Alabama State Bank v. Barnes , 82 Ala. 607 ( 1886 )

CLOPTON, J.

-Whether the appellant, who brought the suit, has title or property in the cotton in controversy, sufficient to maintain an action of detinue, depends on the legal effect of the following facts : Cleage Brothers were lessees of a warehouse at Eutaw, known as the McGee warehouse, in which they stored cotton bought by themselves, and also the cotton of other persons. As collateral security for money borrowed from the National Bank of Birmingham, in February, 1884, they deposited with.the bank, without indorsement, a receipt for one hundred bales of cotton, designated therein by numbers. The receipt is as follows: “ Received, Eutaw, Ala., February 2d, 1884, at the McGee ivarehouse, in good order, from Cleage Rios., 100 bales of cotton, which we promise to deliver to him, or bearer, on paying customary charges (loss by fire excepted).’’ The receipt was signed by J. W. Headrick, who was in fact their clerk, without any indication that he issued it as clerk, or agent, or in any other that his individual capacity. In May following, Cleage Bros, borrowed from the plaintiff over eleven thousand dollars, and executed a written instrument, by which, after reciting that the money was loaned on two hundred and thirty bales of cotton stored in warehouses at Tuskaloosa and Eutaw, of certain quality and weight, they agreed to keep the cotton insured, loss if any payable to plaintiff, and to pay, on demand and after notice, such additional sum as plaintiff might deem necessary to cover any decline in the price of cotton; and on default in the performance of the agreement, or in paying the loan at maturity, plaintiff was authorized to sell the cotton without notice, and to apply the proceeds, after deducting expenses, to the payment of the loan. It was also agreed, that out of the money loaned, the plaintiff should pay the National Bank of Birmingham, and take up and hold the receipt, deposited with that bank, as collateral security for the money loaned, the cotton included in the receipt representing the cotton mentioned in the written instrument as stored at Eutaw; which was done. At the time of the transaction, and until shortly before the commencement of the suit, plaintiff was not informed that Cleage Bros, were the lessees of' the warehouse, or had any connection with it as proprietors, or that Deadrick was not the warehouse-man. Soon after the receipt was deposited with the National Bank, Cleage Bros, caused one hundred bales of cotton to be marked with tags, numbered to correspond with the numbers in the receipt, and set apart from the other cotton in the warehouse belonging to them. The cotton so tagged and marked remained in the warehouse, separated from the other cotton, until about June, 1884, when it was removed by Cleage Bros., without the knowledge or consent of plaintiff, to the platform of the depot of the railroad company at Eutaw, where it remained, except twenty-four bales which were sold by Cleage Bros., others being substituted, until possession thereof was taken by defendants. Cleage Bros, indorsed the receipt to plaintiff, after defendants had taken possession as hereinafter stated, but before the commencement of the suit.

The general rule, independent of statutory regulations, is conceded, that the delivery, without indorsement, of a warehouse receipt payable to bearer, as collateral security, passes the legal title, and vests possession of the property in the pledgee, equivalent to its actual and manual delivery. But it is insisted that the transfer of such receipts is regulated by the statutes, and that indorsement is requisite, not only to convey the title, but also to confer a special property, and to operate a constructive delivery of possession. Section 2099 of the Code provides : “ All bonds, contracts, and writings for the payment of money, or other thing, or the performance of any act or duty, are assignable by indorsement, so as to authorize an action thereon by each successive indorsee.” Under this section, as construed by our decisions, an indorsement of a warehouse receipt, though payable to bearer, is necessary to convey the legal title.—Allen v. Maury, 66 Ala. 10; Lehman, Durr & Co. v. Marshall, 47 Ala. 362. The section is enabling, and was specially designed to provide the mode, in respect to such documents, of passing the legal title, so as to enable the real owner to prosecute an action thereon in his own name. So far as it relates to the passing of title by the delivery of warehouse receipts and similar documents, the statute is an innovation on the mercantile law, and will not be construed as abrogating or modifying it, further than is expressed, or is absolutely required to effectuate the purposes. By section six of the act of February 28, 1881, being the other statute relied on, warehouse receipts, given for cotton stored or deposited, may be transferred by indorsement; and any person, to whom the same may be so transferred, shall be deemed and taken to be the owner of the property, so far as to give validity to any pledge, lien, or transfer, made or created by such person; and no cotton shall be delivered except on surrender and cancellation of the original receipt, or the indorsement thereon of the delivery, in case of a partial delivery. — -Acts 1880-1, 133. This statute does not imperatively require indorsement. The intention is to protect the warehouse-man against a mistaken or wrongful delivery, and to protect the holder-for value of such indorsed receipts, against latent equities and rights. The statute, being permissive, does not prevent the passing of title, and delivering possession, in any mode previously effectual.—Rice v. Culler, 17 Wis. 351; Jones on Pledges, § 301. Notwithstanding section 2099 requires indorsement to convey the legal title, neither statute operates to prevent the transfer of a special property and constructive possession by the delivery of the receipt without indorsement, sufficient to create a valid pledge, as between the parties, and as to third persons not having acquired prior or intervening rights.—Fourth Nat. Bank v. St. Louis Cot. Comp. Co., 11 Mo. App. 333; St. Louis Nat. Bank v. Ross, 9 Mo. App. 399.

