Pittman v. Union Planters Nat. Bank & Trust Co.

• Decision Date: 04 March 1941
• Docket Number: No. 8406.,8406.
• Court: U.S. Court of Appeals — Sixth Circuit
• Parties: PITTMAN v. UNION PLANTERS NAT. BANK & TRUST CO. et al. In re NATIONAL COTTONSEED PRODUCTS CORPORATION.

118 F.2d 211 (1941)

PITTMAN v. UNION PLANTERS NAT. BANK & TRUST CO. et al. In re NATIONAL COTTONSEED PRODUCTS CORPORATION.

No. 8406.

Circuit Court of Appeals, Sixth Circuit.

March 4, 1941.

Lowell Taylor and Larry Creson, both of Memphis, Tenn., for appellant.

J. W. Canada and E. P. Russell, both of Memphis, Tenn., and F. A. Berry, of Nashville, Tenn. (Canada & Russell, of Memphis, Tenn., and Bass, Berry & Sims, of Nashville, Tenn., on the brief), for appellees.

Before HICKS, SIMONS, and ALLEN, Circuit Judges.

SIMONS, Circuit Judge.

In a bankruptcy proceeding begun by petition for reorganization under § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, but proceeding subsequently to liquidation of assets upon an adjudication of insolvency, the District Court entered a decree, challenged by this appeal, which adjudicated as valid certain claims of the Chemical Bank & Trust Company, the Union Planters National Bank & Trust Company, and the American National Bank of Nashville, to priority in funds from the sale of cottonseed and cottonseed products represented by warehouse receipts held by the claimants as security for loans. The decree also denied recovery by the trustee of various payments and transfers to the banks claimed to have been preferential.

The bankrupt, a Delaware Corporation, was organized in 1925 to take over a number of existing cottonseed mills. It issued common and preferred stock and bonds upon its physical properties. The appellees were not concerned with its organization. In 1933 and 1934, to secure working capital, it obtained a large loan from the Reconstruction Finance Corporation, pledging all of its warehoused cottonseed as security, and subsequently pledged its equity therein to the Union Planters Bank & Trust Company of Memphis, and the American National Bank of Nashville, for additional loans. During 1934, still more money, as well as a modification in method of handling and releasing warehouse receipts to obviate delays in the delivery of seed to the mills, was requested of the R. F. C., but was not obtained. A loan was thereupon secured on December 28, 1934, from the Chemical Bank & Trust Company, from the proceeds of which the R. F. C. loan was paid in full and the Chemical Bank assumed the R. F. C. position as holder of the collateral.

The method of warehousing pursued by the bankrupt is known as the field warehousing system. In order to avail itself of inventory for credit purposes, the bankrupt entered into an agreement with the Nashville Warehouse & Elevator Corporation for the warehousing of its cottonseed. No convenient storage facilities being available, the bankrupt leased to the Warehousing Company its own storage facilities at points in Arkansas, Illinois, and Tennessee, with an agreement by the Warehousing Company that it would furnish the necessary employees for safe warehousing, and issue warehouse receipts for goods stored with it, for a consideration over and above necessary expenses, and a guarantee by the bankrupt against loss or damage in connection with such storage not due to its own fault. The Warehousing Company appointed one of the bankrupt's employees at each mill as custodian and required of him a fidelity bond, and a daily written report of quantities of cottonseed and products received, disposed of, and remaining on hand. The head warehouseman was stationed in the bankrupt's main office where he compiled and kept a master record of quantities on hand and withdrawn upon warehouse receipts made up from the daily reports furnished him by the mill warehousemen. The system followed when the R. F. C. held the collateral was continued after the banks took over the loans.

The appellant concedes that field warehousing may validly be carried on, and that the issue of warehouse receipts will afford valid security to the holders when the warehouseman takes and maintains sole, open and actual possession of the stored property. He contends that this was not true of the present system and assails the warehousing as merely colorable. While the receipts may have been in proper form, he points to numerous circumstances invalidating the security. The warehouse facilities, he says, were upon the properties of the bankrupt to which it had access; the warehousemen were its employees, devoting but a minimum of time to the warehouse business; it paid their wages and paid no rent to the Warehousing Company; until receipts were issued it exercised the right to crush and use the seed inventory, unaffected by the warehouse agreement; there was no actual change of possession of stored property since it was never handled by the Warehousing Company, nor segregated from the bulk, and was withdrawn for crushing purposes by mechanical conveyors operated by the bankrupt; the cottonseed houses were never locked and the bankrupt's operations were not interfered with by the warehousemen.

The master found, however, in findings sustained by the court, that the seed was delivered to the Warehousing Company; that adequate signs were placed upon the buildings; that local warehousemen were in charge at each mill, rendering daily reports to the central control warehouseman in charge at Memphis, who kept an adequate control record of the property on hand; and concluded upon the whole record that the Warehousing Company was in actual, open and exclusive possession of the cottonseed. There was no evidence of an inactive or perfunctory performance of the duties of the warehouseman or his aides, and the bankrupt at all times recognized his authority. There was never any actual shortage between cottonseed on hand and receipts outstanding. The apparent shortage that seemed to have been indicated by the reports was fully explained to the satisfaction of both court and master as having been due to a delay in mail delivery of warehouse receipts from the mills to the main warehouse office in Memphis. When shortage did appear, the warehouseman, at least on one occasion, required the closing of the mills until the receipts were received and cancelled.

Upon these concurrent findings of court and master, it is our conclusion, in the absence of clear demonstration of error, that the warehouse receipts were valid and afforded security both to the Reconstruction Finance Corporation and to the banks. Union Trust Co. v. Wilson, 198 U.S. 530, 25 S.Ct. 766, 49 L.Ed. 1154. The law of Tennessee does not require a contrary view. Bank of Rome v. Haselton, 15 Lea 216, 83 Tenn. 216. The Tennessee cases cited as authority for the doctrine that there may be no lien on personal property consumed by use or exhausted by sale, are not applicable, since there was no withdrawal here, except upon surrender and cancellation of receipts. Nor are decisions apposite dealing with warehouse...