Rath Packing Company v. Paul Blood Farms, Inc.

• Decision Date: 12 December 1969
• Docket Number: 19492 and 19493.,No. 19491,19491
• Citation: 419 F.2d 13
• Parties: The RATH PACKING COMPANY, Appellee, v. PAUL BLOOD FARMS, INC.; Paul Blood; Gering National Bank, a Corporation; Robert L. Kelley and Francis Kelley, Appellants, The First National Bank of Morrill, Nebraska, a Corporation, and The Omaha National Bank, a Corporation. The RATH PACKING COMPANY, Appellee, v. PAUL BLOOD FARMS, INC.; Paul Blood; Gering National Bank, a Corporation, Appellants, Robert L. Kelley; Francis Kelley; The First National Bank of Morrill, Nebraska, a Corporation, and The Omaha National Bank, a Corporation. The RATH PACKING COMPANY, Appellant, v. PAUL BLOOD FARMS, INC.; Paul Blood; Gering National Bank, a Corporation, Appellees, Robert L. Kelley; Francis Kelley; The First National Bank of Morrill, Nebraska, a Corporation.
• Court: U.S. Court of Appeals — Eighth Circuit

419 F.2d 13 (1969)

The RATH PACKING COMPANY, Appellee, v. PAUL BLOOD FARMS, INC.; Paul Blood; Gering National Bank, a Corporation; Robert L. Kelley and Francis Kelley, Appellants,

The First National Bank of Morrill, Nebraska, a Corporation, and The Omaha National Bank, a Corporation.

The RATH PACKING COMPANY, Appellee, v. PAUL BLOOD FARMS, INC.; Paul Blood; Gering National Bank, a Corporation, Appellants, Robert L. Kelley; Francis Kelley; The First National Bank of Morrill, Nebraska, a Corporation, and The Omaha National Bank, a Corporation.

The RATH PACKING COMPANY, Appellant, v. PAUL BLOOD FARMS, INC.; Paul Blood; Gering National Bank, a Corporation, Appellees, Robert L. Kelley; Francis Kelley; The First National Bank of Morrill, Nebraska, a Corporation.

Nos. 19491, 19492 and 19493.

United States Court of Appeals Eighth Circuit.

December 12, 1969.

COPYRIGHT MATERIAL OMITTED

Floyd E. Wright, of Wright, Simmons & Hancock, Scottsbluff, Neb., for Rath Packing Company; Morris Y. Kinne, Jr., Waterloo, Iowa, was on the brief.

Lester A. Danielson, Scottsbluff, Neb., on the brief for Gering National Bank.

William E. Morrow, Jr., of Swarr, May, Royce, Smith, Andersen & Ross, Omaha, Neb., on the brief for Robert L. Kelley and Francis Kelley.

Before MATTHES, GIBSON and BRIGHT, Circuit Judges.

BRIGHT, Circuit Judge.

Paul Blood, who operated a lamb feed lot near Morrill, Nebraska, in 1964 wrongfully sold several thousand lambs owned by others who had placed those animals in his care for feeding. On June 5, 1964, insufficient lambs remained in his feed lot to satisfy the ownership or lien claims of the parties to this appeal.

Rath Packing Company (Rath) of Waterloo, Iowa, brought this diversity action against Robert L. Kelley and Francis Kelley (Kelley) and Gering National Bank (Bank) of Gering, Nebraska, and others¹ asserting its ownership over most of the remaining animals.² Additionally, Rath claimed the proceeds from Blood's sale of approximately five hundred lambs on June 3. The lamb purchaser deposited these disputed proceeds in the Registry of the Court. Separately, Rath asserted beneficial ownership of, and sought to hold the Bank accountable as a constructive trustee for, funds derived from the sale of Rath's lambs which Blood had deposited and disbursed from his bank account.

In a court case, the district court adjudged:

(1) That of the 6,345 lambs which remained on Blood's feed lot as of June 5, Rath owned 4,425; Kelley owned 453; and the Bank possessed a valid lien on 1,467;

(2) That on June 3, Blood had sold five hundred Rath lambs and Rath was entitled to the proceeds thereof;

(3) That Rath was entitled to take judgment against the Bank as a trustee for $35,036.67.

Kelley and the Bank appealed. Rath cross-appealed. We affirm the judgment of the district court in its entirety.

We necessarily examine the relationship between Blood and Rath, Blood and Kelley, and Blood and the Bank. Operating as both a lamb feeder and as a lamb order buyer, Blood purchased 8,973 lambs for approximately $179,000.00 on Rath's orders during 1964. Blood consummated these purchases in his own name. Immediately after each transaction, he obtained reimbursement of the purchase price by drawing a sight draft on Rath in an amount sufficient to pay the cost of lambs listed on invoices sealed in an attached envelope. Rath honored each draft.

In accordance with a verbal agreement, Blood retained possession of the lambs for feeding purposes. He furnished Rath with a monthly inventory of Rath's animals on the lot and he billed Rath biweekly for feed consumed by Rath's lambs. Rath also paid other maintenance expenses including the cost of lamb shearing. The agreement provided that as the lambs fattened and became ready for market, Blood would ship them to Rath's Waterloo plant for slaughtering. If they were not needed for that purpose, Blood, with Rath's specific authorization, could sell them on the local market for the best possible price. The parties agreed to divide any profits derived from the sale of animals or their wool. Rath agreed to assume any loss.³

The parties had engaged in similar business transactions for twenty years.

