Heffron v. Bank of America Nat. Trust & Savings Ass'n

• Decision Date: 29 June 1940
• Docket Number: No. 9454.,9454.
• Citation: 113 F.2d 239,133 ALR 203
• Parties: HEFFRON v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N et al. In re WILLIAMS.
• Court: U.S. Court of Appeals — Ninth Circuit

133 ALR 203, 113 F.2d 239 (1940)

HEFFRON v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N et al. In re WILLIAMS.

No. 9454.

Circuit Court of Appeals, Ninth Circuit.

June 29, 1940.

Russell B. Seymour, of Los Angeles, Cal., for appellant.

Louis Ferrari, of San Francisco, Cal., and Edmund Nelson, G. L. Berrey, and Grainger & Hunt, all of Los Angeles, Cal., for appellee Bank of America Nat. Trust & Savings Ass'n.

William R. Wallace, Jr., of San Francisco, Cal., Zach Lamar Cobb of Los Angeles, Cal., and George M. Burditt, of Chicago, Ill. (Williamson & Wallace, of San Francisco, Cal., of counsel), for appellee Lawrence Warehouse Co.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

The appeal presents, among others of lesser difficulty, the question whether noncompliance with the provisions of the bulk sales law, Calif.Civil Code § 3440, invalidates a lien on the goods of a merchant in favor of the holder of receipts issued for the goods by a field warehouseman.

Fred Williams was adjudged bankrupt on his voluntary petition on September 25, 1937. The Bank of America, which we shall refer to as appellee, filed its proof of secured debt, claiming as security certain steel belonging to the bankrupt for which it held warehouse receipts. After a hearing upon objections of the trustee, the referee made findings and entered an order disallowing appellee's claim as a secured claim, but allowing it as a general claim. The court reversed the referee's order and directed the allowance of the claim as a secured claim.

The bankrupt, a wholesale and retail merchant in the city of Los Angeles, was engaged in the sale of unfabricated steel of various kinds and dimensions. He kept a portion of his inventory and maintained his office at 633 South Anderson Street, and deliveries were made from this address. A small part of the front was occupied by the bankrupt as his office and the balance of the building was used for the storage of steel, the warehouse portion being separated from the office by walls or partitions through which there was a door.

Desiring to procure credit on the security of his stock, the bankrupt on July 20, 1937, entered into a leasing and field warehouse storage agreement with the Lawrence Warehouse Company, operating an extensive system of field warehouses, to establish a warehouse on his premises. Under this agreement the bankrupt leased to the Warehouse Company the building mentioned, with the exception of the office, for the yearly rental of one dollar. The Warehouse Company undertook to act as custodian of all goods then on the premises and of any other goods placed there, in consideration of the sum of fifty cents per ton per month for goods stored which were covered by warehouse receipts, with a minimum charge of $500 for the first year. It conspicuously marked the building, inside and out, with "No Trespassing" placards and with large signs bearing the name of the Warehouse Company and a statement to the effect that "all commodities in or upon these premises are in the custody of the Lawrence Warehouse Company, Lessee". It placed in charge a man named Rennie as its bonded custodian.

Rennie had previously been employed by the bankrupt as his warehouse clerk. The new employment was at the same salary as previously received from the bankrupt, and as part of the compensation to the Warehouse Company for its services the amount of Rennie's salary was included. Padlocks bearing the name of the Company, to which the custodian had the only keys, were placed on the entrances to the warehouse, and the custodian kept the place locked when he was not present. With Rennie's permission the bankrupt had access to the warehouse. Except that he no longer drove a truck, Rennie continued to do the same character of work he had previously performed in and about the warehouse premises.

About July 28, 1937 the Warehouse Company issued non-negotiable warehouse receipts by the terms of which it acknowledged receipt from the bankrupt of the steel therein described, and agreed to hold it subject to the written order of the California Bank. The receipts were delivered by the Company to the bankrupt and thereafter by the latter delivered to the California Bank as collateral for a present loan. A few days later the bankrupt negotiated for loans with appellee. As a result of the negotiations the bankrupt from time to time caused the Warehouse Company to issue additional non-negotiable warehouse receipts, which he delivered to appellee as security for loans. These, similar in form to the first, provided that the goods were to be held for the written order of appellee. The goods covered by receipts used in the transaction with the California Bank were included in receipts subsequently issued to appellee, and the loan of the California Bank was paid off from the new loans procured from appellee.

As warehouse receipts were issued, cards showing the name of the pledgee and the amount of steel covered were placed on the various piles of steel included in the receipts. These cards described the steel by number of pieces and their dimensions and referred to the warehouse receipts by number. While there was considerable "free" steel in the bins or shelves, it was the custom to separate the free goods from the pledged goods by a steel band or wire. No pledged steel was sold without first procuring a release.

The referee inferred from these circumstances that there had been no immediate delivery, either to the Warehouse Company or to appellee, of any of the steel for which warehouse receipts had been issued, and that there was no actual and continued change of possession of any part of the goods. He concluded that the transfers were constructively fraudulent and therefore void as against the trustee in bankruptcy. The trial court rejected both the finding and the conclusion.

The referee further found that the transactions were otherwise than in the ordinary course of trade and not in the usual practice and method of business of the bankrupt, hence, no notice of the transfers having been given as required by the bulk sales law, § 3440 California Civil Code,¹ they were void. The court rejected this finding, also, but, going further, held that since the transactions were had in conformity with the Warehouse Receipts Act their validity was not impaired even though the tranfers would otherwise have been invalidated by the bulk sales law.

The first question for our determination is whether there was an effective bailment of the steel to the Warehouse Company. The second is whether the bulk sales provision of the statute has any...