Ellison v. Hunsinger , 237 N.C. 619 ( 1953 )

75 S.E.2d 884 (1953) 237 N.C. 619

ELLISON
v.
HUNSINGER et al.

No. 308.

Supreme Court of North Carolina.

May 6, 1953.

D. Z. Newton, Peyton McSwain, Shelby, and George F. Coleman, Winnsboro, for the plaintiff, appellant.

Tillett, Campbell, Craighill & Rendleman, Charlotte, for the defendant Crespi Cotton Co., Appellee.

Joseph C. Whisnant, Shelby, for the defendants Planters & Merchants Warehouse, Inc., and J. E. Noggle, Manager of Planters & Merchants Warehouse, Inc., appellees.

Harry McMullan, Atty. Gen., and T. W. Bruton, Asst. Atty. Gen., for the defendants A. B. Fairley, State Warehouse Superintendent, and Brandon P. Hodges, Treasurer of State, Appellees.

PARKER, Justice.

Each state has the right to regulate the transfer of property within its limits. The prevailing modern theory is that the law of the situs in general controls transfers of personalty. All the transactions between the plaintiff Ellison and Hunsinger occurred in South Carolina; the 43 bales of cotton were situated in South Carolina; according to Hunsinger's representations, Ellison was to be paid by Cooley's cheque; Cooley lived in Spartanburg, South Carolina. Hunsinger obtained possession of the 43 bales of cotton from Ellison by the crime of false pretense—to which crime he pleaded guilty, and is now serving a prison sentence in South Carolina. Whether Hunsinger acquired title to this cotton is to be determined according to the laws of the State of South Carolina, and the South Carolina law on the doctrine of comity in the forum will be enforced in the Courts of North Carolina, unless contrary to the public policy of this State. Handley Motor Co. v. Wood, 237 N.C. 318, 75 S.E.2d 312; Price v. Goodman, 226 N.C. 223, 37 S.E.2d 592; 11 Am.Jur., Conflict of Laws, § 66.

The facts in relation to one Hinson obtaining a Buick Convertible Coupe from Russell Willis, Inc., in the case of Russell Willis, Inc., v. Page, 213 S.C. 156, 48 S.E.2d 627, 629, are strikingly similar to Hunsinger obtaining this cotton from Ellison. On 11 May 1947 Mrs. E. F. Stacker, H. J. Saltzman and one, Bernard Hinson, the owner, general manager, and employee, respectively, of Farnsworth-Stacker, a reputable company, engaged in various lines of business at Clarksville, Tenn, a distance of about 40 miles from Nashville, Tenn., came into Russell Willis, Inc.'s place of business for the purpose of purchasing one or more Buick automobiles. At that time Russell Willis, Inc. had on hand a new four-door Buick Sedan and also a Buick Convertible Coupe. Mrs. Stacker purchased the four-door Sedan. While there Mrs. Stacker and especially Saltzman seriously considered buying the Convertible Coupe, which was priced to them at $3,595.00. As they were leaving Saltzman said: "He would send back and get the Buick Convertible for $3595.00."

On 29 May 1947, Hinson walked into the office of Russell Willis, Inc., and stated that he had come after the Buick Convertible Coupe for Saltzman. Hinson delivered to Russell Willis, Inc., a Farnsworth-Stacker printed cheque signed "E. F. Stacker," payable to Russell Willis, Inc., in the sum of $3,595.00. The signature to this cheque was a forgery.

Baker, C. J., speaking for the Court said: "The trial Judge has very succinctly stated the governing law of this case as applied in South Carolina, and we quote therefrom. ``There can be no doubt but that the plaintiff did not divest itself of title to said automobile by the purported sale to H. J. Saltzman upon the false and fraudulent representation of Hinson that he was authorized by Saltzman to purchase said car for and on his behalf. It follows that the defendant, Page, acquired no title in the purchase of the car from Hinson. Under such circumstances, ordinarily, the original seller is entitled to the recovery of his property even as against a subsequent bona fide purchaser for value and in good faith. See the annotations contained in 13 L.R.A.,N.S., at page 413, and L.R.A.1916D, 801. See, also, M. Brotchiner & Sons, Inc., v. M. Ullman, Inc. (141 Misc. 102), 252 N.Y.S. 244.' * * * The law of neither the State of Tennessee nor that of the State of Virginia having been pleaded, we must assume that it is the same as in this State, and therefore the law of the forum will govern."

