Summary of a Recent
Judicial Development in
Commercial Transactions,

Breach of Cattle Purchase Contract in Violation
of the Packers and Stockyards Act

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Abingdon Livestock Exchange, Inc. v. Smith, 594 F. Supp. 2d 688, 2009 WL 179888 (W.D. Va. 2009), the United States District Court for the Western District of Virginia held that a defaulting cattle buyer was liable for the unpaid purchase amount under the Packers and Stockyards Act (PSA) and breach of contract theory, and that the defendant corporation's agent was personally liable under the PSA because he was actively engaged as a dealer in the transactions.

Background

Abingdon Livestock Exchange brought this action for breach of contract and for violations of the PSA, 7 U.S.C. §§ 181-229a, seeking recovery of the unpaid sales price for cattle sold to the defendants. Id. at *1. An administrative law judge of the U.S. Department of Agriculture had previously issued an order against defendant Smith and his company, B4, directing them "to cease and desist from failing to pay the full purchase price of livestock." Id. at *2. Because Smith had written several hot checks to the plaintiffs, they stopped allowing him to purchase cattle at their market. Id. However, they agreed to let another buyer, Edwards, purchase cattle on behalf of Smith after he assured the plaintiffs that he would oversee Smith's and B4's financial affairs and ensure that everyone was paid. Id. They subsequently failed to make payment for the cattle they purchased, and the plaintiffs brought claims against Smith, Edwards, and B4. Id. at *1, *3. Smith did not respond and thus was declared in default. Id. at *1.

Arguments

The defendants Smith and B4 argued that they were not liable because Edwards was the purchaser; they claimed he purchased the cattle and resold them to the defendants, and thus they were only answerable to Edwards for the unpaid purchase price. Id. at *4. They further argued that if the contract of purchase was breached, only the corporation B4 was liable. Id. As to the PSA claims, the defendants claimed they were not "dealers" within the meaning of the PSA and therefore did not violate the Department of Agriculture's order. Id. at *5.

Analysis and Holdings

The court held that the purchase contract had been breached, but only B4 was liable on the breach of contract claim because "Smith was acting at all times on behalf of his corporation" and "all of the transactions involving Smith were done in the name of B4." Id. at *4-5. The court found no basis for piercing the corporate veil and holding Smith individually liable. Id. at *4.

As to the PSA claims, the court held that Smith and B4 were acting as "dealers" within the meaning of the PSA because "the essence of [their] business was buying large quantities of cattle from various sources for resale." Id. at *6. It further held that Smith was personally liable under the PSA because he was actively engaged as a dealer, even though he was acting as B4's agent. Id.

The case was decided on January 27, 2009.