Scott v. Lawrence Warehouse Co.

• Decision Date: 22 March 1961
• Citation: 360 P.2d 610,227 Or. 78
• Parties: Karl SCOTT and John W. Hunter, Respondents and Cross-Appellants, v. LAWRENCE WAREHOUSE COMPANY, a corporation, Appellant.
• Court: Oregon Supreme Court

Page 610

360 P.2d 610

227 Or. 78

Karl SCOTT and John W. Hunter, Respondents and Cross-Appellants, v. LAWRENCE WAREHOUSE COMPANY, a corporation, Appellant.

Supreme Court of Oregon, Department 1.

Argued and Submitted Dec. 8, 1960.

Decided March 22, 1961.

Wilber Henderson, Portland, argued the cause for appellant. With him on the briefs were Wallace, Garrison, Norton & Ray, San Francisco, Cal.

Benjamin J. Gantt, Jr., Seattle, Wash., argued the cause for respondents and cross-appellants. On the briefs were Mautz, Souther, Spaulding, Kinsey & Williamson, Portland, and Graham, Green & Dunn, Seattle, Wash.

Before McALLISTER, C. J., and ROSSMAN, PERRY, GOODWIN and KING, JJ.

GOODWIN, Justice.

Lawrence Warehouse Company, the defendant corporation, appeals from a judgment entered in favor of Karl Scott and John W. Hunter in an action arising out of the inability of the warehouse company to deliver certain lumber represented by warehouse receipts. The plaintiffs cross-appeal.

Lawrence assigns error to certain conclusions of law which imposed liability upon the warehouse. The plaintiffs assign error to other conclusions which limited the amount of their recovery. The cause was tried to the court without a jury, and judgment was entered upon findings of fact and conclusions of law made by the trial court.

Both parties submitted findings and conclusions to the trial court. All of the assignments of error presented by Lawrence challenge findings and conclusions which were duly objected to during the proceedings below. In order to consider the appeal and, in its turn, the cross-appeal, it is necessary to review the facts which gave rise to the controversy.

The plaintiffs are surviving partners and successors-in-interest of the T. L. Clark Lumber Co., which in 1951 was engaged in the wholesale lumber business in Seattle, Washington. In that year, the Clark Lumber Company numbered among its suppliers of lumber a planing mill operated by one Earl Calder, under the name of Elgin Pine Lumber Sales, near the community of Elgin in Union County, Oregon.

Calder, as he will be referred to hereafter, was in need of financing in order to manufacture lumber under a sales agreement with the Clark Company. The Clark Company obtained a line of credit from the Canadian Bank of Commerce in Seattle, pledging certain individual assets of its partners as collateral. In order to be secured for all funds advanced to Calder and to retain control over such lumber as might be pledged as security while the lumber was on the premises of Calder, the Clark Company and the Bank decided to employ the device of a field warehouse on the site of Calder's mill.

Lawrence was in the business of operating field warehouses in connection with security transactions and was chosen to operate the warehouse. Lawrence thereupon leased a portion of Calder's lumber yard, and for an agreed schedule of payments undertook to warehouse such lumber as Calder might deliver into the warehouse. Lawrence hired one of Calder's employes as its part-time warehouseman, and paid him $50 per month for his services to Lawrence. Lawrence posted the premises to give notice of the warehousing relationship and commenced issuance of warehouse receipts as Calder delivered lumber into the warehouse.

The financial arrangement was that the Clark Company advanced money to Calder so that Calder could purchase rough green lumber from sawmills. As Calder acquired the rough lumber, it was sorted into piles and deposited in the Lawrence warehouse. When Lawrence received each unit of lumber from Calder, it issued to the Canadian Bank of Commerce a nonnegotiable warehouse receipt which described the lumber deposited in the warehouse.

The warehouse receipts each stated that the lumber was 'Received Ex. Elgin Pine Lumber Sales [for] A/C T. L. Clark Lumber Co.' Upon receiving advice that warehouse receipts had been issued to the Bank, the Clark Company would extend to Calder credit in a local Oregon bank equal to 65 per cent of the value of the lumber covered by such receipts. Within letters of credit provided by the Clark Company, Calder was permitted to draw sight drafts upon the local bank for operating funds. The original warehouse receipts were delivered to the Canadian Bank of Commerce as additional security for credit contemporaneously extended by that bank to the Clark Company. After Calder had processed the lumber and shipped it to Clark's customers, the Clark Company would deduct the amounts previously advanced and pay Calder the balance of his invoice price for the finished product.

