
    Case 39 — Action by M. Sabel & Son Against B. D. Chalkley & Co. to Subject by Attachment a Lot of Hides in Payment of a Debt of Plaintiffs Against Defendants —
    March 15.
    Sabel, &c., v. Planters National Bank of Richmond, Va.
    APPEAL FROM JEFFERSON CIRCUIT COURT, CHANCERY DIVISION.
    Judgment Sustaining Claim of Planters Nat. Bank of Richmond, Va., to Attached Property, and Plaintiff Appeals.
    Affirmed.
    Attachment — Property in Possession of Pledgee — Constructive Possession — Delivery of Bill of Lading.
    Held: Property in possession of a pledgee can not be levied on under attachment for the pledgor’s debts, and therefore, where •a bank discounted a draft for .the price of goods, to which a bill of lading for the goods was attached, the goods, upon the refusal of the consignees to receive them, could not be levied on under attachments in favor of the consignor’s creditors, being in the constructive possession of, the bank as pledgee, and so such attaching creditors can not require the bank to look to other property upon which it has -a lien for the payment of its debt.
    ALFRED SELLIGMAN, Attorney for M. Sabel & Sons.
    POINTS MADE AND AUTHORITIES. CITED.
    1. M. Sabel & Sons, having a claim against B. D. Chalkley & Co., ,of Richmond, Ya., instituted this action thereon against him in the Jefferson Circuit Court. • The attachment issuing therein was executed inter alia on ten bales of dry hides dn the L. & N. Depot -at Louisville, Ky., consigned by Chalkley to his own order, L. Marx & Bro., to be notified. A draft, with bill of lading attached, though accepted by said Marx, was returned unpaid. The attachment was sustained, but before sale, the Planters National Bank filed a “claim and delivery” -therefor, asserting ownership by reason of having advanced money on the draft above referred to.
    
      '2. The evidence shows (a) that the bank took the draft with all recourse on Chalkley, (6) and as we -insist, only for collection; (c) certainly not as absolute purchaser, but as collateral security, and admits having had ever since protest of the Marx note and the attachment by Sabel of Marx hides, and after receiving knowledge thereof, in their possession and control and credited to Chalkley on .the books of the hank funds more than sufficient to protect and pay themselves the amount of the advance..
    3. If the bank took the draft on the credit of Chalkley and for collection, though they credited him with the amount of the draft, immediately upon default by the acceptors, it was the right and duty of the bank ,to cancel the credit and charge back the amount of the draft to the .account of Chalkley, sufficient money being on hand to cover the same. Armstrong, Reev., v. Natl. Bank of Boyertown, 90 Ky., 430.
    4. Even if the bank .acquired title to the draft of Chalkley on L. Marx & Bro., whether by purchase or advances, they acquired no title whatever to the bill of lading or the hides represented thereby, but acquired only a lien. The bill of lading passed to them merely -as a collateral security. “The test of a pledge being that, if the debt is absolutely extinguished by the transfer, in whole or pro tanto, the transfer is a sale; if not, it is only a pledge.” Benjamin on Sales (1892), p. 9; Colebrook on Collateral Security, sec. 380, et seg.; Douglas, Recv., v. Peoples Bk. of Ky., 86 Ky., 176; Pettit & Co. v. First Natl. Bk. of Memphis, 4 Bush, 334.
    5. The bank has .a lien on the balance in its hand to the credit of its debtor to secure it against a loss on matured obligations. Morse on Banks .and Banking, vol. 1, sec. 324; Mt. Sterling Nat. Bk. v. Greene, 99 Ky., 262; Masonic Savings Bank v. Bangs, 8 Ky. Law Rep., 19.
    Control of such funds amounts to .a payment. This lien is not alone for the protection of the bank, but they will be required to assert it, where failure to do so would work an injury to a third party. Faulkner v. Cumberland Valley Bank, 14 Ky. Law Rep., 923.
    Taking other security does not affect the bank’s lien. Masonic Savings Bank v. Bangs, supra.
    
