try and bypasses the terminal commission firms. If to this disastrous lack of volume we must now add the threat of recovery suits by Government against us as innocent buyers and handlers, then the commission business, as a small business of the Nation, must be looked at again in the light of its opportunity for reasonable livelihood.

We respectfully urge this subcommittee to report favorably on H. R. 1831 or other legislation of the same wording, and provide for the innocent purchaser of Government grain an equitable defense.

STATEMENT FILED BY L. A. LAYBOURN, SECRETARY OF THE LEGISLATIVE COMMITTEE, KANSAS GRAIN AND FEED DEALERS ASSOCIATION, SALINA, KANS.

My name is L. A. Laybourn and I reside at Salina, Kans. I am a partner in the firm of Simpson, Laybourn, Miller & Stark, which operates a general grain business. My appearance before this committee today is as secretary of the legislative committee of the Kansas Grain & Feed Dealers Association, a trade organization with approximately 550 members. Members of this association fairly represent a cross section of the country grain elevator operators of Kansas, and, therefore, represent various forms of ownership; that is, individuals, partnerships, corporations, and cooperative marketing associations. This trade association has been in existence since 1896. Its principal office is maintained at 901 Wiley Building, Hutchinson, Kans.

My statement is intended to acquaint the members of this committee with the marketing functions performed by country grain elevator operators in the community or trade area surrounding the elevator location. Also, to describe the interest which the country grain elevator operator has in the proposed legislation now being considered by the 84th Congress concerning proposed amendments to the Commodity Credit Corporation's charter relating to an innocent purchaser of fungible commodities owned by the Commodity Credit Corporation. My statement will discuss the probable effect upon the functions performed by the country grain elevator and other segments of the grain trade if the proposed legislation should not receive favorable action by the Congress.

The country grain elevator is the primary nerve center which intimately reflects, at the farm level, changing values for commodities as determined by the activities of subterminal and terminal operators, exporters, millers, and other buyers. The country grain elevator is the facility through which the farmer markets his grains, seeds, and beans. It is said that there are approximately 15,000 country grain elevators in the various States of the Nation. These country grain elevators vary in age, size, and grain merchandising and storing capabilities.

Historically, the country grain elevator came into being with the development of rail transportation throughout the country. The ownership of these country grain elevators is as varied as is their age and size. Some are owned and operated by individual citizens, some are owned and operated as partnerships, some are owned and operated by corporations whose stock is held, for the most part, locally among individuals who are either farmers or are interested in farm operations. Some are owned and operated as cooperative marketing associations or corporations, in which ownership is held by farmers or individuals engaged in the production of agricultural commodities, and some are owned and operated as line elevators.

The marketing function of each country grain elevator, regardless of its age, size, or character, reflects and provides a currently competitive market for the grain, seed, or beans produced by the farmers who operate in the nearby areas of production. The farmer's need for such a market for his products, and the orderly physical movement of these products into marketing channels, together with the development of railroads, highways, and waterways, has produced the widespread grain elevator network which today exists in this country and is such an important part of the marketing system. This network of country grain elevators developed and spread under unrestrictive and highly competitive conditions in accordance with the farmer's needs.

Until recent years, storage of grain and other fungible commodities in country grain elevators represented only a minor part of the total business of the grain elevator, both in volume and value; the business for the most part being conducted by purchasing grain from farmers and subsequently disposing of the grain by sale or other wise starting its movement to market. Now, storage of

grain at the country grain elevator level has become equal in importance with the function of grain merchandising.

For many years back, farmers and farm organizations, and for the most part their Representatives in Congress, have worked for the idea of stability in agricultural prices and for the idea of equality as between agriculture and industry. Realization and acceptance of the idea of such price stability for farm products has resulted in the agricultural price-support program now in effect. The country grain elevator, inasmuch as it is the first segment of the grain trade which deals with the farmer's products, has been used as an important instrument through which the various phases of the agricultural price-support program could be begun. The fine spirit of cooperation of this important segment of the grain trade with Commodity Credit Corporation in carrying out its part of the agricultural price-support program is well known and a matter of record. turn, Commodity Credit Corporation has from time to time renegotiated the level of compensation which it determines is fair payment in return for the cooperation and services rendered by the country grain elevator operators in carrying out their part of the price-support program.

