Citizens' Bank v. Arkansas Compress & Warehouse Co.

96 S.W. 997, 80 Ark. 601, 1906 Ark. LEXIS 109

• Court: Supreme Court of Arkansas
• Decided: July 9, 1906
• Status: Published

Opinion

Riddick. J.,

(after stating the facts.) In this controversy three separate actions are involved. As these cases rest to a certain extent on the same facts, the parties consented that they should -be consolidated and heard together by the chancery court. Without discussing the propriety of this practice, we shall proceed to consider the questions raised by the- appeal-.

First, as to the action brought against the Compress Company by Miiller & Company to recover 82 bales of cotton and the action of McMurray & Company to recover 46 bales: The evidence shows that .the identical cotton owned by .thesé parties, and which had been deposited with the Compress Company by McMurray & Company, and receipts issued to them, -was still held by the Compress Company at the time these suits were commenced. The books of the Compress Company show that the 128 bales of cotton now held by the Compress Company belong to these plaintiffs; and while the receipts given to the plaintiffs were lost or stolen from them, it is admitted by -the defendant that these receipts are now in its possession, having been surrendered to it by -another party. But the ¡Compress Company, for a -defense against the claims of these parties to the cotton in its possession, alleges that it has “already delivered .to the party who surrendered to it the receipts issued for thi-s cotton the number of bales called for by these receipts. It will -be necessary to notice the circumstances under -which this delivery -w-as made.

The evidence shows that the Alphin-Lake Cotton Company had purchased -and shipped to the Compress Company several thousand bales of -cotton during the cotton season of 1902-1903. All of this cotton was purchased with money obtained fr-om different banks. The Compress Company issued receipts for .this cotton in the name of ,the Alphin-Lake Cotton Company, but it delivered the receipts, not to Alphin-Lake Cotton Company, but to the banks in exchange for bills of lading held by the banks, and the banks then -held the receipts of the Compress Company as collateral security for the money advanced to .the Alphin-Lake Cotton Company. Lake was the general manager of this -company, and conducted its business, at Little Rock. When he desired to ship any cotton held by the Compress Company, he obtained from the bank receipts for the number of bales he desired to ship, and the Compress Company would then ship the cotton out on his “turnout” order upon his surrendering receipts for an equal number of bales, without regard to whether these receipts had been issued or assigned to him or not. For, prior -to .this litigation, the receipts which the Compress Company gave for cotton contained only a meagre description of the cotton, and cotton standing on the books of the warehouse to the credit of one person would be shipped out on the "order of -such person upon his surrendering receipts issued to hi-m or to any other person for a 1-ike number of bales. In other word's, the-Compress Company, the banks and cotton dealers dealt with these compress receipts as if they called for no particular cotton, -but only for a certain number of bales of cotton.

While business was being carried on in this way, Lake found or obtained in some surreptitious way .compress receipts for 128 bales of cotton which .had been issued by the Compress Company to McMurray & Company for cotton deposited by them, and of which they had afterwards sold 82 bales to Miller & Company. ■ At the time Lake came into possession of these McMurray receipts, he had at the compress warehouse a large number of bales of cotton which stood on the books of that company in his name, or in his firm’s name. But the company knew that he had pledged the compress receipts issued to him for this cotton to the banks as security for loans, and they would not allow him. to ship the cotton without the surrender of receipts covering the number of bales he desired to ship. Lake, then, in order to get possession of his cotton without paying his debt to the bank, presented these receipts of McMurray & Company which he had found. And, although the receipts had never been indorsed by McMurray & Company, and showed o'n their face that they did not belong to Lake, the Compress Company, relying on his honesty and supposing that he was the owner, took them up, and -in exchange therefor turned over to Lake, not the cotton for which the receipts were given, but 128 bales which, though they stood on the books of the Compress Company as belonging to him or his firm, had, with knowledge of the Compress Company, been pledged to the bank by the deposit of the compress receipts issued therefor. Lake thus obtained 128 bales of cotton the compress receipts for which were held by the bank as security for its loan, and to which he had no right, .and the Compress Company obtained from him compress receipts that he did not own and had no authority to surrender.

