Southern Pac. Co. v. Bank of America, 36293.

• Decision Date: 31 January 1928
• Docket Number: No. 36293.,36293.
• Citation: 23 F.2d 939
• Parties: SOUTHERN PAC. CO. v. BANK OF AMERICA.
• Court: U.S. District Court — Northern District of Illinois

23 F.2d 939 (1928)

SOUTHERN PAC. CO. v. BANK OF AMERICA.

No. 36293.

District Court, N. D. Illinois, E. D.

January 31, 1928.

John A. Sheean, of Chicago, Ill., for plaintiff.

Newman, Poppenhusen, Stern & Johnston, of Chicago, Ill., for defendant.

LINDLEY, District Judge.

Ono & Co., of San Francisco, shipped to Chicago certain crab meat, imported from Japan, taking a bill of lading from plaintiff, Southern Pacific Railway Company, for the delivery of the merchandise in Chicago, to the order of the shipper, vendee to be notified. The consignor sold and assigned the bill of lading, and sight draft for $37,000 on its Chicago vendee accompanying same, to the Pacific National Bank, who forwarded it to a bank in Chicago for collection, with instructions to surrender the bill of lading upon payment of the draft. Upon presentation, the vendee said that the goods had not arrived, and that it would not honor the draft until their arrival.

Immediately thereafter, however, vendee, discovering the goods in Chicago in possession of plaintiff's delivering carrier, fraudulently procured their delivery by the railroad without production of the bill of lading, and in violation of its provisions that the merchandise should not be delivered until the bill should be surrendered, and at once deposited the goods in a public warehouse, taking negotiable warehouse receipts therefor. Defendant, Bank of America, without notice of any infirmity in the vendee's title, at the latter's request, loaned it $34,000, taking the receipts, duly assigned, as security. The Pacific National Bank, discovering the facts with regard to the wrongful procuration by the vendee, demanded that plaintiff recognize that it, through its agent, had wrongfully, though innocently, delivered the goods, and pay therefor. This the plaintiff did, taking an assignment of the bill of lading and draft for $37,000.

Armed with these muniments of title, plaintiff demanded of defendant the surrender of the merchandise, and, that being refused, instituted this replevin suit. Plaintiff claims that the original vendor's title has never passed to defendant, either by its consent or by estoppel, and that as successor to that title plaintiff is the present owner as against the fraudulent vendee and the defendant, even though the latter made its advancement in good faith upon the warehouse receipts. Defendant asserts that plaintiff, having by its agent's wrongful delivery made possible the negotiation of the warehouse receipts, is estopped to assert its title as against defendant, for the reason that, where one of two innocent persons must lose, he who made the loss possible should suffer.

The first question presented is as to the position of defendant. Section 58 of the Uniform Warehouse Receipts Act, in force in Illinois (Smith-Hurd Rev. St. 1927, c. 114, § 290), provides that "to purchase includes to take as mortgagee or as pledgee"; "value is any consideration sufficient to support a simple contract;" and "a thing is done `in good faith,' within the meaning of this act, when it is in fact done honestly, whether it be done negligently or not." Defendant had no knowledge whatever of the outstanding order bill of lading, or of any other facts or circumstances affecting the invalidity of the title of the original vendee. It relied upon the apparent title of the warehouse receipts, and upon that reliance advanced the sum of $34,000. The fact that the borrower was then heavily indebted to the bank is not important, in view of the fact that the loan was made upon the goods, and not the credit of the borrower.

In Commercial National Bank v. Canal-Louisiana Bank, 239 U. S. 520, 36 S. Ct. 194, 60 L. Ed. 417, the court said: "The negotiation of the receipt to a purchaser for value without notice is not impaired by the fact that it is a breach of duty or that the owner of the receipt was induced `by fraud, mistake or duress' to intrust the receipt to the person who negotiated it. And, under section 41 Act La. No. 221 of 1908, one to whom the negotiable receipt has been duly negotiated acquires such title to the goods as the person negotiating the receipt to him, or the depositor or person to whose order the goods were deliverable by the terms of the receipt, either had or `had ability to convey to a purchaser in good faith for value.' The clear import of these provisions is that if the owner of the goods permits another to have the possession or custody of negotiable warehouse receipts running to the order of the latter, or to bearer, it is a representation of title upon which bona fide purchasers for value are entitled to rely, despite breaches of trust or violations of agreement on the part of the apparent owner." Defendant,...