Joseph Taney v. Penn National Bank of Reading

• Decision Date: 26 January 1914
• Docket Number: No. 115,115
• Parties: JOSEPH A. TANEY, Trustee of the Estate of Miller Pure Rye Distilling Company, Appt., v. PENN NATIONAL BANK OF READING
• Court: U.S. Supreme Court

232 U.S. 174

34 S.Ct. 288

58 L.Ed. 558

JOSEPH A. TANEY, Trustee of the Estate of Miller Pure Rye Distilling Company, Appt.,

v PENN NATIONAL BANK OF READING.

No. 115.

Argued December 9 and 10, 1913.

Decided January 26, 1914.

Mr. Joseph Hill Brinton for appellant.

[Argument of Counsel from pages 175-178 intentionally omitted] Messrs. A. Leo Weil, Lawrence Maxwell Philip S. Zieber, and Thomas Iaeger Snyder for appellee.

Mr. Justice Hughes delivered the opinion of the court:

On February 3, 1908, a petition in bankruptcy was filed against the Miller Pure Rye Distilling Company; it was adjudicated a bankrupt on February 19, 1908, and the appellant was appointed trustee. The Penn National Bank of Reading, Pennsylvania, the appellee, intervened in the bankruptcy proceeding with a petition asking for the delivery to it of 200 barrels of whisky stored in the bonded warehouse of the distilling company, upon the ground that the property had been lawfully pledged by the company to the bank. The district court sustained the lien and accordingly held the claimant entitled to the delivery sought (176 Fed. 606); and, on appeal, this decree was affirmed by the circuit court of appeals (109 C. C. A. 437, 187 Fed. 689).

The pertinent facts are these: On August 27, 1907, the bank lent to the distilling company $2,500, for which the company gave its four months' note, reciting the deposit with the bank, as collateral security, of '200 bbls. whisky in bonded warehouse at Womelsdorf, Pa., as per Warehouse Rects. gauger's ctf. etc. accompanying.' The form of the receipts is shown by the following copy of one of them:

No. 5454. 25 Bbls.

First District of Pennsylvania.

United States Internal Revenue Distillery Bonded Warehouse of Miller Pure Rye Distilling Company.

Ryeland, Berks Co., Pa., August 26th, 1907.

Received on Storage from Ourselves Twenty-five (25) Barrels of Miller Pure Rye Whiskey Distilled, Marked and Numbered as per Record Attached, Subject to our Order and Risk of Loss or Damage by Fire, The Elements, Leakage, Evaporation or Accident, Deliverable only upon Surrender of this Certificate, Payment of Tax and other Charges due Thereon, and Storage at the Rate of Five Cents per Barrel per month, from August 26th, 1907.

Inspection Spring 1907.

Stored in Warehouse No. 2.

Serial Nos. of Packages 7964/7988.

Miller Pure Rye Distilling Co.,

S. V. Nagle, President.

Address all Communications to Miller Pure Rye Distilling Company, Philadelphia, Pa.

Special Notice—Particular care should be taken of this Certificate as the whisky cannot be delivered without its surrender.

These receipts were indorsed by the company, and, with the gauger's certificates, were delivered to the bank. The whisky itself was not actually delivered, and remained in the bonded warehouse. The note not being paid at maturity, the bank, upon notice, sold the warehouse receipts at public sale on February 5, 1908, and became the purchaser. This sale, however, is not material to the present question, which turns upon the validity of the lien.

There is no doubt as to the intention and actual good faith of the parties. The loan was made in reliance upon the designated security, and the ground of attack is that the lien failed for want of delivery of possession.