    6. The Planters National Bank, if not actually' paid, has two liens to secure it, one on the balance in its own hands, the other on ,•the hides in Louisville, on which M. Sabel & Sons have a lien by attachment that has been sustained and which is their only security.
    The court will in such a case marshall the securities.
    7. The court will marshall in favor of an attachment lien. The attachment creates a “lien” in the full sense of the word. The nature of the lien is not essential. The doctrine is enforced to prevent a common debtor from exonerating his singly charged estate from both debts. South v. Bradstreet, 16 Pick (Mass.), 264; Am. & Eng. Ency. of Law (2d ed.), vol. 3, p. 218; Am. & Eng. Ency. of Law (2b ed.), vol. 14, pp. 686-711; Kittredge v. Warren, 14 N. H. Rep., 509; Pearce, Tolle & Holton v. Hall, 12 Bush, 209; Nutter et al. v. Connett, 3 B. M., 198. Distinguishing Meyer v. Scharf, 34 S. W. Rep., 858.
    ARTHUR M. RUTLEDGE, yon. appellee.
    POINTS AND AUTHORITIES.
    1. When goods are shipped, and the bill of lading is taken, to the consignor’s own order, title to the goods does not pass to the consignee on delivery to the carrier, but remains in the consignor. Kentucky Refining Co. v. Globe Refining Co., 20 Ky. Law Rep., 778.
    2. While bills of lading are not negotiable in the strict sense of that term, yet by the law merchant they are quasi negotiable; and an endorsement for value may transfer .to the endorsee the possession and absolute property of the endorser in the goods ■covered by the bill. Pett & Co. v. First Nat. Bk. of Memphis, 4 Bush, 338; Colebrook on Collateral Securities (2d ed.), secs. 375, 379 and 380; Jones on Liens (2d ed.), see. 824; Am. & Eng. Ency. of Law (1st ed.), vol. 2, p. 243; Dnylass, Reev., &e., v. Peoples Bk., 86 Ky., 180 and 181; L. & N. R. R. v. Hartwell, 18 Ky. Law Rep., 745; The Thames Case, 14 Wall., 98; Chandler v. Belden, 9 Am. Dec., 193; Rowley v. Bigelow, 23 Am. Dec., 612; Shaw v. Railroad Co., 101 U. S., 561
    3. The holder of an endorsed bill of lading can maintain replevin for ' the goods. Bank of Green Bay v. Dearborn, 115 Mass., 219; Fifth Natl. Bk. v. Bayley, 115 Mass., 228.
    4. The lien of a bank holding even an unendorsed bill of lading is superior to the lien of an attaching creditor. Petitt & Co. v. First Nat. Bk., &c., 4 Bush, 338.
    5. A bank holding a depositor’s note or draft is under no obligation to appropriate the depositor’s funds to its payment, should payment of the note at maturity, or of the draft on presentation be refused. Neill et al. v. Rogers Bros. Produce Co., 23 S. E. Rep., 704 and 705; Moss on Banking, sec. 559.
    6. While a bank has a general lien upon the funds and securities of its depositor to meet any balance due it on general account, yet this lien may be lost or waivered, as where securities are deposited for a special purpose, or where the conduct of the parties is inconsistent with the reservation of a general lien. Duncan v. Brannan, &c., 83 N. Y., 487; Neponset v. Leland, 5 Met. (Mass.), 262; Story on Agency, sec. 381; Colebrook on Collateral Security, sec. 62; Jones on Liens, yol. 1, secs. 244 and 251; Wycoff v. Anthony, &c., 90 N. Y., 488.
    7. The acceptance hy a hank of collateral security for the payment of a note is a waiver of its lien upon the debtor’s deposit. Farmers National Bk. v. McFerran, Admr., 11 Ky. Law Rep., 183.
    8. An attaching creditor who levies upon goods for which a hank at the time holds an endorsed hill of lading given to secure a draft executed to it by tbe debtor, is in no position to demand a marshalling of liens or securities, though the hank had on deposit funds sufficient to pay the draft. Sarff, &c., v. Meyer, &c., 34 S. W. Rep., 858.
    9. A creditor can acquire hy attachment no greater right in the attached property than the debtor had at the time of the attachment; and if before the attachment the debtor had assigned to a holder for value a hill of lading covering the attached property, the creditor would take nothing hy his attachment, the debtor’s right both of property and possession having passed under the assignment. Neill, &c., v. Rogers Bros. Produce Co., 23 S. E. Rep., 710; Drake on Attachments, sec. 245.
   Opinion op the cotjbt by

JUDGE HOBSON'

Affirming.

