Appendix — Tennessee Burley Tobacco Growers' Ass'n v. Commodity Credit Corp.

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APPENDIX.

APPENDIX A.

Nos. 15899-900.

United States Court of Appeals

for the Sixth Circuit.

Tennessee Burley Tobacco Grow- ) On Appeal from

ers’ Association, , © shir dec oe

Appellee and Cross-Appellant, hee Court auce,

‘i F ern District of

Tennessee, North-

Commodity Credit Corporation, sealiite Wii

Appellant and Cross-Appellee. -

Decided September 2, 1965.

Before: Miller and Phillips, Circuit Judges, and Mc-

Allister, Senior Circuit Judge.

Phillips, Circuit Judge. In this action for breach of

‘contract the Tennessee Burley Tobacco Growers’ Asso-

ciation, plaintiff, seeks to recover from Commodity Credit

Corporation, defendant, for overhead expenses incurred

by the Association in connection with the tobacco price

support loan program.

The district judge, sitting without a jury, entered judg-

ment in favor of the Association for $173,121.16, and

Commodity has appealed. The Association has filed a

cross-appeal, contending that it is entitled to recover an

additional $48,704.32 and that its judgment should be

increased to $221,825.48.

Jurisdiction is invoked under 15 V. S. C., § T14b (c),

and is not disputed.

SQ

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We reverse the judgment against Commodity and affirm

as to the cross-appeal.

The plaintiff, referred to herein as the Association, is

a farmers’ cooperative marketing association, incorpo-

ated in 1946 under the cooperative marketing laws of

the State of Tennessee. T. C. A., §§ 43-1801—43-1849. Its

membership consists of more than 70,000 Tennessee to-

bacco growers. It was utilized by defendant in .the con-

duct of the tobacco price support loan program in Ten-

nessee during the crop years 1945 through 1955 except

for 1953. This litigation involves the 1951, 1952, 1954

and 1955 crop years.

The defendant, referred to herein as Commodity, is a

corporate agency and instrumentality of the United States,

created by the Commodity Credit Corporation Charter

Act, 15 U. S. C., § 714 et seq., through which the Secre-

tary of Agriculture conducts price support loan programs

for tobacco and certain other agricultural commodities.

The programs for the years here involved were admin-

istered under the Agricultural Act of 1949, as amended,

7 U.S. C., § 1421 et seq.

Factual Background.

Commodity was created for the purpose, among others,

of ‘‘stabilizing, supporting and protecting farm income

and prices.’’ 15 U. 8. C., § 714. One of its objectives is

to assure a minimum price to farmers by placing a floor

under the price of certain agricultural commodities. 1948

U. S. Congressional Service, p. 2145.

s

The status of Commodity was described by the Supreme

Court in Rainwater v. United States,.356 U. S. 590, 591-92,

as follows:

‘‘Commodity is an ‘agency and instrumentality of

the United States, within the Department of Agri-

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culture, subject to the general supervision and di-

rection of the Secretary of Agriculture.’ It was

created by Congress to support farm prices and to

assist in maintaining and distributing adequate sup-

plies of agricultural commodities. Its capital - was

provided by congressional appropriation. Any im-

pairment of this capital, which at times has been

great due to the nature of its activities, is replaced

out. of the public treasury; and- gains are returned

to that treasury. All of its officers and other per-

sonnel are employees of the Department of Agricul-

ture and are compensated as such. Like other gov-

ernment corporations, Commodity is subject to the

provisions of the Government Corporation Control

Act which provides such close. budgetary, auditing

and fiscal controls that,little more than a corporate

name remains to distinguish it from the ordinary

government agency. In brief, Commodity is simply

an administrative device established by Congress for

the purpose of carrying out federal farm programs

with public funds.’’

Relevant statutory powers of Commodity are set forth

in the margin.!

115 U.S. C., § 714b:

“(e) May sue and be sued, but no attachment, injunction, gar-

nishment, or other similar process, mesne or final, shall be is-

sued against the Corporation or its property. * * *

© * *# # # #® # ¢

“(e) Shall have all the rights, privileges, and immunities of

the United States with respéet to the right to priority of pay-

ment with respect to debts from insolvent, deceased, or

bankrupt debtors. The Corporation may assert such rights,

privileges, and immunities in any suit, action, or proceeding.

* ¢* #*# # # #

“(g) May enter into and carry out such contracts or agree-

ments as are necessary in the conduct of its business. State and

local regulatory laws or rules shall not be applicable with re-

spect to contracts or agreements of the Corporation or the par-

ties thereto to the extent that such contracts or agreements

provide that such laws or rules shall not be applicable, or to

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Pursuant to these powers Commodity entered into loan

agreements with the Association for the purpose of sup-

porting tobacco prices for the crop years 1946 through

the extent that such laws or rules are inconsistent with such

contracts or agreements.

* *# #*# # #* # #

“(j) Shall determine the character of and the necessity for its

obligations and expenditures and the manner in which they shall

be incurred, allowed, and paid.

* *¢ @ @ @ @ @

“(1) May make such loans and advances of its funds as are

necessary in the conduct of its business.”

Section 714c, 15 U. S. C., defines the specific powers of the

Corporation. One of these specific powers is to support the

prices, of agricultural commodities through loans, purchases,

payments and other operations. In the performance of these

functions the section directs that:

“.. . the Corporation shall, to the maximum extent prac-

ticable consistent’ with the fulfillment of the Corporation’s

purposes and the effective and efficient conduct of its busi-

ness, utilize the usual and customary channels, facilities,

and arrangements of trade and commerce.”

Further provision is made for the carrying out of the purposes

of Commodity in 15 U. S. C., § 714j:

“The Corporation may, in the conduct. of its business,

utilize on a contract or fee basis, committees or associations

of producers, producer-owned and producer-controlled co-

operative associations, and trade facilities.”

The legislative history of the latter section includes the fol-

lowing:

“In carrying out its price-support program the Corpora-

tion utilizes normal trade facilities to the fullest practicable

‘extent. Thus, where loans are made to farmers the Cor-

poration makes use of local banks, cooperatives, and other

private lending agencies by entering into contracts with

such lending agencies under which the Corporation agrees

to take over loans made in accordance with the Corpora-

tion’s program. In addition, the Corporation enters into

contracts with processors and dealers under which they buy

through’ normal trade channels agricultural commodities at

support prices for the account of the Corporation or for ©

their own account. In the latter event the Corporation gen-

erally agrees with the processors and dealers, upon specified

terms and conditions, to take over their inventories of such

agricultural commodities or products processed therefrom,

or otherwise gives them protection against loss arising out

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ee

1955, except for 1953.2 During the relevant crops years,

the price support level for burley“tobacco was ninety

per cent of a predetermined fixed price, called ‘‘parity’’.

Basically the loan agreements provided that Commodity

would make low interest non-recourse loans to the Asso-

ciation for the purchase of tobacco and for the payment

of direct and overhead expenses of the Association in its

handling, storage and reselling, when approved by Com-

modity as reasonable and necessary.

The program established under the loan contracts oper-

ated in this way: The growers brought their tobacco to an

auction warehouse, where it was graded according to

quality and condition before being offered for sale. Com-

mercial tobacco buyers were afforded an opportunity to

bid on all such tobacco. If the bid price on the grower’s

tobacco was not more than one bid above the support price

for that particular grade, the Association bought the to-

of the purchase of commodities at the support prices.” 1948

U. 8. Code, Congressional Service, p. 2146.

“Section 12 permits the Corporation to utilize, on a con-

tract or fee basis, committees or associations of producers,

producer-owned and producer-controlled cooperative asso-

ciations, and trade facilities. Most of the Corporation’s

price-support operations are carried out in the field through

the agricultural conservation committees and associations.

The Corporation also utilizes to the fullest practicable ex-

tent the facilities of producer-controlled cooperative associa-

tions and trade facilities, such as local banks, warehouses,

commodity handlers and processors. For example,

commodity loans are generally made in the first i

by local banks with which the Corporation has contracts

obligating it to take over the loans upon request. It has

also carried out many of its price-support operations by

contracts with processors and handlers under which they

agree to purchase commodities at support prices in return

for the Corporation’s undertaking to protect them against

loss because of such purchases.” 1948 U. 8. Code, Con-

gressional Service, p. 2153-4.

2 A crop year extends from December 1 through November

30. Thus, the 1951 crop year was from December 1, 1951,

through November 30, 1952.

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bacco at the support price. The auction warehouseman

paid the grower the support pricé and was subsequently

reimbursed by the Association out of money loaned to the

Association by Commodity for ‘that purpose. The Associa-

tion would then re-dry and store the tobacco in ware-

houses until it was later resold.

