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HARTZELL FAN,INC v. WACO, INC


HARTZELL FAN, INC. v WACO,
INC.


September 18, 1998
Record No. 971772

HARTZELL FAN, INC.

v.

WACO, INC.

OPINION BY JUSTICE BARBARA MILANO KEENAN
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Melvin R. Hughes, Jr., Judge

Present: All the Justices

In this appeal from a judgment entered in a garnishment
proceeding, we determine whether a manufacturer’s sales
representative was the "agent" of the manufacturer
within the meaning of Code ? 8.3A-420 and was liable to the
manufacturer for conversion of six checks.
Hartzell Fan, Inc. (Hartzell) is an Ohio corporation that
manufactures ventilation equipment for industrial uses. In April
1992, Hartzell executed a contract with Intermetrix, Ltd., t/a
Metrix, Ltd. (Metrix), a Virginia corporation, in which Metrix
agreed to act as a sales representative for Hartzell’s products
(Agreement).
In the Agreement, Hartzell contracted to pay Metrix a commission
for all sales generated by Metrix. The Agreement authorized
Metrix to obtain purchase orders from customers and to submit the
orders to Hartzell for approval. After Hartzell approved an order
and shipped the goods to the customer, Hartzell was required to
bill the customer for the goods and, on receipt of the customer’s
payment, to pay Metrix a commission.
Although Hartzell requested its customers to pay Hartzell
directly, occasionally a customer would deliver payment to
Metrix. In such cases, the Agreement authorized Metrix to
"forward immediately to [Hartzell] any and all moneys or
remittance in any form which it may receive from, or on behalf
of, the customers in connection with orders placed pursuant
hereto." The Agreement also provided that Metrix had
"no authority to receipt for moneys payable to
[Hartzell]," and that "[i]t is understood and agreed
that [Metrix] is in no way the legal representative or employee
of [Hartzell] and that [Metrix] shall perform this agreement as
an independent contractor and nothing herein contained shall be
construed to be inconsistent with this relationship or
status."[1]

In 1995, certain customers ordered Hartzell products from Metrix
and sent Metrix a total of five checks in the aggregate amount of
$34,387.93 (Hartzell checks) in payment for those products.
Although each of the checks was made payable solely to Hartzell,
Metrix improperly indorsed the checks and deposited them in
Metrix’s account without Hartzell’s knowledge or consent.
Another customer, American International, delivered to Metrix a
check in the amount of $6,865.59 (American International check).
This check was made payable solely to Metrix, which indorsed and
negotiated the check.
In April 1995, Waco, Inc. (Waco) obtained a judgment against
Metrix in the amount of $147,856.97, plus interest and attorney’s
fees. Waco initiated garnishment proceedings against Hartzell in
the trial court based on commissions Hartzell allegedly owed
Metrix. In its answer, Hartzell stated that it did not hold any
monies due Metrix because Metrix had "improperly
cashed" the Hartzell checks and the American International
check.
Attached to Hartzell’s answer was an affidavit of Edward A.
Guillozet, Hartzell’s Credit Manager. The affidavit stated that
Hartzell owed Metrix commissions in the amount of $39,413.13, but
that when Hartzell subtracted the amount of the checks Metrix
"improperly cashed," Metrix actually owed Hartzell
$723.48.[2]
The trial court stated that Waco’s right to recover from Hartzell
in the garnishment proceeding was the same as Metrix’s right to
recover from Hartzell. The court ruled that Hartzell "never
acquired any interest" in either the Hartzell checks or the
American International check and, therefore, did not have a
conversion claim against Metrix. The court concluded that
Hartzell could not offset the amount of the six checks against
the monies it owed Metrix, and the court awarded Waco judgment in
the amount of $33,183.04.
On appeal, Hartzell argues that it has a claim for conversion
against Metrix based on Code ? 8.3A-420(a), which provides:

The law applicable to conversion of personal property applies to
instruments. An instrument is also converted if it is taken by
transfer, other than a negotiation, from a person not entitled to
enforce the instrument or a bank makes or obtains payment with
respect to the instrument for a person not entitled to enforce
the instrument or receive payment. An action for conversion of an
instrument may not be brought by (i) the issuer or acceptor of
the instrument or (ii) a payee or indorsee who did not receive
delivery of the instrument either directly or through delivery to
an agent or a co-payee.