It may be regarded as now settled, that a warehouse-man, having property of his own stored in his warehouse, may, in the absence of statutory enactments, issue receipts therefor, and pledge the property as collateral security for his own debt, by the delivery of such receipts.—Mer. & Man. Bank v. Hibbard, 48 Mich. 118; Cochran v. Ripley, 13 Bush, 495; Parshall v. Eggert, 54 N. Y. 18. Section two of the act of February 28, 1881, is declaratory of the general rule. It provides that no warehouse-man shall issue any receipt upon any goods, cotton, or other produce, to any person, as security for money loaned, or other indebtedness, unless such goods, cotton, or other produce is in his custody, and in store, or on the premises, and under his control, at the time of issuing such receipt. It may be a question, whether such receipts, in order to operate a transfer of the right of property and possession, should not be made directly in the name of the person to whom transferred; and it may be said, the receipt delivered to the plaintiff, having been signed by the clerk of Cleage Bros., and issued in their name, though payable to their order or bearer, does not come within the rule. In DeWolf v. Gardner, 12 Cush. 19, the plaintiff executed a duplicate warehouse receipt in his own name, for a large number of barrels of flour, acknowledging that he had received the flour in store, branded and marked, which he agreed to hold subject to the order of Gibson, and to ship the same by the first opportunity, consigned to him, with condition that the receipt should remain attached to a certificate referring to the property. The receipt and certificate were attached to a draft drawn on the consignee, as evidence of a lien on the property in favor of the holders of the draft, but reserving to the consignee the right to sell, and hold the proceeds in trust for the holders of the draft. The consignee wrongfully pledged the property, while in transitu, for his own debt, and the plaintiff brought trover against the pledgee. It was held, that the plaintiff had so far parted with the right of property and of possession, and the same had so far vested in the holders of the draft, for security of which he had pledged the flour, that he could not maintain the action. In this case, however, actual possession was delivered to the consignee, which was considered as the possession of the holders of the draft. The question is not without difficulty, when possession is retained by the warehouse-man. Evidently the transfer is invalid and inoperative as to creditors and bona fide purchasers without notice ; but, as between the parties, the delivery of such receipt to a third person, for value, is anissue of the receipt, and a valid transaction, conferring rights.

But the nature and character of the title and rights of the plaintiff are not to be determined from the receipt alone. The written agreement and the receipt are parts of one transaction, and should be construed together, and the intent of the parties collected from both instruments, to which effect should be given. The written agreement declares a lien, with a stipulation, that Cleage Bros, shall keep the cotton insured for the security of plaintiffs, and confers power to sell without notice on default. The receipt acknowledges that the cotton is in store, subject to be delivered to the bearer; and separating and setting apart one hundred bales of cotton, marked and numbered to correspond with the receipt, was an appropriation of the specific cotton to the lien. The manifest intent was, to create a lien on the specific cotton, and to transfer the right of property; but the warehouse-men were to retain the actual possession until default, and hold it for the benefit of plaintiff, and as security for the money loaned. Though it may be regarded as now settled, that the pledgor himself may be the agent to keep and hold possession of the pledge, we do not consider the transfer of possession sufficient, under the terms of the written instruments, to constitute a strict and perfected pledge; but the co-operative effect is an equitable assignment of the cotton for the purpose intended, creating an executory pledge contract, or an equitable mortgage.

