Farmers' Bank of Weston v. Ellis , 122 Or. 266 ( 1927 )

This is an action to recover for defendant's failure to make delivery to plaintiff upon demand of certain potatoes described in two negotiable warehouse receipts issued by defendants as warehousemen to J.H. Grafton and by him indorsed to plaintiff as collateral security for loans made by plaintiff to Grafton. The plaintiff is a banking corporation and the defendants are warehousemen. The two receipts in question were issued respectively on October 28 and November 8, 1925, and the potatoes described therein were shipped by defendants during the latter part of May, 1926, on the telegraphic order of Grafton without the surrender of the receipts, and were sold by Grafton and the proceeds realized therefrom were tendered by Grafton to the bank, which tender was not accepted. At the time of the delivery, plaintiff held said indorsed receipts as a pledge and continued in the possession thereof until the trial, claiming them as security for moneys due from Grafton. This action was commenced on June 11, 1926, to recover the market value of the potatoes at the time of their alleged conversion.

In substance the answer sets up as a defense to the action that prior to the delivery of the potatoes to Grafton, plaintiff had entered into an oral agreement with Grafton whereby it was understood and agreed between them that Grafton should act as the agent of the bank in the sale and disposal of these and other potatoes described in other warehouse receipts held by the bank as collateral for loans made to Grafton, and should pay over to the bank all of the proceeds realized from the sales thereof to be applied on his indebtedness to the bank, and that the delivery made to Grafton of the potatoes in question was made pursuant to said agreement and to the duly authorized agent of the bank, and that by reason thereof defendants were discharged from their liability to plaintiff as warehousemen. These allegations were denied by the reply and the issue thus raised is settled by the verdict if the evidence offered was competent and sufficient to support the verdict.

The evidence shows that for several years Grafton had been engaged in the business of buying and selling potatoes on a large scale and in several states. That to finance his business he had entered into an agreement with the plaintiff bank whereby it was agreed that the bank would furnish him with money and that he would buy potatoes, store them in warehouses, indorse and deliver the warehouse receipts to plaintiff and that plaintiff should hold said receipts as collateral for its loans. To this extent there is no conflict in the testimony either as to making of the agreement or the carrying out of the same.

It is alleged in the answer and denied by the reply that the bank gave authority to Grafton to sell and dispose of the potatoes described in the various warehouse receipts while such receipts were being held as collateral by the bank. The only condition being that all proceeds realized from the sale thereof should be paid over to the bank. That Grafton did have authority to sell the stored potatoes is not denied by the testimony of any witness, but it is the contention of plaintiff that this authority was not to be exercised until after the bank had returned the warehouse receipts to him. Upon this point on direct examination Mr. Kellogg, the cashier of plaintiff, testified:

"Q. Now you may state whether or not Mr. Grafton was permitted to enter into the matter of selling these potatoes that had been stored. A. He had the right.

"Q. He had what right? A. To negotiate the sale.

"Q. Had the bank ever given him permission in any way to get possession of the potatoes without the receipts? A. It did not."

But in other parts of his testimony this witness testified to the effect that whenever Grafton called for any warehouse receipts, they were immediately forwarded to him without the payment of any money to the bank or the giving of any other security, and that when the receipts were thus returned to Grafton, witness charged against Grafton's account the amount which he thought should be realized from the sale of the potatoes described in the returned certificates, and that after the sale and when the money came in from the sale of the potatoes, Grafton's account was then credited with the actual amount received by the bank. This shows the construction which the bank placed upon its contract with Grafton and the course of dealings between them. Its importance lies in the fact that the bank construed its own contract to mean that whenever Grafton should call upon the bank for the return of any of the warehouse receipts, they were to be returned without any payment being made until after Grafton had withdrawn the potatoes from the warehouse and had sold and disposed of them.

Concerning the contract, Grafton as a witness for defendants testified and his testimony was not contradicted:

"I was to sell the potatoes when in my judgment the time was right and the warehouse receipts were to be surrendered, provided always that I account to the bank for the proceeds that I got from the potatoes."

Concerning the warehouse receipts in question he testified:

"I called Mr. Kellogg on the phone and told him I wished to ship some of the potatoes I had in storage in Baker, and to send the Baker receipts to me and he said all right that he would."

Where warehouse receipts are issued providing that the property described therein shall be delivered only on return of the certificates properly indorsed thereon, a warehouseman who delivers the property without the return of the receipts is liable to an indorsee of the receipts who has in good faith loaned money upon them: Jones on Pledges and Collateral Securities (2 ed.), § 311a. The receipts in question were of that description, but the facts in the instant case are not such as to bring the case within that rule. Under the uncontradicted testimony of Grafton, he telephoned plaintiff to forward the particular receipts in question and the bank promised to comply with his request. He then wired defendants directing them to make the shipment; they did so and the potatoes were sold and the check taken in payment therefor was made payable to the joint order of plaintiff and Grafton and was tendered by Grafton to the bank. There is no suggestion that there was any fraud in the transaction, or that the potatoes were not sold for their full market value, or that the proceeds were not made payable to plaintiff or the check not tendered to plaintiff. Having thus consented to Grafton's sale and disposal of the potatoes, which the bank knew could not be consummated unless defendants delivered them to Grafton, the rule of Volenti nonfit injuria applies, and the fact that defendant failed to keep its promise to return the warehouse receipts to Grafton is not sufficient to prevent its application to the facts proved. Having consented to the sale of the potatoes by Grafton the bank impliedly authorized Grafton to do every act necessary to be done in order to consummate the sale, and hence plaintiff sustained no injury by defendant's delivery of the potatoes without the surrender of the warehouse receipts.