It was the hope of both the Association’and Commodity

that'the tobacco purchased ‘by the Association from grow-/

ers with government funds would be sold later at higher

prices, either because of an increase in the market price

or because the tobacco would improve with age. For the

years prior to 1951 the crops ultimately were sold for a

profit which was more than sufficient to cover the purchase

price and all expenses. The money borrowed by the Asso-

ciation from Commodity was repaid in full. Part of the

balaneé was distributed by the Association among the

growers and the remainder was held by the Association

in reserve.®

For the crop years 1951, 1952, 1954 and 1955, there was

a deficiency of $1,207,273.29 between the amount of the

loans, including interest,-and the amounts ultimately real-

ized from the sale of the tobacco. This deficiency was

absorbed by Commodity.

Because of disagreements between Commodity and the

Association, no loan contracts were entered into for 1953

or after the 1955 crop: year. The Association continued to

hold. the remaining portions of the 1951, 1952, 1954 and

1955 tobacco crops which were collateral for the loans for

those years Upon demand of Commodity, the Association

8 The refusal of the Association to distribute all of the net .

profits to growers in cash resulted in protracted litigation in

Tennessee courts. See Range v. Tennessee se Tobacco

Growers’ Ass6ciation, 41 Tenn. App. 667, 298 S. 2d 545

(1955) ; Neas v. Tennessee Burley Tobacco Growers’ ps ison

204 Tenn. 405, 321 S. W. 2d 802 (1959).

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from and after May 20, 1957, remitted to Commodity the

gross proceeds from the sale of said tobacco from time to

time as sold, On May 21, 1958, Commodity called the loans

on the crops for these four years, and, upon non-payment,

pooled all such tobacco. In August 1958 Commodity re-

plevied the remainder of the tobacco, and sold it in 1960

for $11,153,944.38. The total of the outstanding loans owed

by the Association to Commodity, including interest, was

$12,361,217.97. AS heretofore stated, this deficiency of

$1,207,273.59 was borne by Commodity and is not in dis-

pute in this litigation. _ .

On June 30, 1957, the Association was adjudged a bank- .

rupt. The complaint in this cause was filed by the trustee

in bankruptcy. Later a determinatign was made that the

trustee had in his possession assets over and above that

necessary to bear all costs of administration. The trustee

thereupon assigned to the Association all such’ properties

and assets, including this sight of.action, and the Associa-

tion was substituted as party plaintiff. The record indi-

‘cates that the Association has_a present net worth of

$300,000 or more. _

The Present Controversy.

The present controversy involves overhead expenses in-

curred by the Association for the 1951,/1952, 1954 and

1955 crop years. The Association ,contends that Com-

modity is obligated to reimburse it for these expenses.

It is contended by Commodity that under the terms of

the loan agreements the overhead expenses of the Associa-

tion were to be financed in two ways: First, the members

of the Association paid to it twelve cents per hundred-

weight for all the tobacco sold, and the tobacco warehouse-

men paid three cents per hundredweight, which the ware-

housemen in turn collected from the growers. Second, if

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overhead expenses in excess of these charges were ap-

proved by Commodity, non-recourse loans were made to

the Association for the approved amounts. In addition,

if the Association desired to expend greater sums for ex-

penses, it could do so from its own funds,* but at its own

risk and without any right of reimbursement.

All of the overhead expenses included in the judgment

of the district court were paid by the Association out of

its own funds. No part of the overhead expenses here in-

volved were borrowed from Commodity.

The question to be determined in this case is whether

or not Commodity is liable to the Association for the re-

imbursement of these expenses.

Judgment of the District Court.

One of the issues presented in the district court was the

meaning and interpretation of the contracts between the

parties. The Association contended that’ under the terms

of the contracts for the crop years in question Commodity

agreed to reimburse it for unrecouped overhead expenses

incurred in excess of those approved and advanced by

Commodity. Commodity contended to the contrary, main-

taining that under the provisions of the contracts it was

responsible only for those overhead expenses which it ap- “

proved and for which it made loans.

The district court did not resolve this disputed issue of

contract interpretation, saying:

4 The Association had funds of its own derived from such

sources as $3.00 lifetime membership dues collected from its

members, loose floor income, consignment fees, interest income,

gains on the sale of fixed assets, patronage refunds from other

cooperatives, profits from storage warehouse operations and

miscellaneous income. It also held reserves from undistributed

net gains from the ultimate sale of tobacco crops for prior years

in excess of the amounts of loans, all of which had not been

distributed to growers. See cases cited in third footnote.

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‘‘In so far as the Court can ascertain, however,

there was no specific agreement between the parties

as to which would bear any loss arising from the ad-

ministration of the support program if the collateral

was not resold for a sufficient amount to bear all such

. expenses.’’

»

Although net holding as a matter of contract interpre-

tation that Commodity had agreed to reimburse the As-

sociation for unapproved and unrecouped overhead ex-

penses in excess of the amoynts advanced, the court held

that Commodity is liable for these expenses on two

grounds:

First, that liability for these expenses is imposed upon

Commodity by 7 U. S. C., § 1425, regardless of the provi-

sions of the contracts between the parties. On this point

the district court said:

~ ‘The Congress has declared by statute that no pro-

ducer shall be personally liable for any deficieticy

arising. from the sale of the collateral securing any

loan made under the authority of the Agricultural Ad-

justment Act of 1949 except where the producer ob-

tains the loan by means of fraudulent representations.

7 U.S. C., $1425. The obvious intention of the Con-

gress in this enactment was to relieve fraud-free grow-

ers of any pecuniary responsibility from the admin-

istration by the aes of Agriculture of the price

support program .

‘‘The plaintiff is a cooperative marketing associa-’

tion of burley tobacco producers. The legislative his-

tory of the Agriculturg]l Adjustment Act of 1949, and

earlier statutes of similar import, indicate to this

Court that the Congress intended that the pecuniary

‘responsibility for the administration of the price sup-

port program would be borne by the Government, not

by the producers. * * * [T]he contract between these

parties derived its efficacy from the Agricultural Ad-

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cap lila

justment Act of 1949, and earlier statutes of similar

nature, and it is circumscribed by all the pertinent

provisions of that statute. * * * Commodity could not,

by contractual provisions or otherwise, deprive these

producers of the absolution the Congress granted them

by statute.’’

Second, that the Association was“the agent of Com-

modity, and ‘‘. . . the law implies a promise of reimburse-

ment for necessary expenses advanced or incurred by the

Association in order to consummate what the Association

agreed to do, where the acts were in the scope of sits

agency.”’

Is the Association a Producer?

The first question to be determined on this appeal is

whether the Association is a ‘‘producer’’ within the mean-

ing of 7 U.S. C., § 1425.5 The holding of the district court

that this statute imposes upon Commodity ‘he legal obli-

gation to reimburse the Association for overhead expenses

incurred by it cannot stand unless the Association comes

within the statutory term ‘‘producer.’’ "i

The definition section of the Agricultural Act of. 1949,

7 U. S. C., § 1428, does not specifically define producer,

but does define a producer who complies with acreage

allotments: ‘

‘<(b) A ‘cooperator’ with respect to any basic ag-

ricultural commodity shall be a producer on whose

farm the acreage planted to the commodity does not

exceed the farm acreage allotment for the commodity

5 This section is entitled “Personal liability of producers for

deficiencies” and provides as follows:

“No producer shall be personally liable for any deficiency

arising from the sale of the collateral securing any loan

made under authority of this Act unless such loan was ob-

pose through fraudulent representations by the pro-

mcer. 3

==» Jig ..

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under sub-chapter II of chapter 35 of this title, or in

the case of price support for corn or wheat to a pro-

ducer outside the commercial corn-producing or wheat- ”

producing area, a producer who complies with condi-

tions of eligibility prescribed by the Secretary. For

the purpose of this subsection, a producer shall not be

deemed to have exceeded his farm acreage allotment

unless such producer knowingly exceeded such allot-

ment.’’ (Emphasis supplied.)

In United States v. Appling, 239 F. Supp. 185, 191 (S. D.

Texas), the court said:

‘‘Under the Agricultural Act of 1949 (7 U.S. C. A..

§ 1421, et seq.) a producer is entitled to aid by price

support if he is a ‘cooperator.’? A cooperator is a

producer on whose farm the acreage planted to the

commodity does not exceed the farm acreage allot-

ment. 7 U.S. C. A., § 1428 (b). (Emphasié supplied.)