The annotation contained in 13 L.R.A., N.S., at page 416 states: "There are numerous other cases holding that title will not pass where the alleged purchaser has falsely represented himself to be an agent for some third party, as in that case there is no meeting of the minds." (Citing numerous authorities).

In the annotation L.R.A.1916D, 801, it is said in part: "The reputation of a certain person or firm may be such that the party desires to contract with him and him only. If a mistake arises and such a party contracts with another in the belief that he is contracting with the desired person, the contract may be avoided. It is more accurate to say that no contract exists."

In M. Brotchiner & Sons, Inc., v. M. Ullman, Inc., 141 Misc. 102, 252 N.Y.S. 244, 246, a man represented himself to be a brother of Victor Goodman, a reputable fur dealer in Toronto, Canada, for whom he said he was authorized to make purchases of furs, and purchased a number of furs from the plaintiff by a cheque which purported to be signed by V. Goodman. The cheque was forged. The purported purchaser sold these furs to the defendant. On 11 May, 1929, the same individual, now representing himself to be Victor Goodman, appeared in Buffalo at the factory where the defendant is engaged in manufacturing and trading in furs. He stated that on account of delays incident to importation into Canada he desired to sell the furs at cost. In confirmation he exhibited the receipted bills received from the plaintiff, showing the sale of the furs to V. Goodman for $1,451. He gave also the name of his hotel in Buffalo. Inquiry by the defendant showed that a Victor Goodman was registered there. The defendant finally agreed to buy the furs for $1,400 and delivered its check for this amount, which was immediately paid. The plaintiff, having thereafter ascertained that the defendant was in possession of the furs, made demand for them, and, the demand having been rejected, began this suit. The New York Court said: "It is entirely clear under the circumstances here that the impostor acquired no title to the merchandise, and consequently that no title passed to the defendant. The impostor was only intrusted by the plaintiff with possession of the merchandise for transmission to his alleged principal. The plaintiff never sold nor did it intend any sale to him."

In Chiplock v. Steuart Motor Co., D.C. Mun.App., 91 A.2d 851, 853, the Court said: "We think it is correct to say that when a seller purports to transfer title to one who is in fact a stranger to the transaction, no title (void, voidable, or otherwise) flows from" the seller to a wrongdoer who has fraudulently held himself out as agent of such stranger. This is so because one of the supposed parties to the legal transaction is actually wanting. In such a situation the seller may usually follow the property and recover it from an innocent purchaser. Russell Willis, Inc., v. Page, 213 S.C. 156, 48 S.E.2d 627 "and citing other authorities]."

The South Carolina law that one who has acquired possession of property by a crime such as false pretense cannot transfer a better title than he himself has, even to a bona fide purchaser, unless some principle of estoppel comes into operation, is in accord with the general rule. 46 Am.Jur., Sales, §§ 459 and 460.

It is stated in 77 C.J.S., Sales, § 294, page 1103: "The defrauded owner of goods can recover them from a bona fide purchaser under one who has obtained them from the true owner by a pretended purchase for, or in behalf of, another person or of a firm, which representation of authority is false and fraudulent." C.J.S. cites as authority for its statement Russell Willis, Inc., v. Page, supra; Petty v. Borg, 106 Utah 524, 150 P.2d 776.

