Int'l Trust Co. v. Webster Nat. Bank

• Decision Date: 08 December 1926
• Parties: INTERNATIONAL TRUST CO. v. WEBSTER NAT. BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

258 Mass. 17

154 N.E. 330

INTERNATIONAL TRUST CO.

v.WEBSTER NAT. BANK.

Supreme Judicial Court of Massachusetts, Suffolk.

Dec. 8, 1926.

Exceptions from Superior Court, Suffolk County; Keating, Judge.

Action of tort by the International Trust Company against the Webster National Bank to recover for conversion of woolen yarn. Findings for plaintiff, and defendant excepts. Exceptions sustained.

C. W. Lavers, of Boston, for plaintiff.

R. E. Buffum, of Boston, and T. Leboeuf, of Webster, for defendant.

CROSBY, J.

This is an action of tort brought to recover for the alleged conversion of twenty-five thousand pounds of woolen yarn. The plaintiff and the defendant are banking institutions doing business in this commonwealth. After the bringing of this action the plaintiff, a trust company organized under the laws of Massachusetts, was converted into a national bank under the name of the International National Bank of Boston, and conveyed to said bank all its assets; thereafter the International National Bank of Boston was consolidated with the First National Bank of Boston, a corporation organized under the National Bank Act and having its principal place of business in Boston in this commonwealth, and the assets of the plaintiff became vested in the First National Bank of Boston.

The material facts respecting which the controversy in the present case arises are in substance as follows: On August 7, 1919, one F. N. Graves, who was engaged in the wool business in Boston under the name of F. N. Graves Company, through the plaintiff (with whom he had done business for many years) applied to the First National Bank of Boston for a letter of credit in the sum of $83,000 for the purchase of two hundred and three bales of unscoured wool, known as ‘greasy wool,’ to be shipped from Buenos Ayres, South America. The performance of the obligations of Graves to the First National Bank of Boston resulting from the issuance of the letter of credit was guaranteed in writing by the plaintiff as a part of the transaction. See Nowell v. Equitable Trust Co., 249 Mass. 585, 144 N. E. 749. The letter of credit was issued and an endorsed bill of lading covering the wool was delivered to the plaintiff.

On or about September 19, 1919, Graves signed and delivered to the plaintiff a trust receipt covering the wool from which the yarn and afterwards manufactured. The receipt recited that the wool was the property of the plaintiff; that Graves agreed to hold it in trust for the plaintiff ‘and as its property, with liberty to manufacture and remanufacture the same without cost or expense to it, and to sell the same for its account * * * to keep said goods, the manufactured product, and the proceeds thereof, whether in the form of moneys or accounts and bills receivable, separate and capable of identification as the property of International Trust Co., of Boston, and * * * in case of sale, to hand the proceeds to said International Trust Co., of Boston, to be applied by it against the acceptances of, on my (our) account, under the terms of letter of credit No. _____ issued for our account, and to the payment of any other indebtedness of mine (ours) to International Trust Co., of Boston, whether then due or not.’ The receipt also recited that the plaintiff might cancel the trust at any time and repossess itself of its said property in whatever condition it might then be, or of the proceeds thereof if sold, wherever the same might be found; that Graves should keep the goods fully insured against loss by fire while in his possession; that the insurance money recovered for any loss should be subject to the trust in the same manner as the goods themselves; and it contained other provisions which need not be referred to.

When the trust receipt was delivered to the plaintiff, it endorsed and delivered the bill of lading to Graves, who in turn delivered it to Hartmann Brothers to enable them to obtain the wool for scouring. A draft for $78,200 was issued by the First National Bank of Boston under the letter of credit; when it became due on December 15, 1919, it was paid by the plaintiff, the latter receiving from Graves an acceptance for $78,800 endorsed by F. N. Graves Company. At no time did the plaintiff have actual physical possession of the wool or the yarn manufactured therefrom. The trust receipt was not recorded.

Graves entered into an agreement with the Webster Dye & Yarn Mills, Inc. (hereinafter referred to as Webster Mills), to manufacture the wool into yarn, which would be of much greater value than wool, and to pay the Webster Mills for such conversion. This expense was charged by the Webster Mills to Graves or to F. N. Graves Company.

When the acceptance for the $78,800 given by Graves to the plaintiff became due, it was canceled, Graves giving the plaintiff in lieu thereof a promissory note, unsecured in form, for the same amount payable on demand. The dealings between the plaintiff bank and Graves had extended over many years and covered many transactions.

