified in the Uniform Commercial Code, § 10--101, Ch. 150, Laws of 1966, now SDCL 57--40--1.

The first of the eight sales by Madden's Market here involved was made on January 6, 1967, the last on November 10, 1967. In dollar volume they totaled $36,995.08. As to the sales made on January 27, February 10, October 13 and November 10, the defendant contends that the cattle sold were not the property of Smith but were in fact the property of Madden's Market and for that reason were no subject to the mortgage liens. It is admitted that at the auction when these cattle were purchased, they were 'knocked down' to Smith, but it is claimed by Smith and Madden that Smith took possession of them under an agreement with Madden to pasture them on shares. Their only proof of this was their oral statements.

As to this issue the court found contrary to defendant's contention. Upon a painstaking review of the record we are not persuaded that such finding is clearly erroneous--that is, we are not left with the definite and firm conviction that in so finding a mistake had been committed. In re Estate of Hobelsberger, S.D., 181 N.W.2d 455. On the contrary we feel that the court was compelled to so find. The written record of the market shows that the cattle, when purchased, were charged to Smith on an open account and the written report of the market given to the consignor shows them as having been sold to Smith. Also, in the market's ledger account with Smith the purchase price of these cattle is included in the amount he owes it.

In an annotation entitled 'Auctioneer--Liability for Conversion' in 96 A.L.R.2d 208 at page 212, it is written:

'According to the overwhelming weight of authority, an auctioneer who sells property in behalf of a principal who has no title thereto or who holds the property subject to a mortgage or other lien, or who for other reasons has no right to sell such property, is personally liable to the true owner or mortgagee for conversion regardless of whether he had knowledge, actual or constructive, of the principal's lack of title or want of authority to sell, in the absence of facts creating an estoppel or showing acquiescence or consent on the part of the true owner or mortgagee.'

Madden's Market does not seem to dispute the correctness of this statement. However, to avoid its application it claims that the association consented to the sales. On this issue the court found that the association did not consent to our authorize Smith to sell the cattle nor did it authorize him to sell them free of the mortgage.

The surety argues that Smith had authority to sell the cattle being obligated only to pay over the proceeds. If such were the case upon a sale occurring there would be a release of the lien even though Smith failed to deliver the proceeds to the association. Under such circumstances the mortgagee is regarded as exchanging his mortgage security for the personal agreement of his debtor. Minneapolis Threshing Machine Company v. Calhoun, 37 S.D. 542, 159 N.W. 127. See also annotation 'Chattel Mortgagee's Consent To Sale' 97 A.L.R. 657. But the court found that Smith was not so authorized to sell.

As the latter authority points out the result is different where the agreement of the mortgagee is that in case of a sale of the property he will release his mortgage upon certain conditions. 15 Am.Jur.2d, Chattel Mortgages, § 150. This is not a consent to sell free of the mortgage, but a mere offer of the...