The use in this statutory definition of the phrase ‘“‘a

producer on whose farm’? strongly indicates that by :the

term ‘‘producer’’ Congress meant individuals or organiza-

tions having farms and raising commodities thereon.

The basic definition of a ‘‘producer’’ is ‘‘one who grows

agricultural products . . !’? (Emphasis supplied.) Web-

ster’s Third New International Dictionary, Unabridged.

The term producer is ‘‘commonly used to denote a per-

son who raises agricultural crops and puts them in a con-

dition for the market.’’ Allen v. Smith, 173 U. 8. 389, 399;

Pampanga Sugar Mills v. Trinidad, 279 U. S. 211, 217.

In Puckett v. Sellars,” 235 N. C. 264 69 S. BE. 2d 497,

499, which involved marketing provisions of the price sup-

port program, the court said:

‘‘It is the producer who is granted the production

quota. It is he who overproduces, and the penalty is

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intended to penalize him for his overproduction. He

markets the tobacco .. .’”? (Emphasis supplied.)

In ascertaining the meaning of the word ‘‘producer’’ we

also look to the regulations of the Department of Agricul-

Federal Crop Insurance Corporation v. Merrill, 332 U.S.

380; Weir v. United States, 310 F’. 2d 149, 154 (C. A. 8).

In the regulations relating to price support for tobacco

for the 1955-56 marketing years, an ‘‘eligible producer’’

for the purpose of the tobacco price support program was

defined as one for whom a marketing card had been is-

sued under the regulations dealing with tobacco market-

ing quotas for the 1955-56 marketing years. 20 Federal

Register 3525. The tobacco marketing quota regulations

for the 1955-56 years in turn define a ‘‘producer”’ as ‘‘a

person who as owner, landlord, tenant, sharecropper, or

laborer, is entitled to share in the tobacco available for

marketing from the farm . . .’’ (Emphasis supplied.) 20

Federal Register 4107. Similar provisions are contained

in the regulations relating to tobacco price support and

tobacco marketing quotas for the others years involved

in this case.

The Association as an entity does not own or operate

farms and does not produce tobacco. It only receives

tobacco from the growers that do produce it. We hold

that the term ‘‘producer’’ is used in the statute in its

ordinary sense, and is intended to apply to ‘persons or

organizations that grow tobacco, such as the owner of a

farm, tenant on a farm, a sharecropper or similar per-

son. The term does not encompass an incorporated or-

ganization such as the Association here involved which

does not grow crops, but merely receives them from pro-

ducers for handling.

Commodity’s utilization of such an Association in the

tobacco price support program, does not make the As-

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sociation a ‘‘producer’’ within the meaning of the statute.

‘Congress in adopting Section 1425 simply intended to

absolve producers from personal liability for loan de-

ficiencies resulting from sales of pledged commodities at

price levels lower than the support prices in force at the

time the loan was made . . .” Autrey v. Commodity

Credit Corporation, 143 F. Supp. 550, 554 (W. D. Ark.).

There was full compliance with the statute when the

growers received ninety per cent of the parity price for

their tobacco and Commodity absorbed the entire loan

deficiency arising from the sale of the tobacco.

The district court apparently adopted the reasoning

that since the Association is a cooperative whose mem-

bers are producers, the Association itself should be treated

as a producer. A similar argument was rejected by the

Supreme Court in United States v. Rock Royal Co-op, 307

U. S. 533, 578-581. In that case an Association which

handled milk produced by its members argued that for

purposes of a milk marketing order. issued by the Secre-

tary of Agriculture under Section 8¢ of. the Marketing

Agreement Act, 7 U. S. C. § 608¢, the Association was the

alter ego of its producer members and should be treated

as a producer rather than a handler. The Supreme Court

pointed out that the “cooperative owns no farms’’ and

that it merely receives milk-from its members and dis-

tributes it (307 U. S. at 578), and held that the cooperative

was a handler and not a producer. To like effect see Elm

Spring Farm v. United States, 127 F. 2d 920 (C. A. 1);

Lucas County Farm Bureau Cooperative Association v.

N. L. RB. B., 289 F. 2d 844, 845 (C. A. 6), cert. denied 368

U. 8. 823.

—/By the terms of the Cooperative Marketing Association

Act of Tennessee, TCA §§ 43-1801 — 43-1849, under which

the Association was chartered, it is an entity separate and

apart from its members. TCA § 43-1803 defines an as-

sociation as ‘‘any corporation organized under this law,” »

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and refers to members of such an association as ‘‘pro-

ducers’’. The state statute provides for articles of in-

corporation, by-laws, a board of directors, an executive

committee, a president, vice-presidents, a secretary and a

treasurer. Under the terms of T. C.. A. § 43-1845, the

provisions of the general corporation laws of Tennessee

and all powers and rights thereunder are made applicable

to such associations except where in conflict or incon-

sistent with the Cooperative Marketing Association Act.

T. C. A. § 43-1825 expressly provides that:

‘*No member shall be liable for the debts of the as-

sociation to an amount exceeding the sum remaining

unpaid on his membership fee or his subscription to

the capital stock, including any unpaid balance on any

promissory notes given in payment thereof.’’

Under the provisions of this latter statute as well as under

7 U. S. C., $1425, the producer-members of the Associa-

tion are not liable for deficiencies in loans made by Com-

modity to the Association.

It thus appears that each grower (i. e. producer) in this

case has been paid the full ninety per cent of parity price

for his tobacco. Commodity has not sought and does not

seek to hold any grower personally liable for any_part of

the loan deficiency. The Association already has paid the

overhead expenses which it now seeks to recover. If. it

fails to recover these expenses from the Government, this

will not result in any grower having to give up any of

the ninety percent of parity price whick he already has

received for this tobacco. The reversal of the judgment

of the district court will not result in any grower becom-

ing personally liable for any part of the deficiency arising .

from the sale of the collateral tobacco. “

We hold that the Association is not a producer within

the meaning of the statute and that the district court erred

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in ruling that this statute renders Commodity liable for

overhead expenses incurred by the Association regardless

of the provisions of the contracts between the parties.

Is Commodity Liable Under an Implied

Promise to Reimburse Expenses?

The second question to be determined is whether the

_ district court was correct in the following holding:

‘‘The Association was engaged by the defendant

Commodity to perform detailed functions in behalf of

the latter; and, under such circumstances, the law

implies a promise of reimbursement for necessary ex-

penses advanced or incurred by the Association in

order to consummate what the Association agreed to

do, where the acts were in the scope of its agency.’’

We reemphasize that this second ground for the judg-

ment of the trial court is based upon the theory of implied

promise to pay, and not upon a holding that Commodity

has obligated itself by contract to reimburse unrecouped

overhead expenses paid by the Association out of its own

funds.

This issue, in turn, poses other serious questions, in-

cluding these:

1. Was the relationship between the parties that of prin-

cipal and agent, as held by the district court, or simply

that of creditor-debtor as insisted by Commodity?

2. Did Commodity have the power to confer upon the

Association the status of agent of the United States with

authority to incur expenses reimbursable as Government

obligations as a matter of right? -

3. Assuming that the answer to the second question is in

the affirmative and that the relationship between the par-

ties was that of principal and agent, does the rule of the

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law of agency, that there exists a promise implied in law

that the principal will reimburse the agent for necessary

expenses even though the principal did not expressly au-

thorize or contract to reimburse such expenses, apply as

against the United States?

_ These three intriguing questions have been briefed and

argued thoroughly, but we do not find it necessary to pass

upon them in this case. We conclude that the issue of the

liability or nonliability of Commodity for the overhead ex-

penses of the Association is controlled by the agreements

between the parties. The rule that a promise is implied on

the part of the principal to reimburse his agent for neces-

sary expenses does not apply under the facts in this case,

where the limits of Commodity’s liability for such ex-

penses are prescribed by contract. Therefore, assuming,

but not deciding, that (1)"the Association was the agent

of Commodity, (2) that Commodity had the authority to

create such an agency relationship, and (3) that the rule

of a promise of reimbursement implied in law might apply

against an agency of the United States, nevertheless this

rule of indemnity is applicable only ‘‘in the absence of

terms to the contrary in the agreement.’’ Restatement,

Agency 2d, § 438.

The rights and obligations of Commodity and parties

contracting with it ‘‘depend on the terms and conditions

of the particular contract construed and enforced in

accordance with general principles of law and in the light

of applicable statutes.’’ 91 C. J. S., United States, 4 70, p.

