Respondents sold cattle to a meat packer at its Texas plant and
received checks in payment, but the packer was adjudged a bankrupt
before the checks were paid. With the consent of all parties, the
receiver and trustee in bankruptcy continued to sell meat of cattle
slaughtered and packaged by the bankrupt and held the sale proceeds
subject to disposition by the referee. Respondents then sought
reclamation of the cattle sold to the bankrupt, and asserted a
concomitant right to the sale proceeds. This claim was opposed by
the trustee and C.I.T. Corporation, which held a perfected lien on
the bankrupt's inventory and other property. The referee sustained
the respondents' position, but the District Court reversed on the
ground that, under the Texas Business and Commercial Code, the
trustee's and C. I.T.'s claims were superior to that of
respondents, who, by delivering the cattle to the bankrupt,
retained only an unperfected security interest subject to
reclamation. The Court of Appeals reversed on the ground that the
Packers and Stockyards Act, along with the implementing regulations
and trade usages, established the superiority of respondents' claim
notwithstanding Texas law by making the bankrupt a trustee of the
proceeds received from the sale of the cattle delivered by
respondents.
Held:
(1) On the facts, nothing in either the specific sections of the
Packers and Stockyards Act relating to packers or in the general
sections of the Act applying to all persons subject to the Act, or
in the implementing regulations
ex propria vigore
overrides the Texas Business and Commercial Code in determining the
parties' respective rights to the funds held by the trustee or
establishes a special priority in bankruptcy.
(a) An ordinary debtor-creditor relationship requires more than
post-bankruptcy disappointment of the creditor to convert it into a
trust relationship.
McKee v. Paradise, 299 U.
S. 119.
(b) Although the Packers and Stockyards Act regulates methods of
payment and recordkeeping procedures for packers, the
Page 416 U. S. 101
Act was primarily aimed at the monopoly of the packers which
enabled them arbitrarily to lower prices to shippers and increase
the price to consumers, and there is no evidence in either the Act
or the regulations that packers are to hold cattle or carcasses in
trust until the sellers actually convert into cash the checks given
them as payment for each sale.
(2) But a course of conduct mandated by the Act or regulations
might be relevant or even dispositive under state law in
determining priorities to the funds in question, and hence, to the
extent that respondents, in appealing to the Court of Appeals,
challenged the District Court's determination to the contrary, such
determination will be open for adjudication on remand.
Certiorari granted; 483 F.2d 557, reversed and remanded.
PER CURIAM.
This litigation arose out of the bankruptcy of Samuels &
Co., a large meat packing concern with plants in various parts of
Texas. Respondents had sold cattle to Samuels, for which they
received checks in payment, but bankruptcy ensued before the checks
had been paid by the drawee bank. With the consent of all parties,
the receiver and the trustee of the bankrupt estate continued to
sell meat from the cattle that had been slaughtered and packaged by
Samuels and held the proceeds of such sales subject to disposition
by the referee. Respondents sought reclamation of the cattle which
they had sold to Samuels, and asserted a concomitant right to the
proceeds from sale of the packaged meat. C.I.T. Corporation, which
held a perfected lien on the bankrupt's inventory and other
property, and the trustee in bankruptcy opposed the respondents'
claim.
The referee made findings of fact and conclusions of law which
sustained the respondents' position. The District Court upheld the
referee's findings of fact, but reversed the judgment on the
grounds that, under the applicable provisions of the Texas Business
and Commercial Code, the claims of the trustee and C.I.T. were
Page 416 U. S. 102
superior to that of respondents. The Court of Appeals for the
Fifth Circuit, however, agreed with the referee and reversed the
District Court judgment because it read the Packers and Stockyards
Act, 42 Stat. 159, 7 U.S.C. § 181
et seq., and certain
regulations issued by the Secretary of Agriculture thereunder, as
establishing the superiority of respondents' claim notwithstanding
Texas law. We disagree with this reading of the applicable
provisions of the Packers and Stockyards Act, and therefore grant
certiorari and reverse the judgment of the Court of Appeals.