Although our statute malees such receipts “negotiable by written indorsement thereon and delivery in the same manner as bills of exchange and promissory notes” (Kirby’s Digest, § 529), it does not follow that all the consequences incident to the indorsement of bills and notes before maturity ensue or are intended to result from such negotiation. That question was ably discussed by the Supreme Court of the United States in Shaw v. Railroad Company, and the rule stated that the finder of a bill of lading indorsed in blank could not by transfer divest the title of the owner. Shaw v. Railroad Company, 101 U. S. 557. The same rule would apply to a lost warehouse receipt, for bills of lading and compress and other warehouse receipts stand in this respect on the same .footing. Hale v. Milwaukee Dock Co., 29 Wis. 482, 9 Am. Rep. 603. The compress receipt represents the property, and the transfer of the compress receipt by the owner transfers the title ito the property. But a thief who finds a compress receipt can give no more title to a 'purchaser from him than he could to property which he had found or stolen. Shaw v. Railroad Company, 101 U. S. 557. If this is the law, -even where the lost receipt had been indorsed in blank by the owner, as -held by the Supreme Court of the United States in the case just cited, how clear it is that the finder of an- unindorsed receipt, which on its face shows the name of the .true owner, can not by selling or surrendering such receipt transfer the title of the owner. In this case the compress receipts issued to McMurray & ¡Company which were found by Lake had never, been indorsed, and carried on their face notice to any one dealing with them that they belonged, not to Lake, but to another. Lake not only had no title to them, but his finding and surrender of them to the Compress Company in no way affected the rights of -the owners thereof or their title to the 'cotton which these receipts represented.

It is true, as remarked by the Supreme Court of -the United States .in Shaw v. Railroad Company, that the owner of a bill of -lading or compress receipt may by his own carelessness put it in the power of a finder to occupy the position of an owner under circumstances that would estop such owner from setting up -his rights against an innocent purchaser. In this case there is the -suspicious circumstance that .the manager of McMurray & Company, who was also a member -of that firm, admitted that he had loaned or exchanged compress receipts with Lake on -at least one oocasion to enable Lake -to ship out cotton which a compress company held. If he had loaned these receipts to Lake by which Lake obtained from the defendant Compress Company the 128 bales of cotton in controversy -here, his firm would clearly be estopped to claim title -to such receipts or cotton as against the Compress -Company. But he testified positively that the receipts he exchanged with Lake were those of another Compress Company, that he had never delivered or authorized Lake .to take any receipts rendered by the defendant Compress Company, and if he had those receipts they were obtained without .the consent of the plaintiffs in some way unknown to them. The chancellor' found in favor of plaintiffs on that point, and we think the evidence supports the finding. That being so, there .is nothing shown to estop' the owners of these receipts from asserting their ownership to this cotton. It was their cotton for which it holds the receipts of the Compress Company: have neither sold .it nor transferred the compress receipts therefor to others, .and, so far as the law is concerned, their right to recover is clear. The chancellor, we think, correctly decided in their -favor against the Compress Company.

Second, as to the action of the Citizens’ Bank against the Compress Company to recover the value of the 129 bale's of cotton for which it holds the receipts of the Compress Company. The evidence shows that the cotton for which these receipts were given as not now in the possession of the 'Compress Company. One bale -of this cotton the Compress Company admits that it lost, -and the other 128 bales .that it ought to have to meet these receipts held by the bank it, as before stated, delivered to Lake on receipts of McMurray & Company, which he had surreptitiously obtained. In other words, the Compress Company let Lake have 128 'bales of cotton belonging to the bank which it held as collateral security for loans made to Lake upon his surrendering to the Compress Company receipts given to McMurray & Company. But, as we have seen, these receipts had never been transferred or indorsed by the owners, and showed on their face that they did not belong to Lake. The Compress Company -simply took Lake’s word . for it that he was the owner of the receipts. The Compress Company thereupon surrendered to him cotton for which it had previously delivered its receipts to the Bank, and to which it should have known that the Bank had a claim.

