In re Heyward-Williams Co.

• Decision Date: 10 November 1922
• Citation: 284 F. 983
• Parties: In re HEYWARD-WILLIAMS CO. Interventions of EQUITABLE TRUST CO. OF NEW YORK et al. HOPKINS v. SHAWMUT NAT. BANK.
• Court: U.S. District Court — Southern District of Georgia

284 F. 983

In re HEYWARD-WILLIAMS CO. Interventions of EQUITABLE TRUST CO. OF NEW YORK et al. HOPKINS v. SHAWMUT NAT. BANK.

United States District Court, S.D. Georgia.

November 10, 1922

McIntire Walsh & Bernstein, of Savannah, Ga., for trustee.

Anderson Cann & Cann and Isaac & Isaac, all of Savannah, Ga., for Equitable Trust Co.

W. L Clay, of Savannah, Ga., for Shawmut Nat. Bank.

BARRETT District Judge.

The Heyward-Williams Company was a cotton factor in Savannah, Ga. The Savannah Warehouse & Compress Company was, as indicated by its name, engaged in the warehouse business. The arrangement between such factor and such warehouse company was that all cotton shipped to the factor by its customers was placed in one of the compartments, from 1 to 6, of the warehouse company, and such cotton was stamped or tagged 'H.-W. Co.' In addition to such stamp or tag, the bales of cotton had the private marks of the shippers. When requested, the warehouse company would issue to Heyward-Williams Company a warehouse receipt, upon which would appear the private marks of the cotton. In such case the particular bales bearing such marks would be kept by the warehouse company and not delivered, except upon the presentation of the receipt covering the same. The warehouse company would also issue receipts for cotton in which the only designation of the cotton would be the number of bales, marked 'H.-W. Co.,' and stored in compartments from 1 to 6. These were known as 'blanket receipts.' The obligation of the warehouse company under such receipts was merely to retain the number of bales marked 'H.-W. Co.' represented by the outstanding receipts so marked. All specific bales were constantly changing. Many thousand bales were handled during a season, and it might happen that when such warehouse receipts should be presented to the warehouse, either canceled or for the delivery of the cotton, there would be on hand none of the cotton that was on hand when the receipts were actually issued, but there would be on hand the number of bales of cotton corresponding to the aggregate of such receipts. At times there was what is known as free cotton-- that is, cotton marked 'H.-W. Co.,' in addition to the private marks of the shippers-- for which receipts had not been issued. None of the cotton involved in this controversy belonged at any time to Heyward-Williams Company, but all of such cotton was held by it as a cotton factor, and as such factor it had a lien on the cotton for advances, storage charges, insurance charges, commissions, and the like.

The Heyward-Williams Company filed its voluntary petition in bankruptcy at 5:30 o'clock p.m. on January 25, 1922, and was adjudicated bankrupt at 6 p.m. More than four months prior to that time there had been issued to it by the warehouse company receipts for cotton marked merely 'H.-W. Co.,' showing the number of bales, and that they were in compartments from 1 to 6. Prior to four months before such bankruptcy the said Heyward-Williams Company had borrowed from the Equitable Trust Company and from the Shawmut National Bank large sums of money, for the security of the payment of which such receipts had been endorsed to the said banks. Payments had been made to the respective banks by the said Heyward-Williams Company, and certain of the receipts so indorsed had been called in and canceled, until a few days before such bankruptcy there was owing to the Equitable Trust Company the sum of $37,121.70, such bank holding receipts for 212 bales of cotton, and to the Shawmut National Bank the sum of $11,296, which held receipts for 165 bales. A few days prior to the bankruptcy the Shawmut National Bank applied to the Heyward-Williams Company for payment, and, upon payment not being made, then presented its receipts to the warehouse company and demanded the delivery of the cotton covered thereby. The warehouse responded that it was not able to identify which cotton was covered by such receipts. Thereupon the bank applied to the Heyward-Williams Company, and was furnished by it with a list of cotton showing the private marks of each bale (by private mark being meant the shipper's or customer's mark), and then the bank presented this list to the warehouse company, which at 5:30 o'clock p.m., January 25, 1922, issued to the bank a receipt covering the bales as set forth in such list. The Equitable Trust Company made a like demand for payment, and a like demand for the delivery of the cotton covered by its receipts, aggregating 212 bales. A like response was made, and a like list of cotton, with the private marks, aggregating 212 bales, was furnished by Heyward-Williams Company, and a demand was made upon the warehouse company for the issuance of a receipt or receipts covering such cotton; but this demand was not until after the filing of the petition in bankruptcy, and the new receipt was not issued.

