State ex rel. Public Service Commission v. R. F. Gunkelman & Sons, Inc.

• Decision Date: 28 June 1974
• Docket Number: No. 8963,8963
• Citation: 219 N.W.2d 853
• Parties: 15 UCC Rep.Serv. 165 STATE of North Dakota ex rel. PUBLIC SERVICE COMMISSION of the State of North Dakota, Petitioner/Appellee, v. R. F. GUNKELMAN & SONS, INC., and R. F. Gunkelman & Sons, Inc., of Grafton, Respondents, The First National Bank and Trust Company of Fargo et al., Appellants, James Herzog, Trustee in Bankruptcy, Appellant. Civ.
• Court: North Dakota Supreme Court

Page 853

219 N.W.2d 853

15 UCC Rep.Serv. 165

STATE of North Dakota ex rel. PUBLIC SERVICE COMMISSION of the State of North Dakota, Petitioner/Appellee, v. R. F. GUNKELMAN & SONS, INC., and R. F. Gunkelman & Sons Inc., of Grafton, Respondents The First National Bank and Trust Company of Fargo et al., Appellants James Herzog, Trustee in Bankruptcy, Appellant.

Civ. No. 8963.

Supreme Court of North Dakota.

June 28, 1974.

Syllabus by the Court

1. When one purchases grain from a warehouseman without taking delivery of said grain, and he receives warehouse receipts as evidence of said sale, thewarehouse receipts are valid claims against the assets of said warehouseman when he becomes insolvent, even though the warehouse receipt holder did not make an actual delivery of grain to the warehouse in return for the warehouse receipts. Sections 60--02--16(1), 41--07--03, 41--07--06 and 41--07--26, N.D.C.C.

2. A certain quality of sunflower specified in a warehouse receipt is a fungible portion of a mass of ungraded sunflower and, as such, is sufficiently identifiable to an agreement to render the warehouse receipts documents of title. Section 41--01--11(15), N.D.C.C.

3. The findings of a master, to the extent that the court adopts them, shall be considered as the findings of the court. Rule 52(a), N.D.R.Civ.P.

4. In all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon. Findings of fact shall not be set aside unless clearly erroneous. Rule 52(a), N.D.R.Civ.P.

5. Within ten days after being served with notice of the filing of the master's report, any party may serve written objections thereto upon the other parties. Rule 53(e)(2), N.D.R.Civ.P.

Garrity, Cahill, Gunhus, Streed. Grinnell & Jeffries, Moorhead, Minn., for appellant James Herzog.

Tenneson, Serkland, Lundberg & Erickson, Fargo, for appellants.

Ray H. Walton, Commerce Counsel, Public Service Commission, Bismarck, for petitioner/appellee.

Wheeler, Wolf, Wefald & Durick, P.C., Bismarck, for Agway, Inc., appellee.

John I. Finsness, Fargo, for appellee, David & Sons, Inc.

Wattam, Vogel, Vogel & Peterson, Fargo, for appellee Fidelity & Cas. Co. of New York.

KNUDSON, Judge.

This is an appeal from a judgment of the district court of Burleigh County, which judgment was based on the adoption by the district court of the findings of fact and conclusions of law of a referee who was appointed, under Rule 53, N.D.R.Civ.P., to hear this case.

This appeal is pursued in this court by the First National Bank and Trust Company of Fargo, The Merchants National Bank and Trust Company of Fargo, and the Bunge Corporation, all of whom are secured creditors of R. F. Gunkelman & Sons, Inc. (Gunkelman), and by James H. Herzog, the successor trustee in bankruptcy of Gunkelman. The banks and Bunge Corporation will be referred to as the secured parties and Mr. Herzog will be referred to as the trustee in bankruptcy. Responding to the appeal are warehouse receipt holders, Agway, Inc. and David & Sons, Inc., and Fidelity and Casualty Company of New York, which will be referred to as Agway, David and the bonding company, respectively.

Gunkelman was a public grain warehouseman engaged in said business in North Dakota. By an order dated August 3, 1970, the Burleigh County District Court found Gunkelman to be insolvent and appointed the Public Service Commission of North Dakota (PSC) as trustee of Gunkelman's assets, all in accordance with Chapter 60--04, N.D.C.C.

The PSC marshaled the assets of Gunkelman, gave notice to all warehouse receipt holders to file their claims against the assets and, on November 29, 1971, filed its trustee's report with the district court. The trustee's report was served on all interested parties and they were given until January 10, 1972, to object to that report.

Written objections to the trustee's report were filed and were heard by the referee on briefs and oral argument. Said referee had been appointed by the district court on February 3, 1972.

