Opinion
No. 34943.
April 13, 1942. Suggestion of Error Overruled June 8, 1942.
1. AGRICULTURE.
A corporation organized pursuant to federal statute authorizing the formation of associations of producers of agricultural products for the sole purpose of providing central marketing facilities and sales services to cotton growers, all of the stock of which was owned exclusively by regional and state co-operative cotton marketing associations, was not a "corporation for profit" within statute requiring such corporation to file a copy of its charter with Secretary of State as prerequisite to doing business within the state (Code 1930, sec. 4164; 7 U.S.C.A., secs. 291, 292; 12 U.S.C. .A., sec. 1141).
2. WAREHOUSEMEN.
Warehouseman cannot escape obligations imposed by statute to cancel and take up negotiable warehouse receipts when the goods for which receipts were issued are delivered by delegating the performance of such duty to another (Code 1930, sec. 3491).
3. WAREHOUSEMEN.
Warehouseman's liability for failure to comply with statute requiring him to take up and cancel negotiable receipts when goods for which such receipts were issued are delivered arises when agent charged by warehouseman with the performance of such statutory duty fails to comply with statute to the damage of an innocent purchaser of the receipts, although agent's omission to discharge such duty is negligent, willful or criminal (Code 1940, sec. 3491).
4. WAREHOUSEMEN.
Where warehouseman's chief clerk, instead of canceling negotiable receipts when cotton for which they were issued was delivered to holder of receipts, as required by statute, delivered uncanceled receipts to a third person to be negotiated to innocent purchaser, the fact that clerk violated his duty to warehouseman did not relieve the latter from liability to innocent purchaser for nonperformance of statutory duty to cancel such receipts (Code 1930, sec. 3491).
5. AGRICULTURE.
Where warehouseman's chief clerk, pursuant to a scheme entered into by him and the agent of a co-operative cotton marketing association to defraud the latter, instead of canceling negotiable receipts upon delivery of cotton for which they were issued, as required by statute, delivered uncanceled receipts to agent to be negotiated to the association, association was not chargeable with its agent's knowledge that cotton represented by receipts had previously been delivered by warehouseman so as to preclude recovery by association against warehouseman (Code 1930, sec. 3491).
6. WAREHOUSEMEN.
The liability of warehouseman for nonperformance of statutory duty to cancel and take up negotiable receipts when goods for which they were issued are delivered is absolute and arises upon failure of warehouseman or his agent to comply with statute, resulting in receipts which should have been canceled getting into the hands of an innocent purchaser, and hence no question as to proximate cause of innocent purchaser's damage as bearing on his right of recovery against warehouseman arises (Code 1930, sec. 3491).
APPEAL from circuit court of Adams county, HON. R.E. BENNETT, Judge.
Flowers, Brown Hester, of Jackson, and Engle Laub, of Natchez, for appellant.
The appellant is not a corporation "organized for profit" within the meaning of Section 4164 of the Code of 1930, which requires every corporation organized for profit under the laws of some other state to file a copy of its charter with the Secretary of State. The appellant did comply with Section 4140 which requires every corporation, whether organized for profit or not, to designate a resident agent in the State. When the appellant did this, it did all that the Code requires, for the simple reason that the section relied on by counsel for appellee applies only to corporations "organized for profit" and appellant was not such a corporation.
Negotiable receipts must be canceled when goods delivered. Except as provided in Section 3516, Mississippi Code of 1930, where a warehouseman delivers goods for which he had issued a negotiable receipt, the negotiation of which would transfer the right to the possession of the goods, and fails to take up and cancel the receipt, he shall be liable to any one who purchases for value in good faith such receipt, for failure to deliver the goods to him, whether such purchaser acquired title to the receipt before or after the delivery of the goods by the warehouseman.
Mississippi Code of 1930, Section 3491.
Each and every receipt here involved was a negotiable warehouse receipt issued by the appellee, and through its failure to cancel the same in accordance with the provisions of this statute, they were accepted by the appellant in good faith, and its funds were advanced on the strength thereof.
The direct and proximate cause of the loss sustained by appellant was the failure to cancel the warehouse receipts.
