Millhiser Mfg. Co v. Gallego Mills Co

• Citation: 44 S.E. 760,101 Va. 579
• Court: Supreme Court of Virginia
• Decision Date: 11 June 1903
• Parties: MILLHISER MFG. CO. v. GALLEGO MILLS CO. et al.

44 S.E. 760

101 Va. 579

MILLHISER MFG. CO.

v.GALLEGO MILLS CO. et al.

Supreme Court of Appeals of Virginia.

June 11, 1903.

CORPORATIONS — TREASURY BONDS — WAREHOUSE RECEIPTS — TRANSFER — TITLE TO PROPERTY — COMMON-LAW RULE — STATUTORY MODIFICATION—MATERIALMAN'S LIEN.

1. Where a portion of the bonds issued by a corporation and secured by a mortgage were held by the corporation as treasury bonds, they were not. while so held, a part of the personal property of the corporation, within Code 1887, § 2485, giving to laborers and persons furnishing material to manufacturing corporations a lien on the real and personal property of such corporations.

2. At common law, the transfer of a warehouse receipt as collateral security for a loan vests in the transferee the absolute property in the goods represented by the receipt.

3. Code 1887, § 1791, provides that warehouse and other storehouse receipts, with the word "negotiable" on the face thereof, issued by any person keeping a "licensed" warehouse or other "licensed place of storage, shall be transferable by indorsement and delivery, and any person to whom such receipt is so indorsed and delivered shall be deemed the owner of the property specified therein, etc. Section 1792 et seq. provides certain penalties for the issuance of licensed warehouse receipts by any one notthe keeper of a regularly licensed warehouse, and otherwise regulates the conduct of the business of licensed warehouses. Held, that section 1791, construed in connection with the sections following, does not, by its specification of "licensed" warehouses, abrogate, as to unlicensed warehouses, the rule of the common law that delivery of a warehouse receipt vests title in the goods, but that section is merely declaratory of the common law as to licensed warehouses, leaving the rule as to unlicensed warehouses unchanged.

4. A warehouseman may issue warehouse receipts for his own property stored in the warehouse, and pledge such receipts as collateral security for his own debt.

5. Code 1887, § 2485, giving a lien on the property of manufacturing corporations to persons furnishing supplies, does not create a lien, in favor of a party so furnishing supplies, on goods which have, prior to the claim of such lien, been deposited by a corporation in warehouses, and pledged, by delivery of the warehouse receipts, as collateral security for money borrowed by the corporation.

Appeal from Chancery Court of Richmond.

Action by the Richard Grant Company against the Gallego Mills Company and others, to which the Millhiser Manufacturing Company and others became parties by petition. From the judgment, the Millhiser Manufacturing Company appeals. Modified.

H. R. Pollard, James Cannon, O. B. Roller, and Mr. Martz, for appellant.

A. W. Patterson, H. Taylor, Jr., C. U. Williams, B. T. Crump, R. L. Montague, Coke & Puckrell, C. S. Stringfellow, and F. McCutchen, for appellees.

CARDWELL, J. The Gallego Mills Company was chartered by the circuit court of the city of Richmond February 9, 1895, to carry on the business of manufacturing flour, meal, etc. Authority was given the company to purchase of C. L. Todd and Cyrus Bossieux, partners doing business under the firm name and style of the Gallego Mills, the plant of this partnership, the stock on hand, etc., and the brick warehouse connected with the Gallego Mills by a bridge, and the lot upon which it stands, situated northeast of the mill. To acquire the plant, the stock on hand, etc., and the warehouse, together with lot upon which it stands, authority was given to the new corporation to issue bonds to the amount of $200,000. secured by a first mortgage on the real estate, etc., of the mortgagor, of which $125,000, face value, and certain capital stock, were to be delivered to Todd & Bossieux, as the purchase price.