Under the South Carolina law title to the 43 bales of cotton remained in the plaintiff Ellison, and never passed to Hunsinger. On the doctrine of comity in the forum this South Carolina law will be enforced in North Carolina, unless contrary to the public policy of this State. This Court has said in In re Chase, 195 N.C. 143, at page 148, 141 S.E. 471, 473: "As pointed out in Northern Pacific R. Company v. Babcock, 154 U.S. 190, 14 S.Ct. 978, 38 L.Ed. 958, to justify a court in refusing to enforce a right which accrued under the law of another state, because against the policy of our laws, it must appear that it is against good morals or natural justice, or that for some other such reason the enforcement of it would be prejudicial to the general interests of our own citizens. [Citing authorities.] And this is a matter which each state must decide for itself." We find nothing in our own laws which declares it against public policy, good morals, or natural justice, or prejudicial to the general interest of our own citizens to recognize as a matter of comity the South Carolina law that the title to the 43 bales of cotton remained in the plaintiff, and never passed to Hunsinger.

It is a universal and fundamental principle of our law of personal property that the owner of such property cannot be divested of his ownership without his own consent, except, of course, by due process of law. Dows v. National Exchange Bank of Milwaukee, 91 U.S. 618, 23 L.Ed. 214. The general rule of law is that a sale by a person who has no right to sell is not valid against the rightful owner. Even a bona fide purchaser obtains no title or right by a purchase from one who is not the owner, or not authorized to sell, which he can assert as against the true owner in the absence of some element of estoppel. It is a general rule that the fact that the owner has intrusted someone with mere possession and control of personal property is not sufficient to estop the real owner from asserting his title against a person who dealt with the one in possession on the faith of his apparent ownership or apparent authority to sell. Handley Motor Co. v. Wood, supra; 46 Am.Jur., Sales, §§ 458 and 460. Hunsinger acquired possession of the 43 bales of cotton from the plaintiff by the crime of false pretense: that is not sufficient to estop the plaintiff from asserting his title to the cotton against any one who dealt with Hunsinger on the faith of his apparent ownership or apparent authority to sell.

"Consent of both principal and agent is necessary to create an agency. The principal must intend that the agent shall act for him, the agent must intend to accept the authority and act on it, and the intention of the parties must find expression either in words or conduct between them. With respect to third persons, an agency may arise by necessity, from acts and appearances which lead others to believe that such a relation has been created, i. e., by estoppel; or from operation of law." 2 Am.Jur., Agency, § 21. Hunsinger obtained possession of the plaintiff's cotton by the crime of false pretense. That did not in any way make Hunsinger his agent as contended for by the defendants, the Warehouse, Inc., and Noggle, in their brief, and as contended by Fairley and Hodges in their brief.

G.S. Ch. 106, Art. 38 was enacted by the General Assembly to provide a modern system whereby cotton and other agricultural commodities might be more profitably marketed, and to give these products the standing to which they are justly entitled as collateral in the commercial world, a warehouse system for cotton and other agricultural products in the State of North Carolina is established.. G.S. § 106-432 provides that the provisions of this article shall be administered by the State Board of Agriculture, through a suitable person to be selected by said board, and known as the State Warehouse Superintendent; the State Board of Agriculture is empowered to make and enforce such rules and regulations as may be necessary to make effective the purposes and provisions of this article. G. S. § 106-433 provides that the Board of Agriculture shall have authority to employ a warehouse superintendent, necessary assistants, local managers, etc., to carry out the provisions of this article. G.S. § 106-434 provides that the State Warehouse Superintendent shall give bond to the State of North Carolina in the sum of $50,000.00 to guarantee the faithful performance of his duties; and the said superintendent shall, to safeguard the interests of the State, require bonds from local managers, etc., authorized in G.S. § 106-433, in amounts as large at least as he may find ordinary business experience in such matters would suggest as ample. G.S. § 106-435 states in substance: in order to provide a sufficient indemnifying or guarantee fund to cover any loss not covered by the bonds of the State Warehouse Superintendent and of others required by G.S. Ch. 106, Art. 38, to give bonds, and in order to provide the financial backing which is essential to make the warehouse receipts universally acceptable as collateral, and in order to provide that a state warehouse system intended to benefit all cotton growers in North Carolina shall be supported by the class it is designed to benefit; that on each bale of cotton ginned in North Carolina during a certain period 25 cents shall be collected through the ginner of the bales, and paid into the State treasury to be held there as a special guarantee or indemnifying fund to safeguard the state warehouse system against any loss not otherwise provided: this fund shall be held in the State treasury to the credit of the state warehouse system. G.S. § 106-439 provides that the State warehouse Superintendent shall have power to lease for stated terms property for the warehousing of cotton; and that it shall be his duty to foster and encourage the erection of warehouses in the various cotton-growing counties of the State for operation under the terms of this chapter and article, and to provide an adequate system of inspection, and of rules, forms, and reports to insure the security of the system, such matters to be approved by the State Board of Agriculture; and that cotton may be stored in such warehouses by persons owning it, and they shall receive all of the benefits accruing from such State management; and for such storage such persons shall pay to the manager of the warehouse such sums for storage as may be agreed upon subject to the rules of the State Board of Agriculture by the manager and owner of the cotton. G.S. § 106-440 provides that the State Warehouse Superintendent shall have the power to sue, or to be sued, in the Courts of this State in his official capacity, but not as an individual, except in case of tort or neglect of duty, when the action shall be upon his bond.

