Court Opinion

ID: 3837666
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:06:39.124675+00
Date Added: 2024-06-11T09:36:11.924590
License: Public Domain

In Banc.
This is an action by the plaintiff, an incorporated bank, against defendants W.H. Ellis and Harry C. Ellis, as partners, doing a general warehouse business in Baker, Oregon, to recover damages for failure to deliver to plaintiff certain potatoes deposited by plaintiff's assignor in the warehouse of defendants, and
Rights of purchaser of warehouse receipt as against warehouseman delivering goods without production of receipt, see note in 38 A.L.R. 1210. See, also, 27 R.C.L. 986. *Page 267 
represented by receipts, being exhibits "B" and "C" in the trial of this case.
There are two causes of action, — one setting up the misapplication of the potatoes represented by exhibit "B," and the other of the potatoes represented by exhibit "C." Taking the complaint as a whole, and for the sake of brevity, we will consider the two causes of action together.
In the first cause, it is alleged that on the twenty-eighth day of October, 1925, John H. Grafton deposited with the defendants for hire in their warehouse 545 sacks of netted gem potatoes which weighed 56,728 pounds, and that they delivered to Grafton their warehouse receipt therefor which was in the form known by the laws of this state as a negotiable receipt.
In the second cause, it is alleged that Grafton delivered 41,829 pounds of potatoes to the same defendants for which the defendants issued a warehouse receipt. In December, 1925, Grafton indorsed and delivered said receipts to the plaintiff and the plaintiff has been and is now the holder thereof for value and in good faith.
It is also alleged that about the 11th of June, 1926, the plaintiff presented said receipts, with the indorsements thereon, to the defendants, and offered to satisfy the lien which defendants might have on the potatoes and to surrender the receipts, and demanded the defendants to deliver the potatoes to plaintiff. That thereupon the defendants stated to plaintiff that they had disposed of the said potatoes and no longer had them, or any part of them, in their possession, and that they were unable to deliver and did not deliver the said potatoes or any part thereof to plaintiff. In consequence of such refusal, the plaintiff *Page 268 
claimed to have been damaged in the sum of $1,362.50, on one cause of action and the sum of $1,000 on the other cause of action.
The defendants answered, practically admitting the fact of the deposit by Grafton and the issuing of the receipts, and, by way of defense, alleged that Grafton entered into an agreement with the plaintiff whereby it was understood and agreed by and between said plaintiff and Grafton that, in consideration of the delivery by Grafton to plaintiff of the warehouse receipts covering the potatoes stored in various warehouses, plaintiff would loan money to Grafton, and said warehouse receipts so delivered to plaintiff would be retained by said plaintiff as collateral security for said loan; and it was then and there further understood and agreed by and between plaintiff and Grafton that, in view of the fact that the potatoes covered by said warehouse receipts were perishable property, and that both Grafton and plaintiff were interested in protecting the same and securing the best price obtainable therefor, the sale of said potatoes should be negotiated and made by the said Grafton for and in behalf of plaintiff, and as its agent, with the understanding and agreement then and there had and made between the parties that he the said Grafton would deposit with plaintiff the proceeds from the sales of all potatoes covered by the warehouse receipts to be delivered to said bank, or account to plaintiff for said proceeds, and that said warehouse receipts would be returned by plaintiff to said Grafton upon demand at such times as sales of the potatoes covered thereby were being made; that when demand for return of said receipts was made by the said Grafton on plaintiff, plaintiff would release all claim in and to the potatoes covered by the receipts demanded, and would *Page 269 
return said receipts to the said Grafton; that at said time a large number of warehouse receipts, including the warehouse receipts referred to in paragraph IV of plaintiff's first cause of action herein, and in paragraph I of plaintiff's second cause of action herein, were delivered to and pledged to said bank by Grafton; that said receipts were pledged by the said Grafton under said contract and not otherwise; and that said agreement so made between plaintiff and said Grafton was all in accordance with a general banking custom in such cases then well known to plaintiff, and under which custom, when warehouse receipts covering perishable property were pledged to a bank as security for a loan, the pledgor thereof would be permitted to dispose of said property as the agent of the bank, the proceeds of the sale to be accounted for and paid over to said bank.
