United States District Court, Northern District of Illinois, E.D
November 18, 1983
REFRIGERATION SALES CO., INC., PLAINTIFF.
MITCHELL-JACKSON, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Refrigeration Sales Co. ("Refrigeration") has brought this
two-count diversity action against Mitchell-Jackson, Inc.
("Mitchell-Jackson") and its President Alfred L. Jackson
("Jackson"), seeking damages for loss of and damage to goods
and equipment stored in Mitchell-Jackson's warehouse. Count I
alleges Mitchell-Jackson is liable for conversion of the goods
and equipment, while Count II alleges Jackson is liable for
conversion both in his individual capacity and as alter ego of
Mitchell-Jackson. Defendants now move for summary judgment
under Fed.R.Civ.P. ("Rule") 56. For the reasons stated in this
memorandum opinion and order, defendants' motion is granted.
From before 1960 to 1979 Refrigeration, headquartered in New
York, stored goods and equipment (for convenience in reference
and because the usage conforms to the UCC and the documents in
this case, this opinion will simply use the collective term
"goods") at Mitchell-Jackson's warehouse in Chicago (so the
goods were more readily available for sale in this area). Each
time Mitchell-Jackson received goods from Refrigeration, it
issued a non-negotiable warehouse receipt ("Receipt") on the
reverse of which were listed the "Terms and Conditions" of the
bailment. Receipt § 10(b), its only relevant provision, reads:
Claims by the depositor must be presented in
writing within a reasonable time, and in no event
longer than 60 days after delivery of the goods.
No action may be maintained by the depositor
against the warehouseman for loss or damage to
goods covered hereunder unless commenced within
12 months next after date of delivery by the
Dissatisfied with the service it was receiving from
Mitchell-Jackson, Refrigeration sent a July 3, 1979 certified
letter to Mitchell-Jackson ordering it to ship all of
Refrigeration's goods then in storage to another warehouse.
When Mitchell-Jackson complied in October and December
Refrigeration's employee William
Hughes ("Hughes") discovered Mitchell-Jackson claimed to have
been storing less of Refrigeration's goods than it should have
been holding according to Refrigeration's records. Hughes also
examined a portion of the goods actually delivered by
Mitchell-Jackson to the other warehouse, and he found them
unsaleable because of their rusty and dirty condition.
Jackson (Mitchell-Jackson's president, chief executive
officer and manager) has testified he discovered a discrepancy
between Refrigeration's books and Mitchell-Jackson's about
September 1977 (Jackson Dep. 110-11). Jackson neither ordered
a physical inventory nor adjusted Refrigeration's bills to
conform to Refrigeration's records (id. 114). Neither side has
offered an explanation of the discrepancy.*fn3
Refrigeration failed to comply with Receipt § 10(b)'s
timetable in both respects:
1. It did not present a written claim for the
value of the lost and damaged goods to
Mitchell-Jackson within 60 days of the final
delivery by Mitchell-Jackson.
2. It did not file a lawsuit against
Mitchell-Jackson within a year of the final
Instead it filed this lawsuit in October 1981, nearly
two years after the final delivery date.
Issues and the Applicable Law
Defendants' motion for summary judgment is based on two
independent arguments, either of which would cause defendants
1. Refrigeration's two-fold noncompliance with
Receipt § 10(b)'s timetable is fatal to its claim.
2. In any event Refrigeration's evidence is
incapable of establishing vital elements of the
tort of conversion for each type of damages
Both sides agree this Court must look to Illinois law for its
rules of decision, though they reach that destination by
differing routes. Defendants contend an Illinois court would
choose Illinois law because Illinois was the place of
performance of the contract (citing Southwest Forest Industries
v. Sharfstein, 482 F.2d 915
, 919 (7th Cir. 1972), a case of
doubtful current significance given the apparent movement of
Illinois law toward the "most significant relationship" test in
contract as well as tort cases). Refrigeration, rejecting the
contract characterization in favor of its tort theory of
recovery, retorts an Illinois court would choose Illinois law
because Illinois has the most significant relationship with the
occurrence and parties (citing Ingersoll v. Klein, 46 Ill.2d 42
48, 262 N.E.2d 593
, 596 (1970)).
