Montgomery v. U.S. Nat. Bank of Portland

• Decision Date: 10 February 1960
• Parties: A. J. MONTGOMERY, assignee for benefit of creditors of Washington Creamery Co., Respondent, v. UNITED STATES NATIONAL BANK OF PORTLAND, Oregon, a National Banking Association; Arnold Selnes and Erma Selnes, husband and wife, Appellants.
• Court: Oregon Supreme Court

Page 464

349 P.2d 464

220 Or. 553

A. J. MONTGOMERY, assignee for benefit of creditors of Washington Creamery Co., Respondent, v. UNITED STATES NATIONAL BANK OF PORTLAND, Oregon, a National Banking Association; Arnold Selnes and Erma Selnes, husband and wife, Appellants.

Supreme Court of Oregon, Department 1.

Argued Jan. 6, 1960.

Decided Feb. 10, 1960.

E. L. Crawford, Salem, and Robert H. Huntington, Portland, argued the cause for appellant United States National Bank of Portland. With them on the brief were Manley B. Strayer and Hart, Spencer, McCulloch, Rockwood & Davies, Portland.

W. W. McKinney, Salem, argued the cause and filed a brief for appellants Selnes.

Sam F. Speerstra, Salem, argued the cause for respondent. On the brief were Rhoten, Rhoten & Speerstra and R. W. Pickell, Salem.

Before McALLISTER, C. J., and SLOAN, O'CONNELL and HARRIS, JJ.

HARRIS, Justice pro tem.

Plaintiff, A. J. Montgomery, as assignee for the benefit of creditors of Washington Creamery Co., a corporation (hereinafter referred to as the processor), filed the present suit seeking a declaratory decree and judgment as to the status of certain turkeys, or the proceeds thereof, upon which the defendant United States National Bank of Portland (hereinafter referred to as the bank) claims a preference or lien by virtue of a certain chattel mortgage. The defendants Arnold Selnes and Erma Selnes, husband and wife (at all times represented by the husband, Arnold Selnes, and hereinafter referred to as the grower) were the mortgagors named in said mortgage, and have adopted substantially the same position as the bank, claiming, as does the bank, that the proceeds derived from the turkeys in the manner hereinafter explained be impressed with a constructive trust in their favor and paid over to the bank and applied on the mortgage obligation of the Selneses to the bank.

The plaintiff assignee seeks a determination that the proceeds of the turkeys be held subject to the claims of the creditors of the processor, now defunct.

From a decree entered in favor of the plaintiff, the defendants have appealed.

In 1954 the grower was engaged in the business of growing turkeys. He was financed by the Willamette Valley Bank of Salem. This financing was continued by the United States National Bank of Portland, North Salem Branch, after it had assumed the assets of the Willamette Valley Bank.

The grower's operations required substantial financing and payment therefor was secured by a chattel mortgage dated August 4, 1954. This mortgage described the turkeys which are the subject matter of this suit. The mortgage contained clauses providing for future financing and for renewal of the obligations secured by the mortgage.

The indebtedness of the grower to the bank was at times renewed and extended, but the mortgage and another one given on March 14, 1955, were never fully paid, and the indebtedness of the grower was never less than $7,762.63, the value of the turkeys which are the subject matter of this suit.

In the latter part of December, 1954, the turkeys were ready for marketing. The prevailing market price was not satisfactory to the grower.

The grower, on December 28, 1954, had the turkeys picked up by the processor for the purpose of marketing. After being taken to the processor's plant in Silverton, the turkeys were killed and processed by the processor. They were packaged in the processor's warehouse under its name and commingled with the processor's turkeys. The processor, after packing, sorting and grading the turkeys, then delivered them to the Terminal Ice and Cold Storage Co. in Salem, which issued a warehouse receipt to the processor. This receipt and the turkeys were then pledged or hypothecated by the processor to the American Produce Co. in Portland, which paid the processor advances thereon of from 70 to 80% of the market value of the turkeys. This was an amount more than twice in excess of the processor's charge of about 9 cents a pound for the processing of the turkeys.

Early in 1955 the processor became financially unable to operate and made an assignment for the benefit of creditors to the plaintiff assignee.

The grower and the bank contend that the arrangement with the processor when the turkeys were turned over to it was that the turkeys were to be killed, processed and stored by the processor until such time as a satisfactory price could be obtained. Their claim is that the transaction was a bailment, and that the pledge or hypothecation of the turkeys to the American Produce Co. by the processor constituted a conversion, and that the proceeds of the turkeys in the hands of the American Produce Co. should be impressed with a constructive trust in their favor to the extent of the sum of $7,700.

