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(161 La. 1051, 109 So. 834.)

swered by the fact that it cannot be truly said to have been the intent of the parties to transfer the title. The agreement was only that 'securities of the first class shall be deposited with the firm of Messrs. Cavaroc & Son.' A transfer of the title would have been inconsistent with that unrestricted control over the securities which the bank desired to, and did, retain, and which must be considered as having been assented to by the Credit Mobilier, through the common agent, Cavaroc.

"On this ground, therefore, of want of possession in the pledgee, or of a third person agreed upon by the parties, and of actual possession and control in the pledgor, we feel compelled to hold that the Credit Mobilier had no privilege as to third persons, and that the receiver was entitled to the securities in question."

The decision in Commercial Nat. Bank v. Canal-Louisiana Bank & T. Co. 239 U. S. 520, 60 L. ed. 417, 36 Sup. Ct. Rep. 194, Ann. Cas. 1917E, 25, is directly in point, viz.:

"A pledgee of bills of lading for cotton, who permits the pledgor to withdraw such bills of lading under an agreement to hold for the pledgee's account, and thus enables the pledgors to obtain negotiable warehouse receipts, which they which they pledge to a bank as security for their notes, cannot question the title of the latter, having clothed the pledgor with the indicia of ownership, within the meaning of the doctrine established by the Uniform Warehouse Receipts Act (La. Acts 1908, No. 221, §§ 40, 41, 47), that, if the owner of goods permits another to have 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 negotiators for value are entitled to rely, despite breaches of trust or yiolations of agreement on the part of the appar

ent owner.

"The rights of a pledgee of warehouse receipts under the Uniform Warehouse Receipts Act (La. Acts

1908, No. 221, §§ 40, 41, 47), as a bona fide purchaser, where the pledgors had been clothed with apparent ownership by the real owner, are not lost by permitting the pledgors to withdraw such receipts under an agreement to hold for the pledgee's account where this did not result in a subsequent negotiation of them to a purchaser in good faith for value."

The appellants in this case stopped the shipment in transit and delivered it to the shipper not on the strength but in spite of the consignee's having possession of the bill of lading. If the appellants had, in good faith, dealt with Bishop C. Perkins as the holder and apparent owner of the bill of lading, their case would be different. Or, if Perkins had negotiated the bill of lading, although he would have been guilty of a crime for violating the trust, the plaintiff in this case would have to stand the loss, according to two sections of the statute, §§ 30 and 37 of the federal statute (being, respectively, §§ 31 and 38 of the state statute), viz.:

"Sec. 30. That an order bill may be negotiated by any person in possession of the same, however such possession may have been acquired, if by the terms of the bill the carrier undertakes to deliver the goods to the order of such person, or if at the time of negotiation the bill is in such form that it may be negotiated by delivery." 39 Stat. at L. 543, chap. 415, U. S. C. title 49, § 110.

"Sec. 37. That the validity of the negotiation of a bill is not impaired by the fact that such negotiation was a breach of duty on the part of the person making the negotiation, or by the fact that the owner of the bill was deprived of the possession of the same by fraud, accident, mistake, duress, loss, theft, or conversion, if the person to whom the bill was negotiated, or a person to whom the bill was subsequently negotiated, gave value therefor in good faith, without notice of the breach of duty, or fraud, accident, mistake, duress, loss, theft, or conversion." 39 Stat.

at L. 544, chap. 415, U. S. C. title 49, § 117.

It cannot be disputed that a person who withdraws, on a trust receipt, collateral securities which he has pledged to secure a debt, holds the securities in a fiduciary capacity, as trustee, for account of the pledgee. That is virtually declared by the Act 120 of 1910, p. 192, declaring that any customer of any bank or banker, who is allowed to withdraw, on a trust receipt, collateral securities pledged by him, and who sells or otherwise disposes of the securities for any other purpose than to pay his indebtedness for which they were pledged, or who fails to return the securities on demand or to pay the value of them, shall be guilty of a felony and be subject to imprisonment at hard labor for a term not less than two nor more than ten years. The improper use of pledged securities, by the pledgor holding them under a trust receipt, is a species of embezzlement.

When a pledgee of negotiable securities, holding them as collateral security for the pledgor's debt, re

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of the securities, but he does not thereby forfeit the pledge to other creditors of the pledgor.

Appellants contend that the amount of the judgment exceeds the value of the sugar at the time when it arrived in Houston and should have been delivered by the carrier. According to our calculation, the judgment is for $2 less than the value of the sugar, plus the statutory penalty of $50. At any rate the judgment is approximately correct, considering that the market quotations varied slightly from day to day from the date when the sugar should have been delivered to the date when it was returned to the seller.

The judgment is affirmed at appellants' cost.

Petition for rehearing denied October 5, 1926.

ANNOTATION.

Trust receipts.
[Trust Receipts, § 1.]

I. Introduction, 283.

II. Validity and nature of trust receipts:

a. Validity, 284.

b. Relation of parties in general, 285.

III. Title and rights incident thereto, generally; creditors of receiptor, 291. IV. Rights and liabilities with respect to purchasers from receiptor or other third parties:

a. In general; purchasers, 300.

b. Parties claiming commissions, brokerage, or other charges, 306.

