Central States Corp. v. Luther
| Decision Date | 07 September 1954 |
| Docket Number | No. 4791.,4791. |
| Parties | CENTRAL STATES CORP. v. LUTHER. In re GARDEN GRAIN & SEED Co., Inc. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Samuel Morgan, Chicago, Ill. (W. A. Kahrs, Wichita, Kan., with him on the brief), for appellant.
Malcolm Miller, Wichita, Kan., for appellee.
William C. Farmer, U. S. Atty., Wichita, Kan., Warren E. Burger, Asst. Atty. Gen., Melvin Richter and John G. Laughlin, Dept. of Justice, Neil Brooks, Associate Solicitor, Washington, D. C., Giles H. Penstone, Kansas City, Mo., Donald A. Campbell, Washington, D. C., Gerald J. O'Rourke, Dept. of Agriculture, Washington, D. C., on the brief for the United States amicus curiae.
Before BRATTON, HUXMAN and PICKETT, Circuit Judges.
This is a controversy arising in a bankruptcy proceeding. Garden Grain and Seed Company, Inc., was a licensed warehouseman under the laws of Kansas, and it operated elevators in that state in which grain was received for storage and transfer. Under date of January 16, 1952, the corporation was adjudged a bankrupt, and a trustee was seasonably selected. At the time of adjudication, the bankrupt had in its possession 4,320,900 pounds of milo which was later sold under order of the bankruptcy court for $103,995.25. The proceeds of the sale were placed in a special fund, and the controversy revolves around certain claims to the fund.
Central States Corporation, hereinafter referred to as the claimant, filed in the proceeding a reclamation petition and proof of debt. It was alleged in the pleading that on November 14, 1951, the claimant purchased from the bankrupt 100,000 bushels of milo and paid therefor $127,680; that the bankrupt issued an invoice showing the sale; that the milo purchased was immediately stored by the claimant in the warehouse of the bankrupt; that the bankrupt issued twenty negotiable warehouse receipts in the form authorized by the laws of Kansas, each receipt showing ownership in the claimant of 5,000 bushels of milo stored in the warehouse of the bankrupt; that at the direction of the claimant and upon surrender of eight of such warehouse receipts, the bankrupt released to the claimant 33,577 bushels and 38 pounds of milo; and that the bankrupt failed to deliver to the claimant as owner thereof the balance of the stored grain although demand had been made for such delivery. In like terms, it was alleged that on November 29, 1951, the claimant purchased from the bankrupt 50,000 bushels of milo for which it paid $65,800; that an invoice was issued; that the grain was immediately stored by the claimant in the warehouse of the bankrupt; that ten negotiable warehouse receipts were issued, each showing ownership in the claimant of 5,000 bushels of milo stored in the warehouse of the bankrupt; and that although demand had been made therefor, the bankrupt failed to deliver such grain to the claimant. And similarly, it was alleged that on December 15, 1951, the claimant purchased from the bankrupt 50,000 bushels of milo for which it paid $68,880; that an invoice was issued; that the grain was immediately stored by the claimant in the warehouse of the bankrupt; that ten negotiable warehouse receipts were issued, each showing ownership in the claimant of 5,000 bushels of milo stored in the warehouse of the bankrupt; and that although demand had been made therefor, the bankrupt had failed to deliver such grain to the claimant. It was further alleged that each of such receipts created a trust fund of milo of which the corporation was trustee and the claimant was cestui que trust; that such trust funds were commingled with other trust funds of a similar nature evidenced by warehouse receipts; that the grain owned by the claimant and not delivered by the bankrupt was or should be in the possession of the bankrupt; and that the value of such grain was $219,487.61. Copies of the warehouse receipts were attached to the pleading. Each receipt was designated as negotiable and contained the statement that the bankrupt had received from the claimant a specified number of bushels of milo "in store"; that the bankrupt was "not the owner of the grain covered by this receipt, either solely, jointly, or in common with others"; and that the milo thus deposited by the claimant with the bankrupt "has been graded * * * and may be stored with other grain of the same grade". The prayer of the pleading was that the claimant have judgment for the possession of the milo and funds in the possession of the trustee as thereinbefore alleged; that the court fix and establish claimant's liens against the property of the bankrupt and the property in the possession of the trustee as thereinbefore alleged; and that the claimant be allowed a general claim for the difference, if any, between the value of the milo, cash, liens, and securities received by the claimant and the sum of $219,487.61. The trustee admitted payment of the three sums to the bankrupt; admitted that the claimant did not receive 9,319,650 pounds of milo for which it held warehouse receipts; and denied that the claimant had any lien on any of the assets coming into the hands of the trustee. And by amendment to the answer, the trustee pleaded that the claimant received from the bankrupt 1,880,350 pounds of milo which was not owned by the bankrupt or the claimant, but was owned by persons who had deposited it with the bankrupt for storage. In addition to answering the petition of the claimant, the trustee filed an action in the nature of an interpleader. The claimant and others were joined as parties. It was alleged among other things in the petition in interpleader that the claimant asserted a claim to the fund but that the trustee did not believe it had any valid rights therein. The prayer was that the court adjudge and decree the owners and respective proportions of ownership of the various claimants to such fund in the hands of the trustee arising from the sale of the milo found among the assets of the bankrupt; and that the court adjudge and decree that the claimant and certain others had no interest in such fund.
