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G.A.C. COMMERICAL CORP. v. WILSON

July 24, 1967

G.A.C. COMMERCIAL CORPORATION, Plaintiff,
v.
John D. WILSON, Dudley Luce, Burton C. Meighan, Abe Cooper, Sheru Lalvani, Norwood & St. Lawrence Railroad Co., Defendants


Frederick Van Pelt Bryan, District Judge.


The opinion of the court was delivered by: BRYAN

FREDERICK van PELT BRYAN, District Judge:

Plaintiff G.A.C. Commercial Corporation (G.A.C.), a Delaware corporation, brings this action sounding in fraud against the five individual defendants and in negligence against a New York corporation, Norwood & St. Lawrence Railroad Co. (Norwood), a rail carrier in interstate commerce. Defendant Norwood now moves, pursuant to Rule 12(c), F.R.Civ.P., for judgment on the pleadings dismissing the fourth count of the complaint. Since matters outside the pleadings have been presented and considered the motion will be treated as one for summary judgment under Rule 56, F.R.Civ.P.

 The gravamen of the action is spelled out in the first three counts of the complaint, laid solely against the individual defendants. It is alleged that on October 17, 1963, plaintiff G.A.C. entered into an accounts receivable financing agreement with St. Lawrence Pulp & Paper Corp. (St. Lawrence), a New York corporation. Under the terms of the agreement G.A.C. was to make advances to St. Lawrence, which agreed to "pledge, assign and transfer to G.A.C. all the [borrower's] right, title and interest in and to accounts receivable * * * then owing" to St. Lawrence.

 Pursuant to the agreement St. Lawrence forwarded copies of its invoices together with copies of bills of lading to G.A.C., which, upon receipt, advanced the monies to St. Lawrence at the agreed discount. Repayment of the debts due was guaranteed in writing by the defendant Wilson who was a corporate officer of St. Lawrence. G.A.C. ultimately advanced $356,883.57 under the financing agreement, no part of which has been repaid. St. Lawrence is now a bankrupt.

 The first claim for relief seeks recovery of the entire amount from the individual guarantor Wilson. The second claim alleges that certain of the accounts receivable forwarded to plaintiff were false and fraudulent, and that in reliance upon these accounts G.A.C. advanced the sum of $254,173.42 which has not been repaid. The individual defendants, who, with the exception of Lalvani, are described as officers and/or directors of St. Lawrence, are charged with knowledge that these accounts were false and fraudulent. The third claim simply adds a conspiracy allegation against the individual defendants describing a scheme to "defraud and deceive the plaintiff" by forwarding false and fraudulent accounts receivable.

 This motion is addressed to the fourth claim for relief laid solely against Norwood. That claim alleges that the fraudulent accounts receivable described were "upon the form of bill of lading" of defendant Norwood "and were countersigned by its agent." Norwood is charged with negligence in failing to require any inspection of the quantity of goods shipped before verifying the bills of lading and in permitting a situation to occur in which the fraudulent and non-existent accounts could be forwarded to G.A.C.

 Norwood's answer alleges failure to state a claim on which relief can be granted and contributory negligence. By way of separate defense it denies any knowledge or information as to the falsity of the bills of lading or with respect to the financing agreement between St. Lawrence and G.A.C. The answer also alleges that the bills of lading involved are "uniform straight [bills] of lading - not negotiable," as in fact they are, under Section 2 of the Federal Bills of Lading Act. 49 U.S.C.A. § 82.

 The controversy here concerns 62 invoices and accompanying straight bills of lading forwarded to G.A.C. by St. Lawrence during 1964. Sixty of these bills concern interstate shipments of paper from St. Lawrence in Norfolk, New York, to Mohegan Converters in Hillside, New Jersey, and involve advances of $245,811.19. Each of the sixty interstate bills was on Norwood's bill of lading, and it is conceded for purposes of this motion, though denied in the answer, that the bills were signed by one of Norwood's agents.

 The other two bills involve advances of $8,362.23 on two intrastate shipments from St. Lawrence to Norwood Converting, Inc. in Norfolk, New York, and to Board of Education Depository, Long Island City, New York, respectively. The bills of lading on these shipments were not on Norwood forms and were not signed by Norwood's agents. In fact there is no evidence that Norwood issued these bills or had anything to do with them.

 The method by which the alleged fradulent scheme was carried out appears for purposes of this motion to be as follows: the bankrupt St. Lawrence, as part of its facilities in Norfolk, New York, maintained a railroad siding connected with the lines of defendant carrier which had a freight office approximately 1/8th of a mile from the siding. St. Lawrence was permitted to load freight at its spur track in preparation for shipments on defendant's line. The railroad cars were sealed by St. Lawrence with seals provided by the railroad. St. Lawrence also prepared the bills of lading on blanks furnished in quadruplicate by defendant Norwood. The bills thus prepared were then presented to Norwood's agent who signed the original and one copy without inspecting the contents of the cars. No notation such as "contents of packages unknown" or "shipper's weight, load and count" was written on the bills. The signed copies were returned to St. Lawrence and forwarded with the invoices to G.A.C. which made advances on the goods described, which, as it turned out, had not been shipped.

