International Nickel Co., Inc. v. Trammel Crow Distribution Corp.
| Decision Date | 24 October 1986 |
| Docket Number | No. 85-2855,85-2855 |
| Citation | 803 F.2d 150 |
| Parties | 2 UCC Rep.Serv.2d 594 The INTERNATIONAL NICKEL CO., INC., Plaintiff-Appellant, v. TRAMMEL CROW DISTRIBUTION CORP., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Thomas A. Croft, Porter & Clements, Mark K. Glasser, Gregory A. Bolzle, Houston, Tex., for plaintiff-appellant.
Douglas W. Lyons, Jr., M. David Frock, Houston, Tex., for defendant-appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before REAVLEY and POLITZ, Circuit Judges, and BELEW, * District Judge.
This case involves the unexplained disappearance of a large amount of nickel from a warehouse. The International Nickel Company (INCO), owner of the nickel, obtained a summary judgment against the warehouse owner, Trammel Crow Distribution Corporation (Trammel Crow). However, Trammel Crow prevailed because the judgment gave effect to a limitation of liability clause in the warehouse contract, and INCO was awarded only a fraction of its actual damages. INCO seeks to avoid the limitation clause and recover its full actual damages. We reverse the summary judgment because of a material fact issue.
INCO began storing its nickel in Trammel Crow's warehouse in March of 1978, and continued doing so under a series of written contracts until January of 1983. Each of the contracts limited Trammel Crow's liability in the event the nickel was lost or damaged. Initially, the limitation was set at 200 times the "base storage rate" for the nickel. Later, and at the time the nickel was discovered lost, the limitation was set at 100 times the base storage rate. The contracts also provided that Trammel Crow would physically inventory the stored product once a year.
In April 1982 Trammel Crow notified INCO, in response to a request from INCO for shipment of part of the nickel, that 2,755 pounds were missing. In September 1982, this time as a result of a physical inventory, 46,000 pounds were discovered missing. Finally, in January 1983, again in response to a shipment request, Trammel Crow reported that 14,000 pounds were missing. Shortly thereafter, INCO removed all of its nickel from the warehouse. At that time it was determined that a total of 71,265 pounds was missing. Neither party has offered any explanation for the loss.
INCO filed this diversity action seeking recovery of the full market value of the lost nickel. That value exceeded $260,000, while the damages recoverable under the limitation of liability clause amounted to $11,491. INCO further sought to recover under the Texas Deceptive Trade Practices Act (DTPA), claiming that certain of Trammel Crow's conduct was false and misleading. INCO also sought $1,680 in storage fees charged for the missing nickel, attorney's fees, and prejudgment interest.
The district court, applying Texas law and granting Trammel Crow's motion for summary judgment, awarded INCO $13,171, the amount of the limited damages together with the excess storage charges. The court rejected the DTPA claims, and refused to award attorney's fees or prejudgment interest. In enforcing the limitation of liability clause, the court rejected INCO's three arguments that the clause was unenforceable because it lacked specificity, or because Trammel Crow converted the nickel, or because Trammel Crow is equitably estopped to assert the limitation clause. INCO challenges all of these rulings.
INCO first argues that the limitation of liability clause is unenforceable for lack of specificity. The district court concluded that clause was sufficiently specific. We agree.
INCO's argument is based on section 7.204(b) of the Texas Business and Commerce Code Annotated (Vernon 1968). That section states that "[d]amages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage, and setting forth a specific liability per article or item, or value per unit of weight" (emphasis added). Arguing that under Texas law limitation of liability clauses are strictly construed against the bailee, see Allright, Inc. v. Elledge, 515 S.W.2d 266, 268 (Tex.1974), INCO contends that the limitation clause in this case fails to satisfy the Code requirement that liability be set per item or unit of weight. INCO argues that "base storage rate," the basis upon which the limitation here is set, is not defined in the contract and that INCO had no way of determining the actual extent of the limitation.
The phrase "base storage rate" is not, in fact, explicitly defined in the contract. Reading the contract as a whole, however, there can be no doubt as to the phrase's meaning. Section 4 of the contract states that all storage charges are "per package or other agreed unit per month" and the face of the contract shows that the parties agreed to charges based on weight. The contract states that the monthly storage rate is $.08 per hundred weight for drums containing between 110 and 1000 pounds and $.16 per hundred weight for 2000 pound drums. The limitation clause obviously limits liability to 100 times these rates and thus complies with the code requirement that liability be limited either per item or unit of weight.
