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Schilling v. Book





APPEAL from the Circuit Court of Kankakee County; the Hon. WAYNE P. DYER, Judge, presiding.


Rehearing denied July 7, 1980.

Defendants A.L. Book, d/b/a A.L. Book and Co. and d/b/a Kankakee Elevator (hereinafter Book) and Insurance Company of North America (hereinafter INA) appeal from a judgment entered against them by the court in the amount of $29,273.58, following a directed verdict. Plaintiff Harry Schilling had filed an action against Book, as warehouseman, and against INA, as surety on the warehouseman's bond, for conversion of grain deposited with Book.

The central issue at trial was whether a proper and sufficient demand for delivery of the grain had been made by Schilling to Book. The court, after hearing all the evidence, granted plaintiff Schilling's motion for a directed verdict against both Book and INA. On this appeal, the defendants raise the following issues: (1) whether the court erred in finding that an administrative regulation of the Department of Agriculture was invalid as a result of its conflict with the statutory provisions governing warehousing; (2) whether the plaintiff's evidence showed a valid and sufficient offer to surrender the warehouse receipt; (3) whether the defendant, by his conduct, committed an anticipatory breach of the contract, excusing further performance by the plaintiff; (4) whether the entry of a directed verdict was proper in light of conflicts in the evidence; and (5) whether the court properly entered judgment on the surety bond.

The record discloses that in late November 1972, Harry Schilling deposited soybeans in a warehouse operated by defendant Book. Schilling received a negotiable warehouse receipt for the grain. At the time of the deposit, Book was a licensed warehouseman, bonded by INA as surety. From that time until May 30, 1973, Schilling and Book had a number of discussions concerning the timing of the sale of the grain. Plaintiff Schilling wrote Book on June 1, 1973, demanding that Book buy the grain for the then current market price of $11.40 per bushel. Book responded, reminding Schilling that he had previously purchased the grain under their prior oral contract of sale at $7 per bushel. Discussions and correspondence grew more acrimonious thereafter. Then, on August 1, 1973, Schilling, by his attorney, served a formal written demand for delivery on Book, stating that he would appear on August 7 to take delivery of his grain. The written demand also informed Book that Schilling would surrender his warehouse receipt upon delivery and that he would tender and pay the warehouseman's lien and execute a receipt for the delivered grain.

On August 7, Schilling, his attorney, a licensed grain inspector, and a grain truck driver arrived at Book's grain elevator. Schilling's attorney showed Book the endorsed warehouse receipt and demanded delivery of the grain. Book responded by informing Schilling and his attorney that he would not give them the grain until the warehouse receipt was returned to him and until the lien charges had been paid. The warehouse receipt, itself, in pertinent part states: "Upon the return of this receipt properly indorsed, and payment of the warehouseman's lien claimed hereon, said grain or grain of the same or better grade will be delivered to the above named depositor or his order." Schilling, by his attorney, refused to surrender the receipt prior to actual delivery. Schilling did offer several times to return the receipt, with appropriate endorsements, when the delivery of the grain had been completed. When this offer was refused, Schilling's attorney offered to surrender the receipt to a third party to hold until the grain was delivered. Book refused any such compromise and denied Schilling's request to allow inspection of the grain. Book demanded that the receipt would have to be surrendered and cancelled and lien charges paid prior to delivery of the grain. The parties were unable to reach agreement and Schilling, with his party, left the elevator premises. He later filed suit for conversion. It was agreed by the parties that as of August 7, 1973, the value of the soybeans was $9.05 per bushel. The trial was held before a jury, but at the close of all the evidence the court entered a directed verdict for plaintiff Schilling in the amount of $29,273.58. Book and INA appeal from the judgments entered.

Statutory provisions governing the warehousing of agricultural products are set forth in the United States Warehouse Act (7 U.S.C. § 241 et seq. (1976)) and in regulations promulgated by the Secretary of Agriculture under that Act (7 U.S.C. § 268 (1976)). (See also Ill. Rev. Stat. 1977, ch. 114, par. 214.1 et seq.) A key issue at trial in this cause was an apparent conflict between the statutory provisions and the regulations as regards a warehouseman's obligation to make delivery upon a negotiable receipt. Section 21 of the Act (7 U.S.C. § 262 (1976)) states:

"That a warehouseman conducting a warehouse licensed under this Act, in the absence of some lawful excuse, shall, without unnecessary delay, deliver the agricultural products stored therein upon a demand made either by the holder of a receipt for such agricultural products or by the depositor thereof if such demand be accompanied with (a) an offer to satisfy the warehouseman's lien; (b) an offer to surrender the receipt, if negotiable, with such endorsements as would be necessary for the negotiation of the receipts; and (c) a readiness and willingness to sign, when the products are delivered, an acknowledgement that they have been delivered if such signature is requested by the warehouseman."

