The plaintiffs Ensminger brought an action for the conversion of their cattle against the defendants livestock auction facilities, Warsaw Auction Company and the partnership Burton and Fowler, doing business as Central Missouri Sales Co. The claim was tried to the court and was determined in favor of the defendants. The court entered findings of fact and conclusions of law with the judgment. The plaintiffs Ensminger appeal.
The Ensmingers are cattle breeders, and in January of 1980 sold $27,000 worth of cattle to one Lawrence Arnold, and took a security interest in the cattle. They did not know Arnold, who also raised livestock and bought and sold cattle on a regular basis. The Ensmingers assumed that Arnold was a farmer and that the cattle were to be used in the farming operation. The security agreement prohibited the sale of any of the secured cattle without the prior consent of the Ensmingers and entitled them to *209 immediate possession of the cattle upon default.
In the fall of 1980, Arnold sold a portion of the cattle and offspring to a third party. The Ensmingers financed the purchase and Arnold was given credit for the selling price. The balance of the note was not paid when due in January of 1981, but was renewed for another year. In February of 1981, the Ensmingers sold additional cattle and a truck and trailer to Arnold for $40,-000, and took a promissory note for the purchase price and a security interest in the property. In December of 1981 the two notes were consolidated into a new one-year obligation for $56,499.11. The Ar-nolds, husband and wife, then executed a security agreement and financing statement, and listed as collateral the cattle, truck, trailer and “all other cattle now owned and hereafter acquired plus increase.” The financing statement was duly recorded on January 8, 1982, in Pettis County, where the Arnolds lived and the cattle were to be kept.
The defendants Warsaw Auction Co. and the Central Missouri Sales Co. partnership were in the business of selling livestock on consignment for a fee. Between March 1, 1982, and May 23, 1983, Arnold sold $22,-116.39 worth of cattle through the defendant Central Missouri Sales Co. Between January 26, 1982, and April 12, 1983, Arnold sold $3,359.20 worth of cattle through defendant Warsaw Auction Co. The defendants each received a commission fee for the service. Arnold was given a receipt from each auction house upon the delivery of the cattle for sale, which described him as seller of cattle, described the cattle to be sold and the charges to be assessed against the auction price. The net proceeds of the sales were issued to Arnold. The cattle were sold without the knowledge or consent of the Ensmingers. They received none of the proceeds. The defendant auction houses had no actual knowledge that the Ensmingers claimed a security interest in those cattle and made no investigation to determine if any security interest existed.
The promissory note for $56,499 became due in December of 1982, and no payments had been made. Arnold was given an extension of time, and the grants of extension continued through June of 1983. The En-smingers brought an action in replevin against the Arnolds for the return of the secured cattle or money damages. Sometime thereafter, the Arnolds filed a petition in bankruptcy, and listed the Ensmingers as creditors. They then learned that the Arnolds did not have the secured cattle. Of the debt owed them by the Arnolds, $25,800 was non-dischargeable. The En-smingers brought .a criminal charge against Arnold for selling secured property. Arnold returned the secured truck to them, and they sold the vehicle for $2500. The trailer had been wrecked by Arnold and abandoned. After the criminal charge was brought, Arnold paid the Ensmingers $10,000 in cash.
The trial court denied the Ensminger claim for conversion. The conclusions of law that elaborated the judgment acknowledged the principle of
Farmers State Bank v. Stewart,
[A]n agent, factor, commission merchant or auctioneer who receives property from his principal and sells it and pays the proceeds of the sale to him is guilty of conversion if the principal has no right to sell the property, even though the agent acts without the knowledge of the defect in title.