Defendants allege that under and pursuant to said custom and agreement, plaintiff loaned to said Grafton sums of money, the aggregate amount of said loans being to defendants unknown, and on or about the eighth day of February, 1926, and pursuant to said custom and agreement as set forth in the preceding paragraph hereof, said Grafton requested plaintiff to surrender certain warehouse receipts, including those two certain warehouse receipts hereinabove referred to. Plaintiff thereupon undertook to return and deliver to said Grafton said receipts, and pursuant to said agreement delivered unto said Grafton a number of warehouse receipts; that by inadvertence said warehouse receipts, being exhibits "B" and "C," were not returned to said Grafton, but by Grafton's request for said receipts and plaintiff's agreement to return the same, all claims of plaintiff in and to said potatoes referred to in said receipts *Page 270 
were released pursuant to said agreement, and said Grafton, pursuant to said agreement and with the understanding that said receipts had been returned and not otherwise, sold and delivered said potatoes covered by said warehouse receipts, and that under the terms of said agreement, plaintiff at the time of said sale had no right, title, claim or interest in or to said potatoes covered by said warehouse receipts, or any part thereof. That thereafter said Grafton tendered unto the plaintiff the sum of $1,357.01, the proceeds derived from the sale of said potatoes, and that plaintiff failed and refused to accept the same. That said agreement, hereinabove referred to, was communicated to these defendants by the said Grafton and that said potatoes were released from the warehouse belonging to these defendants pursuant to said agreement and not otherwise.
The allegations of new matter being controverted by a reply, the case went to trial upon the issues thus formed; and under the instructions hereinafter referred to, the jury returned a verdict in favor of the defendants, from which plaintiff appeals.
REVERSED. REHEARING DENIED.
The sections of the Code bearing upon this subject may be summarized as follows:
Section 8017, Or. L., in substance, provides: *Page 271 
"Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them the warehouseman shall be liable as for conversion to all having a right of property or possession in the goods if he delivered the goods otherwise than as authorized by subdivisions (b) and (c) of the preceding section, and though he delivered the goods as authorized by said subdivisions he shall be so liable, if prior to such delivery he had either:
"(a) Been requested, by or on behalf of the person lawfully entitled to a right of property or possession in the goods, not to make such delivery; or
"(b) Had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods."
Section 8018, Or. L., provides:
"Except as provided in section 8043, where a warehouseman delivers goods for which he had issued a negotiable receipt, the negotiation of which would transfer the right to the possession of the goods, and fails to take up and cancel the receipt, he shall be liable to anyone who purchases for value in good faith such receipt, for failure to deliver the goods to him, whether such purchaser acquired title to the receipt before or after the delivery of the goods by the warehouseman."
Section 8043, Or. L., among other things, provides: Liability of a warehouseman ceases after he makes lawful sale in satisfaction of his lien, or because of the perishable or hazardous nature of the goods.
Section 7997, Or. L., among other things, provides:
"No person operating any warehouse * * or other place of storage, shall sell, * * ship * * or in any manner remove or permit to be shipped * * beyond his custody or control, any grain * * or other produce or commodity for which a receipt has been given by him, as aforesaid, whether received for storing * * *Page 272 
or other purposes, without the written assent of the holder of the receipt."
Section 8016, Or. L., in substance, provides: Where a warehouseman delivers goods to the authorized agent who holds the warehouse receipts for the same, said delivery is justified and the holder of said receipts has no cause of action against the warehouseman.
The following facts may be taken as thoroughly established: First, that the warehouse receipts, "B" and "C," are negotiable; second, that the plaintiff was the holder thereof when the goods were shipped; third, no one had the written assent of the plaintiff that the goods might be shipped to him; fourth, that the defendants did not take up or cancel said receipts; and fifth, the receipts provided in terms that, in order to justify defendants in shipping the goods, said receipts must be surrendered properly indorsed.
The form of warehouse receipt issued by defendants to Grafton is as follows:
                            "Ellis Transfer.                         W.H. Ellis, Proprietor.
1927 Court St.                              Phone 456. Baker, Ore., Oct. 28, 1925.
Received from Jack Grafton subject to his order hereon, on payment of all charges and the surrender of this receipt properly endorsed.
   Lot     Warehouse       Section              Articles Lot 2      Main             2        545 Sks. Netted Jems (Gems)
It is agreed that all loss or damage to property occasioned by fire, water, leakage, vermin, ratage, breakage, frost, accidental or providential causes, riot or insurrection or to perisable property is at owner's risk, and any class of goods not properly packed at owner's risk. Not responsible for shrinkage in weights. *Page 273 
   Warehouse Receipts Must Accompany Delivery Orders.
  Storage per contract _______________________ Net weight handed in 56,728 lbs.
