Canterra Petroleum, Inc. v. Western Drilling & Min. Supply

• Decision Date: 29 December 1987
• Docket Number: No. 870114,870114
• Citation: 418 N.W.2d 267
• Parties: 5 UCC Rep.Serv.2d 1002 CANTERRA PETROLEUM, INC., Plaintiff and Appellee, v. WESTERN DRILLING & MINING SUPPLY, Defendant, Third Party Plaintiff and Appellee, v. NORTHSTAR EQUIPMENT CORPORATION, Third Party Defendant, Fourth Party Plaintiff and Appellant, v. YAMIN OIL SUPPLY, Fourth Party Defendant. Civ.
• Court: North Dakota Supreme Court

Page 267

418 N.W.2d 267

5 UCC Rep.Serv.2d 1002

CANTERRA PETROLEUM, INC., Plaintiff and Appellee, v. WESTERN DRILLING & MINING SUPPLY, Defendant, Third Party Plaintiff and Appellee, v. NORTHSTAR EQUIPMENT CORPORATION, Third Party Defendant, Fourth Party Plaintiff and Appellant, v. YAMIN OIL SUPPLY, Fourth Party Defendant.

Civ. No. 870114.

Supreme Court of North Dakota.

Dec. 29, 1987.

Fleck, Mather, Strutz & Mayer, P.C., Bismarck, for Canterra Petroleum, Inc., and by stipulation for Western Drilling & Mining Supply; argued by Curtis L. Wike, Bismarck.

Bennett Aisenberg, Denver, Colo., and Wheeler, Wolf, Peterson, Schmitz, McDonald & Johnson, Bismarck, for Western Drilling & Mining Supply; appearance by stipulation through Canterra Petroleum, argued by Curtis L. Wike, Bismarck.

Gordon, Hurwitz, Butowsky, Weitzen, Shalov & Wein, New York City, and Zuger & Bucklin, Bismarck, for North Star Equipment Corp.; argued by Robert V. Bolinske, Bismarck.

Steven M. Yamin, Yamin Oil Supply, Houston, Tex. No appearance.

ERICKSTAD, Chief Justice.

NorthStar Equipment Corporation ["NorthStar"] appeals from a district court summary judgment awarding Western Drilling & Mining Supply ["Western"] $228,245.72 on its third-party claim against NorthStar. We reverse and remand for trial.

This multi-party litigation arises out of various transactions involving a certain quantity of oilfield pipe. The pipe was originally owned by Mitchell Energy Corporation ["Mitchell"]. In late 1981, Mitchell entrusted the pipe to Port Pipe Terminal, Inc. ["Port Pipe"] for storage.

Through paper transactions, two high-ranking employees of Port Pipe succeeded in fraudulently transferring apparent ownership of the pipe to Pharoah, Inc. ["Pharoah"], a "dummy" corporation which they had created to facilitate the fraudulent sale of merchandise stored at Port Pipe's facilities. On March 3, 1982, Pharoah sold the pipe owned by Mitchell to Nickel Supply Company, Inc. ["Nickel"]. On that same date, Nickel sold the pipe to Yamin Oil Supply ["Yamin"]. Five days later Yamin sold the pipe to NorthStar. On March 23, 1982, NorthStar sold it to Western, which a few days later sold it to Canterra Petroleum, Inc. ["Canterra"].

All of these intervening transactions, culminating in the sale to Canterra, were paper transactions only. The pipe never left Port Pipe's storage facility in Houston, Texas, until Canterra had it delivered to Getter Trucking in Dickinson sometime after its purchase in March 1982. The pipe remained stored at Getter Trucking until December 1983, when Canterra relinquished the pipe to Mitchell upon being informed by law enforcement agencies that the pipe was owned by Mitchell.

Canterra sued Western for breach of warranty of title seeking damages of $201,014.39, the price Canterra had paid for the pipe, plus interest. Western commenced a third-party action against NorthStar for breach of warranty of title, and NorthStar commenced a fourth-party action against Yamin.

Canterra moved for and received summary judgment against Western. Western then moved for summary judgment on its third-party claim against NorthStar. The court granted summary judgment to Western, awarding $228,245.72 in damages and interest. NorthStar has appealed from the judgment. ¹

NorthStar contends that it did not breach the warranty of title, and that it presented sufficient evidence to demonstrate that material issues of fact remain to be resolved on the issue of title. NorthStar also contends that the trial court applied an incorrect measure of damages, and that material issues of fact need to be resolved by the factfinder to arrive at the proper amount of damages, if any.

The issues presented in this case must be resolved within the context of a motion for summary judgment. Summary judgment is a procedural device available for the prompt and expeditious disposition of a controversy without a trial if there is no dispute as to either the material facts or the inferences to be drawn from undisputed facts, or if only a question of law is involved. Mid-America Steel, Inc. v. Bjone, 414 N.W.2d 591, 592 (N.D.1987). The evidence must be viewed in the light most favorable to the party against whom summary judgment is sought, and summary judgment is not appropriate if reasonable differences of opinion exist as to the inferences to be drawn from undisputed facts. Belgarde v. Rosenau, 388 N.W.2d 129, 130 (N.D.1986).

