Barnes v. Patrick

• Decision Date: 11 January 1934
• Docket Number: 24721.
• Parties: BARNES, State Director of Agriculture, v. PATRICK et al. (TUCKER et al., Interveners.
• Court: Washington Supreme Court

28 P.2d 293

176 Wash. 142

BARNES, State Director of Agriculture, v. PATRICK et al. (TUCKER et al., Interveners.

No. 24721.

Supreme Court of Washington

January 11, 1934

Department 2.

Appeal from Superior Court, Grant County; Joseph B. Lindsley, Judge.

Suit by Erle J. Barnes, Director of Agriculture of the State of Washington, against Paul Patrick and Myrtle Patrick copartners doing business as the Fred Schwab Commission Company, in which J. L. Tucker, the Federal Reserve Bank of San Francisco, and others intervened, T. Claud Bennett was appointed receiver, and Kenneth Saunders, Victor C. Sieler and others filed claims. From an order directing distribution of grain in partnership warehouses, or proceeds from sale thereof, separate appeals were taken by the Federal Reserve Bank, by Victor C. Sieler, and by Kenneth Saunders, and others, claimants.

Affirmed.

W. O Miller, of Ritzville, and Weaver & Weaver, of Spokane, for appellants.

E. W. Schwellenbach, of Ephrata, Henry R. Newton and Parker W. Kimball, both of Spokane, and Crollard & O'Connor, of Wenatchee, for respondents.

BLAKE Justice.

In 1932, the defendants, Paul Patrick and Myrtle Patrick, copartners under the firm name of Fred Schwab Commission Company, were operating three grain warehouses under state licenses--one at Ephrata, one at Coulee and one at Wheeler. On November 19, 1932, Erle J. Barnes, as director of agriculture, filed a complaint in the superior court of Grant county, alleging that the amount of grain in the three warehouses was less than the amount called for by outstanding warehouse receipts, and prayed for the appointment of a receiver to take charge of the property and affairs of the copartnership. The Federal Reserve Bank of San Francisco filed a complaint in intervention, alleging that it was the holder in due course of forty-two negotiable warehouse receipts issued by the Fred Schwab Commission Company, and also praying for the appointment of a receiver. On December 8th, a receiver was appointed, with whom were filed some three hundred seventy-three claims. Most of these claims were by holders of receipts issued by the Fred Schwab Commission Company on account of grain actually, or ostensibly, deposited in the three warehouses. These receipts were of three kinds: (1) Official warehouse receipts furnished to the Fred Schwab Commission Company by the director of agriculture, pursuant to section 7000, Rem. Rev. Stat.; (2) receipts (which we shall term 'unofficial receipts') indentical in form with the official receipts, but which Patrick had caused to be privately printed; and (3) receipts in the following form:

"...........Gross Warehouse Purchase

...........Tare Receipt No. ......

...........Balance The Fred Schwab

...........Sax Commission Company

...........Bulk of Washington

...........Balance Fred Schwab Commission Com-

............... pany has this day received the

............... delivery from ...... pounds of

............... ...... wheat bulk ...... test-

............... ing ...... pounds.

...........Net Wt.

............... The said Fred Schwab Commis-

............... sion Company hereby agrees to

Off pay the seller the cash market

Driver......... value of the said wheat, upon

On demand and the surrender of

this receipt.

"The Fred Schwab Commission

Company

"By .......... Manager."

Claims for wheat under all three classes of receipts amounted to 22,686,390 pounds. Upon investigation, the receiver found that there was in the three warehouses, all told, only 5,471,859 pounds.

March 8, 1933, the receiver filed with the court what he called his 'First General Report.' This report deals with the rights of the various holders of warehouse receipts and depositors of grain to share in the grain that is left. Some farmers who had deposited grain laid claim to specific sacks of grain, which they asserted had been put in special piles and earmarked, as provided for in section 7000, Rem. Rev. Stat. There were some receipts outstanding, for which no grain at all had ever been deposited in the warehouses. The receiver recommended that the claims on such receipts be denied, and that all claims for grain in special piles be disallowed. He further recommended that the holders of all receipts, 'official,' 'unofficial,' and 'warehouse purchase receipts,' issued by each warehouse, be classed as one group, and that all share ratably in the grain in such warehouse.

