Bank of Commerce & Trust Co. v. Brown Cotton Oil Co. , 173 La. 167 ( 1931 )

The sole question on rehearing is whether the privilege of appellant Harrington is superior to the privilege of appellee Bank of Commerce Trust Company on the cottonseed products sequestered herein. Appellant's privilege is for four months' salary amounting to $850 earned as an employee of the Brown Cotton Oil Company, Inc. Appellee's privilege arises under negotiable warehouse receipts which it holds as pledgee to secure an indebtedness due by the Brown Cotton Oil Company, Inc.

Appellant admits that if the appellee bank had retained the original receipts his privilege would be subordinated to its privilege as pledgee. But appellant earnestly contends that because the bank exchanged the old receipts for the new receipts covering the same property, except the part which had been sold, the lien arising under the pledge of the old receipts was extinguished, thereby ranking his intervening privilege for salary above appellee's privilege as pledgee of the new receipts.

The disputed question has not been adjudicated upon by the courts of this state, and only a few cases have been presented in other jurisdictions in which a somewhat similar question has been involved.

Appellant argues the case is analogous to the cancellation of a mortgage (meaning a mortgage on real estate) and the taking of a subsequent mortgage after an intervening mortgage has acquired priority. But the suggested analogy is not quite appropriate. The essential difference in the two cases is that which exists between a mortgage and a pledge.

A real mortgage exists only on immovables, ships, steamboats, etc., while a pledge has for its object only movables, corporeal and incorporeal. The real mortgage only subjects to the right of the creditor the property on which it is imposed, without the necessity of his having actual possession. Under a pledge the movables subjected to it are placed in the possession of the creditor or of a third person agreed upon by the parties. Civ. Code, art.3281. And among creditors the mortgage has force only from the time of its recordation. Civ. Code, art. 3329.

The question is one of registry plus the intention of the parties. It is fundamental that parties dealing with real estate are entitled to rely entirely on the records.

When a mortgage is properly released by the holder, it is obvious that it is his intention to extinguish the obligation. And a second mortgage holder, or any other person acquiring rights on the property, has the legal right to assume that such was the intention.

In the present case, the appellee bank had no intention to release its rights. It never relinquished its control of the cottonseed products subjected to its pledge. There was no formal cancellation of its privilege, but a continuity of privilege on the goods evidenced by a different or new piece of paper. And there is no conflict between the receipts. One certifies that on a certain date the warehouseman holds certain property for account of a particular party. The other certifies that on a later date the warehouseman holds the same property, less that which had been disposed of, for the same party. Therefore, it is obvious it was the clear intention of the parties that the substitution was merely for convenience in handling the certificates. And the privilege was a continuous one which was never released either expressly or impliedly.

This view of the case is supported by the decision of the Court of Appeals of the State of New York in the case of N.Y. Security Trust Co. v. Lipman, 157 N.Y. 551, 52 N.E. 595, wherein it was expressly held that the lien of a pledgee of negotiable warehouse receipts in the name of the pledgor is not affected by their exchange for a single receipt covering the same property in the name of the pledgee.

Appellant cites in support of his contention Doherty v. Merchant's National Bank, 52 S.W. 832, 21. Ky. Law Rep. 628; Roche v. Crigler, 67 S.W. 273, 23 Ky. Law Rep. 2378; Boas v. De Pue Warehouse Co., 69 Cal. App. 246, 230 P. 980. But neither of these cases is authority against the claim of tracing back asserted by the appellee bank.

In Doherty v. Merchant's National Bank, the bank surrendered its old receipts and took new receipts as security for a loan. The old receipts were subsequently fraudulently reissued to other parties. In these circumstances, the court held the lien of the bank under the exchange of the receipts to be good.

In Roche v. Crigler, the court found a deficiency of proof of the delivery of either the old or the new receipts to the party who attempted to trace back to the original receipts. This was the real ground of the decision in favor of the holder of the intervening receipts.

In Boas v. De Pue Warehouse Co., the dispute was over nonnegotiable warehouse receipts.

Nor so far as we have been able to find is there any conflict between our views and the provisions of the Uniform Warehouse Receipts Act (Act No. 221 of 1908). Section 12 of the statute is not regulatory of the rights of parties asserting conflicting privileges under warehouse receipts. Its declared purpose is to impose upon the warehouseman, under penalty of being responsible for the omission, the duty of canceling or marking on negotiable receipts all goods covered thereby which are withdrawn from his custody.

For the reasons assigned, our former decree is reinstated and made the final decree in this case.