Case Name: STAMFORD COMPRESS CO. v. FARMERS' & MERCHANTS' NAT. BANK
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1912-02-21
Citations: 143 S.W. 1142
Docket Number: 
Parties: STAMFORD COMPRESS CO. v. FARMERS’ & MERCHANTS’ NAT. BANK.
Judges: RAMSEY, J., dissenting.
Reporter: South Western Reporter
Volume: 143
Pages: 1142–1145

Head Matter:
STAMFORD COMPRESS CO. v. FARMERS’ & MERCHANTS’ NAT. BANK.
(Supreme Court of Texas.
Feb. 21, 1912.)
1. Warehousemen (§ 15 ) — :Receipts—NEGOTIABILITY.
A receipt issued by a cotton compress company, -which acknowledges the receipt of cotton, to be at the owner’s risk, and which stipulates that the company will not be responsible for damage by water or loss or damage by fire, and that the receipt must be returned on delivery of the cotton, and that it is nonnegotiable, is not a negotiable instrument under the law merchant.
[Ed. Note. — For other cases, see Warehouse-men, Cent. Dig. §§ 31-37; Dec. Dig. § 15. ]
2. Warehousemen (§ 17 ) —Receipts — Assignment oe Receipt — Rights op Holder —Notice.
Under Rev. St. 1895, art. 308, which provides that the obligee or assignee of any written instrument not negotiable by the law merchant may transfer to another by assignment all Ms interest therein, and article 309, which provides that the assignee of such instrument may sue thereon in his own name, but shall allow every defense to which, it would have been subject in the hands of any previous owner before notice of the assignment, it was the duty of a bank, on taking a nonnegotiable warehouse receipt from the original holder for a valuable consideration, to notify the company -of the transfer in order to hold the company liable; and by notice to the company it couid compel delivery to itself, or, if the company after such notice had delivered the cotton to the original holder, it could compel the company to pay over its value; but until such notice the company had the right to deal with the original holder as the owner of the cotton, and. if it then delivers the cotton to the original holder upon a reasonable explanation for not presenting the receipt, it is not liable to the assignee for its value.
[Ed. Note. — For other cases, see Warehouse-men, Gent. Dig. § 36; Dec. Dig. §■ 17. ]
3. Warehousemen (§ 17 ) — Receipts —Assignment — Effect as Vesting Title.
Under Rev. St. 1895, art. 308, which provides that the obligee or assignee of any written instrument, not negotiable by the law merchant, may transfer to another by assignment all his interest therein, and article 309, enabling the assignee to sue thereon in his own name, subject to all defenses to which it would have been subject in the hands of previous owners before notice of assignment, the as-signee for a valuable consideration of a non-nogotiable receipt for cotton issued by a compress company becomes vested with the title to the cotton and may maintain an action for it against its assignor or the compress company before delivery, or against a subsequent purchaser from its assignor.
[Ed. Note. — For other cases, see Warehouse-men, Cent. Dig. § 36; Dec. Dig. § 17. ]
4. Warehousemen (§ 16 ) — Assignment of Receipt — Rights and Remedies of As-signee — Common Law.
At common law the assignee of a nonnegotiable warehouse receipt for cotton could not recover against the warehouseman because the assignee, in the absence of notice of the assignment, never became bailor to the warehouseman.
[Ed. Note. — For other cases, see Warehouse-men, Cent. Dig. § 35; Dec. .Dig. § 16. ]
5. Assignments (§ 121 ) — Action in Name of Assignor.
Under the common law the assignee of a nonnegotiable written instrument could not sue thereon in its own name.
[Ed. Note. — For other cases, see Assignments, Cent. Dig. §§ 200-205; Dec. Dig. § 121. ]
6. Assignments (§ 101 ) — Action Against Bailee — Defenses .
At common law the bailee was entitled to all defenses which accrued against the bailor before notice of assignment.
[Ed. Note. — For other cases, see Assignments, Cent. Dig. §■ 182; Dec. Dig. § 101. ]
Ramsey, J., dissenting.
Error to Court of Civil Appeals, Second Supreme Judicial District.
Action by the Farmers’ & Merchants’ National Bank against the Stamford Compress Company. From a judgment of the Court of Civil Appeals (129 S. W. 1160), affirming a judgment for plaintiff, defendant brings error.
Reversed, and judgment rendered for defendant.