Receipt § 10(b)
Defendants naturally rely on the literal language of Receipt
§ 10(b). Because Refrigeration plainly has not met either
timetable if it applies, Refrigeration can defeat defendants'
contention only by showing the limitations provisions are
either inapplicable or unenforceable.
Enforceability poses the easier issue, for the Illinois
statute governing limitations provisions in bailment
contracts, Ill.Rev.Stat. ch. 26, § 7-204(3) (identical to UCC §
7-204(3)),*fn4 says such provisions are enforceable if
reasonable. Defendants point to cases upholding as reasonable
time periods shorter than those in Receipt § 10(b). See, e.g.,
Strom International, Ltd. v. Spar Warehouse & Distributors,
Inc., 69 Ill. App.3d 696, 26 Ill.Dec. 484, 388 N.E.2d 108 (1st
Dist. 1979) (upholding nine-month
limitation of actions). As in Strom International, 69 Ill.
App.3d at 702, 26 Ill.Dec. at 488, 388 N.E.2d at 112 there is
nothing in the nature of Refrigeration's stored goods that
requires a longer limitations period.
Understandably Refrigeration does not contest the
reasonableness of Receipt § 10(b). Instead it denies the
statute's applicability here for three reasons:
1. If given the opportunity, Illinois courts
would read into Section 7-204(3) and Receipt
§ 10(b) an exception for conversion actions.
2. Jackson is liable in his individual capacity
as a tortfeasor and was not a party to the
3. Defendants are estopped to assert the
None of those arguments withstands analysis.
As to its first contention, Refrigeration points out the
only courts considering the question have found warehouse
receipt limitations provisions do not apply to conversion
actions. William Iselin & Company v. Milton Feinberg, Inc.,
92 A.D.2d 495, 459 N.Y.S.2d 87 (1983); Continental Metals Corp. v.
Municipal Warehouse Co., 112 Misc.2d 923, 447 N.Y.S.2d 849
(Sup.Ct.Spec.Term 1982), aff'd on the trial court's opinion,
92 A.D.2d 477, 459 N.Y.S.2d 406 (1983). Those cases are really but
a single authority, for both rested on the lower court decision
in Continental Metals (447 N.Y.S.2d at 851), which
asserted the culpable nature of conversion and analogized a
converting warehouse to a thief (the warehouse had explained
the goods must have been stolen by one of its employees).
That analogy between conversion and theft is not persuasive
in light of Refrigeration's theory of liability. As in
Continental Metals, Refrigeration urges the mere fact the
warehoused goods are missing establishes conversion by the
warehouseman.*fn5 When a plaintiff thus asks that conversion
be presumed from the mere unexplained disappearance of the
goods, any policy considerations that might preclude the bailee
from taking advantage of the contractual limitations provision
are absent. After all, a bailee found liable for presumed (or
"res ipsa"*fn6) conversion is no more morally culpable than
one found liable for negligence.
But even Refrigeration's transformation of "res ipsa"
conversion (which involves no element of intent) into
intentional theft (which of course is directly predicated on
intent) is not enough to make it succeed. This is so because
Section 7-204(2) (permitting contractual limitations of
damages) excepts conversion to the warehouseman's own use
while Section 7-204(3) does not (emphasis added):
(2) Damages may be limited by a term in the
warehouse receipt or storage agreement limiting
the amount of liability in case of loss or
damage, and setting forth a specific liability
per article or item, or value per unit of weight,
beyond which the warehouseman shall not be
liable; provided, however, that such liability
may on written request of the bailor at the time
of signing such storage agreement or within a
reasonable time after receipt of the warehouse
receipt be increased on part or all of the goods
thereunder, in which event increased rates may be
charged based on such increased valuation, but
that no such increase shall be permitted contrary
to a lawful limitation of liability contained in
the warehouseman's tariff, if any. No such
limitation is effective with respect to the
warehouseman's liability for conversion to his own
(3) Reasonable provisions as to the time and
manner of presenting claims and instituting
actions based on the bailment may be included in
the warehouse receipt or tariff.