V. Effect of recording acts:

a. In general, 309.

b. Trust receipt as chattel mortgage, 309.

c. Trust receipt as conditional sale, 311.

VI. Miscellaneous matters:

a. Effect of retaking of property by holder of trust receipt, 313.

b. Provision in receipt for payment of "other indebtedness," 313.

c. Right of receiptor to maintain action for purchase price, 314.
d. Subrogation, 315.

1

VI. continued.

e. Commingling of goods by receiptor, 315. f. Waiver, 315.

I. Introduction.

Trust receipts, which are now in common use, appear to be of comparatively recent origin; at least, the term itself seems to have come into common use only within recent years. The earliest use of the term "trust receipt" found in any of the cases is in Barry v. Boninger (1876) 46 Md. 59 (see this case under IV. b, infra).

So far as appears, the first New York case which uses the term "trust receipt" is English Bank v. Barr (1888) 31 Abb. N. C. (N. Y.) 7, although there are several earlier cases in which the transactions were substantially of this kind.

Trust receipts apparently arose as a convenient method of financing importations, and cases involving importations constitute to-day the most numerous class in which questions as to trust receipts have arisen. In recent years, however, such receipts have been introduced in transactions involving the financing of the sales of automobiles. There seems no good reason why the trust receipt might not be equally as convenient in domestic transactions as in importations, and the same principles would obviously apply in either case. However, in the cases relating to automobile transactions, the term "trust receipt" is sometimes applied to a contract where the rights of the parties are materially different from those in the cases involving importations, and the former have on that ground sometimes been distinguished. See V. b, infra.

While the annotation includes all decisions which have been found where the term "trust receipt" was expressly applied to the transaction, yet, where this was not the case, it has been confined somewhat strictly to those transactions which were clearly in the nature of a true trust receipt. This is essential for the reason that otherwise the field would be an unlimited one, which might easily include cases clearly distinguishable from the ordinary trust receipt transaction.

The distinguishing feature, it seems, of such a transaction, is that the party financing the operation takes title directly from a third person, usually the seller of the goods, and not from the person giving the trust receipt. If title is, previous to the giving of the trust receipt, in the receiptor, then this distinguishing feature is lost, and there seems much more ground for the position that the transaction is in the nature of a chattel mortgage, pledge, or bailment. The rights of the parties may obviously be different in such a case. And, strictly speaking, it is a misnomer to apply the term "trust receipt" to this kind of a contract. In this connection, see Re Fountain (1922; C. C. A. 2d) 25 A.L.R. 319, 282 Fed. 816 (the question being as to whether trust receipts must be filed as chattel mortgages), in which the court makes a distinction, as to the rights of the bank or lender with respect to the title, between cases where it derives title from someone other than the borrower, and cases where the latter merely executes a trust receipt on property of which he then has possession and ownership. And see V. b, infra.

In a typical trust receipt transaction involving importations, a bank finances the importation, taking the bill of lading directly to itself, and indorses it to the importer (or, at least, delivers the same to him) to enable him to obtain possession of the goods, at the same time receiving a trust receipt in exchange for the shipping documents, which trust receipt commonly specifies that the goods are held in trust for the banker as his property, with liberty on the part of the importer to sell the same for the banker's account, to account to the latter for the proceeds, to keep the goods. and proceeds separate and capable of identification, with a further provision to the effect that the banker may at any time cancel the trust and repossess himself of the property.

The transaction is described in Re Cattus (1910) 106 C. C. A. 171, 183 Fed. 733, as follows: "The course of dealing between the bank and the bankrupt is according to commercial usage of long standing, under which by a loan of credit a vast amount of business is rapidly and safely done. The particular steps of the method followed are not always the same, but the substantial feature which makes the banker the owner of the goods until the purchase price of them advanced by him is paid is always present. One common method, which seems to have been adopted in this case, is as follows: A merchant who wishes to import goods for which he has not funds to pay obtains credit from a bank to a fixed amount, against which he draws for the price of the goods to the order of the vendor, or the vendor draws for the price to his own order. The draft with bill of lading indorsed in blank, or to the order of the bank, is forwarded by the vendor to the banker for acceptance. The banker accepts the draft payable in one, two, three, or four months, as the case may be, forwards the bill of lading indorsed in blank to his agent in New York, who delivers the same to the importer against a receipt called a trust receipt, whereby he agrees to sell the goods for account of the banker, to pay him the proceeds, and so put him in funds to take up the acceptance at maturity."

In Jordan v. Federal Trust Co. (1924; D. C.) 296 Fed. 738, the court pointed out that the true function of a trust receipt is to enable a banker to finance a loan for the importation of merchandise by a merchant, or the domestic purchase of such merchandise; that credit is given by the banker to the foreign or domestic seller of the merchandise, by means usually of a letter of credit; that the bill of lading for the goods is sent to the banker, who then delivers it to the buyer under a trust receipt, for the purpose of obtaining merchandise entered at the customhouse or placed in a warehouse, or sometimes for the purpose of its sale in bulk, or even of its being manufactured into salable articles;

that in every case the banker retains title as security for his loan, and the buyer is given possession of the bill of lading merely to accomplish a specific purpose. See this case also un

der III. infra, distinguishing between the transaction in question and that involving the ordinary trust receipt. II. Validity and nature of trust receipts. a. Validity.