G.S. § 106-441 provides that when cotton has been stored in such warehouses official negotiable receipts of the form and design approved by the Board of Agriculture shall be issued for such cotton under the seal and in the name of the State of North Carolina, stating the location of the warehouse, the name of the manager, etc., so that on surrender of the receipt the identical cotton for which it was given may be delivered. The warehouse manager shall fill in the receipts, and they shall be signed by him or by the State Warehouse Superintendent or his duly authorized agent. If the local manager cannot issue a negotiable receipt complete for the cotton, he shall issue non-negotiable memorandum receipts therefor.

G.S. § 106-442 provides that the official negotiable receipt issued for cotton stored in such warehouse is to be transferable by written assignment and actual delivery, and the cotton which it represents is to be deliverable only upon a physical presentation of the receipt. The said official negotiable receipt carries absolute title to the cotton, it being the duty of the local manager accepting the cotton for storage to satisfy himself as to the title to the same by requiring the depositor of the cotton to sign a statement appearing on the face of the official receipt to the effect that there is no lien, mortgage, or other valid claim outstanding against such cotton, and any person falsely signing such a statement shall be punished as provided for false pretense.

The indemnifying or guarantee fund held in the State treasury is to cover any loss not covered by the bonds required to be given by G.S. Ch. 106, Art. 38. If a loss is covered by such bonds, then the bonds are the primary fund from which to make good the default of their respective principals. G.S. § 106-435; Lacy v. Globe Indemnity Co., 189 N.C. 24, 126 S.E. 316.

Speaking of G.S. Ch. 106, Art. 38 this Court said in Bickett v. State Tax Commission, 177 N.C. 433, at page 438, 99 S.E. 415, 418: "There was a Warehouse Receipts Act enacted by the last General Assembly (chapter 37, Laws 1917), but it lacked (like a similar act in South Carolina) the essential feature of the tax of 25 cents per bale, which will raise probably $200,000 a year as a guarantee fund behind the warehouse certificates to guarantee such certificates and make them acceptable as collateral, as it will insure the title of the cotton against litigation arising out of liens (which may be recorded in another county where the mortgagee resides) or any other defects." Later on in the same case the Court said, 177 N.C. at page 440, 99 S.E. at page 419: "* * * the act provides that every bale of cotton can be stored, but requires that the real owner must first be determined, and the warehouse receipts shall be in the name of such owner. It is true there may be some mistakes made, and for that reason the fund is provided to guarantee the holders of the warehouse certificates against loss." When this opinion was written Ch. 168, Sec. 12, Public Laws of North Carolina 1919 provided that it was the duty of the manager accepting cotton for storage, by inspection of the Register of Deeds office, to ascertain whether there were on file crop mortgages or liens for rent or laborers' liens covering said cotton before he accepted it and issued a receipt.