Counsel for the Compress Company attempts to .have it evade liability by contending that the. receipts of the Compress Company held by the Bank call for only a certain number of bales >o£ cotton, and do not describe or identify any particular cotton, and that therefore the title to the cotton did not pass to the holder of the receipts. But this cotton was purchased outside of the city and shipped to this market. It was paid for by drafts on the Bank to which the bills, of lading of the railway company describing the cotton were attached and held by the hank as security for the loan. This cotton was thus identified at the time of the purchase, and the title thereto vested in the Bank by transferring to it the bills of lading issued by the'railway company. Afterwards, when the cotton arrived at the compress, the Compress Company took up the bills of lading and gave the Bank in lieu thereof compress receipts .stating the number of bales of cotton, but this exchange did not affect the title of the Bank to the cotton. This was then not an attempted transfer to the Bank of a cerain number of bales out of a larger number, where title would not pass until a .separation or selection was made. - It was a transfer to the Bank of a certain selected lot of cotton,' which, while .in the hands of the warehouseman, was afterwards mingled with a larger number of bales so as to malee identification more o.r less difficult. But this mingling did not divest the title of the Bank, and it still owned a certain number of bales in the hands of the Compress Company.

But, if we concede that no particular cotton was identified by these receipts, and that no title passed to the Bank, the Compress Company would still be bound for -the number of bales of cotton named in the receipts. The receipts would, in effect, be a contract on the part of the Compress Company that it would hold for and on demand deliver to the owner of the receipt or his assignee the number of bales of cotton named therein. This is not a suit between the Bank and a creditor of Take attaching the cotton, nor between the Bank and the person to whom Take sold -the cotton after he-withdrew it from the Compress Company. In such a suit the question as to whether the title of the cotton passed to the Bank might be very material. But in this action between the Bank and the Compress Company it is not very material whether the title passed to ■the Bank or not. If the -title passed to the Bank, the Compress Company has wrongfully disposed of 129 hales of cotton belonging to the Bank, and must account to it for the value thereof. If the title did not pass to the Bank, still the Bank holds the contract of the Compress-Company -to the effect that it has received of the Alphin-Lake Cotton Company 129 bales of cotton which it agrees to deliver to the Bank on demand, and which contract it has failed to perform, and it must respond in damages for the value of the cotton, or at least to the exent of the Bank’s debt or interest in the cotton.

If this was an action at law for conversion, it might be material for the Bank to show that it had title to the cotton; but, it being now an action in equity to settle the rights of these panties growing out of the transactions set up .in -the pleadings, the question whether title passed to the Bank is not material to show liability of -defendant. There is no denial that the -cotton mentioned in -the receipts was actually delivered to the Compress Company. The Compress Company had notice that -the receipts which it issued therefor were -held by the Bank as a collateral security for a loan to Lake. Under those circumstances, as between the Bank which held the receipts and the Compress Company which issued them, w-e think that the Compress Company is liable to -the Bank for the number of bales of cotton -called for by the receipt, whether the title to the cotton passed to the Bank or not.

Again, the Compress Company undertakes to justify, its conduct in -turning over to Lake this cotton for which the Bank held its receipts, on the surrender by him of receipts issued by the Compress Company to McMurray & Company which he had found, by saying that it was the custom .to treat all these compress receipts as made -to bearer. But the receipts were not issued to bearer. The receipts which the Compress •Company accepted from Lake in exchange for this cotton were issued to McMurray & Company. On the surrender of receipts issued to McMurray & Company, and which had never been indorsed by them, the Compress Company delivered to Lake cotton which he had pledged to the Bank which held the receipts of -the Compress Company therefor. The Compress Company had notice that the receipts which -it had- issued to Lake fo-r this cotton had been pledged to the Bank, and yet, without consulting the Bank, it turned over to him this cotton on his -surrendering receipts of another party for other cotton which receipts he had found. In acting in this way the Compress Company acted in direct violation of our statute which forbids a warehouseman from removing or permitting: to be shipped or removed beiyond its control any goods, cotton, grain or other produce or commodity for which he has given his receipts without the written assent of the person holding his receipt. Kirby’s Digest, § 527. The Bank did not assent to this act of the Compress Company, and the Compress Company can not set up a custom to protect it from the consequences of its .act done in direct violation of the plain mandate of the statute. Dickinson v. Gay, 7 Allen (Mass.), 29, S. c. 83 Am Dec. 656; Coxe v. Heisly, 19 Pa. St. 243; 29 Am. & Eng. Enc. Law (2d Ed.), 376-378.