Hartzell asserts that under the Agreement, Metrix was its
"agent" for the limited purpose of receiving checks
sent or presented to Metrix by purchasers of Hartzell products.
Thus, Hartzell contends that the six checks at issue were
delivered to Hartzell when Metrix received the purchasers’
checks, and that Metrix converted the checks when it wrongfully
indorsed and negotiated them. As a result, Hartzell asserts that
it had the right to offset the amount converted by Metrix from
the commissions owed Metrix.
In response, Waco contends that Hartzell does not have a right to
offset the amount of the six checks because the checks were never
delivered to Hartzell. Waco relies on the language in the
Agreement denying Metrix the right to "receipt for"
monies delivered by Hartzell customers. Waco asserts that since
Metrix was not authorized to "receipt for" those
monies, Metrix was not Hartzell’s agent and Hartzell did not
receive delivery of the checks within the meaning of Code
? 8.3A-420. Waco also argues that Hartzell cannot claim
Metrix was its agent because the Agreement clearly provided that
Metrix was an independent contractor, and that "each party
[was] an independent entity." Thus, Waco contends that
Hartzell is liable to Waco on the garnishment summons because
Hartzell did not have a conversion claim against Metrix and could
not offset the amount of the checks from the monies Hartzell owed
Metrix.
Initially, we observe that, under Code ? 8.01-511,
garnishment effectively is a proceeding by the judgment debtor in
the name of the judgment creditor against the garnishee. Virginia
Builders’ Supply, Inc. v. Brooks & Co. Gen. Contractors
,
250 Va. 209, 213, 462 S.E.2d 85, 88 (1995); Virginia Nat’l
Bank v. Blofeld
, 234 Va. 395, 399, 362 S.E.2d 692, 694
(1987); Lynch v. Johnson, 196 Va. 516, 521, 84 S.E.2d 419,
422 (1954); Ayres v. Harleysville Mut. Cas. Co., 172 Va.
383, 394, 2 S.E.2d 303, 307 (1939). The judgment creditor stands
on no higher ground than the judgment debtor and can have no
right greater than the judgment debtor possesses. Lynch,
196 Va. at 521, 84 S.E.2d at 422; see International
Fidelity Ins. Co. v. Ashland Lumber Co.
, 250 Va. 507, 511,
463 S.E.2d 664, 666-67 (1995); Jetco, Inc. v. Bank of Virginia,
209 Va. 482, 488, 165 S.E.2d 276, 280 (1969). Thus, the garnishee
may offset against the lien of the judgment creditor any amount
for which the judgment debtor is liable to the garnishee as of
the return date of the garnishment summons. See id.;
Blofeld, 234 Va. at 400, 362 S.E.2d at 695; see also
Curl v. Sparkle Brite, Inc., 518 S.W.2d 775, 776 (Ky.
1975).
Under these principles, Waco can assert no greater rights in this
garnishment proceeding against Hartzell than those possessed by
Metrix. Therefore, we must consider what right Metrix had to
recover monies against Hartzell as of the return date of the
garnishment summons. The parties agree that the central issue in
resolving this question is whether Metrix was acting as
Hartzell’s agent when it received the checks at issue. Under Code
? 8.3A-420, Hartzell can maintain a claim for conversion of
the checks in offset of the commissions due Metrix only if
Hartzell received delivery of the checks through Metrix acting as
its agent.
Agency is defined as a fiduciary relationship arising from
"the manifestation of consent by one person to another that
the other shall act on his behalf and subject to his control, and
the agreement by the other so to act." Allen v. Lindstrom,
237 Va. 489, 496, 379 S.E.2d 450, 454 (1989) (quoting Raney v.
Barnes Lumber Corp.
, 195 Va. 956, 966, 81 S.E.2d 578, 584
(1954)); accord State Farm Mut. Auto. Ins. Co. v.
Weisman
, 247 Va. 199, 203, 441 S.E.2d 16, 19 (1994); Reistroffer
v. Person
, 247 Va. 45, 48, 439 S.E.2d 376, 378 (1994). The
party who alleges an agency relationship has the burden of
proving it. Weisman, 247 Va. at 203, 441 S.E.2d at 19; Allen,
237 Va. at 496, 379 S.E.2d at 454.
A special agent is one who is authorized to perform one or more
specific acts in pursuance of particular instructions, or within