The legal effect of the transaction depends upon the local law. Thompson v. Fairbanks, 196 U. S. 516, 49 L. ed. 577, 25 Sup. Ct. Rep. 306; Humphrey v. Tatman, 198 U. S. 91, 49 L. ed. 956, 25 Sup. Ct. Rep. 567; York Mfg. Co. v. Cassell, 201 U. S. 344, 50 L. ed. 782, 26 Sup. Ct. Rep. 481; Hiscock v. Varick Bank, 206 U. S. 28, 51 L. ed. 945, 27 Sup. Ct. Rep. 681; Security Warehousing Co. v. Hand, 206 U. S. 415, 425, 51 L. ed. 1117, 1123, 27 Sup. Ct. Rep. 720, 11 Ann. Cas. 789; Bryant v. Swofford Bros. Dry Goods Co. 214 U. S. 279, 53 L. ed. 997, 29 Sup. Ct. Rep. 614. Reviewing the decisions of the supreme court of Pennsulvania with respect to sales,—the principles of which were deemed to be applicable,—the circuit court of appeals reached the following conclusion: 'It suffices to say that the law of Pennsylvania, in respect of the question we are now considering, is settled by a line of cases extending through nearly a century. Starting with the policy of the statute of Elizabeth, for the circumvention of fraud and deceit in sales of personal property (which nowhere in terms refers to retention of possession by a vendor, it has wisely developed the spirit of that statute and evolved the salutary rule, that where there is nothing in the case but the retention of a physical possession by the vendor, which he is capable of delivering to the vendee, such retention is fraud per se, and not merely evidence of fraud, even though there be nothing inconsistent with the most perfect honesty. But this rule is not applied by the courts of Pennsylvania to cases where the inherent nature of the transaction and the attendant circumstances are such as to preclude the possibility of a delivery by the vendor, that would be consistent with the avowed and fair purpose of the sale, or where the absence of a physical delivery is excused by the usages of the trade or business in which the sale was made.' 109 C. C. A. 437, 444, 187 Fed. 689, 696.

We entertain no doubt as to the correctness of this statement (Clow v. Woods, 5 Serg. & R. 277, 9 Am. Dec. 346; Barr v. Reitz, 53 Pa. 256; McKibbin v. Martin, 64 Pa. 352, 3 Am. Rep. 588; Crawford v. Davis, 99 Pa. 576; Stephens v. Gifford, 137 Pa. 219, 21 Am. St. Rep. 286, 20 Atl. 542; Pressel v. Bice, 142 Pa. 263, 21 Atl. 813; Garretson v. Hackenberg, 144 Pa. 107, 22 Atl. 875; Barlow v. Fox, 203 Pa. 114, 52 Atl. 57; White v. Gunn, 205 Pa. 229, 54 Atl. 901), and it was in the light of these principles that the court below held that, considering the situation of the property and the usages of the business, the transaction in question was valid.

To insure collection of the heavy tax that is laid upon distilled spirits, the production is carefully supervised and the product is impounded. Rev. Stat. §§ 3247-3334, U. S. Comp. Stat. 1901, pp. 2107-2183, as amended; act of May 28, 1880, chap. 108, 21 Stat. at L. 145; act of August 27, 1894, chap. 349, §§ 48-67, 28 Stat. at. L. 509, 563-568, U. S. Comp. Stat. 1901, pp. 2109, 2141-2146, 2102, 2052, 2166, 2117. Every dis- tiller is required to provide, at his own expense, 'a warehouse, to be situated on and to constitute a part of his distillery premises, and to be used only for the storage of distilled spirits of his own manufacture until the tax thereon shall have been paid.' This warehouse, when approved, by the Commissioner of Internal Revenue, is declared by the statute to be 'a bonded warehouse of the United States, to be known as a distillery warehouse,' and is 'under the direction and control of the collector of the district, and in charge of an internal-revenue storekeeper, assigned thereto by the Commissioner' (§ 3271). While the statute provides that 'every distillery warehouse shall be in the joint custody of the storekeeper and the proprietor thereof,' the control of the government's representative is made dominant, as in the nature of the case it must be in order to fulfil the purposes of the act. The warehouse, the statute continues, 'shall be kept securely locked, and shall at no time be unlocked, or opened, or remain open, unless in the presence of such storekeeper, or other person who may be designated to act for him, as provided by law; and no articles shall be received in or delivered from such warehouse except on an order or permit addressed to the storekeeper and signed by the collector having control of the warehouse' (§ 3274). Under the departmental regulations 'the only lock to the warehouse door must be the government lock, the key of which must at all times be in charge of the storekeeper.' There must be an immediate removal of the distilled spirits to the distillery warehouse as soon as they are drawn into casks or packages and gauged, proved, and marked, as required, and thereupon the internal revenue gauger 'shall, in the presence of the storekeeper of the warehouse, place upon the head of the cask or package an engraved stamp, which shall be signed by the collector of the district and storekeeper and gauger; and shall have written thereon the number of proof-gallons con- tained therein, the name of the distiller, the date of the receipt in the warehouse, and the serial number of each cask or package, in progressive order, as the same are received from the distillery' (§ 3287; act of May 28, 1880, 21 Stat. ...