Pattison v. Dale

• Decision Date: 11 April 1912
• Docket Number: 2,172.
• Citation: 196 F. 5
• Parties: PATTISON v. DALE et al.
• Court: U.S. Court of Appeals — Sixth Circuit

196 F. 5

PATTISON v. DALE et al.

No. 2,172.

United States Court of Appeals, Sixth Circuit.

April 11, 1912

This proceeding is to review an order made by the referee and affirmed by the District Court, sitting in bankruptcy holding that certificates called warehouse receipts describing certain barrels of whisky and given to secure present loans, were invalid, and that the whisky be held by the trustees and administered free of any lien or claim of the holder of the certificates. David Rohrer was adjudged a bankrupt November 15, 1909, and trustees were appointed, who in December following filed an application in the court below stating that Rohrer had been engaged in distilling whiskies at his distillery in Germantown, Ohio; that as part of his distillery plant he maintained four buildings and used them only for storing his whisky and improving it by age and until the government tax was paid; that at the time of the adjudication there were stored in three of these buildings 9,849 barrels of whisky, which (with 32 barrels since sold under order of court) are claimed to have passed into possession of the trustees; that certain persons named claim interests in the whisky, some claiming to have bought, others to have bought from such vendees parts of their holdings others to have loaned money to Rohrer upon pledge; that the 'entire number of barrels of whisky were all the time in the actual and exclusive possession and control, from and after its manufacture and deposit in said storehouses,' of Rohrer; that the whisky was never delivered to such vendees and pledgees or into their possession and control. The prayer is that such claimants be required to file answers and cross-petitions setting up the nature of their several claims, and that on final hearing the rights and interests of the parties may be ascertained and determined, and also for an order to sell the whisky.

Pattison appeared by answer and intervening petition and admitted the manufacture and storage of the whiskies, but denied the alleged possession of Rohrer or that of the trustees, and alleged that the whiskies were and are 'in the sole and exclusive possession and control of the government of the United States'; that the taxes due the United States on the whiskies at the time of the adjudication are unpaid; that on February 23, 1906, he loaned Rohrer $5,000 upon his note for that sum payable in four months, which was renewed from time to time, and to secure same Rohrer assigned and transferred in writing his entire interest in 700 barrels of the whisky which were stored in warehouses Nos. 1 and 2 before mentioned and described by serial numbers placed on the barrels. June 29, 1905, Pattison loaned a further sum of $500 to Rohrer, who gave his four months' note, and it in like manner has been renewed from time to time, and to secure the original note and renewals Rohrer assigned and transferred to Pattison in writing 100 barrels of whisky then stored in warehouse No. 1, describing the barrels by serial numbers; that there is due $5,500 with interest from January, 1910; that at the times the money was loaned, Rohrer delivered to Pattison five written instruments, copies of which are attached to the pleading and each of which, except descriptions and dates, is as follows:

'Germantown, O., Feb. 23rd, 1906.

'Received in my Distillery Bonded Warehouse No. 1, First District of Ohio, for account and subject to the order of E. M. Pattison, deliverable only on the return of this warehouse receipt and the written order of the holder thereof, and on payment of the United States government tax and all other taxes and storage at the rate of five cents per barrel per month from storage free.

'Two hundred barrels D. Rohrer Pure Bourbon Whisky, entered into bond as follows:

'Serial Number, 108003, 108202; net wine gallons, 9810.73; proof, 101, 102; proof gallons, 9988.28; when made, Feb. 15, 16, 17, 19, 20, 21, and 22, 1906; warehouse stamp, Y 45103, 302.

'Gauged by F. P. Thompson, U.S. Gauger.

'Loss or damage by fire, the elements, riots, accidents, evaporation and shrinkage at owner's risk. It is hereby guaranteed that the loss by natural evaporation and on account of defective cooperage on each and every barrel of this whisky shall not be more than one gallon in excess of the government allowance during the first seven years of the bonded period.