Joy v. Farmers National Bank, 11 P.2d 1074; Weil Bros. v. Keenan, 180 Miss. 697, 178 So. 90; Lundy v. Greenville Bank Trust Co., 179 Miss. 282, 174 So. 802.
No act of Haley could have induced the appellant to part with its money on cancelled warehouse receipts.
If this primary duty on the part of the appellee had been performed, as required by the statute, then this loss would not have accrued.
The fraudulent scheme concocted by Avery, and proposed to and acquiesced in by Haley, was unknown to the appellant. The fact that Haley was the agent for the Mississippi Cooperative Cotton Association, which association was the agent for the appellant, does not charge appellant with such knowledge as he had of the fraudulent scheme to which he was a party, and by which he was profiting. The rule that knowledge of the agent is imputed to the principal ceases when the agent turns aside and starts dealing for himself in a fraudulent scheme against the interest of his principal.
Scott County Milling Co. v. Powers, 112 Miss. 798, 73 So. 792; Cooper v. Robertson Investment Co., 117 Miss. 108, 77 So. 953.
The Mississippi Cooperative Cotton Association stands in this case in the position of an innocent purchaser for value without notice of the warehouse receipts, all of which were regular on their face. The appellant having acquired them in good faith, and for value from the Mississippi Cooperative Cotton Association, is entitled to recover from the appellee the amount advanced thereon.
Brandon Brandon, of Natchez, for appellee.
If it be that the appellant is a "corporation for profit," then the decisions of the Supreme Court of the State of Mississippi made it mandatory upon the court below to dismiss this suit.
Marx Bensdorf, Inc., v. First Joint Stock Land Bank of New Orleans, 178 Miss. 345, 173 So. 297; Case v. Mills Novelty Co., 187 Miss. 673, 193 So. 625.
We submit that the appellant is a corporation for profit.
The record herein discloses that the business of the appellant is that of buying and selling cotton and making loans thereon. In buying cotton the appellant goes in the open market and buys at the market price expecting to sell the same subsequently at a better price, and therefore to make a profit thereon, which profit ultimately will go to (a) the payment of its operating costs and expenses, (b) the payment of its corporate indebtedness and interest thereon, (c) the payment of guaranteed dividends or interest on preferred stock, and (d) distribution of the remainder amongst its members, who are the owners of the common stock.
Those members, owning common stock, are other cotton purchasing, selling and lending organizations, who, in addition to being stockholders in the appellant corporation, act as agent for the appellant in the conduct of its business; and such other cotton associations or corporations have as members cotton producers, cotton owners, cotton buyers, and cotton sellers who have cotton to sell or to borrow upon; and, ultimately, after the payment of operating costs and expenses of such other cotton associations, principal and interest of their items of indebtedness, profits are distributable amongst the members of such other cotton associations.
How can the activities of the appellant corporation be distinguished from that of any other corporation for profit?
This is not a corporation chartered by the United States. It is simply a corporation that is subject to statutory regulation under act of Congress of the United States, just as national banks, joint stock land banks, and federal land banks, and other federally sponsored corporations are.
The charter anticipates profits to be made, for it provides how the same shall be expended, divided, and distributed. The charter provides that preferred stock may be issued guaranteeing payment of a fixed income thereon after payment of necessary operating costs and expenses, and before there can be any distribution of earnings or profits amongst members owning common stock. The guaranteed income on the preferred stock constitutes dividends and nothing more or less, no matter by what name the same may be called. Dividends are profits, and dividends can be paid on corporate stock only from profits — else there would be a division of capital and a diminution of the value of the principal of stock certificates. The charter provides how earnings (and earnings over and above operating expenses) shall be expended, divided, and distributed; those earnings must first be applied to operating costs and expenses; they must secondly be applied to payment of interest and maturing principal of the corporate indebtedness; they must then be applied to the payment of fixed and guaranteed income or dividends on the preferred stock, and the remaining earnings over and above that representing the ultimate net profits must be divided amongst members, and those members are the owners of the common stock who have the vote and control and management of the corporation itself.