Hardwicke & Hardwieke, Davenport & Davenport, and Theodore Mack, for plaintiff in error. J. M. Wagstaff, for defendant in error.
For other cases see same topic and section NUMBER, in Dec. Dig. & Am. Dig. Key No. Series & Rep'r Indexes

Opinion:
BROWN, C. J.
E. S. Keen, W. B. and John Guitar, Jr., compose the partnership, Stamford Compress Company, and being engaged in operating a cotton compress at Stamford, Tex., executed this instrument: "No. 290. Stamford, Texas, May 13, 1908. No. Bales 42. Stamford Compress Company. Received from West Cotton Yard for account of Will Rives, mark • — —<—, at owner's risk forty-two bales cotton. Not responsible for water damage or loss or damage by fire. This receipt must be returned on delivery of the cotton and is nonnegotiable. [Signed] T. O. Purkett, Supt."
The Court of Civil Appeals overlooked the requirement of the statute that they should find and state conclusions of fact, but there being no dispute about the transaction we will dispose of the case on the record.
Rives, for a valuable consideration, delivered the receipt to the defendant in error, and thereafter Rives received the cotton from the Compress Company, stating that the receipt was among his papers and would be delivered. The Compress Company had no notice of the transfer of the receipt by Rives.
The receipt was in writing and not negotiable by the law merchant, therefore within the terms of article 308, Revised Statutes, and the assignment must be given the effect prescribed by the statute. We assume without going into detail of the evidence that the bank acquired title to the receipt and to the cotton.
The bank sued the Compress Company for the value of the cotton, and the latter defended on the ground that it had no notice of the transfer of the certificate when it delivered the cotton to Rives, and that Rives had claimed to be the owner thereof.
Article 308, Revised Statutes, reads as follows: "The obligee, or assignee, of any written instrument not negotiable by the law merchant, may transfer to another, by assignment, all the interest he may have in the same."
The receipt was not assignable at common law, and the purpose of the Legislature in enacting the article copied was to make such instrument assignable, so that the person to whom such instruments should be payable might assign the contract, thus placing the assignee in the place of the assignor.But the assignee of such contract could not have sued the maker thereof at common law, but must have used the name of the original obligee. To enforce the right acquired under article 308, the Legislature enacted article 309, Revised Statutes, which reads: "The assignee of any instrument mentioned in the preceding article may maintain an action thereon in his own name, but he shall allow every discount and defense against the same which it would have been subject to in the hands of any previous owner before notice of the assignment was given to the defendant; and in order to hold the assignor as surety for the payment of the instrument, the as-signee shall use due diligence to collect the same."
By the plain language of the two articles copied, the rights of the parties are defined to be that th^ bank acquired title to the property, and by notice to the Compress Company could have compelled delivery to it, the bank, and if the Compress Company had, after such notice, delivered the cotton to Rives, it would be required to pay its value to the bank. The right given by article 309 to sue on the contract is predicated upon the provision that requires it to allow all defenses which the Compress Company had against Rives which arose in favor of the Compress Company before it had notice of the assignment of the receipt.
Article 309 made it the duty of the bank, when it received the receipt, to give notice to the Compress Company of the. transfer in order to hold the obligor responsible to the assignee.
It follows as a necessary conclusion that the Compress Company had the right to deal with Rives as owner of the cotton until notice was given to it of the transfer of the receipt to the bank. Rives gave such reason for not presenting the receipt as under the circumstances was reasonable, and the Compress Company had the right to rely upon his statement. Swearingen v. Buckley, 1 Posey, Unrep. Oas. 421; Daniel, Neg. Inst. § 742.
In Swearingen v. Buckley it was said: "It was the duty of the assignee of a nonnegotiable note to promptly notify the maker of such transfer. It is even held that a transfer, save as between the payee and the indorsee, is not complete until such notice was given. Buckley called on the payee, who by the terms of the note was the creditor, tendered him checks on the railroad ; they were taken and change returned; the payee accounted for the absence of the note by saying it was mislaid, and assured Buckley that it 'would not trouble him any more. He would put a release of it on record.' He gave a receipt for the note indorsed on the back of the deed; and the plaintiff, Buckley, testified that he had no notice of the transfer." It is true that the decision was by the commission when the opinions were not approved by the Supreme Court, but the members of that commission were able lawyers and their opinions have been frequently cited and approved.
