ICC Metals, Inc. v. Municipal Warehouse Co., 50 N.Y.2d 657 (1980)

A warehouse that fails to provide an adequate explanation for its failure to return stored property upon a proper demand establishes a prima facie case of conversion, rendering contractual limitations on liability inapplicable unless the warehouse proves its failure was not due to conversion.

Summary

ICC Metals sued Municipal Warehouse for the value of missing indium, an industrial metal. Municipal argued a contractual liability limit applied. The court held that when a warehouse cannot adequately explain its failure to return stored goods, it establishes a prima facie case of conversion, voiding liability limitations unless the warehouse proves the loss wasn’t due to conversion. Absent sufficient explanation from the warehouse, the burden does not shift to the plaintiff to demonstrate fault. The defendant’s unsupported claim of theft was insufficient. Thus, ICC was entitled to the full value of the missing metal.

Facts

ICC Metals delivered three lots of indium, worth $100,000, to Municipal Warehouse for storage in 1974. Municipal provided warehouse receipts with a liability limitation of $50 per lot unless a higher valuation was declared and increased rates paid. ICC did not declare a higher value. For two years, ICC paid storage invoices. In May 1976, ICC requested one lot’s return, but Municipal couldn’t locate any of the indium. Municipal claimed the metal was stolen but provided no supporting evidence.

Procedural History

ICC sued Municipal in conversion, seeking the full value of the indium. Special Term granted summary judgment to ICC. The Appellate Division affirmed. The New York Court of Appeals granted Municipal leave to appeal.

Issue(s)

Whether a warehouse, which provides no adequate explanation for its failure to return stored property upon a proper demand, is entitled to the benefit of a contractual limitation upon its liability.

Holding

Yes, because proof of delivery of the stored property to the warehouse and its failure to return that property upon proper demand suffices to establish a prima facie case of conversion and thereby renders inapplicable the liability-limiting provision, unless the warehouse comes forward with evidence sufficient to prove that its failure to return the property is not the result of its conversion of that property to its own use.

Court’s Reasoning

The court reasoned that a warehouse is not an insurer but must exercise reasonable care and refrain from converting stored goods. A warehouse failing to redeliver goods upon demand may be liable for negligence or conversion. While warehouses can limit liability for negligence with an opportunity for increased coverage, public policy bars such limitations in cases of conversion. “Any other rule would encourage wrongdoing by allowing the converter to retain the difference between the value of the converted property and the limited amount of liability provided in the agreement of storage.” The court emphasized the warehouse’s superior position to explain the loss. To avoid liability, the warehouse must provide an adequate explanation, supported by evidence, for its failure to return the goods. If the warehouse provides an explanation, the burden shifts to the plaintiff to prove the warehouse was at fault. However, a mere unsupported claim of theft, as in this case, is insufficient. The court reconciled prior inconsistent rulings, holding that the same rule applies to both negligence and conversion actions when the warehouse fails to adequately explain the loss. Here, Municipal’s failure to provide adequate evidence of theft meant the liability limitation was inapplicable, and ICC was entitled to the full value of the indium.