 Since sixty of the bills of lading were issued by a common carrier for the transportation of goods in interstate commerce, the issues as to these bills are controlled by the provisions of the Federal Bills of Lading Act. 49 U.S.C. § 81. This statute stands as "a clear expression of the determination of Congress to take the whole subject matter of such bills of lading within its control." 2 Williston, Sales § 406a, at 535 (rev.ed.1948); see Adams Express Co. v. Croninger, 226 U.S. 491, 33 S. Ct. 148, 57 L. Ed. 314 (1913). As such, it squarely bars the fourth claim asserted against defendant Norwood on the sixty bills representing interstate shipments.

 Prior to the passage of the Federal Bills of Lading Act "the United States courts held that a carrier was not liable for the act of its agent in issuing a bill of lading for goods where no goods had in fact been received." Josephy v. Panhandle & S.F. Ry., 235 N.Y. 306, 310, 139 N.E. 277, 278 (1923); see, e.g., Clark v. Clyde S.S. Co., 148 F. 243 (S.D.N.Y. 1906). The liability of carriers for acts of their agents was expanded, but not drastically, by the passage of the federal legislation which draws a sharp distinction between order bills of lading and straight bills where in fact the goods are never received for shipment by the carrier. Under § 22 of the Act, 49 U.S.C. § 102, "[if] a bill of lading has been issued by a carrier or on his behalf by an agent or employee * * *, the carrier shall be liable to * * * the holder of an order bill, who has given value in good faith, relying upon the description therein of the goods, * * * for damages caused by the nonreceipt by the carrier of all or part of the goods upon or prior to the date therein shown." However, the liability of the carrier for nonreceipt extends only to "the owner of goods covered by a straight bill," *fn1" provided, of course, he also gives value in good faith in reliance upon the description of goods contained in the bill. See Strohmeyer & Arpe Co. v. American Line S.S. Corp., 97 F.2d 360, 362 (2d Cir. 1938). *fn1"

 It is clear that a party in the position of Norwood is not included within the narrow category of those liable on a straight bill under the federal legislation. In the first place there is no question that the straight bills of lading here involved are nonnegotiable. 49 U.S.C. § 109; see The Isla de Panay, 292 F. 723, 731 (2d Cir. 1923), aff'd sub nom, Austin Nichols & Co. v. Steamship "Isla de Panay," 267 U.S. 260, 45 S. Ct. 269, 69 L. Ed. 603 (1925); George F. Hinrichs, Inc. v. Standard Trust & Sav. Bank, 279 F. 382, 383 (2d Cir. 1922). As a consequence plaintiff G.A.C., as apparent transferee of these bills and invoices representing accounts receivable under the agreement with St. Lawrence, upon notification to the carrier of the transfer, *fn2" could only "become the direct obligee of whatever obligations the carrier owed to the transferor of the bill immediately before the notification." 49 U.S.C. § 112; see id. § 109. Norwood obviously owed St. Lawrence nothing because no goods in fact were received. There was therefore no outstanding obligation to G.A.C., Chesapeake & Ohio R. Co. v. State Nat'l Bank, 280 Ky. 444, 133 S.W.2d 511, 130 A.L.R. 1306, second appeal, 283 Ky. 443, 141 S.W.2d 869, 130 A.L.R. 1314, cert. den., 311 U.S. 689, 61 S. Ct. 73, 85 L. Ed. 446 (1940). Compare Strohmeyer & Arpe Co. v. American Line S.S. Corp., 97 F.2d 360, 362 (2d Cir. 1938).

 By no stretch of the imagination does G.A.C. qualify as an "owner of goods covered by a straight bill" who can sue the carrier under § 22 of the Federal Bills of Lading Act, 49 U.S.C. § 102, for representing that goods in fact had been received. The reason for this is that it is completely illusory to attempt to assign an "owner" to non-existent goods. R. Braucher, Documents of Title 23 (1958); 2 S. Williston, Sales § 419a, at 576-77 (rev.ed.1948). While the consignee is generally deemed to have title to goods shipped under a straight bill of lading, see George F. Hinrichs, Inc. v. Standard Trust & Sav. Bank, 279 F. 382, 386 (2d Cir. 1922), even he cannot sue the carrier for representing in a straight bill that non-existent goods had in fact been received. Martin Jessee Motors v. Reading Co., 87 F. Supp. 318 (E.D.Pa.), aff'd, 181 F.2d 766 (3d Cir. 1950). The rationale applied in Martin Jessee Motors - that the consignee can prevail against the carrier "only by proving its title to specific property," 181 F.2d at 767 - applies a fortiori to bar the claim of G.A.C. Plaintiff's interest in the "aggregate face value of the accounts receivable pledged as security" *fn3" under no conceivable reading of the statute can be deemed an "[ownership] of goods covered by a straight bill." G.A.C. is not one of the favored few who can recover under the Federal ...


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