I. LIABILITY

NorthStar contends that this case falls within the entrustment provision of the Uniform Commercial Code, codified at Section 41-02-48(2), N.D.C.C. [U.C.C. Sec. 2-403]:

"2. Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business."

In essence, this statute contains three elements: (1) an entrustment of goods, (2) to a merchant who deals in goods of the kind, (3) followed by a sale to a buyer in the ordinary course of business. Toyomenka, Inc. v. Mount Hope Finishing Co., 432 F.2d 722, 727 (4th Cir.1970); Executive Financial Services, Inc. v. Pagel, 238 Kan. 809, 715 P.2d 381, 387 (1986); American Clipper Corp. v. Howerton, 311 N.C. 151, 316 S.E.2d 186, 194 (1984); Duesenberg & King, 3A Bender's Uniform Commercial Code Service: Sales & Bulk Transfers, Sec. 10.06 (1987). If all three elements are present, the rights of the entruster are transferred to the buyer in ordinary course of business. NorthStar argues that Mitchell entrusted the pipe to Port Pipe, a merchant who dealt in pipe, and that through Pharoah the pipe was sold to Nickel, a buyer in the ordinary course of business.

The trial court held that, based upon the affidavits presented, there was no factual dispute as to Port Pipe's status and that, as a matter of law, Port Pipe was merely a storage facility and not a merchant which dealt in pipe. "Merchant" is defined in Section 41-02-04(3), N.D.C.C. [U.C.C. Sec. 2-104]:

"3. 'Merchant' means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill."

Although this definition provides several ways by which a party may acquire "merchant" status, the entrustment statute applies only to a "merchant who deals in goods" of the kind entrusted. See Section 41-02-48(2), N.D.C.C. [U.C.C. Sec. 2-403].

The determination whether a party to a transaction is a "merchant" under the Uniform Commercial Code is a question of fact. See, e.g., Greater Southern Distributing Co. v. Usry, 124 Ga.App. 525, 184 S.E.2d 486, 487 (1971); Bauer v. Curran, 360 N.W.2d 88, 90 (Iowa 1984); Ferragamo v. Massachusetts Bay Transportation Authority, 395 Mass. 581, 481 N.E.2d 477, 480 (1985); Agrex, Inc. v. Schrant, 221 Neb. 604, 379 N.W.2d 751, 754 (1986); Arigo v. Abbott & Cobb, Inc., 86 A.D.2d 958, 448 N.Y.S.2d 311, 312 (1982); Fred J. Moore, Inc. v. Schinmann, 40 Wash.App. 705, 700 P.2d 754, 757 (1985). As noted by the Supreme Judicial Court of Massachusetts:

"Moreover, that inquiry 'is of necessity highly dependent on the factual setting of the transaction in question. Consequently, whether a person is a merchant is to be determined according to the circumstances of each case.' 1 R.A. Anderson, supra at Sec. 2-104:25." Ferragamo v. Massachusetts Bay Transportation Authority, supra, 481 N.E.2d at 480 (quoting 1 Anderson, Uniform Commercial Code Sec. 2-104:25 (3d ed. 1981)).

Western contends that there is no dispute as to the facts regarding this issue, and that the court correctly determined as a matter of law that Port Pipe is a storage facility and not a merchant dealing in pipe. Western relies primarily upon the affidavits of Bradley Beers, an assistant district attorney in Texas who prosecuted the two employees responsible for diverting materials stored at Port Pipe's facilities, and Janet Chisholm, former president of Port Pipe. These affidavits state in conclusory terms that Port Pipe was not a "merchant" dealing in oilfield pipe. Chisholm's affidavit, however, goes on to state that "Port Pipe ... did sell small quantities of pipe from time to time, to clear odd lots, or to sell that pipe remaining after a substantial portion of a lot was sold."

The entrustment statute requires that goods be entrusted to a "merchant who deals in goods of that kind." Section 41-02-48(2), N.D.C.C. [U.C.C. Sec. 2-403]. The requirement that the party "deals in goods" has been construed to mean one who is engaged regularly in selling goods of the kind. Toyomenko, Inc. v. Mount Hope Finishing Co., supra, 432 F.2d at 727; Tumber v. Automation Design & Mfg. Corp., 130 N.J.Super. 5, 324 A.2d 602, 606 (1974); 3 Anderson, Uniform Commercial Code Sec. 2-403:31 (3d ed. 1983).

The conclusory statements contained in the affidavits of Beers and Chisholm that Port Pipe was not a merchant which dealt in oilfield pipe are not dispositive of the issue. We have previously expressed our dissatisfaction with affidavits containing conclusory statements that are not supported by specific facts. See Federal Land Bank of St. Paul v. Asbridge, 414 N.W.2d 596, 598 (N.D.1987); Federal Land Bank of St. Paul v. Anderson, 401 N.W.2d 709, 712 (N.D.1987).

The relevant factual inquiry is whether Port Pipe was regularly engaged in selling pipe. The party opposing summary judgment, in this case NorthStar, is entitled to all favorable inferences which can reasonably be drawn from the evidence. Federal Land Bank of St. Paul v. Asbridge, supra, 414 N.W.2d at 598. Viewing Chisholm's affidavit in the light most favorable to NorthStar, we conclude that it does raise an inference that Port Pipe regularly sold pipe. Chisholm admits that Port Pipe did sell pipe "from time to time." It will be...