But, even if -the statute could be abrogated in that way, the evidence .does not show any custom that could protect the Compress Company under the facts of this case. The evidence may show that there was a custom for the. Compress Company to deliver -cotton to the party who had placed it in the company’s warehouse upon surrender by him of receipts of -the Compress Company for an equal number of bales, whether the receipts were originally issued to him or not, provided that he then ow-ned them, and had a right to surrender -them. But -there is no proof of a custom that would justify a delivery of cotton which the owner had pledged to a bank with knowledge of the Compress Company upon the surrender by him of a lost or stolen reoeipt to which he had no right or title, without the consent of the Bank. When cotton was delivered upon the surrender of receipts not issued to the party obtaining the cotton, it was done on the assumption that such party was the owner of the receipts, and had the -right to .surrender them. If- the -party obtaining the -cotton delivered therefor compress receipts that were issued to and belonged to another, and which he h-ad no authority to surrender, the Compress Company gained no rights thereby in the absence oif fault of the legal owner of the receipt, >and was in the .same position as if it had delivered the cotton without requiring any receipt in exchange therefor. In ■fact, this custom that the Compress .Company relies on seems to have .been based on the theory that all men- were honest. So long as no unscrupulous dealers appeared, so long as the Compress Company was certain that the parties to whom cotton was delivered were the owners of the receipts they surrendered, no great harm was felt; for, while that was so, the Compress 'Company always had on hand the number of bales called for by its outstanding receipts, though it might not be the identical cotton for which the receipts were executed. But this loose method of -doing business was calculated to attract the attention of -dishonest commercial adventurers. That years passed before any harm was felt speaks well for the honesty of those dealing with cotton in this market. But the unscrupulous man arrived at last, and then a day dawned full of -danger .to these unsuspecting dealers. Taking advantage of this lax method of transacting business, a daring financial buccaneer simply walked off with 128 bales of cotton to which he was not entitled, and for which the Bank that had loaned him money held the receipts of the Compress Company. It is a matter of current- history -that these were not his only victims. Other banks, compress companies and even railroads suffered from his assaults. The question here is whether this Bank or the Compress Company, neither of which had been guilty of any intentional wrong, must sustain the loss in this case. The substance of the matter is that Take bought 129 bales of cotton and shipped it to the Compress Company. * He transferred the' railroad bills of lading to the Bank to obtain money to pay for the cotton. Afterwards the Compress Company, or Take with the knowledge -of that company, procured the bills of lading from the Bank by substituting therefor the compress receipts issued in his name for the cotton. Although there was no -written indorsement of the receipts, the tiansferwas good in equity, and gave the Bank an equitable title thereto. The debt of Take to the Bank has never been paid. It still holds the compress receipts. But the Compress -Company, relying o-n Take’s word that he was the owner of other reoeipts belonging to McMurray & Company, turned him over in ex-change therefor the .cotton that -in equity belonged to the Bank. As the Compress Company had notice -that these reoeipts were held by the Bank, as it was not in any -way misled by the Bank, and as the Bank has never -consented to this act of the Compress Company -in delivering the cotton to Take, we think that -the Compress Company -should account to the Bank for ithe value of the cotton, or for such an amount as will cover the Bank’s .debt. For, in delivering cotton to Lake for which’ the Bank held its receipts without the consent of the Bank, the Compress Company violated both its contract and the statute of the State, and must bear the loss resulting from its own carelessness.

On the whole case, the judgment of the chancellor as to McMurray & Company and Miller & Company will be affirmed. The judgment in favor of the Compress Company as to claim of Citizens’ Bank will be reversed, and the cause remanded with an order that .the cause be referred to a master or commissioner to hear evidence and determine the value of the 129 bales of cotton -for which the Bank holds compress receipts, and on the coming in of such report that the Bank have judgment against the Compress Company for the value of the cotton.

By consent of parties the 128 bales of cotton in the hands of the Compress Company at the time these actions were commenced were sold and the proceeds deposited in the bank to await .the action of the chancery court. This cotton has been decided to be the property of McMurray & Company and Miller & Company, but under the terms of that agreement we do not think these parties can recover interest on the money except from the date of the judgment of the chancery court. Nor do we think- that the bank which held the money should be allowed interest on the sums claimed by it except from the date of that .judgment. After the judgment -the Bank had no right to retain the fund, and must pay interest, and is entitled to -recover from the Compress 'Company interest on its debt from the same date.