I
The uncontested facts in this case are contained in the findings
of the bankruptcy referee. The referee found that respondents, for
a period of some ten days before Samuels filed a Chapter XI
petition under the Bankruptcy Act, had been selling live cattle to
Samuels for slaughter on a "grade and yield" basis, and that this
was a recognized custom and usage in the trade. Under this usage,
the contract price is left open at the time of delivery to the
purchaser, who slaughters the livestock and allows the carcasses to
chill for approximately 24 hours. At that time, they are graded by
the United States Department of Agriculture and the price is
determined. The purchaser then gives the seller a check for the
established amount. The referee further found that Samuels was
subject to the regulations of the Packers and Stockyards Act, and
that all of the livestock in question had been delivered to Samuels
at its plant in Mount Pleasant, Texas, where it was slaughtered and
then graded by the Department of Agriculture.
Until the livestock is actually graded and the yield determined,
the sellers can identify their particular livestock, but once the
carcasses are processed and the meat packaged, identification is no
longer possible. When the
Page 416 U. S. 103
petition for bankruptcy was filed in this case, none of the
respondents was able to identify his own particular livestock, but
the referee found that at least some of the carcasses sold by
respondents were on Samuels' premises at that time. The referee
also determined that no proceeds from sale of packaged meat could
be identified as realized from carcasses delivered by
respondents.
Examining the competing claims, the referee found that, at all
times material to the action, C.I.T. was the holder of a duly
perfected security interest in all livestock, animal carcasses,
packaged and unpackaged meat, packing materials, and other
inventory owned by Samuels or in which Samuels may have had an
interest. At the time the bankruptcy petition was filed, Samuels
was indebted to C.I.T. in an amount in excess of $1,800,000. C.I.T.
had been advancing large sums weekly to Samuels, and the bankruptcy
was precipitated on May 23, 1969, when C.I.T., deeming itself to be
insecure, refused to make a weekly advance of approximately
$184,000 which Samuels needed to continue its operations. The
referee found that C.I.T. "knew or should have known" of the method
by which Samuels bought livestock from respondents on a "grade and
yield" basis. He further found that no respondent held a security
agreement with Samuels, and that none had filed a financing
statement reflecting the transactions with Samuels.
The referee reasoned from these facts that respondents and
Samuels had intended to transact their sales business on a cash,
rather than a credit, basis, and that title to the livestock "did
not pass from plaintiff to bankrupt until payment was made to
plaintiff." Therefore, he concluded, C.I.T.'s perfected lien could
not attach to the livestock in Samuels' inventory until the checks
issued in payment were subsequently honored. Any
Page 416 U. S. 104
other decision. would, he said, make the cattle sellers "a
species of involuntary creditor against their wishes and intent,"
although they had complied with normal selling arrangements under
the Packers and Stockyards Act. He found it unnecessary for the
respondents to identify proceeds from the sale of specific
carcasses which they had delivered, and placed the duty on C.I.T.
to show that the funds to which it laid claim had not been received
from the sale of carcasses furnished by respondents.
The District Court accepted the referee's findings of fact, but
reversed on the law. Turning to the provisions of the Texas
Business and Commercial Code, which are largely counterparts of the
Uniform Commercial Code, the court found that the respondents, by
their delivery of the cattle, had retained only a security interest
in those animals and the proceeds therefrom. [
Footnote 1] It further found that the respondents
had taken no action to perfect their security interest, [
Footnote 2] nor attempted to utilize
any right of reclamation they might have had under Texas law.