Plaintiff Schilling argues, and the trial court found, that section 21's requirement for a demand accompanied by an "offer to surrender the receipt" was the applicable standard to be applied in the instant case. The defendant argues that the appropriate standard, setting forth a warehouseman's obligations, is that found in the administrative regulations promulgated by the Secretary of Agriculture under the Warehouse Act. Those regulations, in pertinent part, stated:

"Except as permitted by law or by the regulations in this part a warehouseman shall not deliver grain for which he has issued a negotiable receipt until the receipt has been returned to him and canceled * * *." (Regulations for Grain Warehouses, section 102-24, U.S.D.A., F.R. 15730, as amended, 30 F.R. 8093.)

Defendant Book asserts, based upon this regulation, that a warehouseman has no obligation to deliver grain stored by him and covered by a negotiable receipt until the receipt has been returned to him and cancelled. The warehouse receipt issued by Book to Schilling contained language based upon the regulations.

The trial court found that the regulation, requiring surrender of the receipt prior to delivery, was in conflict with the statute, requiring only an offer to surrender prior to delivery. Therefore, the court found that the statute governs and it held the regulation invalid insofar as it conflicted with the statutory provision. We agree.

• 1 Defendants assert that the trial court's ruling contravenes the accepted presumption of validity which attaches to administrative regulations. The defense argues, citing our opinion in Du-Mont Ventilating Co. v. Department of Revenue (1977), 52 Ill. App.3d 59, 367 N.E.2d 532, that such long-standing uniform construction of a statute by executive officers must be given great weight in judicial interpretation of the statute. While the validity and correctness of the principle cited is beyond doubt, the question in the instant case is its applicability. Both in the Du-Mont Ventilating Co. case and in the case we relied on therein (O'Brien v. City of Chicago (1952), 347 Ill. App. 45, 105 N.E.2d 917) it was noted that any such presumption does not apply when a regulation contravenes the express language of a statute. In such cases of conflict, the statute governs and the regulation is invalid. (People ex rel. Polen v. Hoehler (1950), 405 Ill. 322, 90 N.E.2d 729.) In the instant case, as the circuit court found, there is a direct conflict as to when a warehouseman is required to deliver stored agricultural products covered by a negotiable warehouse receipt. As noted previously, the statute in pertinent part requires only an offer to surrender the receipt while the regulations require the actual surrender of the receipt and its cancellation. The conflict is obvious, direct and irreconcilable. Therefore, the statute governs.

The defense reliance upon two Illinois cases with respect to interpretation of the Federal statute is not persuasive. (See Hartman v. Western Cold Storage Co. (1914), 190 Ill. App. 182; Kershaw v. Booth Fisheries Co. (1913), 177 Ill. App. 117.) The Hartman case dealt with section 8 of the Illinois Warehouse Act (Hurd's Rev. Stat. 1908, ch. 114, par. 248), patterned after section 8 of the Uniform Warehouse Receipts Act, which also forms the pattern for section 21 of the United States Warehouse Act (7 U.S.C. § 262 (1976)). The court in Hartman held that the plaintiff was not entitled to judgment for trover and conversion where he had not satisfied the statutory requirement of offering to return the warehouse receipt prior to delivery. (190 Ill. App. 182, 184.) While the opinion does state that a warehouseman would not be authorized to deliver until the receipt has been returned and cancelled, this dicta is of questionable correctness, given the facts therein and the language of the statute, and, in any event, has its basis in sections 11 and 25 of the then existing Illinois Warehouse Act. (Ill. Rev. Stat. 1907, ch. 114, pars. 243, 251, 257, 265.) No analogous sections are to be found in the United States Warehouse Act governing the instant case. The Kershaw case was also based upon section 25 of the since repealed Illinois Warehouse Act (Hurd's Rev. Stat. 1908, ch. 114, par. 265), which has no counterpart in the existing Federal statute governing such transactions. We should note that the ...

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