INCO nonetheless asserts that the clause is insufficient because the storage rate could have been tied to square footage or some other unit and because the contract also provided that the rates may change if the product deposited for storage differed from that declared in the contract. Neither of these facts, however, render the clause ineffective. That the storage rate could have been tied to some other measure or that it could have varied with the type of product does not change the fact that in this contract the rate was unambiguously based on weight and no product variation existed. At bottom, INCO's assertions are based on its contention that it could not determine its storage rate, and thus its exposure to risk, from the contract. Examination of the contract, however, makes this contention incredible, as does the fact that INCO paid its storage charges without difficulty or protest for several years and does not now dispute the computation of damages under the limitation of liability clause.
Our ruling here is consistent with the decisions of other courts that have dealt with contracts containing limitation of liability clauses similarly tied to the "base storage rate." See Sun Valley, Inc. v. Southland Bonded Warehouse, Inc., 171 Ga.App. 233, 319 S.E.2d 91 (1984); Inland Metals Refining Co. v. Ceres Marine Terminals, Inc., 557 F.Supp. 344, 350 n. 9 (N.D.Ill.1983). INCO relies in part on Modelia, Inc. v. Rose Warehouse, Inc., 5 U.C.C.Rep.Serv. 1004 (N.Y.Sup.Ct.1968), which refused to enforce a limitation of liability clause. That case, however, involved a clause that limited liability to $50 per deposit of goods, regardless of the amount or value of the goods in the deposit, and has no application to the clause here which limits liability according to weight.
INCO next argues that the limitation of liability clause cannot be enforced here because the provision of the Texas Business and Commerce Code that permits such clauses does not allow them to be enforced when the warehouseman has converted the goods to his own use. See Tex.Bus. & Comm.Code Ann. Sec. 7.204(b) (Vernon 1968). INCO offers no proof that Trammel Crow converted the goods. Instead, it argues that where, as here, a warehouseman fails to deliver stored goods to their owner and can offer no explanation for the failure, the warehouseman should be rebuttably presumed to have converted the goods. The district court concluded that no such presumption exists. We agree.
Texas has long held that negligence is presumed when a bailee has received goods for storage and either returns them in damaged condition or fails to return them at all. See Trammel v. Whitlock, 242 S.W.2d 157, 159 (Tex.1951); Buchanan v. Byrd, 519 S.W.2d 841, 843 (Tex.1975). The presumption is based on the "just and common sense view that the party in possession or control of an article is more likely to know and more properly charged with explaining the damage to it or disappearance of it than the bailor who entrusted it to his care." Trammell, 242 S.W.2d at 159. Although not explicit in its judgment, the district court apparently relied on this presumption in finding Trammel Crow liable to the extent permitted under the limitation of liability clause.
INCO argues that the reasons supporting a presumption of negligence in cases such as this support a further presumption of conversion. INCO asserts that if conversion is not presumed, a warehouseman who has limited his damages in the case of negligence can convert the goods to himself, plead ignorance as to the cause of the loss of goods, and be held liable only for a fraction of the value of the goods he has converted. Without the aid of a presumption, INCO argues, the bailor has no way to prove that such an unscrupulous bailee has converted his property. INCO cites cases that have adopted a presumption of conversion based on these premises. See I.C.C. Metals, Inc. v. Municipal Warehouse Co., 50 N.Y.2d 657, 409 N.E.2d 849, 431 N.Y.S.2d 372 (1980); Joseph H. Reinfeld, Inc. v. Griswold & Bateman Warehouse Co., 189 N.J.Super. 141, 458 A.2d 1341 (1983). INCO further asserts that because Texas courts have not explicitly rejected a presumption of conversion in circumstances such as are present here, this court is free to adopt its arguments and presume a conversion.
While INCO is apparently correct that no Texas court has specifically considered and rejected a presumption of conversion, we do not find ourselves free to adopt the rule INCO urges. In the absence of controlling Texas authority, we must reach the decision we think a Texas court would reach. See Sonat Exploration Co. v. Mann, 785 F.2d 1232, 1234 (5th Cir.1986). In light of the long line of Texas cases holding...
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