[
Footnote 3] Delivery of the
cattle to Samuels on this basis enabled it to transfer good title
to a good faith purchaser for value, a category of persons which
included both C.I.T. and the trustee in bankruptcy. [
Footnote 4] The District Court also found
that respondents were unable to
"establish their right to possession by ownership . . . [by]
identify[ing] positively the property sought to be reclaimed in
either its original or substituted form. "
Page 416 U. S. 105
The District Court was, in turn, reversed by a divided Court of
Appeals for the Fifth Circuit. Although that court conceded that
C.I.T. would have a superior right to the sales proceeds were the
transaction governed solely by the provision of the Texas Business
and Commercial Code, it found that the Packers and Stockyards Act,
7 U.S.C. § 181
et seq., along with the regulations
promulgated thereunder and the relevant usages of trade, made
Samuels a trustee of the proceeds received from the sale of cattle
delivered by respondents. The court stated:
"The reasoning of these cases and the impact of the Packers and
Stockyards Act convinces this court that more than an unperfected
security interest subject to reclamation is reserved for the cattle
seller. Not by contract, but by statute and regulation, a packer
lacks full dominion over the carcasses until the seller has been
paid. Where the packer defaults by the issuance of a bad check (and
destroys the identity of the security by processing the carcasses
into fungible meat products), the seller is the beneficiary of a
trust imposed by remedial statute. [
Footnote 5]"
The right of the cattle sellers to funds thus found to be
specifically held in trust for their benefit was deemed superior to
the general perfected lien of C.I.T. on Samuels' inventory.
II
This Court has previously held that an ordinary debtor-creditor
relationship requires more than the post-bankruptcy disappointment
of the creditor to convert it into a trust relationship.
See
McKee v. Paradise, 299 U. S. 119
(1936). Examining a claim by employees that funds held for their
general benefit by an employee association
Page 416 U. S. 106
were funds held in trust, the Court in
McKee
stated:
"The bankrupt was a debtor which had failed to pay its debt. We
know of no principle upon which that failure can be treated as a
conversion of property held in trust. At no time throughout the
whole period was there a trust fund or
res. No fund was
segregated or set up by special deposit or in any manner. When the
wages became due, there was no such fund but only the general
assets of the employer and its obligation to pay a debt. . . . The
fact that the failure to pay the association was an acute
disappointment and was especially regrettable as the claimant was
an association of employees cannot avail to change the debtor into
a trustee or enable the creditor to obtain a preference over other
claims against a bankrupt estate."
Id. at
299 U. S.
122-123. The Court therefore held that the employees
were entitled to share in the bankrupt's assets only in the
position of a general unsecured creditor.
Similarly, we believe that the Court of Appeals, in concluding
that, in this case a trust relationship existed between Samuels and
respondents, placed more weight on the Packers and Stockyards Act,
and corresponding regulations and practices, than they will
properly bear. For although the Act does regulate methods of
payment and recordkeeping procedures for persons defined as
"packers" by the Act, we must remember that the "chief evil" at
which it was aimed was
"the monopoly of the packers, enabling them unduly and
arbitrarily to lower prices to the shipper who sells, and unduly
and arbitrarily to increase the price to the consumer who
buys."
Stafford v. Wallace, 258 U. S. 495,
258 U. S.
514-515 (1922). We find no evidence in either the Act or
the regulations that
Page 416 U. S. 107
packers are to hold cattle or carcasses in trust until the
sellers actually convert into cash the checks given them as payment
for each sale.
We note at the outset that Samuels is subject to the Packers and
Stockyards Act solely as a "packer", [
Footnote 6] rather than as a "stockyard owner," [
Footnote 7] "market agency," [
Footnote 8] or "dealer." [
Footnote 9] This difference is important, for
the Act regulates packers in a different manner than it does those
in the other enumerated categories. Thus, for example, the bonding
requirements of 7 U.S.C. § 204 are not applicable to packers, nor
does the Act give a private cause of action against packers, as it
does against stockyards, market agencies, and dealers. 7 U.S.C. §
209. An implicit fiduciary obligation which would override state
commercial law and establish a special priority in bankruptcy, such
as the Court of Appeals found to exist here, must therefore be
extracted either from the specific sections relating to packers or
from the few general sections which are applicable to all
categories of persons subject to the Act.
The specific provisions dealing with packers impose no such
duty. [
Footnote 10] The only
section which might possibly be relevant to this question, 7 U.S.C.