After making findings of fact and conclusions of law, the referee entered an order determining that the claimant was not entitled to an equitable lien upon or priority to the special fund in the hands of the trustee; that the claimant should retain as its own property 1,013,159 pounds of milo which it received from the bankrupt; that it should return to the trustee to be placed in the special fund 867,191 pounds of milo, or the value thereof which was fixed at $19,771.95; and that upon the return of the grain or payment of the money, the claim of the claimant would be allowed in the sum of $239,259.56 as a common claim. On petition for review, the district court sustained the order of the referee, and the claimant appealed. For convenience, continued reference will be made to the parties as claimant and trustee, respectively.
The referee concluded that the warehouse receipts held by the claimant were invalid and the district court in effect sustained the conclusion. The claimant challenges that conclusion. It asserts that the receipts are valid. The question must be determined under the laws of Kansas. Interstate Banking & Trust Co. v. Brown, 6 Cir., 235 F. 32, certiorari denied, 242 U.S. 632, 37 S.Ct. 15, 61 L.Ed. 537. Chapter 194, Laws of 1931, section 34-223 et seq., General Statutes of Kansas 1949, relates to the warehousing of grain in public warehouses. The act is elaborate but only part of its provisions have any present material bearing. Authority is contained in the act for the issuance of two kinds of warehouse receipts. Section 34-239 authorizes the issuance of receipts for grain stored in a warehouse licensed under the act and provides the essential contents of such receipts. Section 34-240 authorizes a public warehouseman operating a warehouse to make a valid sale or pledge of warehouse receipts issued for grain of which he is the owner, either solely or jointly or in common with others, and provides that the recital of such ownership in the receipts shall constitute notice to all the world of the right to sell or pledge the same and of the title or specific lien of the transferee or pledgee upon the warehouseman's grain represented by such receipts, provided that such receipts are registered according to the provisions of the act. Section 34-243 defines a nonnegotiable receipt. Section 34-244 defines a negotiable receipt. Section 34-246 provides that no warehouse receipt shall be issued except upon actual delivery of grain into the warehouse from which it purports to be issued. Section 34-247 provides for the appointment and qualification of registrars of receipts. Section 34-248 provides that it shall be the duty of every public warehouseman issuing negotiable receipts upon receipt of grain to issue or cause to be issued a receipt therefor in compliance with the act, and to file with the registrar a report showing the amount of grain received, the name of the owner thereof, and the numbers of receipts therefor issued, accompanied by the warehouse receipts for registration. The statute further provides that a public warehouseman must in all cases register every negotiable receipt issued by him for grain of which he is the owner, either solely, jointly, or in common with others. And the statute further provides that upon receipt of such report and warehouse receipts, it shall be the duty of the registrar to register such legal receipts in a book to be kept for that purpose and to stamp on each of them with the official state grain inspection department registration stamp the word "registered" with the date of registration, and affix his signature thereto. Section 34-290 makes it a criminal offense for a warehouseman, or any officer, agent, or servant of a warehouseman, to issue or aid in the issuance of a warehouse receipt knowing that the grain for...
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