Republic Rice Mill, Inc. v. Empire Rice Mills, Inc., 17100.

• Citation: 313 F.2d 717
• Decision Date: 26 March 1963
• Docket Number: No. 17100.,17100.
• Parties: REPUBLIC RICE MILL, INC., Appellant, v. EMPIRE RICE MILLS, INC. and American Casualty Company, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

313 F.2d 717 (1963)

REPUBLIC RICE MILL, INC., Appellant, v. EMPIRE RICE MILLS, INC. and American Casualty Company, Appellees.

No. 17100.

United States Court of Appeals Eighth Circuit.

February 27, 1963.

Rehearing Denied March 26, 1963.

John H. Haley, Little Rock, Ark., for appellant.

Joe C. Barrett, Jonesboro, Ark., for appellee and James Robertson, Wynne, Ark., and Malcolm Gannaway, Little Rock, Ark., with him on the brief.

Before VOGEL, BLACKMUN and RIDGE, Circuit Judges.

VOGEL, Circuit Judge.

Republic Rice Mill, Inc., plaintiff-appellant, brought this suit for damages against Empire Rice Mills, Inc., and its surety, American Casualty Company, defendants-appellees. C. O. Wofford and Jess Brown were made third-party defendants by American Casualty Company because of an indemnity contract entered into in connection with a warehousing bond issued by American Casualty Company in behalf of Empire. Jurisdiction is based upon diversity and amount involved.

Republic is a Louisiana corporation engaged in the business of milling rice. Empire is an Arkansas corporation engaged in the business of drying, warehousing and milling rice at Fair Oaks, Arkansas, and is the primary defendant in this action. In 1954 Empire realized that the rice harvest would be large and that there was a substantial shortage of facilities for warehousing rough rice. To meet the demand for storage facilities, Empire entered into an agreement with various local producers and thereupon erected a quonset-type building 220 feet long and 80 feet wide for rice storage. Rice was placed in the building by means of a screw conveyor extending the full length of the building and located near the center of the roof. Rice was removed by a similar conveyor in the floor. Commodity Credit Corporation approved the plans for the building and after construction inspected the completed structure, approving it for storage of rice under the form of Uniform Rice Storage Agreement then in use. When filled with rough rice the quonset building contained approximately 240,000 bushels grown by 80 or more producers in the area. At the time of harvesting, the moisture content of the rice ranged from 18% to 24%. For storage the moisture content may not safely exceed 14%. Accordingly, to prepare the green rice for storage the moisture content had to be reduced through heat application. Empire received the green rice from the producers, dried it and then placed it in the quonset building for storage. Only rice of Zenith variety U. S. No. 2 grade was placed in the building. Upon demand, Empire issued to the various producers owning the rice negotiable warehouse receipts showing the number of bushels, the net weight, from whom it was received, the variety, the grade, and that it was stored as Lot 1 Modified Commingled.¹

During the filling of the quonset building with rice, a representative of the Cross County A.S.C. office took and preserved samples which were subsequently sent to the Stuttgart office of the United States Agricultural Marketing Service for inspection as to variety, grade and milling yield. These factors affected the loan rate per bushel which would be approved by Commodity Credit Corporation. (The Rice Inspection Certificate dated November 1, 1954, which resulted from such sampling, showed "milling yield 40%-67%".) Upon presentation of his warehouse receipt to the Cross County A.S.C. office, the producer would receive the appropriate amount of money based upon the schedule furnished that office by CCC that was applicable to the inspection certificate. The warehouse receipts were delivered to the A.S.C. office for the account of CCC.

On March 15, 1955, CCC, pursuant to its loan agreement with the producers, took title to all rice for which it held warehouse receipts. In preparation for the takeover, CCC caused the Agricultural Marketing Service through its Jonesboro, Arkansas, office to again sample the rice in the quonset building. James Hammil, inspector for the Agricultural Marketing Service, made the sampling. On the basis thereof he issued on February 17, 1955, rice inspection certificates on Form UR-103 in sufficient numbers to accompany each warehouse receipt for rice in the building. The certificates he issued were identical except as to quantity of rice involved and the name and address of the producer. Each certified the kind and grade as "U. S. No. 2 Zenith rough rice, milling yield 46%-68%". The milling yield certified on these certificates by Hammil was therefore substantially higher than that certified by the Stuttgart office shortly after the rice was put in permanent storage. Commodity made final settlement with the producers and took title to the rice on the basis of the Hammil certificates.

Since there was no open market for rough rice at prices equal to or in excess of loan amounts advanced to the producers by CCC, the latter established a milling program to convert the rough rice into milled rice, dividing the rice in the quonset building into twelve offering lots for sale. CCC would from time to time make public offerings for "sale of CCC owned rough rice and exchange of rough rice for milled rice". Attached to such offering was a "Schedule of Availability of Rough Rice for Sale or Exchange" showing the offer and lot number, warehouse receipt number, quantities in pounds, grade, milling yield, total value, name and location of warehouse, and whether the rice was stored commingled, modified commingled or identity preserved. Millers were expected to pay Commodity the total value of rough rice as computed by it and then bid on what price the miller would deliver the milled rice back to Commodity. The terms and conditions of Commodity's offer included, among other things, the following:

"Availability for Inspection — A sample of each lot of rough rice shown on supplemental schedules will be made available for inspection at the warehouse location by the warehouseman during his business hours. If the miller is not satisfied with the available sample, he may request another sample which will be drawn by the warehouseman at the expense of the miller."

"Modified Commingled Storage — Warehouseman guarantees quantity shown on warehouse receipts but responsibility for quality is the same as if the rice was stored `identity preserved\';"

"Identity Preserved Storage — Warehouseman is responsible for maintaining the identity of the lot of rice and is responsible for quality and quantity only if deficiencies result from his failure to perform warehousing functions as a reasonably prudent owner would perform them."

"F. Weights, Grades, and Milling Yield — Rough Rice — It shall be conclusive between CCC and the miller that in all sales made by CCC the weights, grades, and milling yield on all rough rice transferred by delivery of warehouse receipts to the miller, shall be the same as that shown on the applicable supplemental schedules irrespective of the actual weights, grades, and milling yield of the rice actually delivered by the warehouseman to the miller under his warehouse receipts."

"CCC makes no warranty as to the grade, weight, or milling yield of any of the rough rice covered by warehouse receipts to be sold under this Announcement."

It was the custom of the community for millers who bid on Commodity Credit Corporation rice to do their own sampling. With the exception of Republic, rice millers bidding upon the rice in the quonset building consistently sampled and inspected the rice to determine the quality before making bids. Republic in bidding did not sample or inspect but relied upon the milling yield certified by Hammil on February 17, 1955. On July 25, 1955, Republic, as the successful bidder, became the owner of the final portion of rice stored in the quonset building. Empire, which did sample, became the successful bidder on all other lots in the quonset building. Upon delivery and milling, the rice purchased by Republic was found to have an average milling yield substantially less than reflected by the Hammil certificates dated February 17, 1955.² Republic claimed in this suit that Empire as a warehouseman stored rice of dissimilar quality in the same lot in violation of the terms of the Uniform Rice Storage Agreement, that rice placed in...