Present: All the Justices
HARTZELL FAN, INC.
v. Record No. 971772 OPINION BY JUSTICE BARBARA MILANO KEENAN
September 18, 1998
WACO, INC.
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Melvin R. Hughes, Jr., Judge
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.
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
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
2
This amount reflects other minor adjustments made by
Hartzell that are not at issue on appeal.
3
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.
4
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
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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
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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
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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
8
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
9
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
10
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.
11
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
3
The affidavit of Edward Guillozet does not resolve this
question because it refers only to checks made payable to
12
of a final judgment order in accordance with the principles and
directives stated in this opinion.
Affirmed in part,
reversed in part,
and remanded.
Hartzell.
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