## Facts

- A Georgia warehouse operator stored a shipment of frozen shrimp for a customer whose claim was later held by Next Factors, Inc.
- The shrimp were lost while in the warehouse’s possession, and the cause of the loss was unknown.
- Under Georgia law governing warehousemen, an unexplained loss created a rebuttable presumption that the warehouse was negligent.
- The warehouse receipt contained a limitation-of-liability clause capping damages at $0.50 per pound of goods lost.
- The Shaw Group, Inc., as successor to the warehouse operator, sought a declaratory judgment that the contractual cap limited its liability.
- Next Factors argued the loss should be treated as conversion, which would render the contractual limitation ineffective under Georgia’s U.C.C. § 7-204.

## Issues

1. Whether an unexplained loss of stored goods—combined with Georgia’s rebuttable presumption of warehouse negligence—constitutes “conversion of the goods to [the warehouseman’s] own use” under Georgia’s U.C.C. § 7-204.
2. If no conversion is shown, whether the warehouse receipt’s limitation-of-liability clause capping damages at $0.50 per pound is enforceable against Next Factors.

## Decision

- The court held that the negligence presumption arising from unexplained loss did not establish conversion to the warehouseman’s own use under U.C.C. § 7-204.
- The court found no evidence that the warehouse (or Shaw as successor) appropriated the shrimp for its own benefit.
- Because the statutory conversion exception did not apply, the court enforced the warehouse receipt’s limitation-of-liability clause.
- The result limited any recovery to $0.50 per pound of the lost shrimp, rejecting Next Factors’ effort to avoid the contractual cap via a conversion theory.

## Legal Principles

- Under Georgia’s U.C.C. § 7-204, a warehouse may limit liability by contract, but the limitation is ineffective if the warehouse converts the goods to its own use.
- A rebuttable presumption of negligence from unexplained loss of stored goods does not, by itself, amount to conversion.
- “Conversion” for purposes of § 7-204 requires proof of intentional dominion or appropriation inconsistent with the owner’s rights; non-delivery or unexplained disappearance alone is insufficient.
- Absent evidence of conversion, contractual limitation-of-liability provisions in warehouse receipts are generally enforceable to cap damages for warehouse loss attributable to negligence.

## Conclusion

The court treated the unexplained disappearance of shrimp as supporting, at most, a negligence presumption rather than conversion, and therefore applied Georgia’s U.C.C. § 7-204 to enforce the warehouse receipt’s $0.50-per-pound limitation of liability.


The Shaw Grp., Inc. v. Next Factors, Inc., 335 B.R. 300 (Bankr. D. Del. 2005)