Plainly the General Assembly (following the UCC draftsmen)
specifically considered the subject of conversion actions
against warehousemen in enacting the statute. It inserted a
specific exception for conversion into Section 7-204(2). Under
established principles of statutory construction*fn7
as plain common sense, the legislature's omission of a like
exception from Section 7-204(3) must be viewed as intentional.
When the legislative branch has thus dealt with the matter,
it does violence to our governmental division of functions
— and thus violates established Illinois legal principles — to
create a judicial exception as did Continental Metals. Judge
Silverman, dissenting in that case, explained the policy
considerations that justify inserting a conversion exception
into Section 7-204(2) while refusing to do so in Section
7-204(3) (459 N.Y.S.2d at 407):
The statutory difference between the two
provisions reflects the difference in policy
considerations applicable to the two situations.
The warehouseman, who knows that if he converts
$100,000 worth of property he will only be liable
for $50, would be encouraged to convert. But a
warehouseman who would be liable for the full
amount will not be encouraged to convert because
the bailor would have to sue him within one year
and 60 days after presentation of the claim; the
bailor after all is perfectly free to, and in the
vast majority of cases will actually, sue within
that period. The shortened statute of limitation
merely serves the purpose of all statutes of
limitations — putting disputes to rest and
requiring suits to be brought while the evidence is
fresh and available.
Refrigeration argues Section 7-204(3) implicitly contains a
conversion exception because it is limited in its operation to
claims and actions "on the bailment." Conversion, it says, is
a tort action and therefore is not "on the bailment." That
contention cannot prevail over the discussion just completed.
When the General Assembly has demonstrated it knows how to
create a specific exception for conversion actions, it strains
the principles of statutory construction to indulge a forced
reading to imply such an exception elsewhere, where the
legislature has not done so. But even apart from that obvious
answer Refrigeration's reply must fail:
1. Refrigeration and Mitchell-Jackson stand in
a bailor-bailee relationship. This action
pertains to the bailed goods and is grounded on
that relationship. In ordinary English that
suffices to render the action one "on the
2. Even were that not so, the kind of exception
Refrigeration urges would tend to swallow up the
rule — to render Section 7-204(3) entirely
ineffectual. Refrigeration's "res ipsa" conversion
is a concept so broad as to permit any contractual
action on a bailment to be pleaded and proved as a
so-called conversion action.
This discussion has been prolonged both because of the
paucity of direct precedent and because Refrigeration's
position is flawed in a number of ways. In sum the argument
for giving Receipt § 10(b) other than its normal and literal
reading cannot prevail.
As for Refrigeration's second response, that Jackson cannot
avail himself of Receipt § 10(b), it is clearly bankrupt under
Refrigeration's alter ego theory of liability: If Jackson
stands in the shoes of Mitchell-Jackson, he stands in both
shoes, with the benefits as well as the burdens of the
corporation's position. And on the alternative theory of his
individual liability for tortious conduct, Illinois law rejects
Refrigeration's assertions. Thus Hyman v. 230 South Franklin
Corp., 7 Ill. App.2d 15, 128 N.E.2d 629 (1st Dist. 1955) (abst.
only) permitted an agent managing rental property to invoke an
exculpatory clause in the governing lease, though literally
applicable only to the lessor.*fn8 Wholly apart from that
authority, Refrigeration is simply wrong on the facts. Its
proof, even on the most favorable inferences, does not
establish Jackson's individual involvement in the conversion.
If he has potential tort liability it must be vicarious, and
Release § 10(b) stands squarely in the path.
Finally as to Release § 10(b), Refrigeration claims
defendants are estopped to rely on its provisions because they
intentionally deceived Refrigeration by not informing it sooner
of the missing inventories. Refrigeration relies on the
Illinois law of estoppel as outlined in Strom International, 69
Ill. App.3d at 703, 26 Ill.Dec. at 489, 388 N.E.2d at 113
Estoppel applies if: (1) defendant has made some
misrepresentation or concealment of a material
fact; (2) defendant had knowledge, either actual
or implied, that the representations were untrue
at the time they were made; (3) plaintiff was
unaware of the untruth of the representations
both at the time made and the time they were
acted upon; (4) defendant either intended or
expected his representations or conduct to be
acted upon; (5) plaintiff did in fact rely upon
or act upon the representations or conduct; and
(6) plaintiff has acted on the basis of the
representations or conduct such that he would be
prejudiced if defendant is not estopped. . . .
