Hartzell Fan, Inc. v. Waco, Inc.

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.

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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.

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 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

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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

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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.

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 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

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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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