§ 192, deals generally with unlawful practices of packers, placing
heavy emphasis on practices which might be considered to be in
restraint of trade. Enforcement of this section is the
responsibility of the Secretary of Agriculture, who is given
authority to hold hearings and enter binding orders. But there is
no indication that, lurking within this intention to control
deceptive and monopolistic practices in the packing industry, lies
a further intention
Page 416 U. S. 108
to guarantee persons who sell cattle to such packers a special
favored position in regard to the packers' assets. Nor do the
general provisions show such an intent. [
Footnote 11] Those sections are primarily concerned
with recordkeeping, allocation of responsibility between the
Secretary of Agriculture and the Federal Trade Commission, and the
authority of the Secretary of Agriculture to promulgate appropriate
rules and regulations to carry out the provisions of the Act.
The Court of Appeals did not rest its decision upon the Act
itself, however, but rather upon two regulations promulgated by the
Secretary of Agriculture. The first regulation, 9 CFR § 201.43(b),
[
Footnote 12] requires that
a packer,
"before the close of the next business day following the
purchase of livestock and the determination of the amount of the
purchase price, transmit or deliver to the seller or his duly
authorized agent the full amount of the purchase price, unless
otherwise expressly agreed between the parties before the purchase
of the livestock."
The second regulation, 9 CFR § 201.99, [
Footnote 13] requires a packer "purchasing
Page 416 U. S. 109
livestock on a . . . carcass grade and weight basis" to
"maintain the identity of each seller's livestock and the carcasses
therefrom" and, after determination of the
Page 416 U. S. 110
purchase price, to deliver to the seller a "true written account
of such purchase" incorporating the pertinent terms. The Court of
Appeals reasoned that these regulations, read in conjunction, were
intended to provide cattle sellers with special protection when
forced to deal on a carcass grade-and-weight basis. The protection
fashioned by the Court of Appeals was to make a packer, such as
Samuels, a trustee for the proceeds of any sale derived from cattle
delivered under these provisions. We believe that that conclusion
was erroneous.
We think that a fair reading of 9 CFR § 201.99 reveals its
overriding concern that cattle sellers, having delivered their
livestock into the hands of a purchasing packer prior to actual
determination of the purchase price, receive a fair and accurate
accounting of the proceeds of their sale. A seller operating
without the benefit of such provisions clearly would face
substantial risk that his livestock might be mingled with other
livestock of lesser value, and thereby become indistinguishable
from livestock delivered by other sellers, or that he might become
subject to arbitrary weighing practices on the part of the packers.
Regulation 201.99 insures that the packers both observe principles
of fair dealing in determining the proceeds of the sale and also
maintain sufficient records so that the sellers and the Secretary
of Agriculture can exercise proper supervision. But there is no
indication in this record that Samuels failed to comply with the
provisions of Regulation 201.99. Respondents complained not that
Samuels commingled their livestock, or failed to provide fair
pricing, but rather that bankruptcy intervened before checks in the
concededly
Page 416 U. S. 111
proper amount cleared the bank on which they were drawn. And
Regulation 201.99 simply does not address itself to this
problem.
Regulation 201.43, though more to the point, likewise fails to
support the imposition of a trust on Samuels. It requires packers,
market agencies, and dealers purchasing livestock to make payment
within one business day following the determination of the amount
of the purchase price, but does not meet the question of whether a
seller, failing to receive payment within that time, has a special
claim against the defaulting payor. Respondents argue strongly that
this regulation insures prompt payment, and that the failure to
make prompt payment is a prohibited deceptive practice under the
Act. While this contention may well be true, it does not
necessarily support a conclusion that the regulation, designed to
regulate payment procedures between a buyer and seller, was also
intended to determine security rights between the sellers and third
parties holding a valid claim on the packer's assets. Whatever
might be the policy reasons for insuring that packers did not take
unnecessary advantage of cattle sellers by holding funds for their
own purposes, it is hard to see that those reasons would
automatically require that such sellers stand on better footing
than persons who have extended secured credit to a packer. And the
regulation in no way suggests an intention to override established
principles of state commercial law which might strike a different
balance.