The court determined nevertheless that
Stewart
does not discuss or apply the Uniform Commercial Code to come to opinion, and so was irrelevant to the adjudication of the Ensminger claim. The court concluded that the Uniform Commercial Code governed the action, particularly as expounded in
United States v. Hext,
The rationale of judgment rests upon a progression of legal premises that intermix the provisions of the Uniform Commercial Code and extra-Code tort principles. The rationale commences with the fact that the transfer by Arnold of the cattle to the auction houses for sale without consent of the Ensmingers constituted a default under the security agreement, and proceeds on
*210
the proposition of law that under its terms the Ensmingers as secured parties had the right to take possession of the collateral. § 400.9-503, RSMo 1986. The Ensmingers accordingly had the legal right to possession of the cattle at the time of their removal for sale and the sale constituted a conversion.
Stewart,
The court concluded nevertheless that the Uniform Commercial Code so impinged as to foreclose any liability for conversion against the auction house marketing agent.
The court derived its judgment from the interplay of numerous provisions of Article 9. Section 400.9-109(3), RSMo 1986, defines farm products as “crops or livestock or supplies used in farming operations _” Farm products become inventory “if they are held by a person who holds them for sale or lease....” §. 400.9-109(4), RSMo 1986. A buyer in ordinary course of business other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his seller. 1 § 400.9-307(1), RSMo 1986. Farm products transferred by a farmer to a marketing agency for sale — that is, to a person not engaged in farming operations — “cease to be ‘farm products’ [and] become inventory.” § 400.9-109 Comment 4, RSMo 1986.
The court reasoned from these provisions and the facts found to a judgment of the non-liability of the defendant auction houses to the secured parties. It reasoned that Arnold was a farmer, “a debtor in possession, who bred livestock,” goods that were farm products in his hands. § 400.9-109(3). The security agreement specified that the cattle — the collateral goods — were to be used for farming, and so not meant to finance an inventory. As farm products in the hands of Arnold, notwithstanding a sale, a security interest continued in the collateral and identifiable proceeds received by the debtor. § 400.9-306(2). The security interest continued in the collateral even as against a buyer in ordinary course of farm products from a person engaged in farm operations. § 400.9-307(1). Arnold, however, delivered the cattle to the defendant commission merchants for sale. The auction houses were in the business of selling goods of that kind, and the cattle were sold in the regular course of that business. Thus [the progression to judgment concludes], the farm products in the hands of Arnold became inventory in the hands of the defendants, “taken by a buyer in ordinary course of business free of any security interest created by the seller.”
This analysis validly explains the Code mechanism whereby an ordinary course buyer of agricultural goods, once
farm products
but then
inventory,
takes them free of any security interest. It does not, however, explain any comparable Code mechanism whereby an auctioneer who markets for a debtor agricultural goods that are subject to a security interest is exempted from liability to the creditor for conversion of those goods. Indeed,
Hext
—the authority that the defendant auction houses argue to relieve them of liability for conversion of the secured cattle and adopted by the trial court as the law of the ease — acknowledges that the Code does not deal with the tort law of conversion.
Hext,
Conversion is the wrongful exercise of dominion or ownership over a chat
*211
tel.
Commercial Credit Corp. v. Joplin Auto. Auction Co.,
This common law rule of the conversion liability of an auction house for the unauthorized transfer of goods to one not entitled to possession laid down in Stewart, contrary to argument, is rendered in the context of the Code provisions relating to secured transactions. It happens that one of the auction transactions in Stewart occurred before, and the other after, the Code became effective. Inasmuch as the security interest in both was perfected according to the law then in effect — as the opinion explains, at 915 n. 6 — the holder of the perfected security interest had the same protection under the Code as under the prior law and the common law liability of the auction house for conversion of the secured cattle remained the same.
It is as the defendant auction houses argue, that although
Stewart
does cite numerous provisions of Article 9 of the Code on the common law liability of a marketing agent for conversion, the implications of §§ 400.9-109(3) & (4), 400.9-307(1) and 400.-1-201(9) are slighted. The distinction between
farm products
and
inventory
that § 400.9-109(3) & (4) make — by which in one case a buyer in ordinary course does not take free of the security interest, and in the other case does — however, has no relevance to an auction house that is not a buyer.
