De Vries v. Sig Ellingson & Co.

• Decision Date: 18 October 1951
• Docket Number: Civ. A. No. 1828.
• Citation: 100 F. Supp. 781
• Parties: DE VRIES et al. v. SIG ELLINGSON & CO.
• Court: U.S. District Court — District of Minnesota

100 F. Supp. 781

DE VRIES et al. v. SIG ELLINGSON & CO.

Civ. A. No. 1828.

United States District Court D. Minnesota, Third Division.

October 18, 1951.

COPYRIGHT MATERIAL OMITTED

J. Neil Morton, of St. Paul, Minn., for the plaintiffs.

Wilson, Blethen & Ogle, of Mankato, Minn., and Myers & Snerly, of Chicago, Ill., for the defendant.

BELL, District Judge.

This is an action for conversion of 33 head of cattle. There is diversity of citizenship between the parties and the controversy involves more than $3,000; consequently, the Court has jurisdiction.

The case was submitted to the court without a jury on a stipulation of facts and depositions taken by agreement of the parties. There is no substantial controversy about the facts.

The plaintiffs at all times were partners engaged in assembling and selling livestock at Buffalo Center, Iowa, under the firm name of the De Vries Auction Company.

The defendant is a Minnesota corporation engaged in selling livestock on the market at South St. Paul as a commission merchant and is licensed as a market agency under the Packers and Stockyards Act, 42 Stat. 159, 7 U.S.C.A. § 181 et seq.

Tobias Brackey, not a party to this action, was involved in the transaction as he purchased the cattle in Iowa from the plaintiffs and marketed them in Minnesota through the defendant. Brackey purchased the cattle on April 18, 1950, at an auction held by the plaintiffs for a consideration of $5,567.77 and gave his check on a Lake Mills, Iowa, bank in payment. The sale by the plaintiffs to Brackey was a cash transaction. They had sold livestock to him on many occasions over a period of several years, had received checks in payment and his checks never had been dishonored. The plaintiffs deposited the check given in the transaction here involved in the Farmers Trust and Savings Bank at Buffalo Center, Iowa. In due course it was presented for payment to the bank at Lake Mills on which it was drawn. On April 26, 1950, it was returned to the bank at Buffalo Center with protest and payment refused because of insufficient funds. When the check was presented for payment Brackey had on deposit a balance of $12.62.

Promptly after purchasing the cattle, Brackey took possession of them, loaded them in trucks and forthwith transported them to South St. Paul where he delivered them to the defendant for sale on the market. The defendant had sold livestock for Brackey over a period of several years and on April 19, 1950, sold the consignment here involved, collected the sales price and remitted the proceeds to Brackey. At that time the defendant was without knowledge of any defect in Brackey's title. Thus, the defendant put both the cattle and the proceeds beyond reach of the plaintiffs.

There is no evidence in the record to show that, when Brackey delivered the cattle to the defendant for sale, he submitted a bill of sale, a shipping order or any evidence of ownership or that the defendant made any request for such evidence.

The question here is whether the plaintiffs are required to sustain the loss of their cattle or whether they may look to the defendant in an action for conversion. In effect, the sole question in the case is who shall bear the loss.

The plaintiffs contend: (1) That where property is sold and a check is given in payment such payment is conditional and delivery of title to the property likewise is conditional; (2) that if the check is dishonored title to the property does not pass to the purchaser and anyone not a bona fide purchaser in good faith acting in derogation of the seller's title is guilty of conversion; (3) that a livestock commission merchant or factor is not a bona fide purchaser; and (4) that the Packers and Stockyards Act does not alter his position.

The defendant contends: (1) That where one of two innocent persons must suffer through the wrongful act of a third person, the loss should fall on the one who made it possible for the wrong to be committed; (2) that the Packers and Stockyards Act requires the defendant, as a public utility, to serve all comers promptly and to receive for sale all livestock consigned to it for sale, that it could not select whom it would serve and hence was not liable for selling livestock to which its principal had no title; and (3) estoppel.

Since the decision in Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, a federal court exercising jurisdiction over a case on the ground of diversity of citizenship, is not free to follow the "general law" but must apply the state law as declared by the highest state court.

Furthermore, the court in Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 1471, 89 L.Ed. 2079, with reference to this rule said: "Certainly, the fortuitous circumstance of residence out of a State of one of the parties to a litigation ought not to give rise to a discrimination against others equally concerned but locally resident. The source of substantive rights enforced by a federal court under diversity jurisdiction, it cannot be said too often, is the law of the States. Whenever that law is authoritatively declared by a State, whether its voice be the legislature or its highest court, such a law ought to govern in litigation founded on that law, whether the forum of application is a State or a federal court and whether the remedies be sought at law or may be had in equity."