Counsel for appellant seem to argue that this is a non-profit corporation because no one could receive the net earnings and profits of the corporation except stockholders or members of stockholding subsidiary corporations. Such is our idea of any corporation operating for profit. The profits are not distributed as largess to the public generally. They are divided amongst stockholders either periodically or upon dissolution.
A non-profit corporation, within the meaning of our statute, is one which is not engaged in buying and selling or in making money in any way, but are such corporations as are literary societies, charitable organizations, fraternal organizations, etc.
This suit in the court below should have been dismissed for failure of the plaintiff, appellant, to comply with the provisions of Section 4164 of the Mississippi Code of 1930.
See "Profit," Webster's International Dictionary; Eyster v. Board of Finance, 94 U.S. 500, 24 L.Ed. 188; State ex rel. Dawson v. Sessions, 95 Kans. 272, 147 P. 789 (Affirmed, 245 U.S. 625, 62 L.Ed. 518); Santa Clara Female Academy v. Sullivan, 116 Ill. 375, 6 N.E. 183, 56 Am. Rep. 776; Iowa Mut. Tornado Ass'n v. Gilbertson, 129 Iowa 658, 106 N.W. 153; State v. Home Cooperative Union, 63 Ohio St. 547, 59 N.E. 220; Finnegan v. Noerenberg, 52 Minn. 239, 53 N.W. 1150, 38 Am. St. Rep. 552, 18 L.R.A. 778; 14 C.J. 84, note 11.
The case of Joy v. Farmers National Bank of Chickasaw, cited in opposing counsel's brief, is not applicable to the facts in this case at bar. In the Joy case we have one innocent person dealing with another innocent person's corrupt agent who had been put in position to commit the wrong complained of. Natually, in that instance the principal of the corrupt agent was held answerable to the innocent person who had dealt with such agent and sustained a loss by reason of the agent's corruption. Had the facts in the Joy case disclosed that the person with whom that agent dealt had notice and knowledge of the corruption of the agent and participated therein, the court would have denied to Joy the relief which he sought. Likewise, had Joy in that instance dealt not directly, but through an agent of his own, and that agent had participated in the wrong (as in the case at bar), the court would have denied to Joy the relief which he sought.
The proximate cause of plaintiff's loss and damage was the wrongful acts of its own agent in drawing drafts upon the strength of the invalid warehouse receipts with the desire and intention of defrauding his principal.
It is an elemental principle of law that one cannot profit in the courts of justice by his own wrong, and it is equally an elemental principle of law that one cannot profit in the court of law by the wrong of his agent or servant.
Opposing counsel have referred to the case of Weil Bros. v. Keenan, 180 Miss. 697, 178 So. 90. That case is distinguishable from the case at bar in that in the Weil case the defendant had reposed trust and confidence in its agent who had fraudulently misappropriated warehouse receipts, negotiating the same to an innocent purchaser without notice. In that case the court held that the one who by repose of confidence in his agent had enabled the fraudulent agent to effect the fraud should bear the loss. In this case, whereas the Union Compress Warehouse Company reposed confidence in its agent Avery, and Avery was guilty of a breach of that confidence, yet the loss incurred by the plaintiff in the case at bar was occasioned by the fraud and criminal conduct of its agent in whom it had reposed confidence, and the very reasoning of the Weil case requires the imposition of the loss upon the plaintiff in this instance and not upon the Union Compress and Warehouse Company.
One who acquires title through an agent is chargeable with the latter's fraud in the transaction.
McIntyre v. Pryor, 173 U.S. 38, 43 L.Ed. 606; Castle v. Bullard, 23 How. (U.S.) 172, 16 L.Ed. 424; 2 Am. Jur., Agency, 285, Sec. 366, note 11.
Counsel for appellant has referred to the case of Lundy v. Greenville Bank Trust Co., 179 Miss. 282, 174 So. 802. The Lundy case is distinguishable from the case at bar just as the Joy case is. In that case this court correctly applied the rule that one who, by entrusting to another the means to perpetrate a fraud, has enabled a fraud to be perpetrated must stand the loss. In that case no representative of the pledgee participated in the fraud or had any notice or knowledge of the vice of the transaction. Had a representative and agent of the pledgee connived with the factors to perpetrate this fraud, thereby placing the pledgee in pari delicto with factors, the decision of this court in that case would have been otherwise than that rendered.
