In re Hedgeside Distillery Corp.
| Decision Date | 23 August 1952 |
| Docket Number | No. 11327.,11327. |
| Citation | 123 F. Supp. 933 |
| Parties | IN RE HEDGESIDE DISTILLERY CORP. |
| Court | U.S. District Court — Northern District of California |
COPYRIGHT MATERIAL OMITTED
Ehrlich, Axelrod & Hecht, San Francisco, for bankrupt.
Francis P. Walsh, San Francisco, Cal., for trustee.
Fisk, Chickening & Gregory, San Francisco, Cal., for Anglo California Nat. Bank.
Bronson, Bronson & McKinnon, San Francisco, Cal., for Schenley.
Rogers & Clark, San Francisco, Cal., for Silverado Grape Growers Cooperative Vineyards.
The trustee of a bankrupt distillery whose president is languishing in San Quentin and two bona fide claimants of opposing interests in thousands of barrels of whisky and grain spirits — these are the protagonists in this complicated forensic drama.
At stake is the ownership of merchandise valued at hundreds of thousands of dollars. The hearing before the Referee in Bankruptcy consumed thirty-six days of trial time. The testimony is reported in 2,523 pages of transcript. In addition, thousands of documents were introduced in evidence. Yet, as will be more fully developed presently, the very parties that are here objecting to the Referee's order have repeatedly insisted that "the material facts are not in dispute" and that "the present petition for review presents only questions of law." The questions of law, however, are many, diverse, and complex.
Because the cast of characters is somewhat large, the Court is adopting the shortened individual and corporate designations used by the parties in this Court and in the hearings before the Referee in Bankruptcy:
Schenley Industries, Inc............"Schenley"
Hedgeside Distillery Corporation...."Hedgeside"
R. I. Stone........................."Stone"
Franciscan Farm and Livestock
Corporation......................."Franciscan"
Glaser Bros. ......................."Glaser"
Barnhill Distilleries Company......."Barnhill"
The Anglo California National
Bank of San Francisco ............"Bank"
Heaven Hill Company................."Heaven Hill"
The word "barrels" includes the contents as well as the receptacles.
On October 3, 1949, Schenley filed a reclamation petition in this Court. The petition sets forth that on or about May 17, 1949, an involuntary petition in bankruptcy was filed in this Court by certain named creditors of Hedgeside, and that the latter was adjudicated a bankrupt on June 2, 1949, on which date the proceedings were referred to Bernard J. Abrott, Referee in Bankruptcy.
The reclamation petition contains the following further allegations:
On July 26, 1949, Charles W. Ebnother was appointed Trustee of the bankrupt's property. At the time of the filing of the petition in bankruptcy, the bankrupt had in its possession, and the Trustee now holds, 2,893 barrels of whisky and 6,040 barrels of grain spirits, or a total of 8,933 barrels, stored in bond for Schenley in Hedgeside's Internal Revenue Bonded Warehouse No. 2, hereinafter referred to as "No. 2", at Napa, California.
The barrels of whisky and grain spirits are covered by warehouse receipts issued by Hedgeside, the bankrupt, and now held by Schenley, which is the owner of the whisky and the spirits.
Schenley has been informed and believes and therefore alleges that the Bank claims an adverse interest in the property, and is therefore a proper party to this proceeding.
The petition closes with a prayer that the Trustee be ordered to surrender the 8,933 barrels of whisky and spirits to Schenley.
On October 18, 1949, the Trustee and the Bank filed separate answers to the reclamation petition.
The Trustee admits most of the allegations of the petition, but he denies that the barrels in question belong to Schenley. He admits that the barrels are covered by warehouse receipts issued by Hedgeside to Schenley, but alleges that the receipts are void as against Hedgeside's unsecured creditors, in that at the time the receipts were issued, the barrels, which are described in an exhibit attached to the reclamation petition were, and are now, Hedgeside's property, "and there was no transfer accompanied by any delivery or change of possession" from Hedgeside to Schenley, as required by Section 3440 of the Civil Code of California, infra, hereinafter referred to simply as "Section 3440".
The prayer asks that the legal title to the whisky and spirits be adjudicated in the Trustee, clear of any liens or claims of Schenley or the Bank. Though in an earlier part of his answer the Trustee denies that he has possession of the whisky and the grain spirits, in his prayer he admits it.