Under the statute, the delivery of the receipt unindorsed did not convey the legal title, and the agreement does not purport to convey it. Not having had actual possession, it is true that the plaintiff can not maintain the action, without having a valid and operative legal title at the commencement of the suit.—Reese v. Harris, 27 Ala. 301. This brings for consideration the effect of the indorsement of the receipt after defendants had taken possession of the cotton, having reference to which we have considered the nature and character of the transaction as between plaintiff and Cleage Bros. Defendants insist that it is invalid and inoperative, on the ground that they were in adverse possession under claim of ownership at the time the indorsement was made. Unquestionably, the general rule is, that personal property held adversely in independent right, can not be sold and conveyed by the true owner, so as to vest in the purchaser the right to sue thereon in his own name. The rule is intended to prevent maintenance, and, on the theory that its evils are involved, prohibits the transfer of property thus held adversely. In Williamson v. Sammons, 34 Ala. 691, it was held, that where the plaintiff sold personal property, either with an express or implied warranty of title, and after the sale the defendant took possession of the property, and held it under a bona fide claim of title, a transfer back by the purchaser to the seller is not void, though made upon a rescission of the contract of purchase pending the adverse possession. The principle of the decision is, that the offense of maintenance is not involved, when a vendor who has warranted the title, assists the suit of his vendee involving that title. In Jackson v. Bull, 1 Johns. Cases, 81, Kent, J., adopts as a just rule of construction, “that whenever it is intended to be shown that nothing passed by a grant, by reason that at the time there was possession in another adverse to the grantor, then the time to which the, grant is to relate, is the time when the bargain for the sale was finally concluded between the parties, and that, consequently, any intermediate adverse possession before the execution of the conveyance (which is only the technical consummation or evidence of the grant), can never affect it.”—Hale v. Darter, 10 Humph. 92; West v. Drawhorn, 65 Amer. Dec. 614.

We have shown that the transaction between the parties was an‘ equitable assignment of the cotton as security for the money loaned, and constituted an executory pledge contract, or equitable mortgage.' Default in paying the loan at maturity had occurred prior to the time defendant took possession, and plaintiff, under the agreement, had the right to immediate possession. Only the indorsement of the receipt was wanting to convert the equitable into a legal title, or to perfect the pledge, making it effectual as security according to the mutual intent and understanding of the parties. Cleage Bros, had a direct interest in the litigation involving its sufficiency and validity, and, having such interest, are not guilty of maintenance in assisting to uphold it. The indorsement related back to the time when the contract was finally concluded, and the intermediate adverse possession of the defendants does not affect its validity or operation. But the ratification, pending the adverse possession of defendants, does not relate back so as to bring the twenty-four bales substituted within the operation of the indorsement. To these the plaintiff has not the legal title, and never had actual possession, and hence is not entitled to recover them in this action.

If there was a parol agreement in August, 1883, that defendants would pay the checks of Cleage Bros, drawn for cotton purchased by them during the ensuing season, and that the cotton so purchased and paid for should be the property of defendants, and that they should have the right to take, hold, ship, and sell until all advances made in the purchase of the cotton should be paid, neither a mortgage on specific property, without a particular appropriation, nor a pledge without delivery of possession, was created. The title to the cotton subsequently purchased by Cleage Bros, in their oion name did not, eo instanti on its purchase, pass to the defendants, and a lien on any particular cotton did not arise; and a pledge of future property does not become effectual until the property comes into existence, and possession, actual or constructive, is delivered to' the pledgee. Such agreement can not have any operation other than a contract to execute a mortgage or pledge. Burns v. Campbell, 71 Ala. 271.