Waiver applies if defendant's conduct indicates
that it is intentionally relinquishing a known
right. . . . If there is no dispute in the
material facts of a case and only one inference
is possible, the question of whether the facts
prove estoppel or waiver becomes a question of
To state that argument is to demonstrate its poverty.
Defendants' alleged deception ceased to operate in 1979 when
Refrigeration inspected its goods, and far more than the
requisite one-year period passed from Refrigeration's
discovery until it commenced this action. Thus the essential
element of detrimental reliance is absent: Refrigeration knew
of the untruth of defendants' representations for more than
one year preceding its filing of this action (the very period
during which Refrigeration claims it failed to act, to its
detriment, in reliance on the misrepresentations). As stated
in the estoppel principles approved in Sabath v. Morris Handler
Co., 102 Ill. App.2d 218, 226, 243 N.E.2d 723
, 727 (1st Dist.
[I]f the inducement for delay has ceased to
operate sufficiently before the expiration of the
limitation period so as to afford the plaintiffs
ample time within such period to commence their
action, then estoppel is not available.
All three of Refrigeration's arguments have fallen. Receipt
§ 10(b) must be enforced in accordance with its literal terms.
Elements of Conversion
As already stated, Refrigeration's position is that
conversion can be presumed from the disappearance of (or even
damage to) its bailed goods. That stance was compelled by
Refrigeration's lack of evidence (and the lack of any basis
for inferring) defendants had intentionally appropriated
Refrigeration's goods to their own gain.*fn9 Because Receipt
§ 10(b) has been
held enforceable and applicable here, it has been unnecessary
to rule definitively on the validity of Refrigeration's theory
of liability under Illinois law.
It may however be appropriate to comment briefly on a major
point of difference between Refrigeration and defendants: the
distinction between "conversion" and "conversion to one's own
use." Refrigeration alleged (Amended Complaint ¶ 30) defendants
converted the goods "to [their] own use." It concedes it did so
to track the language of the conversion exception to Section
7-204(2). Nonetheless it maintains "conversion" is no different
from "conversion to one's own use." See Lipman v. Petersen,
223 Kan. 483, 575 P.2d 19, 21 (1978) (reading the Kansas enactment
of the UCC in light of the prior Kansas statute).
Defendants respond not all conversion is "to one's own use."
They say Refrigeration, to establish conversion to defendants'
"own use," must show there has been a conversion and defendants
acquired the goods for their own benefit.
Defendants have the better of that exchange for three
1. Lipman, relied upon by Refrigeration, does not
defend or discuss its conclusion that "conversion"
and "conversion to one's own use" are equivalent.
That case provides no persuasive support for the
notion Illinois courts would similarly ignore the
difference in meaning normally attributable to a
difference in language.
2. One source cited by both Lipman and
defendants, 8 Am.Jur.2d Bailments § 121, at 853 (2d
ed. 1980) (emphasis added), distinguishes between
the two types of conversion in a manner consistent
with defendants' position:
For example, whenever a person entrusted with
the goods of another puts them into the hands
of a third person without orders, it is
apparently the settled rule that such a
delivery to an unauthorized person is as much a
conversion as a sale of the property or an
appropriation of it to the bailee's own use would
be. . . .
See also id. § 118, at 848.
3. As this opinion's earlier discussion of
Sections 7-204(2) and 7-204(3) demonstrates,
Refrigeration's argued-for universal conversion
exception to the latter section would permit
plaintiffs to circumvent the statute entirely by
alleging conversion rather than breach of the
bailment contract. That possibility is obviated
by requiring plaintiffs, in order to invoke a
conversion exception, to allege not just
conversion but conversion to the defendant's "own
Both in plain English and for the added reasons just sketched,
"conversion to one's own use" contains an additional element
"conversion" alone does not. There is no hint Refrigeration
could establish that element even were Receipt § 10(b)
There is no genuine issue of material fact, and defendants
are entitled to a judgment as a matter of law. Their motion
for summary judgment is granted, and this action is dismissed.