140; cf. Commodity Credit Corporation v. Worthington,

263 F.. 2d 178 (C. A. 4), cert. denied, 359 U. S. 1012; Som-

modity Credit Corp. v. Rosenberg Bros. & Co., 243 F. 2d

504, 508 (C. A. 9), cert. denied, 355 U. S. 837; Restatement,

Agency 2d, §376. *~

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The Contracts Between the Parties.

Accordingly we now turn to the provisions of the agree-

ments between the parties, which we deem to be con-

trolling. Separate loan contracts were executed by Com-

modity and the Association for each of the crop years

in question, the terms of which were substantially identi-

cal. Pertinent extracts from the 1955 contract, which were

also incorporated in the loan contracts for the other years

in question, are quoted in the margin.®

6 “1, Commodity agrees to make a loan to the Association

upon the security of loan tobacco as defined in paragraph 2

hereof and upon the security of reusable hogsheads purchased

- by the Association. Such loan shall consist of the amounts set

out in subparagraphs (a), (b), (¢), (d), (e), (£), (g), (h),

(i), and (j) of this paragraph, but shall not exceed a total of

$5,000,000.00. Commodity shall have the right to reduce or in-

crease the maximum commitment set out in this paragraph at

any time upon notice the Association: Provided, That any

reduction shall not apply with respect to tobacco marked for

or delivered to the Association prior to the time of such notice.

Such loan shall bear interest at the rate of three and one-half

(3%) percent per annum. 3

“(a) An amount for each pound of loan tobacco, computed in

accordance with Exhibit A, on the basis of green weight (farm

sales weight): Provided, That such amount shall not exceed the

amount advanced by the Association to the grower with respect

to such tobacco except for the deduction of 12 cents per ewt.

which the Association -makes to apply against the overhead ex-

penses of the Association, and such other deduction as may be

authorized or approved by Commodity.

approved

by Commodity as reasonable and necessary; and shall be made

growers either directly or through warehousemen in addition to

the 12 cents per cwt. referred to in subparagraph 1 (a) (other

— 18a —

In accordance with the provisions of the loan contracts,

the Association submitted budgets of ‘proposed overhead

expenses to Commodity for“approval for each of the four

“crop years in question. In some instances Commodity re-

fused to approve these proposed budgets on the ground

that they were excessive and required that they be reduced

before funds for overhead expenses were advanced.’ “<

than permanent membership fees or stock sales to obtain capi-

tal funds) shall be utilized, first, to finance activities and ex-

penditures of the Association relating to Burley Tobacco other

than overhead costs of handling loan tobacco; second, to estab-

lish reasonable reserves as approved by Commodity; and third,

to pay overhead costs of handling loan tobacco which would

otherwise be advanced by Commodity.

* *¢ #* #* # # #

“12 (e) If the Association expects.to request funds from Com-

modity during the period of this Agreement for use in payment

of overhead costs, the Association shall submit to Commodity

budgets of expenditures, the first of such budgets to be submit-

ted prior to the incurring of any obligations by the Association.

The form of such budgets shall be acceptable to Commodity and

shall contain such details‘as may be requested by Commodity

both as to use of such funds and use of any other funds avail-

able to the Association for payment of overhead costs.”

7 For example, the Acting Director of the Commodity Sta-

bilization Service, Tobacco Service, wrote the following letter to

the Association disapproving the proposed budget for 1955:

“This is in reply to your letter of December 30, 1955, to Mr.

Miller, enclosing a revised budget of overhead expenses in the

amount of $59,589.00 for the current operating ‘Year.

“It. is regretted that we are unable to approve the revised

budget. In view of the quantity of tobacco pledged for cco’

loans prior to the holidays, it appears that the total quantity

of 1955 crop tobacco pledged by your organization may not

reach 5,000,000 pounds. Total overhead costs of almost $60,000,

therefore, probably will reflect a cost of $1@0 per cwt. or more.

We have recently reviewed the overhead costs of all of the,

Associations which handle the tobacco price support program in

the Burley and flue-cured areas and find that the average over-

head cost up to the present time of handling the. 1946 through

1954 crops was 30.3 cents per cwt. The atthe kine your or-

ganization for the same period are by far thg, highest in the

group and have exceeded 75 cents per cwt., the figures being

incomplete because we have not as yet received requested re-

ports of your expenses for the past year. All of the other

—19a— _

During each of the four years the Association expended

more for overhead than it borrowed. It contends, and

we think correctly, so, that budgets had to be submitted

only if the Association expected to borrow overhead funds

from Commodity. The Association further asserts that it

used its own fynds-for overhead expenses for sound busi-

ness purposes, such as to avoid the payment of interest,

and that these overhead expenses were incurred. with the

knowledge of Commodity and with the understanding that

they would be reimbursed. r

We find that it was contemplated that Commodity would

- make loan contracts: in administering the tobacco price

support program and that Commodity was to make pay-

ments in the form of loans. ¢See Senate Report on the

Commodity Corporation Charter Act of June 29, +1948,

1948 U. S. Code Congressional Service, pp. 2138, 2145. We

construe the contracts in the present case as conforming

to this policy. ;

organizations, large and small, are able to carry out on a satis-

factory basis their obligations under the price support program,

more economically than the Tennessee Burley Tobacco Grow-

ers Association.

“As we have previously indicated, we seriously question

whether the total expenses of the Association relate entirely to

and are necessary for the satisfactory operation of the price

Support program. One possible method of determining what

portion of the expenses are applicable to price support activi-

ties would be to ‘departmentalize’ your organization and its

operations. This would. require allocation of each expense item

as between price support operations and other activities, and

probably would: not be especially practicable. Another possible

solution would be for the Association to finance its overhead

costs with its own funds, without borrowing from CCC. (Em-

phasis supplied.)

“The only other alternative we see at the present time is to

establish a limitation as to the amount which CCC will advance

to the Association for overhead costs. Under the circumstances,

we are unwilling to advance CCC funds for overhead in excess

of 75 cents per cwt. for 1955 crop operations during the cur-

_ rent year, including the 12 cents per ewt. deducted from -the

loan rates.” :

ON

Commodity had no power to prevent the Association from

expending its own funds.’ It sought broader powers and

controls over the operations and expenditures of the Asso-

ciation during the unsuccessful negotiations for a loan

agreement for the crop year 1953 by insisting upon in-

cluding in the contract the provision quoted in the mar-

gin.® When the Association declined to agree to this pro-

vision, no contract was executed between the parties for

1953, and a contract was awarded to another Tennessee co-

operative for that crop year. The Secretary of Agricul-

‘ture subsequently instructed Commodity not to insist on

this language, and it was not included in -the 1954 and

1955 contracts. |

Since Commodity had no control over overhead, expendi-

tures made by the Association from its own funds, as-

suredly it cannot be held liable to reimburse such expendi-

tures in the absence of a clear contractual provision to

that effect. We, find no such provisions in the contracts

for the crop years in question. To the contrary we do not

construe the contracts to make Commodity liable for any

of the Associations’ overhead expenses except those ap-

proved in advance and included in loan payments.

We reject a construction of the contracts which would

deprive the Government of control over the ‘amounts to be

8 After Commodity had refused to approve its 1952 budget,

‘the Association reduced its proposed overhead expenses for that

year and submitted a lower budget, saying:

“To the degree that the Association’s actual overhead. of the

period December 1, 1951 to November 30, 1952 exceeds the over-

head funds provided for above, the Association will use funds

otherwise available to it to meet the additional amount of over-

head. 2 @ @”

® Commodity insisted that the following provisions be. in-

cluded in the contract for 1953 and future years:

“The Association shall submit for approval by Commodity

periodic budgets of estimated incomé and expenditures as re-

quested. The Association shall conduct its operations in accord-

ance with such approved budgets and shall submit operating

and other financial statements as requested by Commodity.”

4

— 21a —

advanced or reimbursed to cover overhead expenses in con-

nection with the price support loan program. We find no

provision that reasonably could be construed as conferring

upon the Association carte blanche authority to obligate

the Government for any and all overhead expenses it

might see fit to incur. Such fiscal irresponsibility on the

part of Commodity is not lightly to be inferred. a

As said by the Supreme Court in Federal Crop Ins.

Corp. v. Merrill, supra, 332 U. S. 381, 385:

‘*The oft-quoted observation in Rock Island, Arkan-

sas & Louisiana Railroad Co. v. United States, 254

U. S. 141, 143, that ‘Men must turn square corners

when they deal with the Goveriment,’ does not reflect

a callous outlook. It merely expresses the duty of all

courts to observe the conditions defined by Congress

for charging the public treasury.’’

The Cross-appeal..