' Defendants further set up, that the detention is not wrongful, by reason of having possession taken under an alleged parol agreement made about May 23, 1881. The agreement is substantially as follows: The defendants were to pay a note of Cleage Bros, for five thousand dollars, held by a bank in Chattanooga, as security for which Cleage Bros, had delivered a bill of lading for one hundred bales of cotton, and take up and cancel the bill of lading; and, in consideration thereof, Cleage Bros, agreed thatodefendants should hold all the cotton then on hand, to pay for which defendants had advanced the money, until June 15, 1884, the quantity of which was estimated, and if not then shipped or sold by Cleage Bros., the defendants should have the right and authority to take, ship, and sell the same, and apply the proceeds to the payment of Cleage Bros.’ indebtedness to them, the amount of which was computed, including the amount paid the bank in Chattanooga. The amount was paid as agreed on, and the bill of lading taken up and cancelled. This agreement was prior to the passage of the statute declaring mortgages on personal property invalid unless in writing and subscribed by the mortgagor. In July thereafter, the defendants took possession of the cotton in controversy, without the consent, and against the objection of Cleage Bros.

The agreement manifestly implies, that Cleage Bros, were to retain the possession of the cotton, with the privilege to ship and sell, without stipulation as to the disposition of the proceeds. Such parol agreement may be regarded as an agreement for a lien or charge, created for the purpose of securing the indebtedness, such as may exist without the delivery of the property — an equitable lien. Such lien, without possession acquired under it, will not support an action of detinue, and does not constitute a valid defense, when the plaintiff has the legal title. — Jack-ton v. Rutherford, 73 Ala. 155. The defendants, however, insist that their possession, taken under the authority conferred by the agreement, joined to their equitable title, acquits the detention of wrongfulness. That the owner of personal property, wrongfully withheld, may take possession, when he can do so without violence or force, or a breach of the peace, may be regarded as settled by our former decisions; and on this rule, a mortgagee may, in like manner, take possession after the lawrday of the mortgage, the title to the property vesting in him absolutely at law, leaving nothing in the mortgagor but an equity of redemption.—Street v. Sinclair, 71 Ala. 110. The rule is subject to the limitation, that possession can not be lawfully taken against the objection of the party in possession, unless the other party has title to, or ownership of the property, which will support an action for its recovery.—Huddleston v. Huey, 73 Ala. 216. The verbal agreement did not entitle' the defendants to maintain detinue for the cotton.—Berry v. Berry, 31 Iowa, 416.

The defendants, having only an equitable right or interest, could not, by taking possession against the objection of Oleage Bros., strengthen their equitable title, so as to create a valid defense to the present action. Whatever may be the character and effect of the agreement as between Oleage Bros, and defendants, the rights of the plaintiff necessarily enter as qualifying elements of consideration. The plaintiff, by the contract of May 2, 1884, was vested with the right to possession on default in paying the money loaned at maturity, and was entitled to possession at the time defendants took the cotton. Oleage Bros, were holding the cotton in trust, and for the benefit of plaintiff. They were estopped to deny plaintiff’s right of possession ; because such denial is inconsistent with the relation they occupied. By taking possession against objection of Oleage Bros., the defendants’ possession thus wrongfully obtained is subordinated and subject to the right of plaintiff — they do not occupy the vantage-ground of bona fide purchasers. No rights arise by reason of an unlawful possession, except against a wrongdoer. Moreover, at the time possession of the cotton was taken, both plaintiff and defendants had only equitable claims or interests, plaintiff’s being prior in point of time; and possession taken under such circumstances, wrongful as against plaintiffs, though supported by an equitable lien, will not prevail in an action at law against the legal title acquired by plaintiff. Not merely possession, but also the right of possession, accompanied by a lien for the money advanced, is essential to a valid defense, the plaintiff having the legal title.

We do not wish to be understood as deciding that defendants obtained no lien, which may be superior to that of the plaintiff, or that the indorsement of the warehouse receipt relates back, so as to cut off such lien, if acquired bona fide without notice of the plaintiff’s rights. This question is not before us. All we clo decide is, that, under the circumstances, the possession was unlawfully taken, and that an equitable lien, resting on a wrongful possession, though taken without notice of the plaintiff’s rights, is not sufficient to override the legal title, in an action of detinue, whatever would have been its effect, if the possession had been surrendered to the defendants by Cleage Bros, for the purpose of carrying the parol agreement into effect. If they have a superior lien, they must resort to a court of equity for its enforcement.

The plaintiff’s rights having been ' acquired prior to the acquisition of rights by the defendants, no question of usury arises in the case; and the question of estoppel is not raised by the record.

It is unnecessary to refer specially to the several charges given, as an application to the principles above stated will readily show which are erroneous.

Eeversed and remanded.