In

It is well known that the agricultural price-support program has resulted in stockpiling at the country grain elevator level, as well as at other levels of storage within the grain trade. The development and improvement in harvesting machinery and methods have changed the pattern of grain movement to market over the years. The harvest period has been shortened, necessitating the country grain elevator operators to increase the size of their grain storage structures and the efficiency of their handling equipment so that the tremendous rush of grain from farm fields to market can be handled without undue delay or congestion. As an example, the Kansas State grain inspection department's statistics show that licensed grain storage and handling capacities in the State of Kansas have increased from approximately 90 million bushels in the year 1948, to approximately 240 million bushels at the present time. Percentagewise, much of the increase in this storage space has been at the country grain elevator level.

The country grain elevator operator no longer is merely the first handler and merchandiser in the process of buying, selling, and shipping grain, and starting its movement into marketing channels. Instead, he has now become an even more important part of the grain marketing machinery, in that, in carrying out his part in the agricultural price-support program he has taken on much greater responsibilities as a warehouseman in addition to his buying, selling, and shipping endeavors. He is still the primary receiver of grain in the chain of grain merchandising and movement as required by the responsibilities to his farmer customers, and in addition he is also in the grain warehousing business with its added responsibilities, both to the instrumentality which licenses his operation and to Commodity Credit Corporation with whom he has entered into a uniform grain storage agreement.

As a country grain elevator operator mainly concerned with grain merchandising he had always faced the usual business risks, such as the risks of loss which might result from fire and windstorm, deterioration of grain while held in storage, damage to grain and shortage in its weight while in storage and in transit, and even the risk of loss which very infrequently might result from failure of the seller's title, if he had unwittingly purchased grain which was mortgaged, stolen, or converted and subsequently sold to him by the mortgagee, thief, and converter. These risks had always been considered normal business risks and had been taken in stride by the country grain elevator operator and were usually satisfactorily covered by his handling margin.

Recently, however, it seems that, in a number of cases, country grain elevator warehousemen and other warehousemen were being charged with shortages in the quantities of grain over and beyond the allowances usually made for normal shrink, and that in such cases the warehousemen had defaulted in their responsibilities, in that it was alleged they had committed acts of conversion of Commodity Credit Corporation owned commodities to the warehouse operator's own use. As compared to the total number of country grain elevator operators throughout the various States of the Nation, the number of such grain operators who were accused of defaulting was small. As compared to the total volume of grain handled by the country grain elevator operators for the account of Commodity Credit Corporation and others, the percentage of volume of such alleged grain conversions was small.

I understand that many such cases originating several years back are still pending against these warehousemen and their bondsmen. Only during the past few months has the grain trade generally begun to realize all of the implications

of these suits. As a result there has been a great deal of discussion throughout the grain trade concerning the effect which lack of full recovery in such suits could have upon the operating policies of grain buyers, merchandisers, terminals, exporters, and millers. It is now more widely understood that if, in the case of fungible commodities, the rule of law is applicable which extends responsibility for restitution and payment a second time by a buyer who innocently purchased from a converter, then the various segments of the trade would necessarily be forced to take into account the added risk which they would be assuming when they handled grain shipped by country grain elevator operators and forwarded it into domestic channels for consumption or foreign trade. It now appears certain that if these processes of law are applied to innocent purchasers beyond the alleged converter of Commodity Credit Corporation grain and his bondsman, the historical narrow margin upon which the entire trade operates must be reviewed and changed to compensate for the risks which the trade would be assuming in handling grain into channels of domestic consumption and foreign trade. A sober and objective study of this matter leads one to conclude that an increased charge for the added risk could not be passed on to the consumer or foreign buyer, but, instead, would be reflected by a lower market price at the country grain elevator level which, in turn, would lower the farmer's income. The entire grain trade would then face a decision as to what amount should be charged for this added risk.