This new corporation organized at once under its charter, and proceeded to conduct the business (1) of manufacturing flour, meal, etc., for sale by wholesale, and (2) as a keeper of a public warehouse for the storage of goods, wares, merchandise, etc., until in 1897, when the Richard Grant Company, a corporation, filed its original, amended, and supplemental bills against the Gallego Mills Company and others, the general object of which was to enforce a lien for supplies furnished the Gallego Mills Company, ascertain all the liens upon its property, their priorities, etc., and sell the property of the defendant corporation, and apply proceeds to the satisfaction of its debts, and in the meantime to preserve the property by the appointment of a receiver, etc. A receiver was appointed, and proceedings taken looking to the winding up of the affairs of the defendant corporation, a sale of its assets, etc. The Millhiser Manufacturing Company and James Keister, by their respective petitions, became parties to the suit, claiming a lien under sections 2485 and 2486 of the Code of Virginia on the property, etc., of the Gallego Mills Company, for certain supplies furnished the defendant company; the claim of the Millhiser Company being for supplies in the shape of cloth sacks, and that of James Keister for supplies in the shape of staves.

In the conduct of its business, as a manufacturer of flour, meal, etc., which was extensive, large amounts of ready money were necessary, and the required funds could only be obtained through the banks and capitalists. Large amounts of grain were purchased by the company, which were deposited with the Chesapeake & Ohio Railway Company, in its elevator at Richmond, and certificates therefor issued, and flour in large quantities from time to time sold or pledged to the banks or others furnishing the money needed by the company in the conduct of its milling business, and deposited in the company's warehouse, and receipts therefor issued to the buyer or the lender of the money; and it was the custom of the company to raise money for the prosecution of its business by transferring and delivering certificates for wheat deposited in the Chesapeake & Ohio Railway Company's elevator to banks or other parties who would furnish the needed funds, the effect of which certificates and receipts, as understood between the parties, being that the wheat or flour they represented should be thereafter the property of the holder of the certificate or receipt, subject only to the stipulations contained therein.

This method of doing business was not peculiar to this corporation, and is and has been the common practice among all manufacturing establishments of any great size. It had been carried on by this company from its organization, and these elevator certificates and warehouse receipts were regarded and treated by the banks and others as an unquestionable basis of credit. At the time of the institution of this suit, there were in the hands of the appellees elevator certificates and warehouse receipts for large quantities of wheat and flour deposited as before stated, for which the holders thereof had parted with their money, and it is conceded that they did so in good faith.

It further appears that, when the Gallego Mills Company was organized and acquired the milling property, it executed a mortgage upon its property to secure certain bonds, aggregating $200,000, of which $125,000 rep-resented unpaid purchase money, and the remaining $75,000 were left in the treasury of the company unissued, and are spoken of in the record as "treasury bonds." Subsequently these "treasury bonds" were negotiated with certain banks and Holt & Co., appellees, and were held by them at the institution of this suit.

The questions raised in the court below were whether the supply lien creditors, under the statute, or the banks and others, similarly situated, had priority, as to time and right, in respect to the property represented by (1) the "treasury bonds, " (2) the warehouse receipts, and (3) the elevator certificates; and the court held that the holders of the elevator certificates had priority over the supply lien creditors, with respect to the wheat represented by these certificates, but referred the cause to a commissioner to inquire and report whether labor and supply claimants, or the holders of the "treasury bonds" and warehouse receipts (for flour), had a prior lien on the bonds and flour. The commissioner reported against the holders of the "treasury bonds" and of the warehouse receipts, and in favor of the labor and supply claimants, and, upon exceptions to the report, the court overruled the commissioner in so far as he gave priority to the lien of the labor and supply claimants on the "treasury bonds, " but sustained and confirmed his report to the extent that it gave the supply lien creditors a paramount lien upon the flour represented by the warehouse receipts.

Upon appeal by the Millhiser Manufacturing Company and James Keister from the decrees of the lower court in respect to (1) the wheat represented by the elevator receipts, and (2) the "treasury bonds, " and by the cross-error assigned, under rule 9, by the banks holding the warehouse receipts for flour, all three of the questions above referred to are presented for our determination.

The case has been argued at great length, and with learning and ability, though the argument has taken a much wider range than is necessary to a decision of the questions presented. It is therefore impossible, within proper limits, to review all the collateral positions taken, or to trace principles remotely bearing upon the questions, through the wilderness of the cases cited. Nor is it necessary.

While we do not deem it at all material, it is perhaps worthy of mention that the "treasury bonds" were issued to those now holding them prior to the furnishing of the supplies by appellants for which they assert a lien on the bonds under the statute. It is not questioned that the bonds were acquired by their present holders in good faith and for value. In no sense whatever were those bonds ever the property of the Gallego Mills...