Rath's lamb buyer instructed Blood not to disclose these lamb feeding arrangements. The buyer testified that packers customarily attempt to avoid disclosing the number of their lambs on feed in any area, particularly to competitors.

Conceding that Blood had earlier converted 4,034 of its lambs, Rath claimed to trace its ownership to 4,832 lambs in the feed lot on June 5.⁴

In the early months of 1964, prior to June 5, Blood also fed 5,021 lambs belonging to Kelley, 4,140 of which Blood purchased on Kelley's order and at Kelley's expense. Kelley agreed to share any profits with Blood. He authorized Blood to market these lambs only with his consent. During these months, Blood sold a substantial number of Kelley's lambs for which he rendered an account to Kelley. From February to June, Kelley checked his lambs on the Blood feed lot every two weeks. On these occasions, Blood pointed to lambs in the yard and recited, "These are your lambs." Since Blood maintained more lambs in the feed lot than Kelley owned, he "supposed" that the additional lambs belonged to Blood.

As of June 5, Kelley claimed that Blood owed him an accounting for 2,067 lambs, including approximately five hundred lambs Blood sold Wilson Packing Company on June 3. The trial court, from Blood's records, traced Kelley's ownership to 453 lambs on the feed lot and, as we have already noted, determined that Wilson Packing Company had purchased Rath's and not Kelley's lambs.

Notwithstanding these findings, Kelley charges that Rath's direction to Blood to conceal Rath's ownership of lambs implicitly authorized Blood to misrepresent the ownership of lambs in his possession. Therefore, argues Kelley, Rath should be estopped from claiming any lambs in preference to Kelley.

The Bank also assumed that Blood owned sufficient lambs to secure his loans. As of June 5, Blood owed the Bank $73,498.24 principal on four notes. These notes were secured by chattel mortgages describing 5,843 specific lambs as well as all livestock owned by Blood. Blood obtained loans by representing to the Bank that he had recently purchased, or was about to purchase, lambs for feeding purposes. Though the Bank failed to verify its "security" when it made the loans, the Bank president did inspect lambs on Blood's lot every thirty days. On these occasions, Blood pointed to the lambs in various pens and professed, "These lambs belong to you and these belong to Mr. Kelley." The Bank could not otherwise identify the animals. The number of lambs listed in each new mortgage could not be correlated with a similar number of lambs purchased by Blood at or near the date of the chattel mortgage transaction.

The Bank, like Kelley, claims that Rath's direction to Blood to conceal Rath's ownership of lambs in Blood's possession prevented it from discovering that Blood had mortgaged lambs he did not own. Thus, the Bank insists that Rath be estopped from asserting ownership in lambs or proceeds derived from their sale, in preference to the Bank's claim to the animals under its chattel mortgages.

Blood applied proceeds derived from marketing lambs and from drafts drawn on Rath to finance commodity market speculations primarily in frozen pork belly futures. Though the Bank and Kelley were aware of Blood's commodity market activities, the trial court specifically found "* * * that Rath, Kelley, and the Gering Bank were each at all times acting in good faith, with no fraud on the part of any of them."

In Scottsbluff Nat. Bank v. Blue J Feeds, 156 Neb. 65, 54 N.W.2d 392 (1952), the Nebraska Supreme Court had occasion to review and reiterate the requirements necessary to establish an estoppel. These rules are:

"To constitute an equitable estoppel, there must exist a false representation or concealment of material facts; it must have been made with knowledge, actual or constructive, of the facts; the party to whom it was made must have been without knowledge or the means of knowledge of the real facts; it must have been made with the intention that it should be acted upon; and the party to whom it was made must have relied on or acted upon it to his prejudice.

* * * * * *

To sustain an estoppel because of the omission to speak, there must be both the specific opportunity and the apparent duty to speak. The party maintaining silence must have known that some one was relying thereon, and was either acting, or about to act, as he would not have done had the truth been told. (Citations omitted.)

In order to constitute an equitable estoppel by silence or acquiescence, it must be made to appear that the facts upon which it is sought to make the estoppel operate were known to the parties against whom the estoppel is urged." 156 Neb. at 79-82, 54 N.W. 2d at 401-402.

In this case, Rath engaged in no transactions directly or through intermediaries with either Kelley or the Bank. Rath made no direct representations to either. Rath's instruction to Blood not to publicize its ownership neither invited nor directed Blood to falsely advise the Bank or Kelley; nor did it encourage Blood to sell Kelley's lambs and convert the proceeds. Rath erred only in entrusting Blood with sheep, as did Kelley. The Bank believed Blood's statements of acquisition of new lambs to support his loan applications. Both Kelley and the Bank relied on Blood's false identity of lamb ownership. The trial court specifically found:

"The evidence discloses no circumstances whereby Rath had a duty to disclose its ownership. Prior to defendants\' taking possession of the lambs, Rath had no knowledge of defendants\' interest and no knowledge that anyone was acting in reliance on the belief that Blood owned the lambs.

Blood made all the representations upon which the bank and Kelley relied. Rath made no representations, false or

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