Un its cross-appeal the Association complains of the

district. court’s refusal to award it reimbursement for

$48,704.32 spent by the Association for overhead expenses,

which sum represented consignment fees of three cents per

ewt. collected by the Association from warehousemen. The

warehousemen in turn had collected such fees from the

growers. The Association argues that the contracts con-

templated that the use of such fees for overhead expenses

would only be’ temporary, that the Association could re-

coup these sums out of the proceeds from the sale of the

tobacco, and that if the sale proceeds were insufficient,

the Association could recover these from Commodity.

We find no language in the contracts and no evidence of

conduct of the parties supporting this contention. We hold

that the district court was correct in refusing to allow a

recovery against Commodity for these expenses.

A

nt A an

The judgment of the district court with respect to the

cross appeal is affirmed. In all other respects the judg-

ment of the district court ‘is reversed and the complaint

indiaiiiieed: ><.

The original hereof was filed or entered and docketed

Dec. 28, 1963.

In the United States District Court

For the Eastern District of Tennessee,

Northeastern Division.

*

Tennessee Burley Tobacco Growers’ .

Association,

| Plaintiff, | Givil Action.

bias | * No. 1602.

Commodity Credit Corporation,

Defendant. | "

As a part of the program of national economic recovery

instituted during the depression of the 1930’s, the Con-

gress declared that the disruption of the orderly exchange

of agricultural commodities in interstate commerce im-

paired the purchasing power of farmers and destroyed

the value of agricultural assets which support the na-

tional creeit structure, and that these conditions affected

transactions in agricultural commodities with a national

public interest and burdened and obstructed the normal

channels of interstate commerce. 7 U.S. C., § 601. The

Congress adopted policies in 1933 designed, inter alia, to

establish and maintain such orderly marketing conditions

for agricultural commodities;moving in interstate com-

merce as would establish parity prices for farmers and

protect the interests of consumérs by a gradual correction

of the (then) current level of prices as rapidly as the

Y

_ 23a —

authorized executive deemed same to be in the’ public

(interest and feasible in the light of current demands of

consumers in domestic and foreign markets. 7 U. S. C.,

§ 602. These policies were to be implemented through

the exercise of powers conferred on the Secretary of

Agriculture.

In the Agricultural-Adjustment Act of 1949, 7 U. S. C.,

§§ 1421, et seq., the Congress imposed on the agricultural

secretary the mandatory duty of providing the price sup-

ports it had authorized, through the defendant Com-

modity Credit Corporation, and other means available to

him, and empowered him to operate the price support

program in such manner as he might determine or ap-

prove. 7 U. S. C., §1421 (a) and (b). Commodity, a

corporate agency and instrumentality of the United

States, 15 U. S. C., $§ 714, et seq. -, was the entity through

which the Chieti implemerited the burley tobacco price

support program in Tennessee for the crop years which

this litigation involves.1

Prior to the crop year 1946, Commodity supported

prices on tobacco grown’ by Tennessee farmers through

a Kentucky cooperative marketing association. At the

instance of the Tennessee Farm Bureau Federation and

other affected Tennessee groups, a farmers’ cooperative

marketing association thereafter was organized and in-

corporated in Tennessee under the name of Tennessee

Burley Tobacco Growers’ Association; and, except for

1953, the plaintiff Association was utilized by Commodity

as itg agent to administer the burley tobacco price sup-

port program within Tennessee for the crop years 1946

through 1955. Commodity provided funds for the pur-’

pose of assuring farmers an adequate price for their

tobacco by means of non-recourse demand loans to as-

1 The burley tobacco crop year extends from December first

through the following November thirtieth. —__

ae

sociations of farmers on each crop, equal to 90% of a

fixed price, called “parity”. It was the business of the

Association, by means of consignment, to take possession

of, and at a time thereafter which appeared to be ad-

vantageous, to resell and to repay to Commodity out of

the proceeds of the resale of all the crop under loan for

any given year, the loan which Commodity had made for

that crop year, plus all expenses advanced to the As-

sociation incident to such marketing. Neas v. Tennessee

Burley Tobacco Growers’ Ass’n. (1959), 204 Tenn. 405, 321

S. W. (2d) 802, 803. Thus the Association was the ad-

ministering agent of Commodity in the implementation

of the price support program of the Secretary of Agricul-

ture, except as to the crop year 1953, on burley tobacco

produced by Tennessee growers for the crop years 1946

through 1955. Range v. Tennessee Burley Tobacco

Growers’ Ass’n., C. A. Tenn. (1956), 41 Tenn. App. 667,

687, certiorari denied (1957), 355 U. S. 813, 78 S. Ct. 11,»

2 L. Ed. (2d) 39; Neas v. Tennessee Tobacco Growers’

Ass’n., supra, 321 S. W. (2d) at page 806 [3]; and, the

rights of Tennessee producers under the burley tobacco

price support program for those years were based on the

agency pf the Association for Commodity for the receipt

of their tobacco and the final resale thereof. Neas v.

Tennessee Burley Tobacco Growers’ Ass’n., supra, 321

S. W. (2d) at page 806 [3].

In furtherance of their general agency, the parties

entered into contracts, known as tobacco loan agreements,

relating to the conduct of the price support program within

Tennessee for the aforementioned crop years. Thereunder,

for those crop years, the Association purchased all tobacco

its members sold through tobacco auction warehouses un-

less the individual ‘‘baskets’’ of tobacco offered for’ pri-

vate sale on high bids had produced bids of one point, or

more, above theysupport price previously established by

the shasta for the given crop year. The auction ware-

— 25a —

houseman immediately paid the producer the supported

price and was subsequently reimbursed by the Association

from funds it borrowed from Commodity by loan agree-

ment. In addition to borrowing the full 90% of the parity

price with which to reimburse the auction warehouseman,

as aforesaid, the Association could—and customarily did

—borrow sufficient amounts from Commodity for the

Association’s expenses incurred in transporting, insuring,

redrying, recording, regrading, fumigating, packing, sam-

pling, inspecting, storing and reselling the tobacco it pur-

chased. Also, the Association could—and sometimes did—

borrow additional amounts from Commodity to defray its

overhead expenses. The tobacco thus bought by the Asso-

ciation was pledged to Commodity as collateral for all

amounts borrowed, for whatever purpose, referable to the

given crop years involved.? Several years ordinarily elapsed

between the Association’s original purchase of the tobacco

from the growers and its eventual resale, so the Associa-

tion’s agency as to each crop year extended longer than

the crop year, supra. Frequently, it was necessary or

desirable to regrade some portions of the collateral before

resale. In those instances, Commodity established prices

to guide the Association in its effort to resell the regraded

tobacco. In so far as the Court can ascertain, however,

there Ned no specific agreement between the parties as to

which would bear any loss arising from the administration

of the support program if the collateral was not resold for

a sufficient amount to bear all such expenses.

When the Association was in the process of formation,

the auction warehousemen, who were in position to benefit

from its organization and operations, agreed to pay the

Association three cents per hundred-weight (3¢ per cwt.)

2 It was Commodity’s theory, infra, that the collateral could

be sold thereafter for an aggregate amount sufficient to recoup -

all amounts expended in connection with the delayed sale of the

crop, so that all costs of operating the program might be paid

by the fruits of the producers’ initiative.

— 26a —

on all tobacco purchased from growers through the respec-

tive facilities of the auction warehousemen. By regula-

tions having the force and effect of law, Federal Crop Ins.

Corp. v. Merrill (1947), 332 U. S. 380, 68 S. Ct. 1, 92 L.

Ed. 10, 15 [headnote 5], 175 A. L. R. 1075, the Association

was required to bear a portion of the overhead costs in

connection with the loan operation and was authorized to

charge the growers a fee of twelve cents per hundred-

weight (12¢ per cwt.), and such other deductions author-

ized or approved by Commodity for such purpose. 20 F.

R. 3526, § 464.7048 The Association also constructed and

operated four storage warehouses and earned storage fees

in connection therewith, fra. From these and other

sources, including its receipt of a substantial aggregate of

dues ‘payments by its members, the Association acquired

funds of its own.

Under the provisions of the memorandum of agreement

between the parties, Commodity agreed to lend the Asso-

ciation the amounts the latter advanced to growers in

purchasing their tobacco, supra, less the 12¢ per cwt. to be

deducted from such payment, and the amount necessary

to cover the Association’s overhead expenses in connection

with its administration of the tobacco price support pro-

gram. With reference to overhead expenses, the memo- |

randum provides that loans would be made to the Associa-

tion only for current needs approved by the defendant,

Commodity, as being ‘‘* * * reasonable and necessary

* * *?? and only to the extent that they exceeded the 12¢

per cwt. mentioned, supra. It was further provided therein

that any funds, other than the aforesaid fee of 12¢ per

ewt. collected through auction warehousemen and proceeds

‘of membership fees and capital stock sales, would be uti-

8 This regulation permitted the Association to collect its fee

by a deduction from the sale of the farmers’ tobacco or by ar-

-rangements whereby the auction warehousemen would collect

such charges and remit them to the Association.