Commodity Credit Corporation is a sovereign power of the people, dedicated to the purpose of maintaining some semblance of equity between agriculture and industry. Apparently it is required under the terms of its charter and the law of the land to prosecute not only the thief and defaulter and converter of Commodity Credit Corporation's goods, as well as his bondsmen, but also to carry that prosecution on and on and on until its claim is satisfied, even though insolvency of country grain elevators, grain merchandisers, terminals, mills, and other processors is the end result; and even though the farm price-support program itself might be adversely affected. This result would indeed be one which of itself might drive useful, long-experienced, and needed members of the grain industry away from the business, deprive the business of many who are now willing to invest their capital to accomplish the expansion needed in the private trade to keep pace with agricultural production advances and to purchase, handle, and store the vast crops produced by the farmers of this country.

Commodity Credit Corporation, while it exercises the responsibilities of sovereignty on the one hand, also should be enabled to avoid serious damage to the elements and segments of the grain trade which it uses to effect its purposes. Otherwise, Commodity Credit Corporation would find it necessary to set up its own independent grain-handling machinery for marketing functions. By the terms of its charter, it is required to use the existing areas of the grain business and marketing mechanism. However, under its charter it surely was not intended that such use should have the effect of destroying or disrupting any of the usual, and customary operations of the private grain trade. Commodity Credit Corporation did not seek or intend such a result. The Department of Agriculture indicates that it does not feel that such a result would be morally right.

It is not my purpose in any way to try to excuse any warehouseman who is guilty of conversion of Commodity Credit Corporation's grain. Nor do I want to excuse any subsequent purchaser of such converted grain who is guilty of collusion or who has acted as a fence in disposing of such grain. But I wonder how real and how large the actual sums of money involved will be when Commodity Credit Corporation has recovered from the assets of the warehouseman and from his bondsman. If the proposed legislation is approved by the 84th Congress the result will be to limit Commodity Credit Corporation's recovery from a subsequent purchaser only if that purchaser is able to establish by proof that in purchasing the grain from the converter he did so acting in good faith and was innocent of any wrongdoing or knowledge thereof.

How real and how large these ultimate Commodity Credit Corporation losses might be if recovery was pressed beyond the warehouseman and his bondsman would be more apparent if an examination of Commodity Credit Corporation's chances of recovery and cost of recovery could accurately be made, and if full consideration were given not only to the amount of money involved but also the amount of money which would be involved in totaling the far-reaching effects of this policy on the grain trade and the farmers throughout the Nation. These things can only be estimated, but some generalization can properly be made. 62226553

It will, of course, be necessary for the Government to go to great lengths and incur very substantial expense solely in the matter of investigation and preparation for the lawsuits. In addition to such costs are still to be added the costs of trials and appeals. Inquiry leads me to believe that in many cases legal difficulties may exist in the matter of establishing the facts which will be necessary to establish in tracing and identifying Commodity Credit Corporation's grain through the hands of the purchasers. Insolvencies will result and these will affect the amounts recoverable. I am told that other legal defenses against Commodity Credit Corporation may be advanced and proven by defendants in certain cases, lessening or eliminating recovery in those cases. It seems that the total actual monetary benefit which could be realized by the Federal Government from recoveries from innocent purchasers cannot be accurately determined at this time. Against this indeterminate profit figure must be balanced the possible and indirect loss to the agricultural price-support program.

Innocent purchasers should not be subjected to the rule of caveat emptor in all its harsh applications, in a situation where the Government has participated with them in an activity designed to promote the welfare of agriculture. It may be true that the Government has a legal right to press for recovery from innocent purchasers under these circumstances, but I wonder if the Government is really willing to use such a power which it may possess, to the injury and detriment of its innocent citizens, who have, by the very nature of their business and its use as a means of effecting the agricultural price-support program, been drawn into the very situation which now imperils their business existence, without fault on their part.

It is my personal feeling, and the feeling of the responsible and sound members of the grain trade with whom I have discussed this problem both at the country grain elevator level and at other levels, that the legislation now before this committee for consideration, which would only grant the purchaser a right to be heard and given a chance to prove his innocence before being found guilty, should be enacted by the Congress.

WESTERN STATES MEAT PACKERS ASSOCIATION, INC.,

SENATOR SPESSARD L. HOLLAND, Chairman,
Senate Agriculture Subcommittee,

Washington, D. C., April 30, 1955.

Senate Office Building, Washington 25, D. C.

MY DEAR SENATOR HOLLAND: We are pleased that you and your subcommittee will begin hearings on Congressman Poage's bill H. R. 1831, passed by the House on March 29, and on similar Senate bills which would give protection to innocent purchasers of converted goods.