Commercial Credit Corp. v. Joplin Auto. Auction Co.,
The conclusions of law in support of the judgment correctly surmise that in the context of secured transactions the ground for conversion does not appear until the person who seeks to impose liability has the right to immediate possession of the
*212
secured goods. The transfer of the cattle to the auction houses for sale without the consent of the secured creditors was, as the court found, a breach of the security agreement and by its terms put the debtor in default and entitled the creditors to immediate possession of the goods. The conduct of the auction houses thereafter to take charge of the cattle and sell them to third persons was a serious interference with that right of possession and constituted conversion.
Stewart,
This rationale of
Stewart
is not without heed of the provisions of the Code, as the defendant auction houses argue to excuse its authority as a precedent. The opinion [
That is precisely the sense of
Stewart.
That is precisely the sense drawn from
Stewart
in
United States v. Gallatin Livestock Auction,
Hext was an exercise of federal jurisdiction by a federal court under a federal enactment of a suit brought by the United States for conversion of bales of cotton in which it held a security interest. The Farmers Home Administration agency of the Department of Agriculture made a loan to Hext to finance his cotton farming operations. Hext secured the loan by a chattel mortgage, duly recorded, on the forthcoming crop. Hext was also in the business of cotton ginning, and after harvest of the cotton crop, ginned and marketed the cotton through his own company. The ginned cotton was stored with a bailee warehouse, the Harlingen Company, and marketed though Marshall & Marshall, as selling agent. The receipts from the sales of his cotton were placed in the Gin Company account. At the end of the season Hext was unable to pay the loan. Hext and the Gin Company were insolvent, and the United States sued Marshall as the selling agent. The selling agent Marshall had no actual knowledge of the FHA security interest.
Hext
relates to a legal issue common to the agricultural practice whereby the farmer or stock-breeder disposes of the farm product through a marketing agent: the liability of the agent to a secured creditor whose secured goods have passed through its hands. Since the Code does not displace the tort law, and the Code does not otherwise provide for the liability of third persons to the secured creditor, the liability of the auctioneer to the secured creditor for the sale of the collateral is governed by non-Code law. 1 R. Anderson, Uniform Commercial Code § 1-103:25 (3d ed. 1981);
Hext,
In fashioning a uniform “federal common law” applicable to such a dispute,
Hext
[
[O]ne who as an agent or servant of a third person disposes of a chattel to one not entitled to its immediate possession in consummation of a transaction negotiated by the agent or servant, is subject to liability for a conversion to another who, as against his principal or master, is entitled to the immediate possession of the chattel.444 F.2d at 809 [2] (Emphasis in original.)
The opinion concluded that since the cotton in the hands of the selling agent was inventory, the purchase was not from a person engaged in farming operations, and the buyer took free of the creditor’s security interest under § 9-307(1) of the Code. Thus [at 816], to the extent the selling agent acted in good faith and without actual knowledge of FHA’s security interest, they could not be liable as converters since the cotton was not transferred “to one not entitled to its possessions.”
Whatever the premises of the “federal common law” theory of conversion
Hext
adopted to relieve from liability for conversion a marketing agent who sells secured goods without consent of the creditor innocent of that interest, the law of Missouri imposes liability, despite the good faith or lack of knowledge of the agent.
Stewart,
These decisions, as do we, also reject the analysis that
Hext
applies to Restatement (Second) of Torts § 223(1) as forced and the logic as nonsequential.