— 27a —

lized by the Association, first, to finance its expenses of a

non-overhead or direct-cost* nature in implementing the

tobacco price support program; secondly, to establish reage

sonable reserves as might be approved by Commodity;5

and, finally, to pay the [indirect] overhead costs of han-

dling the tobacco: which ‘‘* * * would otherwise be ad-

vanced * * *’? by Commodity. The immediately preceding

language suggests to the Court that the parties understood

mutually that there might be overhead expenses which the

Association itself might advance for the program, which

the Association would not borrow from. Commodity, and

that the parties intended that the Association would re-

coup such expenses from the final resale of the collateral.

Certainly, this was the understanding of the Association’s

management. .

This memorandum of agreement also established a pro-

cedure by which the Association would submit budgets for

Commodity’s approval, if the former expected to obtain

advances for the expenses of its operations with regard

to the support program. On approval of these budgets,

the Association drew funds as needed from Commodity’s

fiscal agent, the Louisville Bank for Cooperatives.

It was the contractual duty of the Association to resell _

all of the tobacco in its inventories for the respective

crop years at the highest price obtainable and to remit” =

to Commodity, for application on the various crop-year

loans, the grosgyproceeds therefrom, less accrued charges

assignable to that year which had been approved by Com-

4 Expenses in connection with the physical handling of the

tobacco are sometimes referred to as “direct costs”, while all

other overhead expenses are sometimes considered ‘indirect

cos

5 The parties had agreed that the respective sums of $18,-

741.52 and $120,029.06 might be withheld by the Association as

reserve funds and not distributed to its producer-members. This

non-distribution led to many facets of litigation between the

Association and its members, as a class.

P a

modity. For the crop years 1947 through 1950, inclusive,

the Association expended for (indirect) overhead expenses

an aggregate of $163,827.75 ‘more than Commodity had

advanced it for such purposes. However, the Association

was able to resell the support tobacco for each of those

crop years for respective aggregate amounts sufficient to

repay all sums borrowed from Commodity, with interest,

and, in addition, to recoup all its overhead expenses

which it had advanced from its own funds and not bor-

rowed from Commodity. No prohibition is found in

the agency contract or in the tobacco loan agreements be-

tween the ae which prohibited the Association’s ex-

pending its own funds in any amounts it deemed expe-

dient in operating the price support program. The only

requirement was that Commodity approve the utilization

of funds it lent the Association for reasonable and neces-

sary overhead (or indirect) expenses.

The reasons the management of the Association assigns

for use of its own funds to defray some of its overhead

expenses in this connection, when funds were available

tonit for these purposes by way of loan, are sound and

sensible, viz.: first, the Association desired to reduce the

interest the producers, through the Association, would be

required to pay on all sums borrowed from Commodity ;*

and secondly, it was difficult to ascertain in advance the

quantities of tobacco which the Association would pur-

chase and handle from each crop. Obviously, overhead

expenses varied in proportion to the quantity of tobacco >

the Association handled for Commodity from each crop.

It must be remembered that Commodity undertook to

operate the program in such manner that the growers’

tobacco would be sold eventually for a sufficient amount

to recoup the entite cdst of operating the program. This

policy is clearly set forth by recorded actions taken by

Commodity’s directors, as follows:

6 The producers share in all net gains from the operation of

the program, infra.

he

‘

— 29a — 6

‘‘* * * Certain costs are incurred upon tobacco in

addition to the amount*actually advanced on_ the

tobacco at the time it is placed under loan. These

costs are for redrying, packing, transportation, stor-

age, inspection at redrying plants, fumigation, risk

of loss, record keeping, and sales_operations. All

costs will be advanced by CCC and charged against

the tobacco. Therefore, the entire amount of the

operating cost ultimately will be borne by producers,

if the tobacco is sold for enough to repay the loan

and costs. . . . ’’ Tobacco Loan Docket, ated

Credit Conpocation, § T-E.

While the tobacco from the crop years 1946 through

1950, inclusive, achieved the foregoing objective, this goal

was not attained as to the crop years 1951, 1952, 1954 and

1955. The applicable loan collateral for each of those

years was not resold for enough to repay the respective

loans and operating costs. In the process, the Association

failed to recoup a net aggregate of $175,047.69, which

amount it had advanced in its operation of the support-

price program. This is the amount the Association now

seeks to recover from Commodity.

Significant in the agency relationship of these parties

is Commodity’s evident displeasure with certain of the

Association’s activities which had no direct bearing on

the administration of the support-price program. These

activities and the displeasure of Commodity’s officials with

them seem-to have strained the relationship severely.

The first of these activities involved the entry of the

Association into the tobacco storage warehouse field.

There were not sufficient facilities available in the Ten-

nessee market area to store all the tobacco produced,’

so the Association utilized its capital to construct, in

7 See fn. 6, supra.

— 30a —

1949, the first of four storage warehouses.* The rationale

behind this _project was that the producers’ tobacco was

being impressed with the direct costs of transportation

to out-of-state storage in jurisdiction where the tobacco

was further impressed with the direct cost of state taxes

on such storage. A greater objection to the Association’s

activities emanated from its entry into the tobacco redry-

ing field. This was done ostensibly to reduce the lag

between the time the Association purchased the prodygers’

tobacco and the accomplishment of the necessary redry-

ing process. The Association formed a subsidiary cor-

poration for this purpose and lent it funds with which to

construct and operate a redrying plant. The venture was

not successful, and the Association thereby sustained an

unrecouped loss of some $133,000.

When: the time came to negotiate a new contract for

the crop year 1953,° relations between the parties had

deteriorated markedly. Commodity advised the Associa-

tion and similar organizations, inter alia, that it would not

enter into further agency contracts with them unless they

submitted to complete operational control by Commodity.

The unprecedented provision Commodity demanded be

included in future contracts included the following, viz.:

‘‘The Association shall submit for approval by

Commodity periodic budgets of estimated income and

expenditures as requested. The Association shall

conduct its operations in accordance with such ap-

proved budgets and shall submit operating and other

financial statements as requested by Commodity.’’

(Emphasis added.)

The Association declined to agree to the inclusion of

this new language in its agency agreement, and, as a

8 Commodity’s officials assisted the Association in obtaining

the necessary steel allocations for this construction.

® New and separate contracts were negotiated by the parties

for each crop year.

— 3la—

result, the Association was°not given a contract for the

1953 crop year.!° The Secretary of Agriculture subse-

quently directed Commodity to not insist on the inclusion

of the offending language, supra, and loan contractual

. relations were resumed by the parties for the crop years

1954 and 1955. Although the Association sought new con-

tracts for 1956 and subsequent crop years, Commodity

declined to delegate it such further agency.

The Association had not resold all the tobacco in its

inventories for the crop years 1951, 1952, 1954 and 1955

by May 21, 1958, but had remitted to Commodity an ag-

gregate of over $9 millions from resales of portions of

those crops. In accordance with a direétive received from

Commodity in May, 1957, all ‘subsequent gross proceeds

therefrom were remitted to Commodity’s fiscal agent,

without the Association’s making any of the deductions

contemplated by the aforesaid written memorandum of

the parties. The Association so remitted over $2 million

in 1957 and 1958. During the years the parties had no

active agency agreements (i. e., the crop years of 1953,

1956, 1957 and 1958) the Association incurred a portion

of the aforesaid aggregate of its overhead expenses in

the performance of iis required functions for Commodity

under contracts for the crop years 1951, 1952, 1954 and

1955.

Commodity called the outstanding balances on all loans

then due from the Association on May 21, 1958. The

Association was unable to pay the loans, and in August,

1958, under a writ of replevin issued by this court, Com-

modity recovered possession of the collateral for those

years, This collateral was from several crop years and

was commingled with other inventories for the same crop

10 The 1953 tobacco loan cOntract was awarded to Tennessee

Farmers’ Marketing Association which engaged the management

of the Association to operate the support program for that year

in the new contractee’s behalf.

&

a

i

— 32a —

years formerly held by other organizations and resold

for Commodity by a cooperative marketing association

other than the plaintiff.1: The Association was adjudged

a bankrupt in this court on June 30, 1959. The trustee

in bankruptcy instituted this action, but on July 5, 1963,

he assigned the bankrupt’s interest in this action to the

Association.