The Equitable Trust Company instituted bail trover proceedings against the warehouse company subsequent to the filing of the bankruptcy petition. Thereafter the receiver in bankruptcy of the Heyward-Williams Company filed its petition against the Equitable Trust Company to restrain the prosecution of such suit, averring that the receipts issued by the warehouse company to the Heyward-Williams Company, and containing merely a statement of the number of bales, marked 'H.-W. Co.,' and stored in compartments 1 to 6, was not sufficient identification to pass title, and that no title passed to the Equitable Trust Company by the indorsement of such receipts; that petitioner, who was subsequently succeeded by the trustee in bankruptcy in such litigation, stood in the position of a judgment lien creditor, and that the property was the property of the bankruptcy estate, and should be so administered. Thereafter said receiver, who was in turn succeeded in the litigation by the trustee in bankruptcy, instituted suit against the Shawmut National Bank, making like averments as to the receipts issued by the Heyward-Williams Company, and by it indorsed to the Shawmut National Bank, and, further, that at the time the warehouse company issued to the Shawmut National Bank its receipt for the 165 bales of cotton there was no present consideration paid by the said bank for such receipt, and that said cotton was the property of the estate in bankruptcy, and said bank should be required to turn the said cotton or the proceeds thereof over to the trustee.

Certain customers of the Heyward-Williams Company have intervened, established title to the cotton, and, upon paying the advances owing thereon, have been allowed to take their cotton. There is no controversy as to their rights, thus insisted upon. There was testimony. unrebutted, to the effect that the method of doing business as stated above was the general custom in Savannah. It is not shown that said custom of substitution was known to the Equitable Trust Company or to the Shawmut National Bank, though it may have been known by both of them. The cotton has been disposed of, but by the terms of the order or agreement of sale the rights of the parties attach to the proceeds.

1. These two cases will be considered together, for the controlling principles apply to both. If the banks had no other information than the receipts, they were justified in believing that they held as security specific bales of cotton. While the receipts did not state the numbers of the bales, they did state their marks, and the compartments in which they were stored, and how many bales there were. While not as complete as is practicable or desirable, the receipts were sufficiently definite to cover specific bales. However, the well-established custom in Savannah, followed by these factors, deprived the receipts of such effect. While it is true that, where a pledge is legally complete, the rights of the pledgee 'cannot be affected by the methods of dealing between the pledgor and the warehouseman, by which a withdrawal of the pledged property and the substitution of other property of the same kind are permitted without the pledgee's knowledge or consent' (Bush v. Export Storage Co. (C.C.) 136 F. 918), and it is not satisfactorily shown in this case that the banks knew of such practice of substitution, it is nevertheless true that there was no intention on the part of the warehouseman or factor that specific bales should be covered by such receipts, and the subsequent construction by others of the meaning of such receipts, however well warranted, cannot change their original meaning. The title to specific bales did not pass upon the delivery of the receipts.

2. Did the subsequent action of the factor in furnishing memoranda to the banks of the private marks of the cotton to which they were entitled under the receipts serve to retroactively pass the title at the time of the delivery of the receipts? And, if so, was such action in furnishing such marks giving a preference in violation of the Bankruptcy Act (Comp. St. Secs. 9585-9656)?

Answering the latter question first, it was not a violation of the Bankruptcy Act, for it was not done to secure a pre-existing debt, but was an act demanded by good faith, to make effective an instrument or pledge originally executed for a present valuable consideration. Atherton v. Beanan (D.C.) 256 F. 871; Id. (C.C.A.) 264 F. 878; Wilder v. Watts (D.C.) 138 F. 426; McDonald v. Daskam, 116 F. 276, 53 C.C.A. 554. The principle, though not the identical question, is decided in The Idaho, 93 U.S. 575(7), 23 L.Ed. 978.

The duty of the factor, when called upon by the pledgees, was to as near as practicable make effective the contracts upon which the loans were made; but they could not do the impossible, and but little, if any, of the cotton in the warehouse when the receipts were issued...