There is another ground upon which the evidence is sufficient to sustain the verdict. Where choses in action such as these warehouse receipts are transferred as collateral security for a loan, the delivery of the security is a pledge of the property to secure the payment of the debt and "vests in the transferee all the rights of the transferrer in so far at least as it may be necessary to accomplish the purpose of the transfer. And since the holder, to the extent of his interest therein, is substantially the owner, he must assume the duties of such owner, and must protect the interest of the transferrer as well as his own, for the latter has by surrendering the security, lost his right to deal therewith." Bowers on Conversion, § 43.

Since a transfer of a warehouse receipt as collateral for a loan does not make the pledgee the absolute owner of the pledged receipt, and both the pledgor and pledgee retain an interest in it, and since the duty in such case is cast upon the pledgee to protect the interests of both himself and the pledgor, there is no reason why they may not enter into a contract between themselves as to the manner in which the rights and interests of both may be subserved. In the instant case the potatoes described in the two warehouse receipts in question were from their very nature perishable. The business of speculating in potatoes is a special business requiring for its success, special knowledge of market conditions. Such knowledge ordinarily is not possessed by bank officers, and unless the bank wished to assume the risk of finding a purchaser, it had to entrust that duty to some one else. The dealings between the bank and Grafton covered a large number of warehouse receipts, and the potatoes described in these receipts were deposited in a large number of warehouses. There is no pretense that either Grafton or the bank contemplated that these potatoes should be sold while stored in warehouses. The success of the business depended upon their being consigned to wherever a market could be found and be there sold and disposed of. There is no pretense that the bank had any agent except Grafton to look after the sale and disposal of the potatoes, and there was no reason why if the bank chose, Grafton should not have been entrusted with that duty. Presumably from the fact that the bank furnished money for the conduct of his business, the bank had confidence in his ability and honesty, and having such confidence, made him its agent for that purpose.

Again quoting from Bowers on Conversion, Section 69:

"* * And it may be stated as a premise that a pledgee is a bailee holding personal property intrusted to his possession as security for the payment of a debt due him or for the performance of some other contract or condition by the owner of the property, upon which payment or performance it becomes the duty of the pledgee to return to its owner the specific property so intrusted to his possession. It will thus be seen that possession is the prime essential of a contract of pledge, and without it the creditor has no rights he can maintain as a pledgee against the property of his debtor. If the pledge once takes effect by delivery of possession to the pledgee, the lien will be lost if possession be re-delivered to the pledgor by the pledgee, or by another with his consent, unless such re-delivery be for a temporary use or with the understanding that the pledgor shall have possession as agent of the pledgee."

The rights of the plaintiff and of Grafton are to be determined by the agreement entered into at the time of making the pledge. If, as the evidence tends to show and as the jury found, the understanding was that these warehouse receipts were to be redelivered to him whenever it became necessary for him to sell the stored potatoes and were redelivered for that purpose only, his temporary possession would not destroy the validity of the pledge, for in that case he would hold the receipts as the mere agent of the pledgee and for the purpose only of carrying out his contract. In such case a delivery to him would be a delivery to the bank itself, since in demanding and accepting delivery he would be acting under the authority of and as the bank's agent. Until changed by the Uniform Warehouse Receipts Act the liability of a warehouseman ended with his delivery of the property to the person rightfully entitled to it. But now, by Section 8018, Or. L., "where a warehouseman delivers goods for which he had issued a negotiable receipt, the negotiation of which would transfer the right to the possession of the goods, and fails to take up and cancel the receipt, he shall be liable to anyone who purchases for value in good faith such receipt, for failure to deliver the goods to him, whether such purchaser acquired title to the receipt before or after the delivery of the goods by the warehouseman." This statutory provision has no application here because at the time of the delivery to Grafton, the bank was the party rightfully entitled to the goods, and had not transferred the receipts to anyone either before or since the delivery. The case, therefore, stands upon a different footing than it otherwise would if the bank either before or after delivery to Grafton had transferred these receipts to a purchaser for value in good faith, and such purchaser was suing to recover for the defendant's failure to deliver the goods to him.

Unless made so by the statute there can be nothing unlawful or immoral in a contract of the character claimed. Section 7997, Or. L., makes it unlawful for any warehouseman to permit any goods for which he has given a receipt, to be removed from the warehouse without the written assent of the holder of the receipt. This section is a part of an act passed by the legislature in 1885. Since its enactment and in 1913, the Uniform Warehouse Receipts Act has been enacted and is now in force in this state. This latter act attempts to define the rights, duties and liabilities of warehousemen in all cases. So far as there is an irreconcilable conflict between any of the provisions of the two acts, the provisions of the latter act control. There is a clear repugnancy between the particular provisions of the statute just referred to and Section 3016, Or. L., which is a part of the Uniform Warehouse Receipts Act. This latter section in part reads as follows:

"A warehouseman is justified in delivering the goods, subject to the provisions of the three following sections, to one who is: (a) The person lawfully entitled to the possession of the goods, or his agent."

This clearly justified defendants in delivering the goods to the agent of the bank, although it was done without the delivery of the negotiable receipts unless the case comes within some other provision of Section 8016 and the three following sections. There is nothing in these four sections, except the part just quoted which has any application to a case where the facts are similar to those involved here, and since under these four sections read and construed together, the defendants were justified in delivering the goods to the agent of the person lawfully entitled to the possession of them, and since the negotiable warehouse receipts have not been transferred by the bank to anyone, it follows that plaintiff is not entitled to recover in this action and that the judgment in defendant's favor ought to be affirmed.

BROWN, J., concurs in this dissenting opinion.