Mahon v. Stowers, 416 U.S. 100 (1974)

Mahon v. Stowers

No. 73-1131

Decided April 15, 1974
416 U.S. 100

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEAL FOR THE FIFTH CIRCUIT

Syllabus

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 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.