The General Assembly in 1921 enacted Ch. 137, Public Laws of North Carolina and Sec. 12 provides: That it shall be the duty of the local manager accepting cotton for storage to satisfy himself as to the title to the same by requiring the depositor of the cotton to sign a statement appearing on the face of the official receipt to the effect that there is no lien, mortgage or other valid claim outstanding against such cotton. This section is now codified as G.S. § 106-442.

These facts are admitted by the agreed statement of facts: (1) Hunsinger obtained possession of the plaintiff's 43 bales of cotton by the crime of false pretense; (2) the Warehouse, Inc., was a bonded warehouse operating under the provisions of G.S. Ch. 106, Art. 38 and J. E. Noggle was its manager; (3) on 19 January 1951 Hunsinger stored these 43 bales of cotton in the warehouse of the Warehouse, Inc., and on said date the Warehouse, Inc. issued official negotiable receipts for the said cotton in the name of J. W. Hunsinger, and at the time of issuing said receipts the Warehouse, Inc. did not require the said Hunsinger to sign the statement appearing on the face of the official receipt to the effect that there is no lien, mortgage, or other valid claim outstanding against the 43 bales of cotton; (4) that Hunsinger on 19 January 1951 sold the 43 bales of cotton represented by these official negotiable receipts to the Cotton Company for $8-878.85, and transferred to the Cotton Company the said receipts by written assignment and actual delivery, and Hunsinger cashed the said cheque and received the money for the same; (5) this cotton was purchased in the ordinary course of business by the Cotton Company for value, in good faith and without notice of any defect in the title of Hunsinger.

Upon these agreed facts the title to the 43 bales of cotton remained in the plaintiff, and never passed to Hunsinger under the laws of South Carolina, and such law will be enforced in this forum; and further the plaintiff is not estopped to assert his title, nor was Hunsinger his agent. The authorities for these statements have been set forth before in this opinion. However, upon the agreed facts, by virtue of G.S. § 106-442 the Cotton Company obtained absolute title to these 43 bales of cotton. Lacy v. Hartford Accident & Indemnity Co., 193 N.C. 179, 136 S.E. 359; Northcutt v. People's Bonded Warehouse Co., 206 N.C. 842, 175 S.E. 165.

As G.S. § 106-442 divests the plaintiff of title to his 43 bales of cotton, and puts absolute title to the bales of cotton in the Cotton Company, it would be a taking of plaintiff's cotton without due process of law, and this section of the statutes would be unconstitutional, unless G.S. Ch. 106, Art. 38 provided that the plaintiff shall be paid full compensation for his cotton. G.S. Ch. 106, Art. 38 makes such provision for the payment of full compensation to the plaintiff for his cotton by making (1) the bond of Noggle, local Manager of the Warehouse, Inc., and his employer, the Warehouse, Inc., primarily responsible for the plaintiff's loss, if there has been any default of Noggle and the Ware-house, Inc., in the faithful performance of their obligations in operating a warehouse under the terms of G.S. Ch. 106, Art. 38; and if they are not responsible by making (2) the bond of Fairley, State Warehouse Superintendent, liable for plaintiff's loss, if there has been any default by him in the faithful performance of his duties as State Warehouse Superintendent; and (3) if the plaintiff's loss, or any part of it, is not covered by such bonds, and by the liability of the Warehouse, Inc., then the indemnifying or guarantee fund created by G.S. § 106-435 and held in the State Treasury to the credit of the warehouse system is responsible to the plaintiff for his loss, or any part of his loss, not covered by such bonds. Lacy v. Globe Indemnity Co., 189 N.C. 24, 126 S.E. 316; G.S. §§ 106-434, 106-435, 106-439. This provision is made "in order to provide the financial backing which is essential to make the warehouse receipt universally acceptable as collateral". G.S. § 106-435.