On March 30, 1920, as Graves then owed a substantial amount to the Webster Mills for the manufacture of the yarn, he applied to the defendant bank for a loan of $12,500, and at the same time delivered to it the following writings:

‘Mr. Prentis Howard, Pres. Webster Nat'l Bank, Webster, Mass. Dear Sir: We will give you delivery of 25,000 # yarn all spun at Clinton as collateral against $25,000 loan in your Bank as a drawing account. F. N. Graves & Co.’

‘Webster Dye & Yarn Mill, Webster, Mass. Dear Sir: Deliver to Webster Nat'l Bank 25,000 # Twenty-five thousand pounds yarn. F. N. Graves & Co.’

At the time of the application for this loan Howard (now deceased) was also president of the Webster Mills, and its principal owner. On April 14, 1920, a loan for $12,500 was granted to Graves, who gave to the defendant his collateral promissory note for that amount, which stated that it was secured by twenty-five thousand pounds of woolen yarn. This note was renewed from time to time, the last renewal bearing date of May 12, 1921. It also appeared that on May 26, 1920, Graves gave a mortgage for $10,864 on the twenty-five thousand pounds of yarn to the Webster Mills.

On July 14, 1920, the plaintiff wrote to the Webster Mills as follows:

‘Gentlemen: In order that we may make certain verifications of collateral held for account of F. N. Graves Company, will you kindly send us detailed statement of wool or yarns held by you, also kindly advise us of any storage or other charges that there may be against same. Thanking you very much for your prompt attention to this matter, we are, Very truly yours, Howard Norton, Assistant Secretary.’

By letter dated July 15, 1920, the Webster Mills replied in substance that the defendant bank had a $12,500 loan on twenty-five thousand pounds of yarn made by the mills for F. N. Graves, and that the mills had a second mortgage of $10,864 on the same collateral; the letter also stated, ‘Mr. Graves has in addition approximately 5,000 pounds of yarn here unencumbered.’ On July 20, 1920, Graves paid $30,000 on account of the plaintiff's note of $78,800; the balance of this note is still unpaid.

On November 8, 1921, the plaintiff wrote the Webster Mills as follows:

‘Dear Sirs: A little over a year ago you advised us that you were holding certain wool and yarn which had been delivered to you by F. N. Graves Company and which had been held for our account. Will you kindly confirm your holdings for this account at the present time and if you have any charges against this wool, please advise. Yours very truly, Howard Norton, Asst. Sec.’

It does not appear what reply if any was made to this letter. After repeated demands by the defendant on Graves for payment of the $12,500 note, the defendant sold the yarn in different lots between April 1, 1922, and June, 1, 1922, for about $12,500, which was its fair market value at the time it was sold. On March 9, 1923, the plaintiff made a written demand on the defendant for the yarn and afterwards brought this action.

The case was tried before a judge of the superior court, sitting without a jury, who made certain findings and rulings and found for the plaintiff in the sum of $18,750 as damages, with interest thereon from April 14, 1920, the date of the conversion. All the material evidence is reported.

The defendant contends that, under the trust receipt which authorized Graves to sell the goods for the plaintiff's account, the relation of principal and agent was established; that Graves was a ‘consignee’ or ‘factor’ within the meaning of those words in G. L. c. 104, §§ 3 and 4, as he had possession of the merchandise with authority to sell it for the plaintiff and was therefore its agent for that purpose; and that the defendant had a prior lien on the goods as security for its loan to Graves.

At common law a consignee, factor or agent could not pledge the owner's property for his own debt. Michigan State Bank v. Gardner, 15 Gray, 362. The consignee of goods for sale does not have authority to pledge them for his own debt. The pledge is void as against the owner. Nowell v. Pratt, 5 Cush. 111. Although this court has not heretofore been called upon to consider the rights of a holder of a trust receipt as against one who in good faith and without notice subsequently has loaned money to an importer or other person, yet the character of such a receipt and the rights of the holder thereof generally have been considered and defined.

[2] G. L. c. 104, is entitled ‘Agents, Consignees and Factors.’ It was originally enacted in substantially its present form by St. 1849, c. 216. A pertinent section is as follows:

‘Sec. 3. If a person intrusted with merchandise has authority to sell or consign the same, a consignee to whom he consigns it shall have a lien thereon for any money or merchandise advanced or for any negotiable security given by him on the faith of such consignment, to or for the use of the person in whose name the...