'It is expressly provided that in the payment for excess under this guarantee, the basis of settlement shall be the cost price of said whisky in bond at the date of tax payment figured upon the original contract price therefor, and the carrying charges thereon added thereto, together with the internal revenue tax thereon at the rate of tax imposed by the internal revenue law upon distilled spirits at the date of the withdrawal. 'The owner of the whisky under this receipt in accepting it agrees to furnish the money to pay all taxes when the same becomes due.

'This warehouse receipt is given in conformity with the warehouse laws of the state of Ohio and the laws of the United States in force at this date.

'David Rohrer, Proprietor.'

It is alleged that 590 barrels of this whisky were sold and removed from the warehouse by Rohrer without the knowledge or consent of Pattison, but that 210 barrels remain. The prayer is that as against the trustees or any other defendants the court adjudge title to the whisky in the 210 barrels to be in Pattison. Later, an amendment was made alleging in substance that for more than 40 years, and ever since the enactment of the revenue laws relating to the storing of whisky in distillery warehouses, it has been the usual and customary course of business of distillers to sell, pledge, and transfer whisky deposited by them in such warehouses by the issuance and delivery of warehouse receipts, and describing and identifying the whisky sold or pledged by the serial numbers of the barrels, dates of manufacture, warehouse stamps thereon, number of warehouse, and agreeing in the receipts to hold the whisky for account and subject to the order of the vendees and pledgees, and so to obtain money and advances of money to enable them to carry on business as distillers; that during all this time distillers, bankers, brokers, dealers in whisky, etc., have under such custom and usage regarded and considered the warehouse receipts as giving constructive possession of the barrels of whisky, and as conveying either an absolute title or special interest according to the nature of the transaction, and as partaking in many respects of the character of commercial paper, transferable by indorsement either absolutely or as collateral security, and as investing the holder of the receipts with title, property in, or possession of the barrels of whisky mentioned in the receipts, and as constituting the owner of the warehouse issuing and delivering the receipts as bailee for the vendee or pledgee; that this practice has become an important part of the commercial system of the country, and is well known and understood.

The trustees filed a general demurrer, which was sustained by the referee, and his action was affirmed. The order is that the whisky be held by the trustees and administered free of all claim and lien of Pattison, and the case was brought here both on appeal and petition to revise in matter of law. No question is made touching remedy.

John Healy, W. H. Mackoy, and M. L. Buchwalter, for petitioner.

L. W. James and T. B. Paxton, Jr., for respondents.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

WARRINGTON Circuit Judge (after stating the facts as above).

The legal effect of the warehouse documents ^[1] must be tested by the government's custody and control of the warehouses and whisky, and the necessity of the situation so created.

As to the warehouses: The distiller is bound to provide a warehouse on his distillery premises for the storage of distilled spirits of his own manufacture until the tax is paid. When approved and reported on by prescribed federal officers, it becomes a 'bonded warehouse of the United States, to be known as a distillery warehouse' and is placed 'under the direction and control of the collector of the district and in charge of an internal revenue storekeeper * * * ' (U.S. Comp. Stat. 1901, p. 2122, Sec. 3271), and 'in the joint custody of the storekeeper and the proprietor thereof,' but must be kept securely locked and not opened except 'in the presence of such storekeeper'; and no articles shall be received in or removed from such warehouse 'except on an order or permit addressed to the storekeeper and signed by the collector' (page 2124, Sec. 3274). As the spirits are received in the warehouse, the gauger or storekeeper must place upon the head of each barrel an engraved stamp signed by the collector, or storekeeper, and gauger, showing number of proof gallons, name of distiller, date of receipt in warehouse, and serial numbers of barrels in progressive order, and 'no two or more casks or packages warehoused at the same distillery shall be marked with the same number' (page 2130, Sec. 3287); the distiller is required within five days after the first of each month to enter the spirits for deposit, and give bond for payment of the tax before removal (page 2133, Sec. 3293); the tax must be paid by the distiller 'within eight years from the date of the original entry for deposit' (page 2110, Sec. 3251). Spirits may on payment of the tax be withdrawn from the warehouse on application to the collector (page 2135, Sec. 3294); the gauger must on receiving the collector's order gauge the spirits in the presence of the storekeeper before removal (pages 2133-2135, Secs. 3294, 3295); removal of spirits on which the tax has not been paid is forbidden...