The Association complains that Commodity’s recovering

of the collateral tobacco by replevin for the crop years

involved resulted in an unnecessary loss to all parties con-

cerned. It insists that the immediate resale of the col-

lateral tobacco at the graded prices previously suggested

therefor by Commodity would have resulted in the repay-

ment of all of the principal amounts on the outstanding

balances due on its loans, together with a portiongef the

interest; but that the long delay’? between the recovery

of the collateral by Commodity and its resale on a bid,

rather than on the suggested-price basis, resulted not only

in huge losses on the loans, but also precluded the As-

sociation’s opportunity to recoup its own losses for un-

advanced overhead expenses.18

Under questioning by the Court, with one exception,’

every federal agricultural official who testified conceded

that the Association’s disbursements for overhead ex-

11 This pooling arrangement was authorized by both law and

contract.

12 The respective crops involved were finally sold on the

dates hereinafter indicated:

1951 crop—December, 1960

1952 crop—February, 1960

1954 Crop—June, 1960

1955 crop—July, 1959

13 Determination of that issue is not necessary to this adjudi-

cation.

14 Frank R. Ellis, an official of the tobacco division.

-

» —sBa—

penses unquestionably were related to its administration

of the price-support program. These witnesses were not

asked whether these disbursements met the contractual

test of ‘‘* * * reasonable and nécessary * * *’’ overhead

expenses necessary for tobacco loan purposes; they were

asked, merely, ‘whether the Association spent the money

in furtherance of its administrative agency.!*° The Court,

therefore, finds that such was the purpose of these con-

troverted disbursements.

It is stipulated that the original claim of the Associa-

tion for reimbursement of $48,704.32 was improper, be-

cause the Association recouped that sum through its

collection of 12¢ per cwt. as its agency fee; so, the Court

finds that the aggregate the Association, as agent, ex-

pended for overhead expenses properly relating to the

price support programs for the crop years 1951, 1952,

1954 and 1955 amounted to an aggregate sum of $175,-

047.69, which it has not recouped.

Shall this loss be borne by the plaintiff Association

because it sought-to utilize its own (unborrowed) funds

to defray a portion of its expenses in acting as the agent

of the defendant Commodity in implementing the burley

tobacco price support program within Tennessee, or

should Commodity, which the Secretary of Agriculture

was utilizing to conduct such burley tobacco price sup-

port program, stand the loss?

The Congress has declared by statute that no producer

shall be personally liable for any deficiency arising from

15 The Association deleted from its claim all amounts which

might have been objectionable to Commodity if loans as over-

head expenses had been sought for such items. These include

expenses of membership relations, research, farmer educational

programs, litigation, ete., which the agreement of the parties

contemplated would be borne by the Association as a part of its

overhead costs. See language from loan agreements, supra.

——

the sale of the collateral securing any loan made under

the authority of the Agricultural Adjustment Act of

1949 except where the producer obtains the loan by means

of fraudulent representations. 7 U. S. C., § 1425. The

obvious intention of the Congress in this enactment was

to relieve fraud-free growers of any. pecuniary respon-

sibility from the administration by the Secretary of Ag-

riculture of the price support program. Autrey v. Com-

modity Credit Corporation, D. C. Ark. (1956), 143 F.

Supp. 550, 553-554 [2], does not appear to be contra au-

thority. There, District Judge Lemley concluded ‘‘* * *

that Congress in adopting Section 1425 simply intended

to absolve producers from personal liability for loan

deficiengies resulting from sales of pledged commodities

at price levels lower than the support prices in force

at the time loans were made, while leaving the Corpora-

tion free to require such borrowers to assume personal

liability for deficiencies in quantity, quality or grade of

the pledged commodities, or for failure to properly pre-

serve and care for such commodities, or for the failure

or refusal to make delivery of the same to the Corpora-

tion. * * *’’ (Boldface supplied for emphasis.) [143 F.

Supp. at page 554.] These untoward possibilities imply

the nature of fraud, which is not present in the case

at bar. The question before this Court now was not the

question before Chief Judge Lemley atethat time.

The plaintiff is a cooperative marketing association

-of burley tobacco producers. The legislative history of

the Agricultural Adjustment Act of 1949, and earlier

statutes of similar import, indicate to this Court that

po, Congress intended that the pecuniary responsibility

the administration of the price support program

would be borne by the Government, not by the producers.

To say that this statute contemplated deficiencies re-

sulting only from sales of collateral for the loans is to

impute to the Congress a narrow absolution inconsistent

”

—_—

with the remedial recovery program it instituted. It

is true that the public officers administering the details

of this recovery program, as it pertained to burley to-

bacco, sought to impress the entire expenses of the

support program upon the fruits of the producers’ labors.

See Tobacco Loan Program Dockets Commodity Credit

Corporation, § II-E, supra. This was a commendable

objective, if the eollateral sold for sufficient amounts to

repay the loans and ail costs of operating the program;

but, the contract between these parties derived its ef-

ficacy from the Agricultural Adjustment Act of 1949,

and earlier statutes of similar nature, and it is circum-

scribed by all the pertinent provisions of that statute.

City of Tullahoma v. Coffee County, Tenn., D. C. Tenn.

(1962), 204 F. Supp. 794, 800 [13], citing Armour Packing

Co. v. United States (1908), 209 U. S. 56, 28 S. Ct. 428,

52 L. Ed. 681. Commodity could not, by contractual

provisions or otherwise, deprive these producers of the

absolution the Congress granted them by statute.

The Association was engaged by the defendant Com-

modity to perform detailed functions in behalf of the

latter; and, under such circumstances, the law implies a

promise of reimbursement for necessary expenses advanced

or incurred by the Association in order to consummate

what the Association agreed to do, where the acts were

in the scope of its agency. 3 Am. Jur. (2d) 612, § 243; ef.

Lawrence Warehouse Co. v. Twohig, C. A. 8th (1955),

224 F. (2d) 493; Differential Steel Car Co. v. MacDonald,

C. A. 6th (1950), 180 F. -(2d) 260; A. B. Frank Co> v.

Waldrup, ©. A. Tex. (....), 71 S. W. 298. That the Asso-

ciation was, in fact, the agent of the defendant Commodity

in the implementation of the burley tobacco price support

program within Tennessee has long been established.

Neas v. Tennessee Burley Tobacco Ass’n, supra; Range v.

Tennessee Burley Tobacco Growers’ Ass’n, supra; In the

Matter of Tennessee Burley Tobacco Growers’ Association,

— 3%a—

Bankrupt. In Bankruptcy No. 6045, D. C. Tenn. (1961),

memorandum opinion of Bankruptcy [unpublished]; see

also Stroud v. Benson, D. C. N. C. (1957), 155 F. Supp.

482, 493 [9, 10]. .

In the final analysis, the net equities of the Association

belong to its producer-members, whether such equities

are in the form of a revolving capital fund, or otherwise.

Neas v. Tennessee Burley Tobacco Growers’ Ass’n, supra,

298 S. W. (2d) at page 548, citing Range v. Tennessee

Burley Tobacco Growers’ Ass’n, supra, 321 S. W. (2d) at

page 548. If the Association’s unrecouped overhead ex-

penses, which the Association disbursed in furtherance of

its agency relation with Commodity, are not reimbursed

by Commodity, then, certain of the Association’s producer-

members will be denied a distribution of net gains to

which they are entitled; so that, in effect, those producers

would become liable for such loss contrary to the plain

Congressional intention. 7 U. S. C., § 1425.

Two legal defenses interposed by Commodity remain

for disposition: (a) it is claimed that the remittance by

the Association of the proceeds of sale from the loan col-

lateral tobacco for the years involved here, without the

Association’s deducting therefrom any of the unrecouped

overhead expenses it seeks now to recover, constituted a

voluntary payment which precludes its recovery of these

expenses in this action; and, (b) it is furiher insisted that

this action is barred by the applicable statute of limita-

tions. 15 U.S. C., § 714b (c).

_ Neither of these positions is tenable. The foregoing

payments by the Association were not voluntary. It was

indebted to Commodity under demand notes which could

be called at any time. When, in May, 1957, Commodity

directed the Association to remit in the future the full

proceeds from resales of collateral tobacco to the former’s

sno Neen ne MO eats oto

Ina techn its e a M N. Mase te Ba sm

- —3a—

fiscal agent without any deductions for overhead expenses,

the Association, which had a vested property right in the

proceeds that Commodity could not, consistently with the

law, abrogate or destroy, had to choose whether to comply

with the said directive or face the prospect of having its

extensive loans called. The proceeds, thus, were not paid

voluntarily but ‘‘* * * by coercive means,—by compul-

sion. * * *’? Cf. Ward v. Love County (1920), 253 U. S.