Hext
[
The defendants argue the effect of
United States v. Progressive Farmers Mktg. Agency,
The defendants argue also for the support of the judgment on the theory that they were bailees under § 400.7-404. That section provides that a bailee who in good faith and in observance of reasonable commercial standards has received goods and disposed of them according to the terms of a document of title is not liable, even if the person from whom the goods were received had no authority to dispose of them. They argue the effect of
Michigan Nat’l Bank of Detroit v. Michigan Livestock Exch.,
This section, of course, was not the theory of the evidence nor of the trial court judgment. More decisively, however, that opinion of the Michigan Court of Appeals was overturned by the Supreme Court of Michigan in
Michigan Nat’l Bank v. Mich. Livestock Exch.,
The defendants cite numerous other decisions, such as
First Bank of North Dakota v. Pillsbury Co.,
The defendant auction houses argue nevertheless that the constructive notice of the secured interest of the creditors in the goods transferred to them for sale, upon which their liability is made to rest, irreconcilably conflicts with federal law and so is preempted and unenforceable under the supremacy clause of the United States Constitution. The holding in
Stewart,
they argue, requires that livestock marketing agents either search for recorded security interests in the goods being sold, or bear the risk of money liability based solely on constructive notice should the sale violate a recorded security interest. They point to the requirement of the federal Packers and Stockyards Act that a market agent deliver the full proceeds of sale to the livestock seller by the close of the next business day following the sale. 7 U.S.C. § 228b (1980). A delay in payment of the sales proceeds constitutes an unfair practice under the Act and incurs a penalty. 7 U.S.C. § 228b(c). In order to avoid liability under
Stewart,
however, a market agent would have to determine as to each customer the existence of a lien filing in the office of the appropriate county recorder or from the secretary of state. The requirements of state law, the argument concludes, make it impossible for the market agent to comply with both the federal prompt payment condition and also protect itself from liability under state law premised on constructive notice. Thus, the rule in
Stewart
engenders a direct conflict with the federal law and impedes the policy for prompt payment. In such a case, the argument concludes, the supremacy clause operates to accomplish and execute the federal congressional purpose by preemption of the state law. See
Hines v. Davidowitz,
The point the defendants pose was addressed in
Stewart,
but in terms of public policy, and not preemption.
Stewart
[
The concern the defendant auction houses pose, however, has not been negligible. The rule in Stewart and in those many states that have used its effect not only tends to impair the convenience of commercial transactions, but also transforms the market agent into a guarantor of the debts of the farmer. Uchtmann, Bauer & Dudek, The UCC Farm Products Exception — A Time To Change, 69 Minn.L.Rev. 1315,1319 (1985). Those are the consequences that Hext undertook to avoid by the application of a derived “federal common law” to farm products transactions under the Code. Those are the consequences that many states have undertaken to meliorate by amendment of the farm products exception in their commercial codes to reflect the reality of modern agricultural and marketing practices. Id. at 1316. Some states now exempt market agents and auction *216 houses from liability for selling farm products subject to a security interest. Missouri is not among them. Id. at 1380.
Congress has since the enactment of the Pood Security Act of 1985, 7 U.S.C. § 1631 (1988), preempted the farm products exception of the Code. The legislation was prompted not only to bring regularity to the confusion in state law brought about by the mass modifications of the farm products exemption of the Code and the diverse treatment of that section by the states, but also to relieve the burden on interstate commerce imposed by state laws “that subject the purchaser of farm product to double payment for the products.” 7 U.S.C. § 1631(b); C. Wolfe, Section 1324 of the Food Security Act of 1985: Congress Preempts the “Farm Products Exception” of Section 9-307(1) of the Uniform Commercial Code, 55 UMKC L.Rev. 454, 455 (1987). In general terms, the Act provides that “notwithstanding any other provision of Federal, state or local law,” a person who in ordinary course buys a farm product from a seller engaged in farming operations takes free of a security interest created by the seller, even though the security interest is perfected and the buyer knows of its existence. § 1631(d). Thus, the Act directly and deliberately preempts § 400.9-307(1). The Act also protects commission merchants and selling agents who sell farm products in ordinary course of business, and so effectively abrogates the rule of strict liability for conversion that Stewart reaffirms and we are bound to follow.
The defendant auction houses contend also that a judgment against them in favor of the plaintiffs for the conversion of their cattle is foreclosed in any event by payment to the Ensmingers by Arnold of $10,-000 in satisfaction and release of any debt owed them by the Arnolds or the auction houses for the sale of the secured cattle.
