United States v. Haddix & Sons, Inc.
| Decision Date | 24 May 1967 |
| Docket Number | Civ. A. No. 22748. |
| Parties | UNITED STATES of America, George S. McIntyre, and National Bank of Detroit, Plaintiffs, v. HADDIX & SONS, INC., and Haddix & Sons Elevators, Inc., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
John H. Shepherd, Detroit, Mich., for United States of America.
Weipert & Costello, Monroe, Mich., for Receiver.
M. S. Klein, Flint, Mich., The Receiver.
Patrick J. Ledwidge, George B. Martin, Dickinson, Wright, McKean & Cudlip, Detroit, Mich., for National Bank of Detroit.
This is the third installment in another story of a warehouseman who could not resist the temptation to sell what he should have been storing.1
The interested parties have entered into an extensive stipulation concerning the relevant facts. The two defendants in the receivership proceeding of which the present matter is a part are Haddix & Sons, Inc., and Haddix & Sons Elevators, Inc. All of the stock of the former firm is owned by Bud Haddix and his three sons. Voting control and the majority of stock in the latter are held by the other corporation. For present purposes, the two companies will be considered as one entity designated simply "Haddix."2
In order to carry out its functions, it operated a number of depots for buying and storing what has become known as surplus farm produce. In the early 1950's with its own space exhausted, Commodity began using private warehouses and elevators.3 All transactions involving these facilities in the Great Lakes area were conducted through the Evanston, Illinois, office of the United States Agricultural Stabilization and Conservation Service. After selecting an independent warehouse, Commodity signed with the operator a Uniform Grain Storage Agreement under which he was bound among other things to have on hand at all times crops of a kind and in an amount sufficient to satisfy his commitments to all depositors. However, he could commingle his own grain with that of Commodity.
Haddix engaged in a number of enterprises, but at least from 1958 onward its principal source of legitimate income was keeping produce for Commodity. It had built a group of elevators in Michigan, one of which—at Monroe—in late 1961 contained the agency's corn almost exclusively.
By that year even non-governmental repositories were well filled. A new price support program had to be developed. Congress amended Section 16 of the Soil Conservation and Domestic Allotment Act, as amended, 16 U.S.C. § 590p(c), to authorize the Secretary of Agriculture to pay farmers for diverting acreage from corn and grain sorghums to other purposes. Steps were also taken to enable Commodity to sell much of the corn which it had been stockpiling. Between October 1, 1961, and June 30, 1962, this marketing scheme succeeded in reducing the Government's corn inventory by some 800,000,000 bushels.
About November 1, 1961, the Evanston branch requested that ten per cent of the Commodity corn in each of the approximately 3,000 installations under its jurisdiction be loaded out. Even prior to this time, load-out orders had occasionally been dispatched. However, with the commencement of the new program, the directives greatly increased in size and frequency. Furthermore, operators getting orders formerly were generally expected to send the grain to Commodity. Now they had the choice of either shipping or buying for their own accounts. Many took advantage of the modified arrangement, and title to nearly one-half of the total volume of corn subject to load-out orders nationally after October 1, 1961, eventually passed to them for resale.
The mechanics of an Evanston region warehouseman's purchase were simple. After an order had been issued, he could contact the ASCS merchandising division and discuss with one of the personnel the terms of the bargain. A telegram would then be sent to him confirming the sale at a specified price. Commodity relinquished ownership when payment arrived at the Illinois office. It was the policy to refuse to permit an operator to buy up any shortage. In other words, where it appeared that the bailee did not have enough grain in his elevator to meet his obligations to all bailors to whom he was responsible, a prospective sale would not be approved.
The following table depicting the load-out transactions with the Monroe elevator indicates that during 1962 Haddix availed itself of the purchase option with a considerable degree of regularity. It also suggests the increased tempo of Commodity's disposal activities beginning in the fall of 1961:
Date of Order Quantity Disposition
------------- (bushels) -----------
-----------
5-29-61 52,068.40 Shipped
5-29-61 8,991.13 Shipped
11-16-61 8,605.42 Shipped
11-16-61 94,075.97 Shipped
12-13-61 161,502.53 Mostly Shipped
1-12-62 145,297.99 Purchased
1-23-62 99,726.12 Purchased
3-1-62 102,389.85 Purchased
3-16-62 102,879.28 Purchased
As the chart shows, on March 16, 1962, a load-out order for 102,879.28 bushels went forth. The following May 7, Haddix was informed that it could have 50,754.15 bushels of this amount at a price of $1.15½ per bushel with the full remittance due by May 12. A week later the sale of the remaining 52,125.13 bushels was confirmed at $1.16 per bushel with payment demanded by May 19. On May 14 Evanston received a check meeting the terms of the first contract, and another check arrived on May 21 satisfying the requirements of the second.4
Haddix had a purchase order dated May 7, 1962, from Ralston-Purina for 102,000 bushels of corn. Purina agreed to pay $1.23½ per bushel plus freight. All Haddix lacked to turn a profit was money with which to pay Commodity. On Friday, May 11, 1962, Bud Haddix set about to remedy this problem. He called upon Mr. Milbert H. Anderson, a loan officer of the National Bank of Detroit, from which his firm had on previous occasions borrowed a total of at least half a million dollars. After their conference, Anderson prepared a memorandum, of which the following is the pertinent excerpt:
5
This report was presented to the institution's loan committee for consideration at its meeting of Monday, May 14. The Bank verified the content of Purina's purchase order. However, it did not bother to inquire into the availability of the corn to which the security interest would attach because it had had a long, favorable relationship with Haddix, knew that Commodity owned corn in the Monroe elevator well in excess of 102,000 bushels, and had no reason to doubt Bud's representation that Commodity had offered to sell that much. The committee consented to the loan, and it was consummated later the same day when the Bank tendered to Bud Haddix a cashier's check for $100,000. At that time he executed on behalf of Haddix a promissory note in the same amount and a chattel mortgage upon "102,000 bushels of No. 2 Yel Corn presently located in the Monroe warehouse,"6 and an assignment of the accounts receivable expected to arise upon Haddix' fulfilling its contract with Purina. The proceeds of the loan were used to make the payments received by Commodity on May 14 and 21.7
Bud Haddix neglected to inform Mr. Anderson that the agency had commenced a massive load-out program, that Haddix was insolvent, and most important, that the firm had been converting the Government's corn with the result that on the day the advance was approved, Monroe was short at least 195,000 bushels.8 The Bank did not stand alone in the dark; Commodity had no knowledge of the conversions. However, the Director at Evanston realized, at least by May 1962, that the extensive load-out activity had hit many operators with a "jolt." The agency also had reason to believe that Haddix was heavily indebted to, among others, the National Bank of Detroit. For a number of years it had been sending storage payments due Haddix to the Bank pursuant to various security arrangements.
Commodity conducted two or more surprise inspections each year of private elevators involved in the storage project. Monroe was checked on November 16, 1961, but the subsequent report gave no indication that deficiencies then existed, although admittedly the examiner did not have access to the daily inventory record, ostensibly because Bud Haddix, the manager there, was out of town and a new girl in the office did not yet know enough about the files to locate it. Nevertheless, during the period from November 16 through November 30, 1961, Monroe was...
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