17, 40 S. Ct. 419, 64 L. Ed. 751, 758-759. Where, as here,

moral duress, not justified by law, ‘‘* * * is exerted under

circumstances sufficient to influence the apprehensions and.

conduct of a prudent business man, ‘payment of money

wrongfully induced ‘thereby ought not to be regarded as

voluntary. * * *’’ Robertson v. Frank Brothers Company

(1889), 132 U. S. 17,10 S. Ct. 5, 33 L. Ed. 236, 238. Until

May 21, 1958, there existed the possibility that the As-

sociation might resell the tobacco, which was collateral

for its loans, for a sum sufficient to repay the principal

and interest of all outstanding loan balances and recoup

its overhead expenses, as had been done with reference to

earlier crop years. Thus,.the six-year limitation period

under the statute applicable to this action, supra, did not

begin to run until that date, and this action is timely.

““* * * It is of the essence of these statutes that time

begins to run under them as to causes of action only

after the right to prosecute them to a successful conclu-

sion has fully accrued. It is of their essence that each

cause of action has its own limitation, each is barred only

-when the time limited as to it has run. * * *’’ Federal

Reserve Bank v. Atlanta Trust Co., C. A. 5th (1937), 91

F. (2d) 283, 286 [5, 6].

Other arguments advanced by the parties have been

answered by this memorandum, in which appear the re-

quired special findings of fact and conclusions} of law.

Rule 52 (a), Federal Rules of Civil Procedure.

ee ee ee

— 38a —

The Court, having decided that the plaintiff Tennessee

Burley Tobacco Growers’ Association shall recover the

sum of $175,047.69 herein, the clerk will forthwith pre- |

pare, sign and enter judgment for that amount against

the defendant Commodity Credit Corporation. Rule 58,

Federal Rules of Civil Procedure.

File:

C. G. NEESE,

United States District Judge.

For publication.

i]

In the

United States District Court

For the Eastern District of Tennessee,

Northeastern Division.

Tennessee Burley Tobacco Growers’ >

Association,

oe sinceaiees Civil Action.

; No. 1602.

Commodity Credit Corporation,

- Defendant. -

Judgment.

oe original hereof was filed or entered and

docketed Jan. 6, 1964.)

This action came on for trial before the Court, Honor-

able C. G. Neese, District Judge, presiding, and the issues

having been duly tried and a decision having been duly

rendered,

It Is Ordered and Adjudged that the plaintiff, Tennes-

see Burley Tobacco Growers’ Association, recover of the

defendant, Commodity Credit Corporation, the sum of

— 39a — :

$175,047.69, with interest theréon at the rate of 6% as

: provided by law, and its costs of action.

bd ie James W. Parrott,

Clerk of the Court. °

Attest:

A true copy.

Certified this Jan. 6, 1964,

James W. Parrott, Clerk,

By: Earl Kelly,

Deputy Clerk.

In the

United States District Court

For the Eastern District of Tennessee,

Northeastern Division:

Tennessee Burley Tobacco Growers’ >)

Association, 4

Civil Action.

- No. 1602.

Plaintiff,

vs.

Commodity Credit Corporation,

Defendant. -

Order.

(Jan. 16, 1964.) -

It having been stipulated that ‘‘there is included in the

plaintiff’s claim $48,704.32 reflected by consignment fees

at three cents per hundred-weight and that if the Court

finds this sum should have been used bythe plaintiff to

defray overhead expenses, plaintiff’s claim would be re-

duced to $173,121.16’’, and the ‘Court having found that

said consignment fees should have been so used to defray

overhead expenses, ,

sibel

It Is Ordered and Adjudged that the judgment hereto-

foré entered in this cause be reduced to $173,121.16, and -

upon the payment into the registry of this Court of said

sum plus interest and costs, the judgment heretofore en-

tered herein shall be satisfied.

Enter

C. G. Neese,

United StatexDistrict Judge.

Approved for Entry:

Arthur G. Seymour,

Burwell Building,

Knoxville, Tennessee,

R. Arnold Kramer,

Burwell Building,

Knoxville, Tennessee,

Attorneys for Plaintiff,

J. H. Reddy,

United States Mucus,

By David E. Smith,

Assistant U. S. Attorney,

Attorney for Defendant.

af

re i a

\ — 4la —

APPENDIX B.

7 U. &. C. 1421 (a), 1425, 1428 (c) and 1441

(Agricultural Adjustment Act of or

§ 1421. Price support—Source.

“‘{a) The Secretary shall provide the price support

authorized or required herein through the Commodity

Credit Corporation and other means available to him.’’

‘* 1425. Personal liability of producers for deficiencies.

«‘*No produeer shall be personally liable for any de-

ficiency arising from the sale of the collateral securing

any loan made under authority of this Act unless such ~

loan was obtained through fraudulent representations by

the producer. This provision shall not, however, be con-

strued to prevent the Commodity _ Credit Corporation or

the Secretary from requiring producers to assume liability

for deficiencies in the grade, quality, or quantity of com-

modities -stored,on the farm or delivered by them, for

failure properly to care for and preserve commodities, or

for failure or refusal to deliver commodities in accordance

with = requirements of the program. * * *’’!

ee 1498, Definitions.

“For the purposes of this Act—

‘*(c) A ‘basic agricultural commodity’ shall mean corn,

cotton, peanuts, rice, 4obacco, and wheat, respectively.’’

‘*§ 1441. Price support levels.

‘“‘The Secretary of Agriculture (hereinafter called the :

‘Secretary’) is authorized and directed to make available

1 In 1958 Congress, by Public Law 85-835, added an addi-

tional sentence to this section but such sentence is not copied

herein because it was not the law at the time the loan agree-

ments involved in this litigation were executed.

am 490. ane

through loans, purchases, or other operations, price sup-

port to cooperators for any crop of any basic agricultural

commodity, if producers have not disapproved marketing

quotas for such crop, at a level not in excess of 90 per

centum of the parity price of the commodity nor less than

the level provided in subsections (a)-(c) of this section as

follows:’’

15 U. 8. C. 714b (c), (g) and (m), and 714j

(Commodity Credit Corporation Act).

‘*§ 714b. General powers of Corporation.

‘‘The Corporation—

‘*(¢) May sue and be sued, but no attachment, in-

junction, garnishment, or other similar process, mesne or

final, shall be issued against the Cofporation or its prop-

Se

‘*(g) May enter into and carry out such contracts or

agreements as are necessary in the conduct of its business

Pas

“ee ©

‘*(m) Shall have such powers as may be necessary or

appropriate for the exercise of the powers specifically

vested in the Corporation, and all such incidental powers

as are customary in corporations generally... .”’

Ԥ 714). Utilization of associations and trade facilities.

‘‘The Corporation may, in the conduct of its business,

utilize on a contract or fee basis, committees or associa-

tions of f producers, producer-owned and producer-controlled

co-operative associations, and trade facilities.’’

.

—_

28 U. 8. C. 1346 (a) (2) (Tucker Act).

. **§$ 1346. United States as defendant.

‘*(a) The district courts shall have original jurisdic-

tion, concurrent with the Court of Claims, of:

‘*(2) Any other civil action or claim against the United

States, not exceeding $10,000 in amount, founded either ~

upon the Constitution, or any Act of Congress, or any

regulation of an executive department, or upon any ex-

press or implied contract with the United States, or for

liquidated or unliquidated damages in cases not sounding

in tort.’’

March 2, 1919, 0. 94, 40 Stat. 1272 (Dent Act).

‘‘Chap. 94—An Act to’ provide relief in cases of con- °

tracts connected with prosecution of the war, and for

other purposes. ,

‘‘Be It Enacted by the Senate and House of Repre-

sentatives of the United States of America in Congress

Assembled, That the Secretary of War be, and he is

hereby, authorized to adjust, pay, or discharge any agree-

ment, express or implied, upon a fair and equitable basis

that has been entered into, in good faith during the present

emergency and prior to November twe nineteen hun-

dred and eighteen, by any officer or agent acting under his

authority, direction, or instruction, or that of the Presi-

dent...” .

43-1803 Tennessee Code Annotated (‘Tennessee Co-

operative Marketing Associations).

‘43-1803. Definitions.—

‘<* * * Associations organized hereunder shall be deemed

‘nonprofit’, inasmuch as they are not organized to make

profit for themselves, as such, or for their as

such, but only for their members as producers.’’

.

7