Hopkins v. National Shawmut Bank of Boston

• Decision Date: 10 October 1923
• Docket Number: 4130,4131.
• Citation: 293 F. 884
• Parties: HOPKINS v. NATIONAL SHAWMUT BANK OF BOSTON et al. SAME v. EQUITABLE TRUST CO. OF NEW YORK. In re HEYWARD-WILLIAMS CO.
• Court: U.S. Court of Appeals — Fifth Circuit

293 F. 884

HOPKINS v. NATIONAL SHAWMUT BANK OF BOSTON et al. SAME v. EQUITABLE TRUST CO. OF NEW YORK. In re HEYWARD-WILLIAMS CO. ^[a1]

Nos. 4130, 4131.

United States Court of Appeals, Fifth Circuit.

October 10, 1923

Thomas F. Walsh, Jr., of Savannah, Ga. (Francis P. McIntire and Morris H. Bernstein, both of Savannah, Ga., on the brief) for appellant.

William L. Clay and Wm. W. Gordon, both of Savannah, Ga., for appellee National Shawmut Bank of Boston.

George T. Cann and Max Isaac, both of Savannah, Ga. (Anderson, Cann & Cann and Isaac & Isaac, all of Savannah, Ga., on the brief), for appellee Equitable Trust Co. of New York.

Before WALKER and BRYAN, Circuit Judges, and GRUBB, District Judge.

GRUBB District Judge.

These causes present the same questions, and are alike in their facts, with minor and unimportant exceptions. The first was a plenary suit in equity, instituted by the trustee in bankruptcy to recover the possession of certain cotton as assets of the bankrupt estate, and the appeal is from a decree dismissing the bill. The second was an intervention filed by the Equitable Trust Company in the bankruptcy proceeding, and the appeal is from the order of the District Court in favor of the intervener.

In the latter appeal, there is a motion to dismiss, based upon the contention that the appeal was allowed after the lapse of 10 days from the passing of the order appealed from, and that the order was one allowing a claim, and the appeal was too late. The intervention sought the delivery to intervener of certain cotton, or the proceeds thereof, which it claimed and the order directed the delivery to it of the cotton or proceeds. This was in no sense an order allowing a claim against the bankrupt estate. If the cotton or its proceeds had been insufficient to satisfy intervener's claim against the bankrupt, intervener would have had to file its claim, and secure its allowance, to share in the dividends. If the relief had been denied intervener, this would not have prevented its filing a claim as an unsecured creditor, and securing its allowance. Denial of relief sought by the intervention would not have been a rejection of its claim. The intervention was a controversy in bankruptcy, the time for taking an appeal from the order thereon being six months. Wuerpel v. Commercial Germania Trust & Savings Bank, 238 F. 269, 151 C.C.A. 285; Hewit v. Berlin Machine Works, 194 U.S. 296, 24 Sup.Ct. 690, 48 L.Ed. 986.

Upon the merits the two appeals may be considered together. The facts on which they are to be determined are not in conflict and are so concisely and completely summarized in the opinion of the District Court that we adopt the statement as set out in the opinion of the court reported in 284 F. 983.

The question presented is whether the rights of appellees in certain cotton covered by blanket warehouse receipts, held by them as security for loans, contracted by the bankrupt more than four months before bankruptcy, shall prevail against the right of the trustee in bankruptcy, representing unsecured creditors of the bankrupt. At the outset it may be stated that the warehouse receipts contained no such sufficient description of the cotton as to constitute a valid pledge. They described the cotton as so many bales, marked 'H.W. Co.,' in the warehouse of the Savannah Warehouse & Compress Company. The mark 'H.W. Co.' was used to designate all cotton of the bankrupt stored in the warehouse, in excess of the amount called for by any one receipt and it was impracticable for any receipt holder to have his cotton selected from the mass of cotton on storage for the bankrupt without the surrender and cancellation of the original receipts upon the order of the bankrupt, and the issuance to him of a new receipt, with definite marks of specific bales. Not only was the segregation of specific cotton impracticable under the original receipts, but the intention of the parties, as evidenced by the course of business between the factor, the warehouseman, and the lending banks, was that no specific cotton was to be covered by the original receipt. This was and had been the course of business and custom with factors, banks, and warehousemen in Savannah for 30 years. The receipt holder held a blanket receipt for a certain number of bales on all the cotton stored by the factor in the warehouse, with option to secure delivery of specific cotton, but only by securing a cancellation order from the factor for the original receipt, and presenting the order and original receipt to the warehouseman. Whereupon the warehouseman took up the original receipt, issued a new receipt in lieu thereof, describing specific cotton, upon surrender of which the specific cotton would be delivered.

In view of the fact that the cotton warehoused was of many different grades and values, and of the entire absence of sufficient description in the receipt for the purpose of identification, the receipts were insufficient to constitute a valid pledge. Nor would the right of the receipt holder to surrender his blanket receipt for cancellation, upon order of the factor, and thereupon acquire a new receipt for specific bales, help him as against the trustee in bankruptcy, when this right was not exercised until within four months of bankruptcy. The contract between the parties, evidenced by the issuance of the original receipt, was not to pledge any specific cotton. The subsequent identification of specific bales under a newly issued receipt was not to carry out the original intention of the parties, but was a new contract, then first arising since the original attempt to secure the banks by mutual intention related to no specific bales of cotton. Such a change of security, not in pursuance of the original contract or intention, within four months of bankruptcy, would constitute a voidable preference, if the bankrupt was then insolvent, and the banks had reason to so believe. That such was the case, in the two cases here involved, admits of no controversy, since the first attempt on the part of the bankers to secure valid pledges on specific cotton was on the day of bankruptcy, and with knowledge that a petition was in course of preparation.

We think the objection to the potency of the blanket receipt to create an equitable lien on floating unidentified bales, less than the total, in a mass of cotton of various grades and values, is equally good. If there is no way of making certain the property on which the lien is desired to be created, the lien fails, in spite of the intention of the parties to secure and receive security. Identification must be rendered possible either by a sufficient description, through which segregation is possible, or where the commodity is fungible, or by a creation of a lien on the entire mass. In these cases the receipts were insufficient to create a lien by either or both of the two first named methods. The specific bales could not be separated from the mass by the description of them in the receipt, and the bales were of various grades and values. It was not possible to create a valid equitable lien on a part of the mass; for instance, upon 165 or 212 bales in a mass larger than either. Nor could such an attempt, in the case of an equitable lien, be aided by subsequent identification and segregation, as against the trustee afterward and within four months of bankruptcy, any more than in the case of an attempted pledge, and for the same reason.

A valid equitable lien could be created upon the entire mass of cotton held in storage at the warehouse by the bankrupt, when the...