Counsel for appellant seek to avoid the wrong of the subagent of the appellant, Haley, by invoking the limited and dubious rule that a principal is not chargeable with notice of facts known to an agent when the agent is acting for his own benefit or in his own interest. That rule has no place or application in the case at bar.
This is a case of two faithless employees conniving a fraud. If either the Union Compress and Warehouse Company or American Cotton Cooperative Association seek to hold the other responsible for anything concerning these warehouse receipts they must each be confronted with the wrong of their respective representatives. Those representatives were in pari delicto.
When two principals act in an illegal manner and are in pari delicto neither can recover against the other for anything arising out of such illegal or wrongful transaction. So, where the representatives of two persons act conjointly and illegally to perpetrate a wrong, it would be unconscionable for either to recover against the other.
It is not necessary for this court to pass on the question of knowledge and notice in the case at bar. For this case is disposed of upon the merits by the mere fact that there was not title in J.R. Haley in and to the warehouse receipts; none could be by him passed or vested in the appellant or its sub-agent, Mississippi Cooperative Cotton Association.
Carter v. Farmers National Bank of Seymour, C.C.A. Texas, 224 S.W. 265; First National Bank of Byars v. Eldridge (Okla.), 109 P. 62; Consolidated Company v. Citizens' Bank (Ga.), 122 So. 732, 733.
The appellant in this cause has predicated his demand upon alleged negligence of the Union Compress Warehouse Company. We ask that the court analyze the facts as set forth in the stipulation and see if it can find one thing therein which shows any act of negligence on the part of this appellee. We are content that none will be found.
Apparently it is the contention of the appellant that the criminal connivance of Haley and Avery constituted negligence on the part of appellee. That cannot be without a showing that the appellee had previous notice of the unfitness and criminal nature of its employee Avery, and, even then, the appellant was chargeable with the same knowledge of the unfitness and criminal nature of its employee and agent Haley.
But for the sake of further argument, let us assume that there was some negligence (though we cannot imagine what it was) on the part of the appellee whereby the warehouse receipts in question were not canceled, when the same were returned and the cotton shipped out. How can it be said that the failure was the proximate cause of appellant's injury when the record shows clearly that the proximate cause of that injury was the independent, intervening, and efficient cause and act of J.R. Haley in his perpetration of fraud against his principal?
For one to be held liable for an act of negligence as the proximate cause of an injury, the resulting injury must have been such as would naturally flow or follow from the negligence, omission, or wrongful act.
Thompson v. Mississippi Central R.R. Co., 175 Miss. 547, 166 So. 353; Kramer Service v. Wilkins, 184 Miss. 483, 186 So. 625; Columbus G.R. Co. v. Coleman, 172 Miss. 514, 160 So. 277; Jabron v. State, 172 Miss. 135, 159 So. 406; City of Greenville v. Laury, 172 Miss. 118, 159 So. 121; Williams v. Lumpkin, 169 Miss. 146, 152 So. 842.
Argued orally by J.T. Brown, for appellant, and by Gerard Brandon, for appellee.
The appellant brought this action against the appellee, a warehouseman, for the recovery of damages sustained by it because of the appellee's failure to comply with Section 3491, Code of 1930.
The appellant is a Delaware corporation and its right to recover was challenged by a special plea alleging that it had failed to file its charter with the Mississippi Secretary of State, as required by Section 4164, Code of 1930, which section requires "every company or corporation for profit incorporated under or by virtue of the laws of any government, or of any other state or territory, now or hereafter doing business in this state" to file a copy of its charter with the Secretary of State, and in default thereof "shall be liable to a fine of not less than $100.00." A replication by the appellant to this plea denies that it is a "corporation for profit," and alleges that it was organized pursuant to the provisions of an Act of Congress approved February 18, 1922, 42 Stat. 388, 7 U.S.C.A., secs. 291, 292, entitled "an act to authorize the formation of associations of producers of agricultural products . . . for the sole purpose of providing central marketing facilities and sales services to the growers of cotton in Mississippi and other states of the South."
