Chesapeake & O. R. Co. v. State Nat. Bank of Maysville

• Decision Date: 23 June 1939
• Citation: 280 Ky. 444,133 S.W.2d 511
• Parties: CHESAPEAKE & O. R. CO. v. STATE NAT. BANK OF MAYSVILLE.
• Court: Kentucky Court of Appeals

133 S.W.2d 511

280 Ky. 444

CHESAPEAKE & O. R. CO. v. STATE NAT. BANK OF MAYSVILLE.

Court of Appeals of Kentucky

June 23, 1939

As Modified and Extended on Denial of Rehearing November 17 1939.

Appeal from Circuit Court, Mason County; C. D. Newell, Judge.

Action by the State National Bank of Maysville, Ky. against the Chesapeake & Ohio Railway Company to recover damages resulting from discounting drafts in reliance on bills of lading issued by the defendant. From a judgment for the plaintiff, the defendant appeals.

Reversed with directions.

LeWright Browning, of Ashland, and Browning, Ziegler & Cochran, of Maysville, for appellant.

B. S Grannis, of Flemingsburg, and Richard P. Dietzman, of Louisville, for appellee.

FULTON Justice.

The appellant, Chesapeake and Ohio Railway Company, is appealing from a judgment for $2,359.38 in favor of the appellee, State National Bank of Maysville, Kentucky. The appeal presents a pure question of law, since all material facts were stipulated by the parties.

The Star Produce Company, located at Maysville, for a long time prior to July 6, 1935 had been a shipper of poultry over the line of the Railway Company, and shipments were ordinarily carried by an eastbound freight train known as No. 92 leaving Maysville at 3 o'clock in the morning. The freight depot of the Railway Company closed at 4:30 P. M., but the custom had long existed for the Railway Company to spot empty cars on the produce company's spur track for the purpose of being loaded with poultry and to issue bills of lading on cars the loading of which had been started and possibly on cars on which no loading had been done, with the understanding that the cars would be loaded after the bills of lading were issued and placed in train No. 92. When these bills of lading were issued the Railway Company knew that the loading of the cars had not been completed, but did not know to what extent the loading had been accomplished. The agent made no examination of any of the cars spotted or their contents before issuing bills of lading.

On July 6, 1935, pursuant to this custom, the Railway Company spotted a car on the Produce Company's spur track and, not knowing whether the car was loaded in whole or in part, issued a uniform straight bill of lading to the Produce Company for a car of live poultry of the weight of 14,000 pounds with the notation "shipper's load and count" on the bill. As a matter of fact, at the time of the issuance of the bill of lading on this car only 3,010 pounds of poultry were loaded on it and no more was ever loaded thereon, and the agent was told that the loading would be completed that night in time for the car to go out on train No. 92.

On July 11, five days after the issuance of the first bill of lading, and at a time when the Railway Company knew that the car above mentioned had not been completely loaded and was still standing on the spur track, the Railway Company spotted another car for loading. Not only was the car of July 6 not loaded, but still a third car spotted for poultry (not involved in this litigation) for which a bill of lading had been issued on July 9 remained unloaded. After this second car had been spotted for the Produce Company, on July 11 a straight bill of lading on this second car similar in all respects to the first bill of lading, except that no notation of "shipper's load and count" appeared thereon, was issued to the Produce Company pursuant to the custom above mentioned, covering 14,000 pounds of live poultry. As a matter of fact, no poultry was ever loaded into this last mentioned car. Both cars, of July 6 and July 11, were recited in the bills of lading to be consigned to Julius Kastein, Inc., of New York.

On the date of the respective bills of lading the Produce Company drew a draft upon the consignee named in the bills of lading for the sum of $1,800 each and discounted the drafts with the bank. If the cars had been loaded with 14,000 pounds of live poultry, this cargo would have been of the value of $1,800 for each car. The Bank, before discounting the sight drafts, received a guarantee signed by the Lawyers County Trust Company of New York, pursuant to instructions from Julius Kastein, that the drafts would be paid on condition that the cars of live poultry were received in New York within one week from the date of the bill of lading. The drafts with the respective bills of lading attached were forwarded for collection, but the consignee refused to pay them and they were returned to the Bank. At the time the drafts were returned, the Produce Company had on deposit with the bank $1,240.62, which was credited against the $3,600 advanced on the two drafts, leaving a balance of $2,359.38, the amount for which judgment was rendered in favor of the Bank against the Railway Company.