It is the policy of our statute to put upon the assignee of nonnegotiable contracts the duty to give notice to the maker of the transfer thereof, and the courts have no authority to change that policy by construction. If we look to the reason of the law that construction of the statute will be sustained, for the assignee must know the maker, but the maker has no means of knowing who is as-signee until notice has been given.
By a strong implication article 309, supra, authorizes the obligor in a nonnegotiable contract to recognize the obligee as the owner of the property until notified of its assignment.
There is no dispute of the proposition that the assignment and delivery of the receipt by Rives vested the title to the cotton in the bank, which could have maintained an action for it. For instance, if Rives, after getting possession of the cotton, subsequently to the assignment of the receipt, had sold the cotton to another party, the bank could have recovered it from such purchaser. So the bank could have recovered the, cotton from Rives or from the Compress Company before delivery to the assignee. Although the assignment of the receipt vested title to the cotton in the bank, it did not transfer the contract. Jones on Pledges, § 281. The Compress Company could not-be made bailee to the bank without notice to it of the assignment of the contract. Benjamin on Sales, § 814-817.
At common law the bank could not recover in this case because it never became bailor to the Compress Company. We find no decision or other authority to the contrary.
To get a clear comprehension of articles 308 and 309, Revised Statutes, let us ascertain in what respects the statute has changed the common law. Aside from the statute, the suit could not have been maintained by the bank in its own name. The statute gives that right. At common law tlie bailee was entitled to all defenses which accrued against the bailor before notice of assignment. By the statute, the right of the assignee to sue upon the instrument in his own name is conditioned that he shall allow to the maker "every discount and defense" which he had before notice of the assignment was given. If he cannot recover except that he allow such defenses, then it follows logically that the bailee had a right to deal with the original bailor as owner of the cotton until notice should be received of the transfer, for no such defenses could accrue except by transactions with the original bailor concerning the property, and such transaction must have been after the transfer of the receipt and before notice of such transfer) which notice could not be given before the contract was assigned. We are of opinion that, under the articles of the statute quoted, the maker of any nonnegotiable instrument may deal with the bailor or payee in such contract as the owner of the property bailed or as entitled to claim the performance of , the contract until notice of assignment shall have been given by the assignee. It is the duty of the assignee of such contract to at once give notice thereof to the maker. Daniel, Neg. Instr. § 742. We repeat. that we -make no contention against the claim that the title to the cotton passed to the bank. The question is distinctly as to the liability of the Compress Company for cotton it delivered to the bailor before notice of the assignment. We assert that the bank must allow all "discounts and defenses" which the company had against Rives when notice of the transfer was given.
The honorable Court of Civil Appeals cited this case: Union Trust Co. v. Wilson, 198 U. S. 530, 25 Sup. Ct. 766, 49 L. Ed. 1154. In that case the court was answering three questions certified to it. The question at issue here was not before the court. The opinion does not bear upon this issue in the remotest degree.
Friedman v. Peters, 18 Tex. Civ. App. 11, 44 S. W. 572, and National Bank of Cleburne v. Citizens' Bank, 41 Tex. Civ. App. 535, 93 S. W. 209, are cited, but neither have any bearing upon our question. In neither ease was the liability of the maker of the contract involved. In Friedman v. Peters, the contest was between two claimants of five barrels of whisky under different assignments of the warehouse receipt; the liability of the bailee was not involved. In National Bank of Cleburne v. Citizens' Bank, the contest was between two claimants of the cotton in which the bailee's liability was not involved.
The following cases and text-books have been cited as supporting the claim of the bank. Jones on Pledges, § 280-330. Section 280 simply states the undisputed proposition that' the delivery of the warehouseman's receipt passes to the assignee the title to the property. Section 281 specifically says: "The receipt merely stands in place of the property it represents, and the delivery of it has the same effect in transferring the title to the property as the delivery of the property itself. The delivery of the receipt does not transfer the contract so as to enable the assignee or indorsee to maintain an action upon it in his own name. There is no privity' of contract between the warehouseman and the assignee. The as-signee occupies no better position, as regards the warehouseman, than his assignor had." That section states the law plainly against the contention of the bank.
