This case relates to the liability of an auctioneer to the United States for the proceeds of the sale of two cows at Parkersburg, West Virginia, which were covered by a chattel mortgage recorded in Ohio in favor of the Farmers Home Administration. The proceeds of the sale were transmitted to the mortgagor at whose instance the cows were sold. The District Judge held that the auctioneer had constructive notice of the mortgage under the laws of these states and entered judgment for the United States.
Edward L. Miller and his wife, on April 4, 1957, executed a chattel mortgage in favor of the Fanners Home Administration covering eight cows described therein, including the two sold by the auctioneеr. The mortgage was recorded pursuant to Sections 1319.01 and 1319.02 of the Revised Code of Ohio, which provides that such a mortgage shall be void as to creditors of the mortgagor, subsequent purchasers and mortgagees in good faith unless deposited with the appropriate county recorder.
The Union Livestock Sales Company, Inc., defendant in thе District Court, is a West Virginia corporation which operates a public market for the sale of livestock at auction at Parkersburg, West Virginia. It opex’ates subject to rules and regulations promulgated by the Commissioner of Agriculture of the State pursuant to Chapter 19, Article 2A of the West Virginia Code of 1955. It sold two cows covered by the chattel mortgage at public auction, one on January 25, 1958 and one on February 22, 1958, and remitted the net proceeds to the mortgagor. Information reached the repre
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sentative of the Farmers Home Administration in Ohio that the mortgagor was attempting to sell some of the mortgaged cattle at auction at Athens, Ohio, and an investigation was made and all but two of the cows were recovered, although the mortgagor could not be found. The present suit was then brought and resulted in a judgment for the United States. At the trial the question was raised whether the case was ruled by the state law, as held in United States v. Kramel (8th Cir.),
The defendant attacks the judgment first on the ground that the evidence was insufficient to support the finding that the cows sold in Parkersburg were two of the animals covered by the mortgage. The rеcord shows, however, that the District Superintendent of the Farmers Home Administration went to Athens when he heard that the mortgagor was attempting to sell some of the cows and also went to the Miller farm and succeeded in recovering six cows, four of which had been wrongfully sold by the mortgagor at Athens. He was unable to locate Miller but he made a search of the farm house and found sales slips for the two cows sold at auction at Parkersburg. We think this evidence was sufficient to justify the finding that these two cows were covered by the mortgage.
The principal question to be considered is whether this case is governed by the state or by the federal law; but before discussing this problem we first inquire what relevancy should be accorded the recording statutes of Ohio and West Virginia. It seems to have been assumed that if the state law prevails the Livestock Sales Company acquired constructive knowledge of the mortgage and is, therefore, liable to the United States. We think, however, that this is not true. The recording statute of Ohio gives notice of a mortgage tо creditors of the mortgagor, subsequent purchasers and mortgagees in good faith. The Sales Company however, does not fall within any of these categories; and it is well settled that the recording of a legal instrument in accordance with the state statute does not give notice to all the world but only to those enumerated in the law. See City Loan and Savings Co. v. Morrow,
The courts are divided as to whether the state or federal law should be applied to a situation like that before us. Under precisely similar circumstances in the state of Missouri it was held, in United States v. Kramel (8th Cir.),
The opposite conclusion was reached in similar circumstances in California in United Statеs v. Matthews (9th Cir.),
However, it was shown in the Clear-field case, page 367, 63 S.Ct. page 575, that the Supreme Court in its choice of the applicable federal rule has occasionally selected state law, and in the Standard Oil case, pages 308-310, 67 S.Ct. pages 1608-1609, it was again indicated that the federal courts may accept the state law as the appropriate federal rule when, for instance, the Government places “itself in a position where its rights necessarily are determinable by state law, as when it purchases real estate from one whose title is invalid by that law in relation to another’s claim”, or the state law furnishes “convenient solutions in no way inconsistent with adequate protection of the federal interests.” In accordance with these principles the Supreme Court in Royаl Indemnity Co. v. United States,
These decisions seem to us to justify the holding that the law of West Virginia should be accepted as the guiding rule. *759 Thе loan and mortgage transaction was entered into under the authority of Title II of the Bankhead-Jones Farm Tenant Act, as amended, 7 U.S.C.A. § 1007 et seq., and regulations promulgated thereunder, 6 C.F.R. 341, 342. Section 1007 authorizes the Secretary to make loans to farmers who are citizens of the United States for the purchase of supplies and other farm needs. Section 1018 establishes special limitations on loans and provides in subsection b that the Secretary shall, except as otherwise provided by Congress, make all loans evidenced by notes requiring full liability of the maker and upon such security as the Secretary may prescribe. The procedure adopted by the Government under the authority of thе Act calls for the execution of a standard promissory note and a chattel mortgage to be filed or recorded in accordance with the local recording laws. See 6 C.F.R. Sections 342.3, 342.5.
These provisions seem to us to carry the unmistakable import that the nature and effect of the Government’s security interest under a chattel mortgage is to be subject to the applicable recording laws, and the fair inference is that the Government’s rights with respect to third persons are to be determined in accordance with the local law. Whether or not this inference may justifiably be drawn from the statute itself, we think the circumstances justify the court in choosing the state law as the appropriate federal rule to be applied to the loan transaction. We find no need for uniformity in these transactions throughout the United States. On the contrary, it seems to us that the interest of the Government and of the borrower will be properly protected if the local rules governing dealings in the transfer of property, which have been built up by the experience in like transactions and are familiar alike to the courts and the citizens of the several localities, are given application. Moreover, the general purpose of the statute to give aid and assistance to the farming community will be promoted if the loans are made in .accordance with local practice.
What then is the prevailing rule in West Virginia as to the liability for wrongful conversion by an innocent agent of the wrongdoer? Our attention is called to an early Virginia case which may be accepted as a precedent in West Virginia since it was decided prior to the separation of the states. In Travis v. Claiborne,
This ruling is clear enough and taken by itself would require the reversal of the judgment for the United States in the pending case. Subsequent decisions, however, weaken its authority. In Newsum v. Newsum,
Later cases in West Virginia apply with some strictness the rule that one who has participated in the conversion of another’s property is liable to the true owner even if he acts in good faith and without knowledge of the true state of facts. Wholesale Coal Co. v. Price Hill Colliery Co.,
In this state of the authorities it seems proper to follow the later rather than the earlier decisions or at least to regard the question as an open one to be decided by the preponderance of the authority in the United States, nо certain rule having been laid down by the State of West Virginia. Looking at the matter from this aspect there is no doubt as to the weight of authority. The almost universally accepted rule is that an 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 title to the property, even though the agent acts without knowledge of the defect in the title. See Restatement of Agency, 2nd, Section 349, and Appendix pages 575-6; Restatement of Torts, Section 233;
It is contended, however, that no liability should be imposed upon the auctioneer in the pending case because it was operating a public market under the West Virginia statutes which provide generally for the regulation of public markеts by the Commissioner of Agriculture of the state and declare public markets “to be affected with a public interest and subject to regulation by the state for the general welfare.” See Chapter 19, Article 2A, of the West Virginia Code of 1955. The case is likened to that considered in a few cases arising under the Federal Packers and Stockyards Act, 7 U.S.C.A. § 181 еt seq., in which marketing agencies were absolved from liability for the innocent sale of converted property on the ground that the statute makes it the duty of every agency licensed under the act to furnish stockyard services upon reasonable request without discrimination. See Blackwell v. Laird,
*761 We reach the conclusion that the •general rule applied by the great majority of the courts should be followed in the pending case and that the decision of the District Court should therefore be •affirmed.
Affirmed.