B. D. Chalkley & Co., who are merchants at Richmond, Va., received an order from L. Marx & Bro., merchants at Louisville, Ky., for ten bales of dry hides. Chalkley & Co. shipped tbe hides to Louisville, and took a bill of lading consigning the bides to their own order. They then dre-w a draft on Marx & Bro. for $l,735.6lf), the amount for which the hides were sold, and sol'd the draft to the appellee, the Planters’ National Bank of Virginia, with the bill of lading attached. At the foot of the bill of lading was this indorsement.; “L. Marx & Bro. to be notified.” Tbe bank forwarded the draft, with the bill of lading attached, to its correspondent at Louisville for collection on its own, account, having paid Chalkley & Co. the amount of it, less the discount. AVhen the hides reached Louisville, Marx & Bro. refused to receive them on the ground that they did nut come up to the sample; and while the hides were lying in the railroad depot they were attached by M. Sabel & Sons for a debt due them by Ohalldey & Co., as the property of Ohalldey & Co. The bank intervened in the suit, setting up the foregoing facts, and claiming the hides. It was shown by the evidence that Ohalldey & Co. were customers of the bank, and deposited with them; that the amount paid for the dnaft was credited to their account, and checked out by them soon thereafter; but it also appeared that they deposited other money with the bank from time to time, and when the pro,of was taken had a balance to their credit as large as the amount ■of the draft. The court below adjudged the hides' to the bank, and it is insisted by appellants that this was error, for the reason that the bank had only a lien on the hides to secure the amount due, and that, having in its hands other funds of Chalkley & Co. sufficient to cover the amount of the draft, it should, as between it and the attaching creditor in this State, who had a lien only on the hides, be compelled to look first to the funds already in its hands to protect, itself. In other words, it is insisted that the doctrine should be applied that a creditor having a lien on two funds, one of which is covered by a junior lien, will be required to exhaust as against, the junior lienholder the fund not covered by his lien before resorting to the other fund. On the other hand, it is insisted for the bank that it has legal rights to which this equitable doctrine does not apply. The question is not without difficulty, and its proper solution depends upon the rights acquired by the bank under its contract and by appellants under their attachment. In Petitt v. Bank, 67 Ky., 338, this court, after showing that actual or constructive possession of the property pledged is essential to the existence of a pledge, said, in a case somewhat similar to this: ‘‘But, to -constitute a valid lien by a pledge of property, it is not necessary that the legal title should be transferred, as in the case of a mortgage; on the contrary, the title generally remains in the pledgor. 2 Pars. Cont., p. 113. The question is not, therefore, whether the deposit of the bills of lading was effectual to pass the legal title to the- cotton, but whether it was a constructive or symbolic delivery of the cotton. By the law merchant, bills of lading are, to a certain extent, treated as negotiable instruments. In the hands of the original owner they generally represent his title to the property, at least until it oomes to the possession of the consignee; and under certain circumstances the owner may, by his mere indorsement of a bill of lading, pass to a purchaser the absolute property for which it is given.” This case was followed in Douglas v. Bank, 86 Ky., 176, (5 S. W., 420), where the validity of a pledge created by the delivery of a bill of lading wras upheld. These cases are in accord with the current of authority. See- Coleb. Coll., secs. 379, 380; Jones, Liens (2d Ed.) 824; 12 Am. & Eng. Ency. Law, p. 243. The evidence does not show that the bank bought the hides. It simply to-ok the bill of lading to -secure the draft to which it was attached. The only interest the bank had in the matter was the payment of the draft, and to secure it in this the ten bales of hides were pledged, and symbolically delivered to it by the delivery of the bill of lading. The hides did not sell for enough to pay the -draft. It remains, therefore, to determine what rights, if -any, appellants acquired in the hides by the levy of their attachment. In Drake, Attaclim., sec. 245, the rule is thus stated: “A fundamental principle is that an attaching creditor can acquire no greater right in attached property than the defendant has at the time of the attachment. If, therefore, the property be in such -a situation that the defendant has lost his power over it, or has not yet acquired such interest in or power over it as to permit him to dispose of it adversely to others, it can not be attached for his debt. Thus a chattel pawned ... is not attachable in an action against the pawnor.” To same effect, see Am. & Eng. Ency. Law (2d Ed.) 231. This rule was recently followed by this court in Newman v. Mantle, 58 S. W., 783. Under these authorities, the hides, being in the constructive possession of the bank as pledgee, could not be levied upon under the attachment of appellees. They therefore acquired, by their attachment, no valid lien upon the property; and it was properly restored to the pledgee, from whom it had been wrongfully taken. Under facta substantially similar to those before us, the same question was recently determined by the Supreme Court of West Virginia in Neill v. Produce Co., 23 S. E., 702, and by the Supreme Court of Missouri in Scharff v. Meyer, 34 S. W., 858; and in both cases the superior right of the bank was upheld. We have been referred to.no contrary authority on the precise question, and. this ruling seems tons both sound and reasonable. A large part of the commercial business of the country is now done by means of bills of lading attached to drafts, as in this case; and, if the purchaser of such paper must take it subject to attachments, executions, or the like, against the original owner, the value of such paper for commercial purposes would be entirely destroyed. As the hides did not sell for enough do pay- the draft, and there was no garnishment of the pledgee, the right to reach by garnishment any balance of H.he proceeds of the sale of the property after the payment of the debt is not presented. Judgment affirmed.

Petition by appellant for rehearing overruled.  