"All of its common stock and all of its preferred stock is owned exclusively by Regional and State Co-operative Cotton Associations whose methods of business and form of organization comply with the provisions of the Act of Congress approved February 18, 1922, hereinabove referred to.
"No individual, firm or corporation other than such Co-operative Cotton Marketing Associations is eligible to become a stockholder in the plaintiff corporation.
"The issuance of preferred stock, as provided in the amendment to the Charter Exhibit "B" hereto, was authorized for the purpose of affording a means to provide finances for the operation of the plaintiff's affairs by the United States of America, Farm Credit Administration.
"All of the funds used in connection with the financing of plaintiff's operations are furnished and advanced by the United States of America, Farm Credit Administration.
"To facilitate such advances the issuance of preferred stock, as provided in the amendment to the plaintiff's charter, Exhibit "B" hereto, was authorized.
"Each and every share of this preferred stock is issued to Co-operative Cotton Marketing Associations whose methods of business and form of organization comply with the provisions of the Act of Congress approved February 18th, 1922, entitled `An Act to Authorize the Formation of Associations of Producers of Agricultural Products.' The ownership of stock in plaintiff, either common or preferred, is limited strictly to such associations.
"As and when the preferred stock is issued it is in turn by such Co-operative Cotton Marketing Associations pledged to the United States of America, Farm Credit Administration, for the purpose of securing funds with which to pay for the same, all of said funds being in turn paid over to the plaintiff corporation for use by it in connection with its operations.
"In no other way and in no other manner are the operations of the plaintiff financed.
"The plaintiff can make no profit from its operations in that the net proceeds of all cotton handled by it, after the expense of operation has been paid, is returned to the producers through the medium of the Regional and State Co-operative Cotton Marketing Associations holding stock in the plaintiff corporation, and this association has never made any profit nor received any profit."
The copy of the appellant's charter filed with the replication discloses that it was authorized to issue 25 shares of common stock of a par value of $100 each and "299,975 shares of 5% non-cumulative preferred stock of a par value of $100.00 each." The common stock alone to possess stockholder voting power and to be issued only to cooperative marketing associations "whose method of business and form of organization comply with the provisions of the Act of Congress approved February 18, 1922, entitled `An act to authorize association of producers of agricultural products' and not more than one share of common stock shall ever be issued or owned by any such association."
It thus appears from this replication that the appellee itself derives no profit from its activities that inure to the benefit of its stockholders in the shape of dividends on its stock owned by them and while it appears from the appellant's charter that it is authorized to pay not exceeding a five percent dividend on its preferred stock, it is clear from the allegations of the replication that this preferred stock is simply for use in borrowing money from a governmental agency for use by the appellant in the prosecution of the purpose of its organization. It is true that the stockholders of the appellant's constituent cooperative cotton marketing associations may, because of the appellant's activities, be enabled to obtain a higher price for cotton produced by them than they otherwise would. But this is not the character of profit contemplated by Section 4164, Code of 1930. The purpose for which the appellant and its constituent cooperative associations were organized was not to earn dividends for their stockholders, but, as set forth in Section 4083, Code of 1930, and in effect in Section 1141J, 12 U.S.C.A., "to promote the general welfare of agriculture; to enable producers of agricultural products whether in the state of Mississippi or not to co-operate in the productions, processing, packing, distribution, financing and marketing of agricultural products, and the elimination of speculation and waste therein." Which section also designates such corporations as being "not for profit but for service to their members," as also does Section 6 of an amendment to the appellant's charter. No error was committed in overruling the demurrer to this replication.