Among many other things, the referee found and determined that Agway and David held valid warehouse receipts for certain amounts of sunflower; that from July 28, 1970 to August 3, 1970, the period the secured parties had possession of Gunkelman's assets, they sold $135,805.15 worth of grain as secured creditors; and that certain assets of Gunkelman should be classed as grain instead of seed and included in the fund available for distribution to warehouse receipt holders.

In addition, on February 19, 1973, the referee moved the district court to amend its findings of fact and conclusions of law so as to apply certain offsets to the amounts calculated as due to receipt holders. The district court denied the referee's motion to amend the report and adopted it with other amendments made by the court not material to the issues in this case.

The two appellants present a total of five issues for review. They are:

1. Whether the warehouse receipts held by Agway are valid claims against the fund of Gunkelman's assets held by the PSC;

2. Whether the warehouse receipts held by David are valid claims against the fund of Gunkelman's assets held by PSC;

3. Whether the trial court erred in adopting the referee's report with respect to finding of fact number 12 of that report, which finding deals with the sale of some of Gunkelman's assets by the secured parties while they were in possession of the assets as secured creditors;

4. Whether the trial court erred in adopting the referee's report with respect to the classification of certain items as grain, which were therefore includable in the trust fund;

5. Whether the trial court erred in refusing to adopt an amendment to the referee's report, which amendment applied offsets to the claims against the assets of Gunkelman.

One of the appellees, the bonding company, raises the issue of whether the notice of appeal of the trustee in bankruptcy presents appealable material.

It is claimed by the secured parties that the warehouse receipts held by Agway and David are invalid because there was no actual delivery of grain made by Agway and David to Gunkelman. This actual delivery is provided for by § 60--02--16(1), N.D.C.C., which reads:

'A warehouse receipt shall:

'1. Be issued only upon the actual delivery of grain to the warehouse for storage;'

The circumstances of the instant case are that grain was purchase by Agway and David from Gunkelman. At the time of the purchases, Gunkelman either owned the grain in an upgraded form or agreed to grow it and issued warehouse receipts in return for payment for the sunflower purchased. Our problem is determining the validity of the warehouse receipts under these circumstances, where there was no actual delivery and where the grain is not segregated as to the quality prescribed in the receipt.

Preparatory to our discussion we cite the relevant parts of various statutes:

"Document of title' includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. To be a document of title a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass.' Section 41--01--11(15), N.D.C.C. '1. In this chapter, unless the context otherwise requires:

'a. 'Bailee' means the person who by a warehouse receipt, bill of lading or other document of title acknowledges possession of goods and contracts to deliver them.' Section 41--07--02(1)(a), N.D.C.C.

'To the extent that any treaty or statute of the United States, regulatory statute of this state or tariff, classification or regulation filed or issued pursuant thereto is applicable, the provisions of this chapter are subject thereto.' Section 41--07--03, N.D.C.C.

'Chapter 07, Documents of Title, of Title 41, Uniform Commercial Code, does not repeal or modify any laws prescribing the form or contents of documents of title or the services or facilities to be afforded by bailees, or otherwise regulating bailee's businesses in respects not specifically dealt with herein; but the fact that such laws are violated does not affect the status of a document of title which otherwise complies with the definition of a document of title (41--01--11).' Section 41--07--06, N.D.C.C.

'The obligations imposed by this chapter on an issuer apply to a document of title regardless of the fact that

'1. the document may not comply with the requirements of this chapter or of any other law or regulation regarding its issue, form or content; or

'3. the goods covered by the document were owned by the bailee at the time the document was issued;'

Section 41--07--26(1) and (3), N.D.C.C.

From Section 41--01--11(15), N.D.C.C., we determine that the warehouse receipts held by Agway and David are documents of title covering the specified amounts of sunflower. The receipts were issued by the bailee Gunkelman (§ 41--07--02(1)(a), N.D.C.C.), and they covered certain qualities of sunflower contained in a mass of 'country run' sunflower. The specified grades in the receipts were fungible portions of the mass of 'country run' sunflower.

It might appear from §§ 41--07--03 and 41--07--06, N.D.C.C., that § 60--02--16(1), N.D.C.C., quoted Supra, would apply, that is, that actual delivery to a warehouse would be necessary for a valid warehouse receipt. However, the saving clause in §§ 41--07--06 and 41--07--26(1) and (3), N.D.C.C., remove any impediment to the validity of Agway's and David's receipts. From the cited statutes it is apparent that the Uniform Commercial Code does not repeal prior law, like § 60--02--16(1),...