Between April 23 and September 6, 1951, a number of transactions took place according to the general plan outlined above. Calder bought unfinished lumber from sawmills, and had it graded and tallied. He then deposited the lumber in the warehouse and drew upon advances from the Clark Company on the basis of warehouse receipts issued by Lawrence. In order to remanufacture the lumber into the grades and dimensions desired by the Clark Company, it was necessary for Calder to withdraw lumber from the warehouse from time to time for processing through his planing mill. Authority to withdraw lumber from the warehouse could be had only by a written order executed by the Bank. During the time the lumber was out from under the control of the warehouse, while it was being processed by Calder, the Clark Commpany and the Bank continued their security interest in the lumber by ordering Lawrence to release specific lumber, for which Calder then issued processing trust receipts to the Clark Company. Standing behind the acceptance by the Clark Company of each trust receipt was the reliance by Clark upon the event of the same lumber being released from the warehouse. These trust receipts are involved indirectly in part of the judgment challenged in the appeal by Lawrence, and are relied upon in part by the plaintiffs in connection with the cross-appeal.

This litigation arises out of the fact that the Clark Company and the Bank came into possession of, and extended credit upon, warehouse receipts representing more lumber than was available for redelivery upon written orders from the Bank.

On September 6, 1951, a fire destroyed or damaged a portion of the lumber in the warehouse. An inventory taken in settling the fire insurance claims revealed that prior to the fire there was not as much lumber in the warehouse as was represented by warehouse receipts held by the Bank. The fire loss has been paid and is no longer relevant, except that the fire fixed the date when the probability of other shortages became known to all parties. The shortage upon which the trial court based its findings was proven by substantial evidence. The plaintiffs proved a total difference between lumber on hand in the warehouse and lumber represented by outstanding warehouse receipts of a value of $60,694.64 out of $67,270.64 alleged in the complaint. As a determination of a disputed question of fact, the finding by the trial court is conclusive when supported by substantial evidence. Berliner v. Hill, Or., 351 P.2d 692; Honeywell v. Turner et al., 214 Or. 700, 705, 322 P.2d 638; McCulloch v. Kollock, 147 Or. 283, 32 P.2d 770.

Judgment was entered for the plaintiffs, however, in the amount of only $21,322.84, plus interest, on their cause of action which sought to recover the full value of the shortage. Lawrence appeals and the plaintiffs cross-appeal from this part of the judgment. The plaintiffs also recovered on two other causes of action. Lawrence appeals from these portions of the judgment also. Each will be considered in turn.

While there are a number of collateral issues which must be considered in connection with the appeal and cross-appeal, the principal question for decision is whether Lawrence should be required to stand behind any or all of its warehouse receipts under the circumstances of this case.

Lawrence presents two defenses: First, that the plaintiffs have no standing to sue upon the warehouse receipts; and second, that the shortages were caused by inaccuracies in the certificates of delivery executed by Calder and upon which Lawrence relied in issuing the warehouse receipts to the Bank.

In support of its first proposition, Lawrence contends that Scott and Hunter have no standing to prosecute the action because they failed to prove an assignment of the warehouse receipts from the Bank to the plaintiffs.

No written assignment was necessary. The Bank delivered the warehouse receipts to the plaintiffs as successors-in-interest of the Clark Company, which had originally pledged them to the Bank. The Bank, at the request of the Clark Company, was named on each receipt as the party to whom the receipts were issued. When it became apparent that Calder's affairs were somewhat involved, the Bank called upon the Clark Company to repay all sums advanced by the Bank.

The dissolution of the Clark partnership made it necessary for the plaintiffs to wind up its affairs. Scott and Hunter personally paid the balance due the Bank, and the Bank delivered the outstanding warehouse receipts to them. The Bank then had no further interest in the warehouse receipts. The remaining partners in the Clark Company executed assignments to the plaintiffs.

Scott and Hunter are transferees of nonnegotiable warehouse receipts. It might be added that the plaintiffs are transferees for value, although no issue has been presented upon that fact. The plaintiffs acquired all the interest of the Bank by delivery of the receipts, ORS 74.390, RCW 22.04.400, and all the interest of the Clark partnership by written assignment.

Under Section 42 of the Uniform Warehouse Receipts Act, a person to whom a receipt has been transferred but not negotiated acquires thereby 'the right to notify the warehouseman of the transfer to him of such receipt, and thereby to acquire the direct obligation of the warehouseman to hold possession of the goods for him according...