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St. Paul Mercury Indemnity Co. v. United States.

December 12, 1952



Before PHILLIPS, Chief Judge, and BRATTON and MURRAH, Circuit Judges.

PHILLIPS, Chief Judge.

On July 16, 1947, the Commodity Credit Corporation,*fn1 entered into a Uniform Grain Storage Agreement*fn2 with Myrle Banz and Leonard Banz, copartners doing business as Sylvia Grain Company, at Sylvia, Kansas. Thereafter, the partnership was dissolved and Leonard Banz,*fn3 as its successor, entered into a supplemental agreement with Commodity, extending the storage agreement for a period of one year. The storage facilities consisted of an elevator of wooden construction and two concrete storage tanks. Each storage tank had a capacity of 20,000 bushels.

On May 12, 1948, Banz, as principal, and St Paul Mercury Indemnity Company,*fn4 as surety, entered into a statutory public warehouse bond, in accordance with the requirements of ยง 34-229, Gen.Stat. of Kan.1949, in the penal sum of $5,800. The condition of the bond was that the principal should "well and faithfully perform all of his duties as such public warehouseman."

Section 34-263, Gen.Stat. of Kan.1949, provides that a warehouseman shall be liable for any loss or injury to grain stored with him "by his failure to exercise such care in regard to it as a reasonably careful owner of similar grain would exercise." Section 34-250, Gen.Stat. of Kan.1949, provides that "A warehouseman, in the absence of some lawful excuse provided by this Act, is bound to deliver the grain upon a demand made either by the holder of a receipt for the grain, or by the depositor, * * *. In case the warehouseman refuses or fails to deliver the grain in compliance with the demand by the holder or depositor so accompanied, the burden shall be upon the warehouseman to establish the existence of a lawful excuse for such refusal."

During the summer of 1948, Banz received for storage in such facilities 44,363 bushels and 20 pounds of wheat, against which he issued negotiable warehouse receipts which were subsequently negotiated to Commodity.

By the terms of the storage agreement, Banz was obligated to receive, store, insure and condition grain in accordance with the directions of Commodity; to maintain at all times in the warehoue "a stock of grain of the class, grade and quality of the grain described in the outstanding warehouse receipts"; to "load out or deliver to the holder of any warehouse receipt grain of the same class, grade, quantity and quality, or better"; and in the event any of the grain loaded out should be found to be "of a class, grade, quantity or quality lower than that described by warehouse receipts" to "indemnity Commodity [Credit Corporation] out and the value of the grain described between the value of the grain loaded between the value of the grain loaded by the warehouse receipts and accompanying certificates or documents, on the basis of cash prices current at the terminal market customarily applicable to grain stored in the warehouse at the time when the grain was shipped."

A large portion of the wheat was stored in the two concrete tanks. A small portion of it was stored in bins in the wooden elevator.

While Banz made some efforts to aerate the wheat and eliminate sunshine heat during the period it was being received at the elevator, he turned all the wheat for the first time in August, 1948. He turned it again in September, 1948, and again in December, 1948. He started to turn it again in February, 1949, and found it was out of condition and he did not complete the fourth turning of the wheat.

Banz tested the wheat for moisture at the time he received it for storage and at each time he turned it. He made no tests for heat or insect infestation, except to hold small portions of the wheat in his hands and look at it at the times when he turned it. He made no tests of any kind between the times he turned the wheat.

In September, 1948, Banz undertook to treat the wheat with a fumigant known as Weevil-Cide, but he failed to comply with the instructions of the manufacturer, either as to quantity or the method of application, and the quantity of fumigant applied was inadequate.

After discovering the wheat was out of condition in February, 1949, Banz discontinued turning it and made no further efforts to preserve it.

On February 15 and 18, 1949, after discovering that the wheat had gone out of condition, Banz shipped two carloads of the stored wheat to the Rodney Milling Company.*fn5 The shipments aggregated 2,651 bushels. The wheat graded sample. By letter, dated February 26, 1949, Banz notified Commodity that the wheat was going out of condition and requested instructions. On February 28, 1949, Commodity requested a list of the persons to whom the warehouse receipts had been issued, and advised that Commodity would send a representative to take samples of the wheat. The list was furnished and the samples were taken early in March, 1949. On April 13, 1949, Commodity issued instructions to Banz to load out and ship the wheat covered by its warehouse receipts. Banz received such instructions on April 15, 1949. Banz, between April 18 and April 29, 1949, shipped 18 carloads of the stored wheat, aggregating 33,188 bushels and 50 poundg. Early in the morning of April 29, 1949, the elevator was destroyed by fire. Banz assigned his rights under the insurance policy covering the grain in storage to Commodity. Banz also assigned to Commodity a claim against Rodney, for commission on account of wheat purchased, stored and handled by Banz as Rodney's agent.

The 18 carloads of wheat shipped in April, 1949, were of sample grade. The wheat in 7 cars was sour and in 11 cars musty. The wheat in 7 of the cars was also infested with weevils. The total damage to the wheat shipped ranged from 16 percent to 92 percent. The wheat, except for one car where ...

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