Gould v. City Bank & Trust Co.

• Decision Date: 10 May 1954
• Docket Number: No. 6776.,6776.
• Citation: 213 F.2d 314
• Parties: GOULD et al. v. CITY BANK & TRUST CO.
• Court: U.S. Court of Appeals — Fourth Circuit

213 F.2d 314 (1954)

GOULD et al. v. CITY BANK & TRUST CO.

No. 6776.

United States Court of Appeals, Fourth Circuit.

Argued April 9, 1954.

Decided May 10, 1954.

Bernard J. Russell, Baltimore, Md. (Rome & Rome, Baltimore, Md., on the brief), for appellants.

Seymour O'Brien, Baltimore, Md. (Harrison L. Winter and Miles & Stockbridge, Baltimore, Md., on the brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

PARKER, Chief Judge.

This is an appeal in an action involving priorities between duplicating warehouse receipts issued by one of the parties, the Foust Distilling Company, on 489 barrels of whiskey. One set of receipts was held by the City Bank and Trust Company of Reading, Pennsylvania (hereafter referred to as "City Bank"). Another set covering the same barrels of whiskey was held by Alvin A. Gould and Robert Gould, partners trading as Robert Gould Company, and Anderson County Distilling Company (hereafter referred to collectively as "Gould"). From an order adjudging the receipts held by City Bank to have priority, Gould has appealed.

The receipts held by City Bank were issued to the Sherwood Distilling Company in 1946. They were negotiable warehouse receipts in which the Foust Distilling Company agreed to hold the whiskey subject to the order of Sherwood and deliver it upon the surrender of the receipts properly indorsed. They were indorsed in blank by Sherwood and in April 1949 were pledged by that corporation as security for a note which it executed to the Philadelphia Acceptance Corporation. This note was paid in May 1949. The receipts, however, were not returned to Sherwood but continued to be held by the Acceptance Corporation notwithstanding Sherwood had asked for their return. In June 1950 the Acceptance Corporation discounted with City Bank a note of Sherwood and pledged as collateral security these receipts, which it had continued to hold. It is under this pledge that City Bank claims prior right in the whiskey covered by the certificates.

The claim of Gould arises under receipts covering the same whiskey, issued by Foust to United Distillers of America, Inc., along with other receipts in July 1949. These receipts were issued in connection with a sale of whiskey by Sherwood to United, after the payment of Sherwood's note to the Acceptance Corporation but while the original receipts covering the whiskey were in the hands of the latter. The 1949 receipts issued to United were purchased from that corporation by Gould in April 1950, and furnish the basis of the Gould claim. It was shown that the stock of both Sherwood and Foust was owned by the same person, who was president of both corporations.

It is clear that the receipts under which City Bank claims, having been issued to the order of Sherwood, are negotiable receipts under the Uniform Warehouse Receipts Act, which was the law in both Maryland and Pennsylvania at the time of the transactions under consideration.¹ Sec. 5 of that act provides that "A receipt in which it is stated that the goods received will be delivered to the bearer, or to the order of any person named in such receipt, is a negotiable receipt". It is equally clear that the receipts under which City Bank claims were issued and negotiated prior to those under which Gould claims. Not only were they issued to Sherwood but they were also indorsed in blank by Sherwood and delivered by Sherwood to the Acceptance Corporation before the Gould receipts were issued. See section 37 of article 14A of Md.Code. 6 Purdon's Penn.Stat. § 157.

The effect of the negotiation of the receipts to the Acceptance Corporation was to vest in that corporation prior right in the whiskey covered by the receipts and this right was not lost by reason of its failure to return the receipts when its note was paid. Sherwood then had the right to the return of the receipts but not to the whiskey covered by them, as though there had been no receipts; and, when the receipts were pledged by the Acceptance Corporation to City Bank, the latter took them with all the rights which arose with respect to them at the time of their issuance. Under section 41 of the Act, sec. 41 of article 14A of Md. Code, 6 Purdon's Penn.Stat. sec. 161, a person to whom a receipt has been duly negotiated acquires not only the title of the person negotiating the receipt but also the title which the depositor had by the terms of the receipt and the obligation of the warehouseman to hold possession for him according to its terms. The fact that the Acceptance Corporation may have acted without authority or even fraudulently in pledging the receipts to City Bank does not defeat the rights of the latter, since it took them for value and without notice of any fraud or breach of duty and is fully protected by section 47 of the act. Section 47 of article 14A of Md.Code, 6 Purdon's Penn.Stat. section 167.

In point is the case of Commercial National Bank of New Orleans v. Canal-Louisiana Bank & Trust Co., 239 U.S. 520, 526-527, 36 S.Ct. 194, 196, 60 L.Ed. 417, wherein the Supreme Court dealt with rights of a bona fide purchaser of warehouse receipts issued pursuant to the terms of the Uniform Warehouse Receipts Act and wrongfully pledged as security for a loan by one to whom they had been entrusted. The court speaking through Mr. Justice (later Chief Justice) Hughes, said:

"* * * the intention is plain to facilitate the use of warehouse receipts as documents of title. Under § 40, the person who may

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