The plaintiff assignee claims that the transaction in question constituted a sale, and that the processor was free to deal with the turkeys as its own property.

During the trial the parties stipulated that the value of the turkeys was 24 cents a pound, or a total of $7,700, at the time they were turned over to the processor by the grower. Likewise, the parties stipulated that the American Produce Co. withhold $10,000 of the proceeds derived from the turkeys to be distributed as the court might direct. This money is now held by the county treasurer of Marion county, Oregon.

The principal questions for our decision, as we view the record, are whether the transaction mentioned was a sale or a bailment and if a bailment, whether the turkeys of the grower, or the proceeds thereof, can be traced to the proceeds against which defendants assert a lien or claim should be impressed with a constructive trust in their favor.

At the conclusion of the trial the court stated:

'Gentlemen, I will tell you what my thinking is on this factually, * * *. I do not mean to bind myself at this time, but my thinking is that there was no sale of the Selnes' turkeys to the Washington Creamery Company.'

Later, in a memorandum opinion, the court ruled as follows:

'The Court in this decision will consider the question of sale first: Counsel are aware that the Court fully heard the testimony in another case involving the same transaction which is the basis of this suit. The Court cannot help but be aware of the jury's decision in the other case referred to, and perhaps to some extent this decision may influence the thinking of the Court. It cannot be denied the same issue was presented to and decided by a jury in the previous case and on a question of fact the Court cannot say that its judgment is better than that of twelve laymen. It, therefore, appears to the Court that the transaction between the defendant Selnes and the Washington Creamery Company was a sale.

'I think the evidence was clear at the time the turkeys were delivered to the Washington Creamery Company, it was not the intention of defendant Selnes to consummate a sale at that particular time. Subsequent dealings between the parties, however, culminated at a later date in a sale at an agreed price of 24 cents a pound.

'It is interesting to note that the brief of the defendant, page 8, beginning on line 5, states:

"It is obvious that no sale was intended by either party at the time of the delivery. This follows from the fact that there had been no agreement on price and no commitment by Shoemaker to pay any price. He offered and Selnes refused a price of 23 cents, and the turkeys were stored at Shoemaker's suggestion to await a rise in the market. It is obvious that there could be no sale until the parties had agreed upon price, an event which might never occur.'

'And then on page 11, the brief requests the Court to impress a trust in the amount of $7,792.63, 'the same being the agreed value of the Selnes turkeys at 24 cents a pound.'' (Emphasis supplied.)

The 'agreed value' quoted by the court from the bank's brief was the value, heretofore referred to, which was based on a trial stipulation of the parties, fixing a price to enable the court to determine the value of the turkeys.

It will thus be noted that at both times the trial judge expressed his views upon the facts, he held that at the time the turkeys were delivered to the Washington Creamery Company it was not the intention of the defendant Selnes to consummate a sale at that particular time.

ORS 75.010(2) provides:

'A sale of goods is an agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price.'

It is undisputed that there was no agreement concerning price when the grower turned over the turkeys to the processor. The arrangement for processing was made orally between the grower and Mr. Shoemaker, president of the Washington Creamery Company. On prior occasions when the processor had purchased turkeys, the price was agreed upon at the time of the slaughter. In fact, a week or two before the instant transaction the processor had purchased some hens from the grower on a cash basis.

Shortly before the turkeys in suit were delivered, Mr. Shoemaker and the grower had discussed the market. The grower testified as follows:

'Q. What did you tell him? A. I asked him if he didn't think there would be a better price later and he said that probably in a couple of months the market would strenghten and it would be no trouble getting 25 cents, so I told him to put them in storage and hold them for me until such time as we agreed on what the price would be.'

Mr. Shoemaker's version of the transaction follows:

'Q. Now, the turkeys in question in this lawsuit, Mr. Selnes came into the plant of Washington Creamery Company sometime, I believe, in December of 1954. Do you recall that occasion? A. I don't recall the occasion. I recall he did come in, yes.

'Q. Had you had any other transactions with Mr. Selnes about that time? A. I purchased some hens out of his flock, probably a week or two before that, for cash. And we slaughtered his toms.

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'Q. Now, Mr. Shoemaker, tell ...