When the Secretary has desired to impose trust relationships by
regulation, he has chosen language which clearly effectuates that
purpose. Regulation 201.42, 9 CFR § 201.42, deals specifically with
the subject of custodial accounts, and provides in subsection (a)
that payments made to a market agency or licensee are to be
considered trust funds until a payee custodial account has
Page 416 U. S. 112
been paid in full. Subsection (b) requires that any market
agency or licensee engaged in selling livestock "on a commission or
agency basis" establish a custodial account for the sales proceeds.
Subsection (e) requires establishment of custodial accounts when
market agencies or licensees representing buyers of livestock
misuse funds entrusted to them for that purpose.
Had the Secretary deemed it lawful and desirable to require that
packers or other persons purchasing livestock establish trust
accounts on behalf of the sellers until payment was actually
received, such a provision could easily have been included within
these regulations. Its absence suggests the Secretary expected that
cattle sellers, making sales to packers in the ordinary course of
business, would assume the normal risks of insolvency which any
seller in that situation assumes. Their interests, like that of
similarly situated sellers, would depend for protection upon their
taking of appropriate steps under the commercial law of the various
States in which they did business.
The cases cited by the Court of Appeals to support its position
require no different conclusion. The case most heavily relied on,
Bowman v. Department of Agriculture, 363 F.2d 81 (CA5
1966), cited for the proposition that a packer's obligation to pay
is that of a fiduciary, dealt not with packers at all, but rather
with a person who was a stockyard owner, market agency, and dealer.
The court in that case did discuss the duty of prompt payment by
such a person, but the discussion occurred in the context of a
discussion of the test for insolvency. The court there concluded
that a definition of insolvency dealing with the relation of
current assets and current liabilities was appropriate in this
instance, since the ability to meet current obligations and to make
prompt payment was necessary to effect the beneficial purposes
Page 416 U. S. 113
of the Act. The only specific discussion of trustee
relationships, however, occurs in a separate discussion on the
matter of custodial bank accounts. As discussed above, this
discussion would be relevant to the obligation of market agencies
under Regulation 201.42 to maintain custodial accounts and to
refrain from commingling their own funds with the funds of the
persons for whom they act. The other cases cited by the Court of
Appeals do not deal with packers, [
Footnote 14] or deal with them in a totally different
situation from that presented here. [
Footnote 15] None of the cases holds or even intimates
that packers hold livestock and carcasses as trustees until cash
proceeds are realized by the sellers.
III
We hold that, on the undisputed facts of this case, nothing in
the Packers and Stockyards Act or the regulations issued by the
Secretary under the Act overrides the Texas Business and Commercial
Code in determining the respective rights of the parties to the
funds held by the trustee. We do note, however, that an isolated
passage at the end of the Court of Appeals' opinion states that
the
"Packers and Stockyards Act and Regulations 201.42 and 201.99
thereunder comprise a course of dealing and usage of trade known to
both the bankrupt packer and C.I.T., which had financed it for an
extended period."
483 F.2d 557, 563. While we hold that the Act and regulations do
not
ex proprio vigore override the provisions of Texas law
determining priorities to the funds in question, we do not mean to
say that a course of conduct
Page 416 U. S. 114
mandated by the Act or regulations might not, just as any other
course of conduct, be relevant or even dispositive under state law.
The District Judge, herself a long-time Texas practitioner and then
state court judge before taking the federal bench, determined
otherwise here. To the extent that respondents, in appealing to the
Court of Appeals, challenged that determination, it will, of
course, be open for adjudication in the Court of Appeals on
remand.
The petition for certiorari is granted, the judgment of the
Court of Appeals is reversed, and the case is remanded for
proceedings not inconsistent with this opinion.
It is so ordered.
[
Footnote 1]
Tex. Bus. & Com.Code §§ 1.201(37) and 2.401(a) (1968).
[
Footnote 2]
Id., § 9.312(c) (1968).
