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Lembaga Enterprises, Inc. v. Cace Trucking & Warehouse, Inc.

320 N.J. Super. 501, 727 A.2d 1026 (App. Div. 1999)

BAILMENT; CONVERSION—If a bailor establishes that its goods disappeared while in the possession of its bailee, then there arises a rebuttable presumption of conversion by the bailee.

An importer and distributor of toiletries and cosmetics had a relationship with a common carrier that operated a warehouse. The common carrier would pick up containers from the port, store them in its warehouse, and deliver them to the importer. The carrier/warehouser’s employees did not unload the importer’s containers. The importer opened its own containers and logged its own inventory. Although there were no security guards posted at the warehouse, there were security measures in place and it was bordered by a high, barbed wire fence. One day, the carrier picked up to two containers with their seals intact. The next day, one of the containers had disappeared. The importer sued the carrier/warehouser for loss of the cargo, alleging breach of contract, negligence, and conversion. At trial, an expert opined that the warehousing operation failed to control access to the cargo, pin lock all containers, install physical barriers, hire a gate guard or use closed circuit television monitoring. The warehouser’s expert opined that adequate security was in place. The importer argued that the warehouser should have been presumed negligent and that such a presumption could not be overcome by mere evidence that the warehouser was not negligent. It argued that the warehouser must prove exactly what happened to the goods. Consequently, because it was undisputed that no one knew exactly what happened to the goods, there could be no factual dispute on the issue for the jury to decide. The lower court disagreed with the importer’s argument, finding that conversion “was never asserted here and it’s expressly stipulated away. The only facts before this Court deal ... with a theft.” On appeal, the importer argued that the warehouser failed to meet its burden of proving that the container was not converted. In New Jersey, a bailor (such as the importer) may sue a bailee (such as the warehouser) in conversion and/or negligence. Common-law conversion is “the exercise of any act of dominion in denial of another’s title to the chattels or inconsistent with such title.” The good faith or intent of the bailee does not play a part in an action for conversion. For example, a bailee who mistakenly destroys or disposes of the goods is liable in conversion although there is no intent to steal or destroy the goods. “Therefore, in a conversion action, the bailor has the burden to prove that the bailee has unlawfully converted the goods. When the goods are delivered to a bailee in good condition and then are lost or damaged, the law presumes a conversion and casts upon the bailee the burden of going forward with the evidence to show that the loss did not occur through his negligence or if he cannot affirmatively do this, that he exercised a degree of care sufficient to rebut a presumption of it.” Under a New Jersey statute, a bailor is liable when its negligence is a proximate cause of damage to, or loss of goods by, either third parties or the bailee, its agents or employees. Hence, although the warehouser may have shown that it had adequate security to prevent the theft of the container by third parties, it did not present evidence to rebut the presumption that it, its agents, or its employees had converted the container. Consequently, the Appellate Division held that the lower court should have instructed a jury that if the importer established that the container had disappeared while in the care of the warehouser, there is a rebuttable presumption of conversion based either on the warehouser’s negligent conduct in permitting third parties to steal a container, or by the negligent or intentional conduct of the warehouser’s employees or agents. The burden to prove conversion, however, rested at all times with the importer.


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