CHAPTER I.

WAREHOUSE RECEIPTS.

WAREHOUSE RECEIPTS-LIABILITY OF INDORSER-BUYER CANNOT RECOVER EXCEPT FROM WAREHOUSE.

William Mida was engaged in the wholesale liquor business at Chicago as a broker and in 1883 sold to Solomon Geissmann warehouse receipts for fifteen barrels of whisky at the time in bonded warehouse in Kentucky. The receipts were issued in the usual form by the Anderson Distillery Company, reciting the receipt of such whisky in their bonded warehouse in Louisville, Ky., and agreeing to deliver the same upon return of the receipts properly indorsed by Mida and payment of the government tax and storage. The sale was made in the usual mode by Mida indorsing and delivering the receipts to Geissmann, who paid for them at the time. Geissmann took the receipts and held them without presenting them at the warehouse or demanding the goods for nearly a year, when the distillery company failed, and it then came to light that the warehouse receipts were duplicates and Geissmann sued Mida for the return of the purchase money he had paid. The Appellate Court decided in Mida's favor, holding:

(1) That the whisky being in the warehouse, Geissmann could have presented his receipts and obtained it at any time before the failure, and having failed to do so cannot

recover.

(2) A usage of the whisky trade that in purchasing whisky warehouse receipts the seller is not looked to as the

responsible party, but the warehouse issuing the receipts must be relied on is valid.

(3) In the absence of fraud or express warranty in making sale and transfer of warehouse receipts the purchaser must rely upon the warehouse issuing them, and the person selling is not liable to the purchaser for the whisky.

(4) An indorsement of warehouse receipts by the seller merely transfers the title to the receipts and is not a warranty of the genuineness of the receipts.

Geissmann vs. Mida 17 Ill. App. 207.

LIEN OF VENDOR ON GOODS SOLD IN CASE OF FRAUDULENT PURCHASE.

The following decision involves the question of "fraudulent purchase of goods, attachments and bona fide purchaser." The plaintiffs were Carstairs, McCall & Co. of Philadelphia and the defendants the Chas. A. Kelly Company, and the appeal was from the Franklin County (Ky.) Circuit Court. Opinion of the Court by Judge Hazelrigg, affirming, as follows:

(1) When one purchases goods with the fraudulent purpose of not paying for them the lien of a creditor who has an attachment levied upon the goods as the property of the purchaser is subordinate to that of the vendor.

(2) The fact that the attaching creditors in this case are also the holders, by assignment from the fraudulent purchasers, of the warehouse receipts for the whisky upon which the attachment was levied, does not give them priority over the vendor, as it appears the transfer of the receipts was made prior to the attachment suit and must have been, therefore, merely as collateral security for the antecedent debt, as otherwise the attaching creditors would have been the owners of the whisky by virtue of their ownership of the receipts and there would have been no occasion for the attachment.

(3) In order that one may make good his plea that he is a bona fide purchaser he must show an actual payment before notice, or a change of his legal position for the worse.

It is not sufficient that he has taken the property in controversy as security for an antecedent debt.

(4) Even though there may have been an absolute transfer of the receipts after the attachment proceeding, yet as the lower court found that they were taken with notice of the infirmity of the title of the fraudulent assignor the judgment giving the vendor the superior right must be affirmed. PRIVATE WAREHOUSE RECEIPTS ARE NEGOTIABLE.

Collins & Co. of Louisville sold on May 26, 1890, to Dickinson & Co. fifty barrels of whisky, for which they issued their own warehouse receipts as dealers on goods stored in Bardstown. These receipts were transferred by Dickinson & Co. to L. E. Rosenheim of New York. Dickinson & Co. at the time they purchased the goods were hopelessly insolvent and never intended to pay for them and never did. Collins & Co. refused to deliver the goods, and Chancellor Edwards of Louisville, in rendering judgment against them, decided:

That warehouse receipts are negotiable and placed upon the footing of bills of exchange, and defendants were bound by the statements they made in their receipts.

