Larkin v. Wheat Growers Warehouse Co.

In May, 1931, the Wheat Growers Warehouse Company, a corporation, appeared before the Board of Railroad Commissioners and presented a petition for the appointment of said Board of Railroad Commissioners as trustee for the said Wheat Growers Warehouse Company, under chapter 156, Session Laws, 1927, and the said Wheat Growers Warehouse Company requested the Board of Railroad Commissioners to present the same to the district court, together with the answer of the said Wheat Growers Warehouse Company, alleging that the said warehouse company could not market the grain in its various elevators and could not pay, or apply, the proceeds of the grain upon the outstanding storage receipts and that the said warehouse company is unable to provide funds from other sources to pay and satisfy outstanding storage receipts. That a great many of the elevators, or warehouses, belonging to said warehouse company have but a small quantity of grain on hand and if the same could be promptly shipped out and disposed of said elevators could be closed, until the next season, and a great deal of expense saved to the respondent and the creditors; that respondent believes that if petitioners were appointed trustee that they would be able to promptly market the remaining grain on hand and effect a great saving and expense. Wherefore respondent agrees to the appointment of the petitioners as trustee aforesaid.

An order appointing the Board of Railroad Commissioners as trustee was duly made and the said Wheat Growers Warehouse Company turned over to the trustee all of the grain stored in its numerous warehouses. An action was brought by the trustee against the Wheat Growers Warehouse Company and the Maryland Casualty Company on the bond for a shortage in the warehouse at Burleigh, Burleigh county, North Dakota. A judgment was secured and affirmed by this court for the amount of the shortage at that place. State ex rel. Larkin v. Wheat Growers' Warehouse Co.63 N.D. 641, 249 N.W. 718.

In marshaling the assets, under § 5 of chapter 156 of the Session Laws of 1927, the trustee sold all the grain, in all the warehouses, and placed the proceeds therefor in a fund, to which was added $18,012.10 demanded of and collected from the Maryland Casualty Company, surety on the bond of the Wheat Growers Warehouse Company, and $8,796.60, demanded of and collected from the Hartford Accident and Indemnity Company, surety on the warehouseman's bond of the Wheat Growers Warehouse Company on a different line of elevators. The money collected from the surety companies and the proceeds of the grain sold from all the defendant's warehouses were placed in the same fund. Out of this fund all expenses were paid and all of the outstanding storage warehouse receipts and sale tickets, with interest thereon, were redeemed, leaving a balance of $14,500.77. The Maryland Casualty Company intervened in the trustee proceedings, before any of the fund was paid out claiming that it should receive out of this fund, left after redemption of all warehouse storage receipts and sale tickets, its proportionate share, which it alleges to be $9,200.21 and the Hartford Accident and Indemnity Company intervened, claiming that it is entitled to its proportionate share of said surplus, which it alleges to be $5,300.56.

Some of the general creditors of the Wheat Growers Warehouse Company also filed claims. The trial court did not pass upon the claims of the general creditors but did hold that the claims of the Maryland Casualty Company and the Hartford Accident and Indemnity Company were not superior to the claims of the general creditors and from such order the Maryland Casualty Company and the Hartford Accident and Indemnity Company appeal.

There is just one question involved and that is, who is entitled to this fund, after the redemption of all the warehouse receipts? Section 10 of chapter 155 of the Session Laws of 1927 requires every warehouseman to file, with the Board of Railroad Commissioners, a bond covering the period of the license and running to the State of North Dakota for the benefit of allpersons storing or selling grain or seeds in such warehouse. The Wheat Growers Warehouse Company gave such a bond, as principal, upon which the Maryland Casualty Company was surety, for one line of warehouses, and, said warehouse gave another bond, as principal, for another line of warehouses upon which the Hartford Accident and Indemnity Company was surety. These bonds, under the law, were given for the benefit of all persons storing or selling grain or seeds in such warehouse. They were not for the benefit of the general creditors of the warehouseman, but were for the protection of those who stored or sold grain to the warehouseman.

In May, 1931, the Wheat Growers Warehouse Company could not sell, or dispose of, the large amount of grain that it had in its elevators. Its representatives went voluntarily to the Board of Railroad Commissioners, presented a petition to have the said Railroad Commissioners appointed as trustees. The Railroad Commissioners were appointed and the Wheat Growers filed an answer praying for its appointment, and turned over to the trustee all of the grain that it had in all of the elevators for the purpose of selling said grain and redeeming the warehouse receipts and sale tickets. It was liable, as principal, for the payment of said receipts and sale tickets and the surety companies would only be liable for any balance necessary for the redemption of storage receipts and sale tickets after the proceeds from the sale of grain was exhausted. That was all that the trustee needed to collect from the surety companies, but it collected more than was necessary and it follows that the surplus belongs to the surety companies. Suppose they had collected the full amount of the bond from the surety companies and that there was a two hundred thousand dollar surplus. Could the general creditors come in and say they were entitled to that, or their proportionate share? Certainly not. That would be an overpayment and that is what happened in the instant case. More was demanded and received of the surety companies than they should have been required to pay. At the hearing on the report of the trustee, and before any of the money was paid, the representatives of the surety companies were present, insisting that the surplus belonged to the surety companies and demanding the proportionate share of each.

Section 6688, Compiled Laws 1913, reads as follows: "Whenever property of a surety is hypothecated with the property of the principal, the surety is entitled to have the property of the principal first applied to the discharge of the obligation." In the instant case the surety companies were entitled to have the property of the principal, upon the bond, exhausted first in the redemption of the storage receipts and sale tickets. The property of the principal was turned over for that purpose and the surplus belongs to the surety companies.

It is ordered that out of this surplus there be paid to the Maryland Casualty Company $9,200.21 and to the Hartford Accident and Indemnity Company $5,300.56.

CHRISTIANSON and MOELLRING, JJ., concur.