The bonds of Noggle and Fairley are not part of the agreed facts. In the record is the form of a local Warehouse Manager's Bond purporting to be executed by the Indemnity Ins. Co. of North America, payable to the State, conditioned upon a local warehouse manager faithfully performing his obligations as a warehouseman, and setting forth the amount of Noggle's bond as $15,000.00.

Noggle, as local manager of the Warehouse, Inc., knew the risks involved if he issued official negotiable receipts for cotton stored in the Warehouse, Inc., in the name of one not the true owner; and if Noggle, as local manager, failed to use such diligence as would be used by an ordinarily prudent person under the same circumstances and charged with a like duty to satisfy himself as to the title to this cotton by requiring Hunsinger, the depositor of the cotton, to sign a statement appearing on the face of the official receipt to the effect that there is no lien, mortgage, or other valid claim outstanding against the said cotton, and issued official negotiable receipts for this cotton not in the plaintiff's name, then he failed in the faithful performance of his duties as local manager, and he and his bond, and his employer, the Warehouse, Inc., are liable to the plaintiff for the fair market value of his 43 bales of cotton as of 19 January 1951. 50 Am. Jur., Suretyship, § 337; Annos. 43 A.L.R. 980; 46 A.L.R. 977; 62 A.L.R. 412; 77 A.L.R. 862; 98 A.L.R. 1266.

If Noggle and the Warehouse, Inc. are not liable, and if Fairley, as State Warehouse Superintendent, failed in the faithful performance of his duties, then he and his bond are liable to the plaintiff for his loss. If Noggle and his bond, and the Warehouse, Inc., and Fairley and his bond are not liable to the plaintiff for all of his loss, then the loss to the plaintiff, or any part of it not covered as above set forth, must be paid by Brandon P. Hodges out of the guarantee or indemnifying fund held in the State Treasury. The plaintiff's loss is the fair market value of his 43 bales of cotton as of 19 January 1951 with interest until paid—the day when the Warehouse, Inc. issued official negotiable receipts for this cotton in the name of Hunsinger, and Hunsinger sold the cotton to the Cotton Company and received payment for it.

The agreed statement of facts are insufficient for us to determine as between Noggle and his bond and his employer, the Warehouse, Inc.; Fairley and his bond and Brandon P. Hodges, Treasurer of the State of North Carolina and custodian of the indemnifying or guarantee fund, who shall pay the plaintiff for his loss. Therefore, this action must be remanded to the lower court for further proceedings in accordance with this opinion.

In order that these issues may be clearly presented, it would be preferable to redraft the pleadings.

The surety upon the bond of Noggle and the surety upon the bond of Fairley are necessary parties for a final determination of this action.

Hunsinger filed no answer or other pleading. He did not consent to the agreed statement of facts. He did not consent to the hearing in chambers in Catawba County. The Court had no jurisdiction to try the case against him, and sign judgment against him for $8,878.85 and costs, in chambers when and where it did. The trial of the case against him must be had in term time in Cleveland County, unless he consents that it be done elsewhere. We notice this ex mero motu, even though Hunsinger has no defense according to the facts as they appear in the record before us. Cox v. City of Kinston, 21 N.C. 391, 8 S.E.2d 252.

The result, then, is that the judgment will be affirmed as to the Crespi Cotton Company; and error and remanded as to the Planters & Merchants Warehouse, Inc., J. E. Noggle, Manager of Planters & Merchants Warehouse, Inc., A. B. Fairley, State Warehouse Superintendent, and Brandon P. Hodges, Treasurer of the State of North Carolina.

Judgment against J. W. Hunsinger— Error and Remanded.

Plaintiff's Appeal as to Crespi Cotton Company—Affirmed.

Plaintiff's Appeal as to Planters & Merchants Warehouse, Inc., J. E. Noggle, Manager of Planters & Merchants Warehouse, Inc., and A. B. Fairley, State Warehouse Superintendent, and Brandon P. Hodges, Treasurer of the State of North Carolina.—Error & Remanded.