HOW FAR IS A WAREHOUSE RECEIPT NEGOTIABLE?—

On January 6, 1886, Judge Barr decided a case involving the above question, at Frankfort, Ky., in the United States Circuit Court. The facts were as follows:

In June, 1882, Richardson & Co. of St. Louis purchased from Montgomery & Co. fifteen barrels May, '80, Hermitage whisky, in bond, at Frankfort, Ky., obtaining a warehouse receipt therefor indorsed in blank by- Montgomery & Co. Some months later this warehouse receipt was stolen from the possession of Richardson & Co. and sold to Fechheimer Bros. of Detroit, who were innocent purchasers of the same for value.

The warehouse receipt was not indorsed by Richardson & Co., and there was nothing on the paper to indicate that. the same had been in their possession, or had been owned

by them. In 1883, when the time came to pay the tax and take the whisky out of bond, the above facts regarding the theft and sale of the warehouse receipt were brought to the knowledge of Richardson & Co. for the first time. Richardson & Co. instituted a suit by replevin in the Federal Court at Frankfort against Fechheimer Bros., who in the meantime had paid the tax and placed the whisky in a free warehouse in Frankfort.

Richardson & Co. claimed that the warehouse receipt was not negotiable, to the extent of making title through a thief, to an innocent holder for value. The question of negligence on the part of Richardson & Co. was submitted to a jury who found in their favor. Judge Barr held the law to be that Richardson & Co. did not lose their title to the whisky and judgment was rendered in their favor.

PRIORITY OF WAREHOUSE RECEIPTS.

The firm of J. G. Mattingly & Sons, distillers, was composed of J. G., P. J. and L. D. Mattingly. On February 23, 1892, A. R. Sutton became a member of the firm under a partnership agreement, by virtue of which Sutton became the financial manager of the firm, and procured all the money needed for carrying on the business. As whisky was manufactured warehouse receipts therefor were placed in his hands, and were by him sold or pledged as security for notes executed for money borrowed.

For a time after Sutton became a member of the firm, the receipts issued were printed on yellow paper, and it was determined to have new receipts printed on green paper, to be used in future transactions, and that the yellow receipts outstanding should be taken up and green ones substituted therefor.

On December 7 Sutton executed a note to the German Security Bank for $2,000, due December 29, and pledged as collateral security yellow warehouse receipts for 250 barrels. On December 13 Sutton executed a note to Leon Block for $2,500 at four months, and pledged as collateral

security green warehouse receipts for the same 250 barrels, bearing the same serial numbers as those covered by the yellow receipts then held by the German Security Bank. On December 29 Sutton paid the note at the German Security Bank by a check on the Louisville Banking Company, took up only 200 of the yellow receipts held by the bank and left with the bank the receipts covering the remaining fifty barrels as general collateral. On the same day he drew a draft on Oliver & O'Bryan of Kansas City for about $2,700, payable in four months, and discounted it at the Louisville Banking Company, depositing the yellow receipts obtained from the German Security Bank as collateral, and the Louisville Banking Company paid Sutton's check to the German Security Bank with this money. Oliver & O'Bryan accepted the draft for Sutton's accommodation.

Sutton failed to pay these notes and on enforcing their liens the German Security Bank became the owner of the yellow receipts for fifty barrels, Oliver & O'Bryan became the owner of the yellow receipts for 200 barrels, and Leon Block the owner of green receipts covering the same 250 barrels covered by the yellow receipts.

The Kentucky Court of Appeals decided:

(1) That the yellow receipts for 50 barrels held by the German Security Bank were valid and prior to the green receipt for the same goods.

(2) That the yellow receipts for 200 barrels taken up by Sutton after the issuance of the green receipts, coming into the hands of Sutton for the firm that issued them, ceased to be outstanding receipts, and could only be given out again as junior and subject to the green receipts previously issued.

(3) The statute prohibits, under penalty, the warehouseman from issuing any receipt for goods while any former receipt for any such goods shall be outstanding and uncanceled, but if issued they are not thereby rendered void, and whenever the prior receipts come again into the hands of the warehouseman issuing them the later receipts become valid and the first ones issued become invalid.