After the debt on the promissory note owed by the Arnolds to the Ensmingers became due, the Arnolds filed a petition in bankruptcy and listed the Ensmingers as creditors. The bankruptcy court determined that $25,800 of the debt was nondis-chargeable. The creditors brought criminal charges against the debtor Lawrence Arnold for selling secured property. After the charges were brought, Arnold paid the Ensmingers $10,000 in cash. The evidence is in dispute as to why the money was paid and why it was received. Ensminger testified that he accepted the payment to “[k]eep from sending him to the penitentiary [because] he sold mortgaged property.” It was a “deal” negotiated with Arnold for the Ensmingers by their attorney. The payment was not to “wipe out anything” Arnold owed them. It was not to be deducted, Ensminger said, from “what the bankruptcy court said was non-dischargea-ble.” The prosecutor “had set him up ... for six years, and he didn’t want to go, so he wanted to negotiate a deal to keep from going to the pen.” In exchange for the $10,000 Ensminger “[d]ropped the charges of sending him to the penitentiary.” He did not intend thereby to release Arnold from further liability. They signed “a receipt or something”, Ensminger said, but not a written agreement.
Arnold testified that the money paid, rather, “wasn’t to keep me out of the penitentiary, but it was to wipe the slate clean, was what the bankruptcy court said I should pay him.” The payment of $10,000, he reaffirmed, was because Arnold “still owed him a debt on cattle” — and the agreement for the payment of the money was to “Wipe out what I owed, what the bankruptcy court allowed Mr. Ensminger, wipe that off.” The scope of the transaction, as led by the questions of counsel, was expanded from the accommodation of the existing personal indebtedness to a release of the auction houses from liability. The payment came to encompass not only “what I owed Ensminger that the bankruptcy court gave him down there”, but also “any sales barns or anything else.” His “understanding,” from what his counsel advised, was that the $10,000 was also “to wipe out ... the liability that Mr. Fowler, Mr. Burton and Warsaw Auction Company, the liability these sale barns might have had.” The writing given to Arnold for the payment of the $10,000, he said, was lost in fire.
*217 The defendant auction houses argue that the effect of this evidence was an agreement of an accord and satisfaction of any subsisting liability from the Arnolds or the auction houses to the Ensmingers from the sale of the cattle. They argue, alternatively and at the least, that the $10,000 payment by Arnold be credited against any recovery by the Ensmingers “as a payment made by a joint tortfeasor.”
The judgment for the defendant auction houses entered by the trial court rests on the provisions of the Code, and hence the effect of the payment of the $10,000 as an accord or satisfaction or compromise and release of the claim against the auction houses for conversion was not reached, and the dispute of that evidence not resolved.
The evidence was not sufficiently probative to derive the inference that either the plaintiffs or the defendants claim for it. The consideration that the Ensmingers contend the $10,000 payment to them represents is contrary to public policy. A contract made with the purpose and upon the consideration that a criminal prosecution shall be suppressed, stifled or stayed, will not be enforced.
McCoy v.
Green,
The theory of the evidence that the defendant auction houses argue — that the $10,000 transaction was intended as an accord and satisfaction or release of all claims by the Ensmingers against not only the Arnolds, but also as a release of the auction houses from liability — simply was not open to the trier of fact. The writing that reified the transaction was not before the court, and the parole evidence was too vague as proof of either.
Accord and satisfaction and release are affirmative defenses and the risk of nonpersuasion rests upon the defendant to prove the terms of agreement as well as its execution.
Jenkins v. Simmons,
Either a bona fide dispute or an unliquidated claim will support an accord and satisfaction.
Edgewater Health Care v. Health Sys.,
Nor was the evidence otherwise sufficient to raise an issue of release of the liability of the auction houses. In the absence of a requirement of statute, a release need not be in writing. 76 C.J.S.
Release
§ 6 (1952). A release even in writing, however, must show a manifest intention to release by language clear, precise and unequivocal.