After the demurrer was overruled the case was submitted to the court below for decision without the jury on a stipulation of facts, which sets forth in substance that: The appellee is a warehouseman doing business at Natchez, Mississippi, and engaged, among other things, in storing cotton in bales and issuing negotiable warehouse receipts therefor. It was the duty of its chief clerk, H.E. Avery, to cancel these negotiable receipts when they were surrendered and the cotton represented thereby was delivered to the holder of the receipts. All of the appellant's business in Mississippi was transacted through its only Mississippi stockholder and agent, the Mississippi Co-Operative Cotton Association and its agents. J.R. Haley was the Natchez agent of the Mississippi corporation and through it of the appellant, and attended to the appellant's business of making advances of money to the stockholders of the Mississippi corporation on negotiable warehouse receipts for cotton delivered by them to him or in purchasing these receipts outright. When the money was advanced on these warehouse receipts, the producer of the cotton delivering them signed a marketing agreement setting forth the relative rights of the producer and the appellant therein; and the receipts and agreement were forwarded by Haley to the Mississippi corporation's Jackson, Mississippi, office. Avery and Haley agreed with each other, and without the knowledge of their principals, that Avery would not cancel all of the negotiable receipts for cotton issued by the appellee when the cotton represented thereby was delivered to the holder of the receipts, but that he would deliver some of these receipts to Haley, who would use them in obtaining an advancement of money thereon from the appellant by means of forged marketing agreements. Negotiable receipts issued by the appellee for about 164 bales of cotton were thus dealt with and a sum of money aggregating something over $5,000 was obtained by Haley from the appellant thereon in the usual manner in which he conducted the appellant's regular business.
A judgment was rendered dismissing the appellant's action. The appellee's contentions in support of this judgment are in substance:
(1) The appellant's declaration predicates its right to recover upon alleged negligence of the appellee in not canceling these receipts when the cotton represented thereby was delivered to the holders thereof and no negligence of the appellee in this connection appears for the reason that it "had no previous notice of the unfitness or criminal nature of its employee Avery."
(2) Avery was acting for himself and therefore withdrew for that purpose from the appellee's employment when he delivered these uncanceled receipts to Haley.
(3) The knowledge of the appellant's agent Haley that the cotton represented by these uncanceled receipts had been delivered to the holders thereof must be imputed to the appellant.
(4) The failure of Avery to cancel these receipts and the delivery of them by him to Haley was not the proximate cause of the damage sustained by the appellant but the proximate cause thereof was the act of its own agent Haley in obtaining money from it on these receipts.
Section 3491 of the Code imposes an absolute duty on a warehouseman who has delivered goods for which he has issued a negotiable receipt to "take up and cancel the receipt." He must do both and in default of either the section imposes absolute liability on him "to any one who purchases for value in good faith such receipt, for failure to deliver the goods to him." This duty is non-delegable and a warehouseman can not escape its obligation by delegating its performance to another. His liability arises when his agent whom he has charged with the performance of the duty fails to do so, to the damage of an innocent purchaser of the receipts, although the agent's omission to discharge the duty was negligent, wilful or criminal. 4 Rest. Torts, Sec. 877 clause (d) and comment (e) thereon; 1 Rest. Agency, Sec. 214. This rule is illustrated by the many cases in this court dealing with the master's duty to provide his servant with a safe place to work, and by Joy v. Farmers' National Bank, 158 Okla. 1, 11 P.2d 1074, wherein a statute similar to Section 3491, Code of 1930, was under consideration.
It is true that Avery violated his duty to the appellee when he delivered these receipts to Haley for purposes of his own, but that fact cannot relieve the appellee from liability for the nonperformance of its non-delegable duty to cancel the receipts when the cotton represented by them was delivered to the holders thereof.
Since Haley in negotiating these receipts to the appellant, his principal, was acting adversely to it and entirely for his own and Avery's purposes, pursuant to a scheme entered into by them to defraud the appellant, it is not chargeable with Haley's knowledge of the fact that the cotton represented by these receipts had been delivered by the appellee to the holder thereof. 1 Rest. Agency, Sec. 282. One of the numerous cases in this state so holding is Scott County Milling Co. v. Powers, 112 Miss. 798, 73 So. 792.
No question of proximate cause arises under Section 3491, Code of 1930, for the liability imposed thereby is absolute and arises when a warehouseman, or his agent charged by him with carrying out the provisions of the statute, fails to obey its command resulting in receipts that should have been canceled getting into the hands of an innocent purchaser thereof.
We are not presented with a case in which a warehouseman or his agent exercised due care to cancel negotiable certificates issued by the warehouseman and the failure so to do resulted from no fault of the warehouseman or his agent, and we express no opinion thereon.
Reversed, and judgment here for the appellant.