restrictions necessarily implied from the stated acts to be
performed. Lacey v. Cardwell, 216 Va. 212, 220, 217 S.E.2d
835, 841 (1975); Bowles v. Rice, 107 Va. 51, 52, 57 S.E.
575, 576 (1907); see Stacy v. J.C. Montgomery Ins.
Corp.
, 235 Va. 328, 331, 367 S.E.2d 499, 500-01 (1988). The
powers of a special agent must be strictly construed. Id.,
367 S.E.2d at 501; Lacey, 216 Va. at 221, 217 S.E.2d at
842; Bowles, 107 Va. at 53, 57 S.E. at 576.
When, as here, the question of special agency rests on a written
document, the question presents an issue of law. We are not bound
by the trial court’s ruling on this issue, and we are permitted
the same opportunity as the trial court to consider the contract
language. See C.F. Garcia Enterprises, Inc. v.
Enterprise Ford Tractor, Inc.
, 253 Va. 104, 107, 480 S.E.2d
497, 498-99 (1997); Murphy v. Holiday Inns, Inc., 216 Va.
490, 492, 219 S.E.2d 874, 875 (1975).
The authority of a special agent must be ascertained from the
terms of the instrument itself. Lacey, 216 Va. at 217, 217
S.E.2d at 839. No authority will be implied from the terms of the
instrument, except that authority indispensable to the exercise
of the powers expressly conferred. See Stacy, 235
Va. at 331, 367 S.E.2d at 501; Lacey, 216 Va. at 221, 217
S.E.2d at 841-42; Bowles, 107 Va. at 53, 57 S.E. at 576.
Although the Agreement specifically stated that Metrix was an
independent contractor, and not the "legal
representative" of Hartzell, the use of these terms does not
end our inquiry. The relationship of parties to a contract does
not depend on what the parties themselves call the relationship,
but rather on what the relationship actually is in law. Murphy,
216 Va. at 492, 219 S.E.2d at 876; Chandler v. Kelley, 149
Va. 221, 231, 141 S.E. 389, 391-92 (1928).
Here, the Agreement narrowly defined Metrix’s authority with
regard to payments made by the purchasers of Hartzell products.
The Agreement specifically stated that Metrix "has no
authority to receipt for moneys payable to [Hartzell]."
However, Metrix was authorized by the Agreement to "forward
immediately to [Hartzell] any and all moneys or remittance in any
form which it may receive from, or on behalf of, the [Hartzell] customers."
This authority to forward payments to Hartzell necessarily
implied the authority of Metrix to receive payments for Hartzell,
rather than to return the payments to the customers with
instructions to pay Hartzell directly. Thus, the language of the
Agreement, and the authority indispensable to the exercise of the
power expressly conferred therein, made Metrix the special agent
of Hartzell for the limited purpose of receiving payments from
customers and forwarding those payments to Hartzell. See Stacy,
235 Va. at 331, 367 S.E.2d at 500-01; Lacey, 216 Va. at
220-21, 217 S.E.2d at 841-42.
Since Metrix was the special agent of Hartzell for this limited
purpose, Metrix was acting as an "agent" of Hartzell
within the meaning of Code ? 8.3A-420 when Metrix received
the checks. Therefore, under the terms of the statute, the five
Hartzell checks were delivered to Hartzell when they were
delivered to its special agent, Metrix. Because Hartzell received
delivery of these checks, Hartzell could maintain an action
against Metrix for their conversion. See Code
? 8.3A-420.
The stipulated facts further state that the American
International check was made payable to and was indorsed and
negotiated by Metrix. Because of this factual difference, we will
consider the sufficiency of the evidence of the conversion claim
based on the Hartzell checks before considering the issue whether
Hartzell could maintain a conversion claim based on the American
International check.
The law governing the conversion of personal property is
applicable to negotiable instruments. Code ? 8.3A-420(a).
Conversion is a tort involving injury to property, in which one
wrongfully exercises or assumes authority over another’s goods,
depriving him of their possession. Hairston Motor Co. v.
Newsome
, 253 Va. 129, 135, 480 S.E.2d 741, 744 (1997); Bader