A member of the Western States Meat Packers Association, Inc., located in Los Angeles, Calif., was one of many purchasers of grain converted by warehousemen from stocks owned by the Commodity Credit Corporation.

This meat packer, like many others in the West, in order to obtain an adequate supply of high quality livestock for slaughter, engages in livestock feeding operations. Although this company purchased the grain in question in good faith, and paid full value, and had no reason to know of any defect in the warehousemen's authority to sell such goods, the Justice Department under authorizing statutes is asking the company for reimbursement of the Government's loss.

We believe it is inequitable to allow the Government to penalize innocent purchasers in this manner and corrective legislation appears to be the only means of preventing these unjust actions.

Accordingly, we urge the Senate to support H. R. 1831 in order to give purchasers protection against Commodity Credit Corporation claims for liability for such conversion in those instances where purchasers are clearly innocent of collusion or other wrongful action.

Respectfully yours,

L. BLAINE LILJENQUIST.

STATEMENT FILED BY FRANK K. WOOLEY, LEGISLATIVE COUNSEL, AMERICAN FARM

BUREAU FEDERATION

The American Farm Bureau Federation wishes to submit this statement concerning proposed legislation to amend the Commodity Credit Corporation Charter Act in order to protect innocent purchasers of fungible goods from

claims of the Commodity Credit Corporation. It is understood that H. R. 1831 which was passed by the House of Representatives and several Senate bills— including, among others, S. 23, S. 138, S. 493, S. 546, and S. 624-are being considered by this committee.

A large number of suits have been filed in the last year against purchasers of grain, including small dealers, operators of feed stores and farmers in which the Government is seeking to recover the value of grain purchased by them in good faith for value and in the usual course of business. After the grain had been purchased and paid for, the Government discovered that the grain belonged to Commodity Credit Corporation because the warehousemen who originally sold the grain had an inventory shortage at the time when it was sold.

We understand that under the existing law such purchasers are liable to the Government for the value of the grain. The harshness of this rule is apparent to anyone who is familiar with the usual methods by which grain is handled, bought, and sold.

In view of the large storage operations of Commodity Credit Corporation, there is hardly a commercial grain warehouse in the country that does not, at one time or another, have substantial quantities of grain in store, owned by Commodity Credit Corporation. Farmers, feed dealers, processors, and other users of grain could never be certain under the present state of the law that they were not exposing themselves to a double payment any time they bought grain from a warehouseman or from any other dealer in the open market.

In order to protect themselves from having to pay twice, first to the seller, and second, to the Commodity Credit Corporation-grain buyers would have to confine themselves to purchase of grain offered for sale by the Commodity Credit Corporation itself or grain offered for sale by one of the large grain companies whose financial stability is such that there could be no question of their ability to satisfy any possible claim which the Government might have. If this procedure were adopted, it would have disastrous effects on the marketing of grain in this country. Small grain dealers and the smaller warehousemen would be driven from business and only the Government and the larger grain firms and warehousemen would remain.

Passage of the bill will assist in preserving competition in the grain trade and will be a stabilizing factor in the marketing of grain. This will benefit not only the many small dealers and handlers of grain in this country but also of growers and users of grain. Farmers of America have an important interest in the passage of this legislation,

Senator HOLLAND. The first witness is Mr. Robert L. Farrington, general counsel of the United States Department of Agriculture. Mr. Farrington,

STATEMENT OF ROBERT L. FARRINGTON, GENERAL COUNSEL, UNITED STATES DEPARMENT OF AGRICULTURE

Mr. FARRINGTON. Thank you, Mr. Chairman. I have a prepared statement which I might read.

Mr. Chairman and members of the committee, I appreciate the opportunity to appear before your committee to discuss H. R. 1831, which was passed by the House of Representatives on March 29, 1955. The bill is identical to several Senate bills on which the Department reported to this committee by letter from Acting Secretary Morse, dated February 28, 1955.

As indicated in that report, the Department favors passage of the legislation.

The purpose of the legislation is to correct an inequitable situation that has developed with respect to persons who in good faith purchased fungible commodities, particularly grain, from warehousemen without any reason to believe that the commodities were owned by Commodity Credit Corporation.