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Interlake, Inc. v. Kansas Power & Light Co.





APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR L. DUNNE, Judge, presiding.


Plaintiff, Interlake, Inc., brought this declaratory judgment action against defendants Kansas Power and Light Company ("KPL") and Amsted Industries, Inc. Interlake sold structural pipe to Continental Tube & Pipe Corporation who, in turn, sold it to KPL. KPL requested Continental to ship the pipe to Plexco for rust-proofing; Plexco is a subsidiary of Amsted. While awaiting instructions from KPL, Plexco was given a stop delivery order by Interlake after Continental failed to make payment to Interlake. Interlake sought a judgment declaring that it properly ordered Plexco to stop delivery of the pipe and that it was entitled to repossess and resell the pipe. KPL counterclaimed, seeking a declaratory judgment that it was lawfully entitled to the pipe and damages for the alleged unlawful stop order. In a bench trial, the court entered judgment in favor of Interlake on the complaint and against KPL on the counterclaim. We reverse and remand.

In April 1976, KPL placed a quotation inquiry for certain quantities of structural pipe with Continental, a pipe broker in St. Louis, Missouri. After finding a source for this pipe, Continental contacted KPL to report this information; it stated further that the price quoted included the cost of shipment to Meade, Kansas, the ultimate destination of the pipe. On April 22, 1976, KPL verbally requested Continental to order the pipe and ship it to "KPL care of Plexco," a pipe coater in Franklin Park, Illinois. That same day, Continental ordered the specific pipe quantities from Interlake.

Interlake's credit manager investigated Continental and found it had financial weaknesses. Determining that the normal credit terms were not acceptable because of Continental's financial status, Interlake sought and obtained more stringent credit terms. Interlake limited Continental's credit line to approximately $50,000; it required prepayments of $150,000 on the first shipment of approximately $198,000, $75,000 on the second shipment of approximately $129,000 and $70,000 on the third shipment of approximately $115,000.

KPL contacted Plexco to rustproof the pipes ordered from Continental. On May 19, 1976, KPL issued its written purchase order to Continental, designating Plexco as a stop point. Two days later, KPL confirmed its arrangements with Plexco by sending it a written purchase order. Between June 1 and July 20, 1976, Interlake shipped the entire order to "KPL c/o Plexco" in Franklin Park. That designation appeared on Interlake's mill order, bills of lading, and invoices to Continental.

Pursuant to KPL's instructions, Plexco unloaded the pipe and stored it until July 13, 1976. On that date, KPL instructed Plexco to coat and ship the pipe. Plexco then sought and received KPL's consent to coat the incoming pipe rather than that in storage. KPL later modified its instruction; on July 22, KPL told Plexco to coat and ship all but 59,981 feet of the pipe. Plexco followed these instructions and awaited further instructions from KPL regarding the remaining amount of the pipe.

By mid-August, KPL made full payment to Continental under the terms of their contract. Continental, however, failed to make any further payments to Interlake after making its initial $150,000 payment. It was not until late July 1976 that Interlake contacted Continental to enforce the more stringent credit terms it initially imposed. Although Continental indicated it would send $50,000 immediately and $150,000 within the month, neither sum was sent. On September 10, 1976, Interlake sent Continental a registered letter demanding payment, but Continental refused to accept it.

In a letter dated September 17, 1976, Interlake ordered Plexco to stop delivery on any remaining pipe. On September 20, Plexco notified KPL that it would comply with the stop order. On October 22, 1976, Continental filed a petition for bankruptcy and was later adjudicated a bankrupt.

The issue presented is whether Interlake could properly stop delivery and recover the pipe while it was in the possession of Plexco. The parties interpret section 2-705(1) of the Uniform Commercial Code (Ill. Rev. Stat. 1975, ch. 26, par. 2-705(1)) differently. Section 2-705(1) provides:

"The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent * * * and may stop delivery of carload * * * or larger shipments of * * * freight when the buyer repudiates or fails to make a payment due before delivery * * *."

Interlake contends that under section 2-705(1), the goods do not have to be in the hands of a carrier or other bailee in order for the seller to stop delivery of a carload or larger shipment when the buyer repudiates or fails to make a payment which is due. We disagree. We believe that the "carrier or other bailee" language in the beginning of the section implicitly applies to carloads or larger shipments.

• 1 The legislative intent of section 2-705 demonstrates that stoppage of larger shipments in noninsolvency situations must involve carriers or other bailees. Specifically, Uniform Commercial Code Comment 1 to section 2-705 states in part:

"1. Subsection (1) applies the stoppage principle to other bailees as well as carriers.

It also expands the remedy to cover the situations, in addition to buyer's insolvency, specified in the subsection. But since stoppage is a burden in any case to carriers, and might be a very heavy burden to them if it covered all small shipments in all these situations, the right to stop for reasons other than insolvency is limited to carload * * * or larger shipments." (Emphasis added.) ...

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