Like the Trustee, the Bank denies that the barrels and their contents belong to Schenley, and alleges that any issuance by Hedgeside of the warehouse receipts on barrels of whisky mentioned in the aforesaid Schenley exhibit is void, as such receipts are subsequent to receipts issued by Hedgeside to the Bank, to secure repayment of money advances made by the Bank to Hedgeside. It is further stated that the warehouse receipts mentioned in the Schenley exhibit, together with those issued to Schenley's predecessors in title, are void as against Hedgeside's unsecured creditors, in that at the time the receipts were issued the barrels purported to be transferred by them were the property of Hedgeside and there was no delivery followed by any actual and/or continued change of possession.
The answer admits that the Bank claims an interest in the 8,933 barrels of whisky and spirits. It alleges that on certain specified dates the Bank lent Hedgeside "in good faith" certain sums of money, and received as security a pledge of whisky and spirits covered by warehouse receipts, as per a table incorporated in the answer. The table lists 2,859 barrels of whisky, valued at $99,703, and 574 barrels of spirits, valued at $18,130. It is further alleged that no part of these amounts has been repaid.
Unlike the Trustee, the Bank prays simply that Schenley "take nothing by its petition for reclamation."
On January 10, 1952, the Referee issued an Order, Findings of Fact, and Conclusions of Law. What follows is a summary of that document.
The 8,933 barrels of whisky and spirits were purchased for value by Schenley from the respective owners thereof as set forth below. The owners intended to transfer the ownership and legal title to Schenley in exchange for the purchase price that they received. At the time of the filing of the petition in bankruptcy the 8,933 barrels, stored in bond in No. 2, were covered by warehouse receipts issued by Hedgeside to Schenley and now held by the latter.
Schenley's purchases were made in the following manner:
(a) Schenley purchased a total of 4,815 barrels of spirits from Hedgeside, as follows:
Beginning in March, 1947, Schenley bought 1,293 barrels pursuant to a production contract for grain spirits, dated September 17, 1945. Beginning in October, 1947, Schenley purchased 3,191 barrels pursuant to a production contract dated October 13, 1947. All of these 1,293 and 3,191 barrels were inspected and accepted by a representative of Schenley at Hedgeside as produced. The spirits were placed into barrels furnished by Schenley, and were then immediately stored in No. 2, except as hereinafter noted. Warehouse receipts covering the merchandise were issued by Hedgeside to Schenley, and are still held by the latter. The spirits covered by warehouse receipts Nos. 3665-B, 3669-B, and 3670-B were originally stored in Internal Revenue Bonded Warehouse No. 111, hereinafter referred to as "No. 111", of Franciscan, at Yountville, California, and were thereafter transferred in bond to No. 2.
Also pursuant to the contract of October 13, 1947, in November, 1947, Schenley purchased from Hedgeside 331 barrels of "on hand" spirits — part of which lot was in fact whisky but which has been treated by the parties throughout as grain spirits. Of the receipts now held by Schenley covering these 331 barrels, receipts Nos. 3511-B and 3512-B were issued by Hedgeside to Schenley at the time of the sale and the spirits covered thereby were then stored in bond in No. 2, whereas the spirits now covered by receipts Nos. 3671-B and 3673-B were at the time of the sale stored in bond in No. 111, and thereafter transferred in bond to No. 2.
(b) Schenley purchased a total of 1,359 barrels of grain spirits from Franciscan. In March and April, 1947, pursuant to a production contract for grain spirits between Stone, d. b. a. as Franciscan, and Schenley, dated November 1, 1945, assigned by Stone to Franciscan, Schenley purchased 459 barrels of spirits from Franciscan. Concurrently with the production and sale of these barrels, the spirits were inspected and accepted by a representative of Schenley at Franciscan as produced. The spirits were placed into barrels furnished by Schenley and were then stored in bond in No. 2. Warehouse receipts were issued by Hedgeside to Schenley covering those barrels, and are still held by Schenley.
Between December, 1947, and April, 1948, pursuant to a production contract for spirits between Franciscan and Schenley, dated October 13, 1947, Schenley purchased 900 barrels of the spirits from Franciscan. As before, the spirits were inspected, accepted, and barreled, and were then stored in bond in No. 111, being covered by receipts from Franciscan to Schenley. In November and December, 1948, the barrels were transferred in bond to No. 2. At that time the receipts for the barrels were issued to Schenley by Hedgeside, and are now held by the former.
(c) The rest of the 8,933 barrels of alcoholic products, totaling 2,759 barrels of whisky, were purchased by Schenley from Heaven Hill, by oral contract made in December, 1947, and performed by the parties in January, 1948. Schenley is now the holder of warehouse receipts Nos. 3681B, 3682B, 3683B, and 3684B issued...
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