Appeal from the District Court of the United States for the Eastern District of Pennsylvania; Guy K. Bard, Judge.
Before CLARK, JONES, and GOODRICH, Circuit Judges.
This case involves the not unfamiliar situation of the loss wrought upon innocent parties by the wrongdoing of a third. The plaintiff is the First Camden National Bank and Trust Company of Camden, N.J., which advanced money upon the security of a warehouse receipt. The defendant is the J. R. Watkins Company of Winona, Minnesota, a good faith purchaser of goods which the plaintiff claims were effectively pledged to it by delivery of the warehouse receipt.
The applicable facts may be shortly stated. J. N. Limbert & Company, hereinafter called "Limbert," was an importer of vanilla beans. Limbert leased a floor in a warehouse in Philadelphia known as Bailey Warehouses. A quantity of vanilla beans arrived in Philadelphia on July 21, 1936, consigned to Limbert. These beans were taken to the floor in the Bailey Warehouses occupied by Limbert. This floor had one portion of free space and another division which was kept under the control of the United States, being a bonded warehouse part of the floor. On July 29, 1936, W. A. Bailey, the proprietor of the warehouse, issued a non-negotiable warehouse receipt for the goods, in standard form. This receipt made out in the name of the plaintiff bank was pledged by Limbert to the bank as security for a loan. A few days subsequent to this transaction, Limbert removed a portion of the beans from the warehouse and sold them to the defendant who received and paid for them in good faith. The bank was not paid. On May 20, 1938, when it sought to take possession of the beans which were supposed to be represented by the warehouse receipt, the facts came to light.
The defendant, of course, does not deny the well settled legal proposition that ordinarily when one buys and consumes chattels which belong to another he becomes a converter and must pay for his conversion regardless of his good faith.*fn1 The plaintiff claims that this governs the case. It says that the chattels were pledged to it by means of delivery of this warehouse receipt and that its interest in them is not divested by the subsequent sale by Limbert to the defendant. The defendant, however, says an entirely different rule of law is applicable here. It points out the indisputable rule that when one issues a warehouse receipt for goods which he does not have, the most that another taking that receipt can get is a right against the person who issued the receipt. Then the defendant makes that proposition applicable to this case by saying that Bailey, when he gave this warehouse receipt, did not, in fact, have these goods in his possession.
It is clear that if Bailey did not have the goods his warehouse receipt was ineffectual and the plaintiff bank gets no claim to the goods.*fn2 It is equally clear, that if Bailey did have the goods and gave the receipt for them, the subsequent purchase and use of them by the defendant subjected it to liability. The controversy turns then upon the question of who had the goods at the time Bailey gave the warehouse receipt.
The Limbert lease was in the ordinary form of real estate leases. By its terms it granted to J. N. Limbert & Company, as lessee, the whole ninth floor of building No. 11 in the Bailey Warehouses. The Limbert name appeared upon the door, which was the only entrance to this floor. By the terms of the lease the lessor was to furnish elevator service for the lessee; also platform space for the reception and shipment of goods. The only reserved rights of the lessor to go into the premises were for the purposes of inspection and repair.
We see no escape from the conclusion that this lease gave Limbert exclusive possession of the specified floor in the Bailey Warehouses.*fn3 Goods on this floor were in the possession of Limbert and not Bailey. The plaintiff endeavors to minimize the force of these circumstances by the argument that whatever words the lease may have contained, the practice of the parties was that Bailey exercised substantial control over all the premises and that the lease was given only so that Limbert and his workmen could do the work necessary upon the merchandise prepared and offered for sale. We do not find evidence which supports this conclusion upon the facts nor evidence upon which a jury could find that these beans were in Bailey's and not in Limbert's possession.
It is argued that the following testimony by Bailey was evidence of his possession:
"Q. So that you thought the amount of supervision that you were exercising was all that was necessary for the safety of the goods; wasn't that right? A. Right."
But this reference to the safety of the goods is meaningless as to the question of possession and, furthermore, there is this testimony by Bailey directly on the question of supervision and control:
"Q. Did you exercise supervision over what went on on that floor? A. No, we had no supervision over that floor.
"a. I do not think we got in that floor excepting something that was necessary for us to fix - ...