v. Central Fidelity Bank
, 245 Va. 286, 289, 427 S.E.2d 184,
186 (1993). Conversion includes any distinct act of dominion
wrongfully exerted over property that is in denial of, or
inconsistent with, the owner’s rights. Hairston, 253 Va.
at 135, 480 S.E.2d at 744; Universal C.I.T. Credit Corp. v.
Kaplan
, 198 Va. 67, 76, 92 S.E.2d 359, 365 (1956). Generally,
the measure of damages for the conversion of commercial paper is
prima facie the face value of the converted instrument. Code
? 8.3A-420(b); see American Nat’l Bank of
Portsmouth v. Ames
, 169 Va. 711, 746, 194 S.E. 784, 796
(1938).
The Hartzell checks had a total face value of $34,387.93. The
stipulated evidence showed that Metrix wrongfully indorsed and
negotiated these checks, contrary to the express instructions of
the Agreement. Metrix’s indorsement and negotiation of the checks
without permission constitutes a conversion because it was a
wrongful exercise of authority depriving Hartzell of possession
and an act of dominion wrongfully exerted over the checks
inconsistent with Hartzell’s ownership rights. See Hairston,
253 Va. at 135, 480 S.E.2d at 744; Bader, 245 Va. at 289,
427 S.E.2d at 186; see also Code ? 8.3A-420.
Since Metrix converted these checks in violation of Hartzell’s
rights, Hartzell was entitled to offset the total amount of those
checks from the commissions owed Metrix in determining the amount
Hartzell owed Waco. See Lynch, 196 Va. at 521, 84
S.E.2d at 422; Trust Co. of Norfolk v. Snyder, 152 Va.
572, 585, 147 S.E. 234, 238 (1929).
The stipulated facts, however, state that the American
International check was made payable solely to Metrix and do not
indicate whether this payment was made for the purchase of
Hartzell products.[3]
Based on this record, Hartzell failed to present sufficient
evidence to support a conversion claim with regard to the
American International check and, thus, cannot deduct the amount
of that check from the commissions owed Metrix. For the same
reason, Waco has no claim against Hartzell for any commission
allegedly due Metrix based on this check.
In conclusion, we hold that the trial court erred in failing to
allow Hartzell to offset the amount of $34,387.93 against the
commissions due Metrix, based on Metrix’s conversion of the
Hartzell checks. The trial court did not err, however, in failing
to allow Hartzell to offset the amount of the American
International check, because Hartzell failed to prove this part
of its conversion claim. When, as here, the trial court has
reached the correct result for the wrong reason in a portion of
its judgment, we will assign the correct reason and affirm that
portion of the judgment. Ridgwell v. Brasco Bay Corp., 254
Va. 458, 462, 493 S.E.2d 123, 125 (1997); Harrison &
Bates, Inc. v. Featherstone Assoc. Ltd. Partnership
, 253 Va.
364, 369, 484 S.E.2d 883, 886 (1997); Mathy v. Commonwealth,
253 Va. 356, 362, 483 S.E.2d 802, 805, cert. denied, ___
U.S. ___, 118 S.Ct. 414 (1997). On remand, the trial court is
instructed to offset the amount of $34,387.93 from the total
amount due Metrix from Hartzell, and to enter final judgment
against Hartzell in favor of Waco for any sum remaining due to
Metrix as of the return date of the garnishment summons. See
Blofeld, 234 Va. at 400, 362 S.E.2d at 695.
For these reasons, we will affirm in part, and reverse in part,
the trial court’s judgment and remand the case for entry of a
final judgment order in accordance with the principles and
directives stated in this opinion.

Affirmed in part,
reversed in part,

and remanded.

 

FOOTNOTES:

[1]Although
the Agreement states that it is governed by Ohio law, the parties
have stipulated, for purposes of this appeal, that the laws of
Virginia and Ohio are the same regarding the issues presented.
[2]This
amount reflects other minor adjustments made by Hartzell that are
not at issue on appeal.
[3]The
affidavit of Edward Guillozet does not resolve this question
because it refers only to checks made payable to Hartzell.

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