Jenkins v. Simmons,
Whatever the true nature of the money transaction, it remains that the Ensmingers received from the Arnolds, and retain, the $10,000. It would be an unjust enrichment to them unless the Arnolds derived some lawful benefit from that performance. That benefit, we determine, was a reduction
pro tanto
of any personal liability by Arnold to the Ensmingers that remained undischarged in the bankruptcy. That liability was for the value of the secured cattle sold at the auctions, adjudicated by the bankruptcy court at $25,800. The unlawful sale of those cattle by the auction houses is also the subject of the action for conversion by the Ensmingers against the auction houses. It is an action for which the Ensmingers are entitled to judgment. An injured party, however, may have only one satisfaction for that invasion of right.
Abbott v. City of Senath,
The defendant auction houses argue, finally, that in any event the Ensmingers should be denied recovery to the extent that they failed to avoid the consequences of their borrowers’ wrong because they were in a superior position to do so. They cite
Southern Missouri Bank v. Fogle,
The defendants Warsaw Auction Co. and the Central Missouri Sales Company partnership were separate actors as to separate secured property. The unauthorized sale by the Warsaw auction house between January of 1982 and April of 1983 of cattle secured to the Ensmingers was a serious interference inconsistent with their right of possession and constituted a conversion of that property. The unauthorized sale by the Central Missouri auction house between March of 1982 and May of 1983 of other cattle secured to the Ensmingers was also a conversion of that property. Accordingly, the Ensmingers are entitled to a separate judgment against each of the auction houses for the separate acts of conversion by each.
The market value of the converted cattle has yet to be adjudicated. That proof was made though the tabulation of the separate sales receipts of the defendants Central Missouri Sales partnership and the Warsaw Auction Company. There was a dispute as to at least one sales receipt of the Warsaw Auction Company, which included two hogs among the transactions. However, only cattle were the subject of the sales and security agreements between the Ensming-ers and the Arnolds. Thus, as to the defendant Warsaw Auction Company, a true determination of reasonable market value of the converted cattle, and hence damages, remains.
The judgment is reversed and the cause is remanded to the trial court to determine the reasonable market value of the cattle converted by each auction house. The court is directed thereupon to enter judgment for the plaintiffs against each separate auction house in the amount determined against each defendant, less pro tanto the partial satisfaction of $10,000, plus legal interest on each judgment from the date of that conversion.
All concur.
Notes
. "[b]uyer in the ordinary course of business” means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind ... § 400.1-201(9), RSMo 1986.
. Indeed, merely to reclassify
farm products
as
inventory
does not extinguish a security interest in
farm products
sold by one engaged in farming operations. "When farm products pass into the hands of a nonfarmer, they lose their farm products classification and become inventory. Although section 9-307 protects a subsequent purchaser from a security interest created by a holder of inventory, it does not destroy a security interest that attached when the goods were farm products. [Section 9-307(1) affects only security interests created by the seller. Since the non-farmer did not create the security interest, the buyer will not be protected by this section.] [Thus] ... [t]he packer who buys cattle from a broker could still be subject to the security interest created by the farmer who sold to the broker, even though the cattle were classified as inventory in the broker’s hands.” So-relle, “Farm Products” Under the U.C.C. — Is a Special Classification Desirable?, 47 Tex.L.Rev. 209, 314 (1969); see also,
First Natl Bank in Lenox v. Lamoni Livestock Sales Co.,
. The record on appeal and briefing are otherwise inadequate for a definitive response to the legal issue of release that the affirmative defense undertakes to pose. There is no evidence as to the date of the $10,000 transaction except that it was "after 1983.” The judgment of the bankruptcy court, although before the trial court was not presented to this court, so that even that date used by the witnesses as a reference on that issue is lacking. Section 537.060, which governs the subject of release and contribution between tortfeasors, was drastically rewritten with effect on September 28, 1983. The legal implications of the evidence, even if otherwise probative of release, depend upon whether the agreement to release was executed before or after the effective date of amended § 537.060.
Aherron v. St. John’s Mercy Medical Center,