At the time the Bank discounted the drafts, it had no knowledge that the loading of the cars had not been completed and in discounting the drafts it was pursuing a course of conduct similar to that had between the Bank and the Produce Company theretofore. The loading of the cars was not completed because the Produce Company became insolvent and unable to comply with its agreement to load or complete the loading.

The rights of the parties in any action upon bills of lading issued by a common carrier for the transportation of goods in inter-state commerce are governed by the Federal Bill of Lading Act, 49 U.S.C.A. §§ 81 to 124. The Act itself, Section 1, so provides.

Prior to the enactment of the Federal Bill of Lading Act, bills of lading had not attained the exact status of negotiability although they were regarded as symbolic representations of the goods and title to the goods was passed by transfer of the bills with intention to transfer title. Consequently, it was definitely established in the Federal Courts and in most other jurisdictions that no liability was imposed on a carrier by reason of the issuance of a bill of lading when no goods had been in fact received, even in favor of an innocent purchaser for value of such a bill. Friedlander v. Texas & P. R. Company, 130 U.S. 416, 9 S.Ct. 570, 32 L.Ed. 991; Missouri Pacific Railway Company v. McFadden, 154 U.S. 155, 14 S.Ct. 990, 38 L.Ed. 944; National Bank of Commerce v. Chicago, etc. R. Company, 44 Minn. 224, 46 N.W. 342, 560, 9 L.R.A. 263, 20 Am.St.Rep. 566. The basis of the rule was that it was not within the apparent scope of authority of a carrier's agent to issue a bill of lading for goods when none had been received and that therefore the carrier was not estopped to deny receipt of the goods.

Primary purposes of the bill of lading act, apparently, were to confer complete negotiability on certain types of bills (order bills) and to change the rule referred to, in so far as it applied to order bills. Negotiability was not conferred on order bills in express terms but the implication of negotiability is obvious when the entire act is considered.

By section 2 of the act a straight bill of lading is defined as "a bill in which it is stated that the goods are consigned or destined to a specified person." Section 3 of the act defines an order bill as a "bill in which it is stated that the goods are consigned or destined to the order of any person named in such bill." Section 29 of the act provides in part that: "A straight bill can not be negotiated free from existing equities, and the indorsement of such a bill gives the transferee no additional right."

While the act does not confer negotiability on straight bills, it recognizes the status of transferability and section 32 defines the rights of a transferee thereof in part as follows: "A person to whom a bill has been transferred, but not negotiated, acquires thereby as against the transferor the title to the goods, subject to the terms of any agreement with the transferor. If the bill is a straight bill such person also acquires the right to notify the carrier of the transfer to him of such bill and thereby to become the direct obligee of whatever obligations the carrier owed to the transferor of the bill immediately before the notification."

The section of the act changing the rule of non-liability for issuance of a bill covering goods which had not been received is section 22, which provides: "If a bill of lading has been issued by a carrier or on his behalf by an agent or employee the scope of whose actual or apparent authority includes the receiving of goods and issuing bills of lading therefor for transportation in commerce among the several States and with foreign nations, the carrier shall be liable to (a) the owner of goods covered by a straight bill subject to existing right of stoppage in transitu or (b) the holder of an order bill, who has given value in good faith, relying upon the description therein of the goods, for damages caused by the nonreceipt by the carrier of all or part of the goods or their failure to correspond with the description thereof in the bill at the time of its issue."

It will be observed that the last mentioned section changed the rule referred to only as to order bills and, in view of the rule existing when the act was passed, the situation is exactly the same as if the act had declared in express terms that as to the straight bills issued on goods not received no liability could be imposed on the carrier.

By virtue of section 29, there could be no liability on the part of the carrier in the instant case in an action on the bills by a holder or transferee, since an "existing equity" of the carrier was a right on its part to deny receipt of the goods as to the shipper, and a transfer of these straight bills created no additional rights.

By virtue of section 32, defining the rights of a transferee of a straight bill, the...