[
Footnote 3]
Id., § 2.702(b) (1968). The Court further noted that,
in any event, the rights of C.I.T. and the bankruptcy trustee would
not have been affected by a demand for reclamation under the Code.
See § 2.702(c).
[
Footnote 4]
Id., § 2.403(a) (1968).
[
Footnote 5]
483 F.2d 557, 563.
[
Footnote 6]
See 7 U.S.C. § 191.
[
Footnote 7]
See id., § 201(a).
[
Footnote 8]
See id., § 201(c).
[
Footnote 9]
See id., § 201(d).
[
Footnote 10]
Id., §§ 191-195
[
Footnote 11]
Id,, §§ 221-229.
[
Footnote 12]
Title 9 CFR § 201.43(b) reads:
"(b) Purchasers to pay promptly for livestock. Each packer,
market agency, or dealer purchasing livestock shall, before the
close of the next business day following the purchase of livestock
and the determination of the amount of the purchase price, transmit
or deliver to the seller or his duly authorized agent the full
amount of the purchase price, unless otherwise expressly agreed
between the parties before the purchase of the livestock. Any such
agreement shall be disclosed in the records of any market agency or
dealer selling the livestock, and in the purchaser's records and on
the accounts or other documents issued by the purchaser relating to
the transaction. The provisions of this section shall not be
construed to permit any transaction prohibited by § 201.1(a)
relating to financing by market agencies selling on a commission
basis."
[
Footnote 13]
Title 9 CFR § 201.99 reads:
"(a) Each packer purchasing livestock on a carcass grade,
carcass weight, or carcass grade and weight basis shall, prior to
such purchase, make known to the seller, or to his duly authorized
agent, the details of the purchase contract. Such details shall
include, when applicable, expected date and place of slaughter,
carcass price, condemnation terms, description of the carcass trim,
grading to be used, accounting, and any special conditions."
"(b) Each packer purchasing livestock on a carcass grade,
carcass weight, or carcass grade and weight basis, shall maintain
the identity of each seller's livestock and the carcasses therefrom
and shall, after determination of the amount of the purchase price,
transmit or deliver to the seller, or his duly authorized agent, a
true written account of such purchase showing the number, weight,
and price of the carcasses of each grade (identifying the grade)
and of the ungraded carcasses, an explanation of any condemnations,
and any other information affecting final accounting. Packers
purchasing livestock on such a basis shall maintain sufficient
records to substantiate the settlement of each transaction."
"(c) When livestock are purchased by a packer on a carcass
weight or carcass grade and weight basis, purchase and settlement
therefore shall be on the basis of carcass price. This paragraph
does not apply to purchases of livestock by a packer on a
guaranteed yield basis."
"(d) Settlement and final payment for livestock purchased by a
packer on a carcass weight or carcass grade and weight basis shall
be on actual (hot) carcass weights. The hooks, rollers, and
gambrels or other similar equipment used at a packing establishment
in connection with the weighing of carcasses of the same species of
livestock shall be uniform in weight. The tare weight shall include
only the weight of such equipment:
Provided, however, That
until July 1, 1968, these packers who shroud carcasses before
weighing them may include in the tare weight the average weight of
the shrouds and pins."
"(e) Settlement and final payment for livestock purchased by a
packer on a USDA carcass grade shall be on an official (final --
not preliminary) grade. If settlement and final payment are based
upon any grades other than official USDA grades, such other grades
shall be set forth in detailed written specifications which shall
be made available to the seller or his duly authorized agent. For
purposes of settlement and final payment for livestock purchased on
a grade or grade and weight basis, carcasses shall be final graded
before the close of the second business day following the day the
livestock are slaughtered."
[
Footnote 14]
Glover Livestock Comm'n Co. v. Hardin, 454 F.2d 109
(CA8 1972).
[
Footnote 15]
Bruhn's Freezer Meats of Chicago v. Department of
Agriculture, 438 F.2d 1332 (CA8 1971);
Swift & Co. v.
United States, 393 F.2d 247 (CA7 1968).