Again, the Supreme Court in Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832, held that a federal court has no jurisdiction to modify or reverse a state court decision in diversity of citizenship cases but must follow the decisions of the state court.

Where personal property is sold for cash on delivery and the purchaser pays by check on his bank, such payment is conditional, and the delivery of the property likewise is conditional; and, if the check on due presentation, is dishonored, the purchaser does not obtain title and the vendor may retake the property. A check is not payment when it is tendered by a debtor on his bank; it is a method of transferring the money from the debtor to the creditor. The delivery of the check and the acceptance of it are purely conditional acts, and if the check is dishonored, there is no accord and satisfaction of the debt. There is no presumption that a creditor takes a check in payment arising from the mere fact that he accepts it from his debtor. The presumption is to the contrary. Indeed, the delivery of a check to seller by purchaser is a representation that it is good and will be paid on presentation.

These principles have been thoroughly established in both Iowa and Minnesota: Mulroney Mfg. Co. v. Weeks, et al., 185 Iowa 714, 171 N.W. 36; Crescent Chevrolet Co. v. Lewis et al., 230 Iowa 1074, 300 N.W. 260; Gray Bros. v. Otto, 178 Iowa 854, 160 N.W. 293; Gustafson v. Equitable Loan Ass'n, 186 Minn. 236, 243 N.W. 106; Schnirring v. Stubbe et al., 177 Minn. 441, 225 N.W. 389; J. I. Case Threshing Machine Co. v. Bargabos, 143 Minn. 8, 172 N.W. 882; National Bank of Commerce v. Chicago B. & N. R. Co., 44 Minn. 224, 46 N.W. 342, 9 L.R.A. 263.

It next becomes necessary to examine the laws pertaining to market agencies of Iowa, the state in which the plaintiffs delivered the cattle to Brackey and of Minnesota, the state in which the defendant sold them as a market agency for Brackey. The laws of these two states in relation to market agencies are substantially identical and have had careful consideration by the Supreme Court of both states. These courts have followed the "general rule" holding a market agency liable to the true owner for conversion where it receives from its principal livestock to which its principal has no right, title, or interest, and does not account to the true owner for the livestock or its proceeds. Generally, the market agency's good faith and ignorance of the true ownership are not a defense. It is a defense that the market agency was misled by the owner. The rule is stated more elaborately in 35 C.J.S., Factors, § 57, page 465. A concise statement is given in 22 Am.Jur. 333, Sec. 48 as follows:

"As a general rule, a factor or commission merchant who receives property from his principal, sells it under the latter's instructions, and pays him the proceeds of the sale is guilty of a conversion if his principal had no title thereto or right to sell the property; and the factor may not escape liability to the true owner for the value of the property by claiming that he acted in good faith and in ignorance of his principal's want of title. * * *"

In Iowa the rule is established by Birmingham v. Rice Bros., 238 Iowa 410, 26 N.W.2d 39, 2 A.L.R.2d 1108; Crescent Chevrolet Co. v. Lewis et al., 230 Iowa 1074, 300 N.W. 260; Mulroney Mfg. Co. v. Weeks et al., 185 Iowa 714, 171 N.W. 36; Gray Bros. v. Otto, 178 Iowa 854, 160 N.W. 293.

In Minnesota the rule is equally well settled by Mason City Production Credit Ass'n v. Sig Ellingson & Co., 205 Minn. 537, 286 N.W. 713; Gustafson v. Equitable Loan Ass'n, 186 Minn. 236, 243 N.W. 106; Johnson v. Martin, 87 Minn. 370, 92 N.W. 221, 59 L.R.A. 733; National Bank of Commerce v. Chicago B. & N. R. Co., 44 Minn. 224, 46 N.W. 342, 9 L.R.A. 263.

A minority rule is in effect in Kentucky, Tennessee, Oklahoma, Kansas, Nebraska, Montana, and has been invoked by some courts in a few other states. In jurisdictions where the minority rule has been applied the decisions generally are based on estoppel, or on the principle that where one of two innocent persons must suffer through the wrongful act of a third person, the loss should fall on the one who made it possible for the wrong to be committed.

Unquestionably the general rule is supported by the weight of authority and is the settled law in most jurisdictions. Birmingham v. Rice Bros., supra, and Mason Production Credit Ass'n v. Sig Ellingson & Co., supra, are leading cases and leave little room for controversy as to the law in the states of Iowa and...