                                 ELLIS TRANSFER. BY E.D.P."
This whole case may be condensed in practically one proposition: Was Grafton the duly authorized agent of the plaintiff bank to the extent of authorizing him to cause the goods to be shipped without presentation of the receipt to the warehouseman? It is an important question largely depending for its solution upon the construction of the law as indicating the intent of the lawmaker in enacting it. We take it that the object of the law, as shown by its many provisions, was to see that each step taken, beginning with the deposit in the warehouse and the issuing of the receipt to the final delivery of the goods by the warehouseman to the holder of the receipt should be evidenced by some statement in writing so as to completely preclude any attempt by an unauthorized person to get possession of the property. The defendants in this cause contend for the somewhat singular theory, so far as business is concerned, that the owner of the warehouse receipt can pledge it as security for a loan, and sale by him be authorized by oral agreement, and at the same time enable him to dispose of the property and cause it to be delivered to a purchaser without having in his possession the warehouse receipt, or without being authorized by his pledge in writing so as to authorize the corpus of the property, indicated by the receipt, to be disposed of at his pleasure upon his mere promise to pay the debt out of the proceeds of the property so disposed of. It would be a unique and unusual method of doing *Page 274 
business, to say the least, and we are of the opinion that the requirement, that the person demanding possession of the property or so disposing of it should have some written evidence of his authority as indicated in Section 7997, Or. L., should apply to any person presuming to exercise dominion over the property, and should be the sole evidence of his authority to demand a transfer of the possession of the property. Any other construction would leave a loophole in the law which would render it practically nugatory in many instances. As a matter of public policy, this construction should be given to the statute and no person, so far as this warehouse statute is concerned, should be construed to be an agent unless he either has possession of the receipts and offers to return them or cancel them upon delivery of the property, or has written authority from the person holding the receipts. A "duly authorized agent" is a person having the written authority referred to by Section 7997, Or. L.
In this case there is no evidence to show that the defendants had any knowledge of the alleged contract between Grafton and the plaintiff, or that they assumed to deliver the property to Grafton, or upon Grafton's order by reason of any knowledge of the alleged oral agreement which accompanied the pledge of the receipts in the first instance. In fact, the evidence is conclusive that they had no such knowledge nor even knowledge that the receipts had been assigned, but merely took Grafton's word as a sufficient voucher and as a justification for their act in delivering the goods to the purchaser, no doubt supposing him to be the owner of the property and without requiring a delivery of the warehouse receipts. In doing this they acted at their peril and the courts are not required, *Page 275 
in this instance, to go into an investigation as to the private agreements between Grafton and the plaintiff. Defendants delivered the potatoes, which were for the purposes of this case the property of the plaintiff, upon the verbal order of the person who had pledged them to the bank and without requiring the receipt or any evidence of his authority from the plaintiff to dispose of the potatoes and in doing so they did so at their peril. Grafton was not such an agent in this matter to be within the terms of an "authorized agent" as used in the statute now being considered.
The defendants rely largely upon the case of Diamond RollerMills v. Moody, 63 Or. 90 (125 P. 284, 126 P. 984). The facts in that case clearly distinguish it from the case at bar. In that case, the plaintiff had on deposit in defendant's warehouse a quantity of wheat which defendant, without order of the owner, shipped to it. The owner brought an action for damages being the cost of unloading the wheat at its mill. The court held that a shipment of the wheat to the owner of it, while it might have constituted a breach by defendant of his contract of bailment, did not constitute a tort and, substantially, that as the owner had received the wheat and still had possession of the receipt, it did not bring itself within the purview of Section 7997, Or. L., which was designed to protect the owner or holder of the receipts from delivery of the same to unauthorized persons. Here, the delivery was made upon the order of a person not legally authorized (i.e., in writing) to a party outside the state leaving plaintiff a doubtful and difficult remedy against Grafton or Balcom  Company for the price of the commodity. The situation here at once suggests the danger attendant upon a deviation from the strict though salutary *Page 276 
rule prescribed in Section 7997 of the Code. To require the plaintiff to litigate with Grafton or Balcom  Company as to the charges, or to accept the check of a foreign firm in lieu of the commodity which was stored in defendants' warehouse, would be a perversion of the law and especially when none of these persons or firms are parties to the case.
The judgment is reversed and a new trial directed.
REVERSED WITH DIRECTIONS. REHEARING DENIED.
BELT, J., took no part in the consideration of this case.