New Bern Oil & Fertilizer Co. v. National Bank

• Decision Date: 16 October 1928
• Docket Number: No. 2724.,2724.
• Parties: NEW BERN OIL & FERTILIZER CO. v. NATIONAL BANK OF KINSTON et al.
• Court: U.S. Court of Appeals — Fourth Circuit

28 F.2d 554 (1928)

NEW BERN OIL & FERTILIZER CO. v. NATIONAL BANK OF KINSTON et al.

No. 2724.

Circuit Court of Appeals, Fourth Circuit.

October 16, 1928.

L. I. Moore, of Newbern, N. C. (Moore & Dunn, William Dunn, Jr., and T. O. Moore, all of Newbern, N. C., on the brief), for appellant.

George B. Greene and John G. Dawson, both of Kinston, N. C. (Sutton & Greene and Fred I. Sutton, all of Kinston, N. C., on the brief), for appellees.

Before PARKER and NORTHCOTT, Circuit Judges, and SOPER, District Judge.

SOPER, District Judge.

During the year 1924, and for some time prior thereto, C. N. Fordham was engaged in the general merchandise business at Deep Run, N. C., and was particularly engaged in selling general supplies and fertilizer to farmers. He handled the fertilizer under contract with the New Bern Oil & Fertilizer Company. Under its 1924 contract with him, the fertilizer company agreed to furnish some 300 tons of fertilizer, to be sold during the season at specified prices. It was agreed that settlement for all goods furnished should be made by Fordham on or before November 1. He was to guarantee payment for all goods sold by him on credit, by giving his promissory note to the company. He was to remit all cash paid to him for goods sold as promptly as received; and, upon all time sales, he was to indorse and deliver to the company on or before the settlement date, the simple or mortgage notes of purchasers and also all mortgages, liens, and other securities which he might take to secure the sale of the goods, said notes and securities to be held by the company as collateral security for the payment of his note. It was also agreed that all goods received by him, under the contract, all proceeds from the sale of goods, and all simple or mortgage notes, with all mortgages, lien bonds, and other securities taken to secure the payment for the goods, should be the property of the company, held in trust for it by him for the payment of his obligations. Under this contract the fertilizer company furnished $10,000 worth of fertilizer in 1924, nearly all of which was sold by Fordham to his customers prior to June of that year. He did not, however, turn over to the company all the collateral received by him from his customers or retain it in trust for the company's benefit, as he had promised.

Fordham's uniform practice in business was to take from his customers promissory notes, secured by chattel mortgages and liens on their crops for a sum estimated to be sufficient to cover, not only fertilizer, but also other goods and supplies which they would need during the year. He took such instruments in 1924. They contained no reference to the character of the goods furnished. No separate account was kept by him against his customers for fertilizer sold, and no separate security was taken therefor, but the fertilizer, as well as other goods, were charged generally to the accounts of the customers, whose notes, secured as aforesaid, were taken for the total amount.

During the year 1924, Fordham got into financial difficulties, and a receiver was appointed for him by the superior court of Lenoir county on June 20, 1924. The receiver conducted the business for some months. On September 5, 1924, a voluntary petition in bankruptcy was filed in the United States District Court, and later the receiver became the trustee in bankruptcy. The controversy in this case arises upon an intervening petition filed by the fertilizer company against the National Bank of Kinston and the trustee in bankruptcy, claiming that certain of the secured notes of Fordham's customers, which were the property of the fertilizer company, had been improperly delivered by him to the bank as collateral for a personal indebtedness. The purpose of the petition was to secure a decree requiring the bank to surrender to the fertilizer company the collateral in the hands of the bank and the proceeds of any collateral theretofore collected by the bank.

In effect, the litigation is between the two corporations, and the trustee has little interest therein. The evidence shows that on or about April 7, 1924, Fordham assigned and delivered to the bank promissory notes of his customers, secured by the collateral described to the amount of $8,839.80, for the purpose, not only of securing the repayment of certain money then received from the bank, but also to secure a pre-existing indebtedness. Of this collateral, $2,903.80 had been given to Fordham by his customers on account of fertilizer supplied. On the day in question, Fordham executed a six months' note for $1,574.50 payable to the bank. The note also was signed by one Leslie Rouse, who seems to have been an accommodation maker or indorser. On the same day, he also executed a promissory note for $1,000, payable to the bank six months after date, and, for the payment thereof, deposited the collateral mentioned. This collateral note expressly provided that the security was deposited for the payment of the note or any other note given in extension or renewal thereof, as well as the payment of any other liability to the bank due or to become due, whether then existing or thereafter arising. The evidence is not clear as to what additional sum was loaned by the bank to Fordham when these notes were given, but it is certain that he then received either the sum of $1,000 or $1,574.50, or both of said amounts. Previously, he had been in the habit of borrowing from the bank, and on April 7, 1924, there was a pre-existing indebtedness, secured by a mortgage of $17,574.50, covering his lands and the lands of his wife. The evidence shows that the bank knew, when it received the collateral, that Fordham was in the business of selling fertilizer under contract with fertilizer companies, but it had no knowledge of the terms of the contract with the petitioner; nor did the bank know that the petitioner had any claim upon the notes, chattel mortgages, and liens transferred by Fordham to the bank. The decision of the referee and of the District Court upon the petition for review were adverse to the fertilizer company.

The fertilizer company contends that Fordham was merely its factor or agent, with power to sell the goods of his principal, but without power to affect the notes, mortgages, and liens received in payment therefor by wrongfully pledging them as security or satisfaction for a debt of his own, and that it is of no consequence that the bank was ignorant that Fordham did not own the securities. The Fertilizer company relies on such authorities as Warner v. Martin, 52 U. S....