Pursuant to order of court, a day was fixed for hearing on the report, and notice was given to claimants to appear and present such objections thereto as they might have. The court, on April 11th, after hearing evidence presented by the receiver and the claimants, entered an order, which, so far as the questions raised on this appeal are concerned, approved the report, denying the claims to specially piled grain; denying the claims of holders of receipts for which no grain was deposited; and ordering the grain in each warehouse, or proceeds from the sale thereof, to be ratably distributed among the holders of all receipts issued by such warehouse.

Three separate appeals have been taken from the order so entered: (1) By the Federal Reserve Bank; (2) by Saunders and nine others, who made claims to specially piled grain; and (3) by Sieler, who made claim for specially piled rye, and also made claim under two negotiable receipts which were issued to him and for which no grain was ever deposited. We shall discuss these appeals in order.

I. Federal Reserve Bank claimed under forty-two negotiable receipts calling for 5,785,921 pounds of wheat. By its order, the court allowed, all told, claims under negotiable receipts for 9,395,421 pounds, and under 'warehouse purchase receipts' for 5,169,649 pounds. There was available for distribution approximately 5,000,000 pounds. It is the contention of the bank that the transactions between the commission company and the holders of 'warehouse purchase receipts' constituted a contract of sale, and not a bailment, and therefore the holders of such receipts are not entitled to share in the remaining grain. The argument presented in support of this position may be divided into three parts: (a) That the 'warehouse purchase receipt' is, on its face a contract of sale; (b) that, if not, the evidence discloses that the transaction under which such receipts were issued was intended as a sale and not a bailment; (c) that such receipts are not authorized by law and must yield precedence to negotiable warehouse receipts which are authorized by law.

(a, b) Counsel for the bank cite a number of cases as tending to support the first two propositions, among which are the following: Stewart, Gwynne & Co. v. Phoenix Insurance Co., 9 Lea (77 Tenn.) 104; Finch v. McClellan, 77 Ind.App. 533, 130 N.E. 13, 131 N.E. 236; Norton v. Woodruff, 2 N. Y. 153; Savage v. Salem Mills Co., 48 Or. 1, 85 P. 69, 10 Ann. Cas. 1065; Morse v. La Crosse Milling, Grain & Ice Co., 116 Kan. 697, 229 P. 366; Carlisle v. Wallace, 12 Ind. 252, 74 Am. Dec. 207; Chase v. Washburn, 1 Ohio St. 244, 59 Am. Dec. 623; Barnes v. McCrea, 75 Iowa, 267, 39 N.W. 392, 9 Am. St. Rep. 473; Cloke v. Shafroth, 137 Ill. 393, 27 N.E. 702, 31 Am. St. Rep. 375; Kansas Flour Mills Co. v. Board of Commissioners, 124 Kan. 312, 259 P. 795, 54 A. L. R. 1164. It is true that in the cited cases writings of more or less similarity to the receipts here under consideration were held to have constituted sales and not bailments. We think, however, the facts in all of these cases are clearly distinguishable from the facts in this case. In Savage v. Salem Mills Co., 48 Or. 1, 85 P. 69, 74, 10 Ann. Cas. 1065, a case upon which appellant places much reliance, the court says:

'It is manifest, therefore, that the load checks and receipts do not alone express the contract. They are but part of the transaction. Their importance is only made apparent upon proof of the custom and usual course of business of the defendant, known and acquiesced in by the depositors, and the purpose for which they were issued. The entire contract between the defendant and the persons delivering wheat to it was not embodied in the written memoranda, and it is not from a consideration of the writings alone that we are to determine the character of the transaction or the respective rights and obligations of the parties. The entire contract must be ascertained from the custom and usage of the business and the general understanding of the parties in connection with such load checks and receipts. * * *

'Upon this state of facts, the question for decision is whether the transaction between the plaintiff and his assignors and the defendant constituted a bailment or a sale. If the former, the title remained with the bailors and the loss must fall upon them, but if the latter, the title passed to the defendant at the time of the delivery, and thereafter the grain was held at its risk. It is often difficult to determine whether a particular transaction is a sale or a bailment, and especially so when it involves grain delivered to a person and by him mixed and mingled in a common mass with grain belonging to himself or other parties.'

Now taking the 'warehouse purchase receipt' by its four corners, what is it? It is, first, a scale weight; second, an acknowledgment by the commission company of receipt of that amount of a certain kind of wheat; third, an offer by...