Lofton v. Mooney

• Decision Date: 30 January 1970
• Citation: 452 S.W.2d 617
• Parties: 7 UCC Rep.Serv. 824 Vernon LOFTON et al., Appellants, v. Pete MOONEY et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 617

452 S.W.2d 617

7 UCC Rep.Serv. 824

Vernon LOFTON et al., Appellants, v. Pete MOONEY et al., Appellees.

Court of Appeals of Kentucky.

Jan. 30, 1970.

Rehearing Denied May 8, 1970.

Warren B. Miller, Dixon, for appellants Vernon Lofton, etc., and farmers bank.

J. D. Ruark, Morganfield, for appellant St. Louis Terminal Field Warehouse Co.

Joel C. Rich, Dixon, J. Quentin Wesley, Morganfield, for appellees Pete Mooney, and others.

George B. Simpson, Sturgis, for appellee William Waddlington, and others.

CLAY, Commissioner.

Plaintiff appellees are farmers who delivered grain to appellant defendant Lofton the owner of a feed and grain mill business at Clay, Kentucky. Some was sold to Lofton and some was placed in storage. In February 1967, plaintiffs brought this suit to recover from Lofton money allegedly owed and due for these delivers, and an attachment was levied on certain grain which had been stored by Lofton but was then under the control of appellant defendant St. Louis Terminal Field Warehouse Company (hereinafter St. Louis). The affidavit for attachment recited that the plaintiffs' claims were 'for the recovery of money due upon a contract'. The grain subject to attachment consisted to several thousand bushels of shelled yellow corn. A receiver was appointed and the corn was sold for approximately $24,000. The claims are against this fund and the parties' rights are determinable by their interests in the corn sold.

Prior to the filing of this suit, and of course prior to the date of the attachment, Lofton had entered into a financing arrangement with St. Louis and defendant appellant Farmers Bank (hereinafter Bank). Under this arrangement Lofton leased his storage facilities to St. Louis, thereby vesting in St. Louis dominion and control of the stored grain. St. Louis, a bonded warehouseman, then issued to the Bank a nonnegotiable warehouse receipt which provided the corn was to be held for the account of and delivered upon the instructions of the Bank. This warehouse receipt was accepted by the Bank as security for a $60,000 loan to Lofton. The basic question in this case ultimately became whether the interest acquired by the Bank under the warehouse receipt took preference over plaintiffs' lien acquired by the attachment.

As the Chancellor observed in an understatement, the pleadings in this case are 'rather confusing'. However, after submission of the case and at the time the Chancellor delivered an opinion, plaintiffs' amended complaint and the answer of St. Louis had placed in the record as an obstacle to plaintiffs' recovery the outstanding interest of the Bank evidenced by the warehouse receipt. As of that time the Bank had not by any pleading asserted any interest in the fund here in controversy. Though the opinion accurately recites that the only relief sought by the Bank was dismissal of the plaintiffs' complaint (plaintiffs having sought to recover sums earlier paid to the Bank from the proceeds of sales of some of the stored corn), the Chancellor concluded the plaintiffs' claims were superior to any interest created by the issuance of the warehouse receipt. After the delivery of this opinion, the Bank filed an 'Amended Answer' which was actually a counterclaim. Therein the Bank asserted a superior claim to the fund by virtue of its warehouse receipt and demanded that the fund be declared its property.

Subsequently a money judgment was entered for the plaintiffs against Lofton (which is not questioned). The claim against the Bank was dismissed and the plaintiffs were adjudged a lien for their respective claims against the fund. The court did not specifically adjudicate the claim of the Bank against the fund which it had set up in its very late 'Amended Answer', but in view of the Chancellor's opinion, the judgment may be construed as denying this claim and both parties in their breifs treat this as the only issue on appeal.

The Bank contends the warehouse receipt created a legal interest in the stored corn, which was prior and superior to the statutory lien acquired by plaintiffs under their attachment. Plaintiffs contend the Bank only succeeded to the rights of Lofton, which could not prevail against them.

Before considering the provisions of the commercial code upon which the parties rely, we examine the nature of the transaction resulting in the issuance of the warehouse receipt. It is known as 'field warehousing'. It was simply a financing arrangement which would enable Lofton to obtain a bank loan by creating security therefor in the form of an interest in stored fungible goods. A pledge of the stored grain by Lofton would have been rather shaky security since he had complete control of the commodity. By his transferring the dominion and control of this grain by lease to St. Louis, a bonded warehouseman, St. Louis would assume responsibility for delivery under a warehouse receipt issued by it.

St. Louis acquired no interest in the grain (except a lien for storage charges), but it was placed in the channels of commerce for disposition by St. Louis. Had St. Louis not issued a warehouse receipt covering the 60,000 bushels of stored yellow corn, plaintiffs' attachment probably would have reached the grain in the hands of St. Louis. However, the warehouse receipt was a document of title vesting a valid security interest in the Bank. We may observe, as far as this record shows, there is no question of fraud or bad faith. The Bank, in effect, being the person designated by this warehouse receipt as the one to whom delivery was to be made, stands in the shoes of a good faith purchaser for value.

The warehouse receipt was a 'document of title'. KRS 355.1--201. By its terms the Bank was entitled to delivery on demand. KRS 355.7--403. The Bank relies on KRS 355.7--503, which by implication provides that the holder of a document of title has a superior right in goods against a person who had a prior legal interest or a perfected security interest if the person with such prior interest has delivered the goods to one 'with actual or apparent authority to ship, store or sell' the goods. We do not...