The cases generally in the annotation may be regarded as sustaining the validity of trust receipt transactions and the power and duty of the courts to uphold them according to the intention of the parties, in the absence of failure to comply with statutory provisions. Attention may, however, be called to several decisions specifically making the point that the validity of trust receipts should be upheld by the courts.

The importance of sustaining trust receipt arrangements has been recognized in a number of cases, as Re Dunlap Carpet Co. (1913; D. C.) 206 Fed. 726, affirmed in (1914) 126 C. C. A. 662, 210 Fed. 156, in which the court said: "By this arrangement a banker advances money to an intending importer, and thereby lends the aid of capital, of credit, and of business facilities and agencies abroad, to the enterprise of foreign commerce. Much of this trade could hardly be carried on by any other means, and therefore it is of the first importance that the fundamental factor in the transaction, the banker's advance of money and credit, should receive the amplest protection."

Contracts under which the financing of importation is carried on under trust receipts reserving title to the bank making the advances, being in aid of commerce and facilitating business through enabling bankers to lend to importers the aid of capital, credit, business facilities, and foreign agencies, are entitled to, and have received from the courts, a support as liberal as the local statutes will permit; they are entirely legitimate, and are to be upheld as against general creditors, unless there is some material noncompliance with the local law. Re Bett

man-Johnson Co. (1918) 163 C. C. A. 3, 250 Fed. 657.

And it has been said that the use of trust receipts has become so common in recent years as to lead the courts, which always follow an established business usage sooner or later, to modify in some particulars the stringency of the old rule concerning the effect of divorcing the title and possession of personal property. Re Killian Mfg. Co. (1913; D. C.) 209 Fed. 498, affirmed in (1914) 131 C. C. A. 390, 215 Fed. 82.

It was said in Re Richheimer (1915) 136 C. C. A. 542, 221 Fed. 16 (a case involving the usual form of trust receipt), that the authorities, Federal and state, substantially concur in upholding the validity of transactions of this kind in the financing of importations, wherein the advances. are made by a banker in reliance on the security afforded by title to the goods until the liability has been discharged.

The validity of trust receipts of the ordinary. form cannot be questioned. Brown v. Green & H. Leather Co. (1923) 244 Mass. 168, 138 N. E. 714.

To refuse to recognize the title of the banker under the trust receipt, as security for advance of the purchase price, would be to strike down a bona fide and honest transaction of great commercial benefit and advantage, founded upon a well-recognized custom, by which banking credit is officially mobilized for manufacturers and importers of small means. Century Throwing Co. v. Muller (1912) 116 C. C. A. 614, 197 Fed. 252; Re Killian Mfg. Co. (1914) 131 C. C. A. 390, 215 Fed. 82, affirming (1913; D. C.) 209 Fed. 498.

The contract of the parties to the trust receipt will be recognized and enforced. Charavay v. York Silk Mfg. Co. (1909; C. C.) 179 Fed. 819; Ohio Sav. Bank & T. Co. v. Schneider (1926) Iowa,, 211 N. W. 248.

Expressly sustaining the validity of trust receipts in the ordinary form, see also T. D. Downing Co. v. Shawmut Corp. (1923) 245 Mass. 106, 27 A.L.R. 1522, 139 N. E. 525.

And in People's Nat. Bank v. Mull

holland (1917) 228 Mass. 152, 117 N. E. 46, the court said that the validity of trust receipts by which a banker advancing money on an importation takes title directly to himself, and as owner delivers the goods to the dealer in whose behalf he is acting secondarily, and to whom the title ultimately is to go when the primary right of the banker has been satisfied, has been upheld in numerous decisions-citing cases from that state and from the Federal courts in which the title of the bank was sustained. See III. infra.

Provisions of trust receipts have sometimes been added to meet new conditions, as in other commercial documents, where apparently inconsistent provisions are sometimes found, as in charter parties and riders on insurance policies; but the intention of the parties should be upheld, even if their exact relation is not always susceptible of exact definition. Re Cattus (1920) 106 C. C. A. 171, 183 Fed. 733. See also Century Throwing Co. v. Muller (Fed.) under II. b, infra. In the former case the court said that it would be most inequitable that the bankrupt or his trustee should escape from the performance of the obligation (contained in the trust receipt given by him) for the benefit of anyone except a bona fide purchaser for value, or creditors protected by statutes.

b. Relation of parties in general.

There has been some uncertainty and difference of opinion among the courts as to the exact nature of the ordinary trust receipt transaction. And it should be observed in this connection that the terms applied are often of little importance and sometimes misleading, because, while the ultimate question to be determined may be the same in different jurisdictions, yet if a certain designation. is attached to the transaction in one jurisdiction, in arriving at a specific conclusion, it may be that a strict adherence to the view that this was the correct relationship would lead to a different result in another jurisdiction, whereas the courts might agree

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