Gibson v. Stevens, 8 How. 384, 12 L. Ed. 1123, was tersely stated to present this question: "This case is one of much interest, and has been very fully argued. There is, however, but a single question in it,' and that is whether the property in dispute was transferred to the plaintiff in error, and vested in him, by the indorsement and delivery of the warehouse documents, in the manner stated in the record." The case in no sense involved the question here presented, but it does affirm that the assignment of warehouse receipts pass the title to the property as against the claims of creditors.
In Babcock' v. People's Savings Bank, 118 Ind. 212, 20 N. E. 732, a warehouseman gave a receipt in which it was stated that the property received would be delivered only upon return of the receipt, and the court correctly held that the words, "only upon return," etc., had the effect to make the warehouseman bailee of the assignee and that it authorized the assignee to rely upon the implied promise to hold the property for any assignee of that receipt. The court said: "Those instruments represent as true two very essential things: That they, the ware-housemen, received the property mentioned in the receipts as warehousemen, and that it will be delivered only on the return of the certificates, properly indorsed. The plainest principles of justice require that the appellants should not be permitted to deny what they represented, and thus cause loss to one who, in good faith, acted upon their statements, and loaned money upon the faith of their representations. By issuing these receipts, the warehousemen represented that they had the flour in their warehouse, and would there keep it until the certificates were returned, and they, and not an innocent third person who has relied on their representations, must bear the loss." The receipt in question in that case reads as follows: "Received from Elies & Knauss, in our William street warehouse, on storage from L. & N., 140 barrels of flour, to be delivered only on return of this certificate, properly indorsed, and payment of charges and insurance." No such recital occurs in the receipt in this case.
Planters' Rice Hill v. Bank, 78 Ga. 574, 3 S. E. 327, was a suit against the rice mill upon receipts for rice which it claimed never to have received; the receipts having been issued to enable a party to obtain loans, which he did, upon the faith of the wheat being in store. The case simply decides that the mill was liable because it had issued a false receipt by which the lender was deceived. It did not matter that the receipts were false.
Suarez v. Steamship Co., 1 Woods, 96, Fed. Cas. No. 13,585, involved the liability of the ship for a package delivered to a member of the crew who undertook personally to deliver it. The court held the ship not liable. Comment is unnecessary.
In Stewart, Gwynne & Co. v. Insurance Co., 9 Lea (Tenn.) 104, the warehousemen issued a receipt for 40 bales of cotton for the purpose of its being used as security for a loan from the Insurance Company. It contained this stipulation: "The stipulation upon the face of the receipt, that the articles mentioned will be delivered only upon the return of the receipt, is a contract upon which the assignee has a right to rely, upon the faith of which he has acted and for the breach of which he has his action against the warehouseman." The quotation is my comment.
Quick v. Milligan, 108 Ind. 419, 9 N. E. 392, 58 Am. Rep. 49, is wholly irrelevant.
Preston v. Witherspoon, 109 Ind. 457, 9 N. E. 585, 58 Am. Rep. 417, involved the authority of a warehouseman to sell wheat deposited with him.
Bank v. Bates (D. C.) 1 Fed. 702, decides only that the assignment of a warehouse receipt vests the title to the property in the assignee who may sue for and recover it.
Cowdrey v. Yandenburgh, 101 U. S. 572, 25 L. Ed. 523, did not adjudicate the liability of the maker of the contract. The question was, Did an assignee get the right of the payee?
The earnestness with which the claim of the bank has been urged, based upon such elaborate citation of cases, has rendered it proper, if not necessary, for me to review the authorities relied upon. I have read many other cases bearing upon this question and have not found one which, in my opinion, supports the interpretation sought to be placed upon our statute. It is said to be important to the banks and those who advance money on such receipts. It is likewise important to the compress companies. Some compress company handled each bale of cotton that is represented by such receipts, and each bank or person who may come into possession knows exactly to whom to give notice, while the compress company probably does not know who holds the obligation.
Paramount to all considerations of policy is the undeniable fact that the plain language of the law places the duty on the as-signee to give notice of his acquisition of the receipt. This court cannot by construction shift the duty to the maker. This rule applies to all nonnegotiable paper, and its real importance applies more to such other classes of contracts.
There is no conflict in the evidence in this ease; it is purely a question of law, and, holding as we do that the bank showed no cause of action, the judgments of the district court and Court of Civil Appeals are reversed, and judgment will be rendered that the Farmers' & Merchants' National Bank take nothing by this suit and that the Stamford Compress Company recover all costs of all of the courts.
RAMSEY, J., dissenting.