On a
creditors' petition in bankruptcy, filed October 5, 1903
against the Racine Knitting Company, a corporation engaged in
manufacturing hose and other knit goods, with factories at
Racine and Stevens Point, Wis., the knitting company on
October 26, 1903, was adjudged a bankrupt, and appellees were
appointed receivers and later were elected trustees.
Appellees
asserted a right to certain merchandise covered by receipts
issued by appellant security company. Thereupon that company
filed in the bankruptcy court is intervening petition
asserting its exclusive possession and control of the
merchandise, the issuance of its receipts therefor, and the
negotiation by the bankrupt, prior to bankruptcy, of the
receipts to the other appellants in good faith and in due
course of business as security for loans. The petition
further alleged that appellees were claiming title to the
merchandise and were obstructing the petitioner in its
possession thereof. The prayer was for an order that
appellees refrain from interfering with the petitioner in its
custody and control of the property.
The
other appellants intervened, set up the same facts, and
prayed that appellees be restrained from interfering with the
security company in delivering the merchandise to the
petitioners, and from asserting any right or title to the
property as against them.
Issues
were joined, and the referee reported the evidence and his
findings of fact. The findings are as follows:
'(1)
That the Racine Knitting Company, the bankrupt, is and was
during the periods involved in this reference a Wisconsin
corporation, organized for the manufacture of knit goods
hosiery, and underwear, having its principal office at
Racine, and factories at Beloit, Stevens Point, and Ripon.
'(2)
That the Security Warehousing Company is and was during the
same periods a corporation of the state of New York
licensed to do business in Wisconsin under section 1770b of
the Revised Statutes of 1898, and acts amendatory thereto
and was engaged in the business of 'field
warehousing' so-called, owning no warehouses of its own
and not occupying any public warehouse at any place; its
general method of field warehousing being the leasing of
portions of storehouses or buildings or lands occupied in
whole or in part by the owners of the goods to be stored.
The particular methods pursued in the present case being
more fully set forth below. Its corporate purposes, as set
forth upon its letter heads, being stated to be the
'warehousing of manufactured stocks and raw materials
for purposes of collateral security, or as a medium of
purchase and sale and guaranty of possession while
remaining on premises of original owner.' The same
letter head also contained the words 'Public
Warehousemen.' This style of advertising itself was in
use in October, 1901, and for some time thereafter, but was
abandoned later on except as to the words 'Public
Warehouseman,' although at what precise date does not
appear. The only reason for the change being stated by the
witness Banks, its district manager, that the supply of the
older form was exhausted. The warehousing company has never
complied with chapter 251, p. 415, Laws 1899 of this state.
'(3)
In October, 1901, the Racine Knitting Company executed an
agreement of lease to the Security Warehousing Company
(Exhibit A) of certain premises at the city of Racine,
which are described in such agreement as 'the entire
first and second floors of brick building known as Chicago,
Milwaukee & St. Paul Railway Company's premises,
formerly occupied as a machine shop, situate lots 5 and 8,
block 6, Harbor addition to city of Racine; said floors
measuring 40 feet from north to south by 60 feet from east
to west.' This lease was for the term of one year, and
for so long thereafter as any property should remain upon
the premises for which receipts of the
warehousing company were outstanding and in force 'and
until duly released of record, for a yearly rental of one
dollar and other good and valuable considerations, the
receipt of which in advance is hereby acknowledged.' It
was further stipulated therein that the leased premises
should be used and occupied exclusively for the storage of
personal property and for the transaction of business
connected therewith on the part of the warehousing company.
That the latter should have, for purpose of inspection or
removal of property, convenient access through any part of
the abutting premises occupied by the lessor. The premises
so leased were not in fact wholly occupied by the lessees,
but only the second floor and those portions of the first
floor marked sections A and C on the plat Exhibit M. The
remainder being occupied by the bankrupt and other parties
for storage purposes. A further and similar lease as to its
terms was executed between the same parties, dated January
24, 1903, (Exhibit C) of a part of the floor space 50 feet
by 30 feet in the storage warehouse of the bankrupt
situated upon its factory premises at Stevens Point and
hereinafter more fully described.
'(4)
Contemporaneously with the execution of these leases the
parties thereto entered into agreements in form as shown by
Exhibit D setting forth among other things that the
knitting company desired the security company to receive
and issue storage receipts for certain of its goods and
warranting the premises suitable for the purpose, agreeing
to keep the same in repair and indemnify the warehousing
company against loss, damage, or destruction of the
property, and to pay beside the specific storage charges
and expenses, the amount of custodian's salary up to
$5.00 per month, the charges for storage being based upon
the value and not upon the bulk or physical character of
the goods to be stored.
'(5)
Pursuant to such arrangements the parties thereto caused to
be stored in the premises described in these leases certain
of bankrupt's goods, both at Racine and at Stevens
Point, for which the warehousing company issued and
delivered to the bankrupt 12 warrants or storage receipts
upon the goods at Racine, and other 12 similar instruments
on the goods stored at Stevens Point, in tenor and effect
and general form as shown by Exhibit B, of which storage
warrants six were delivered to the Hyde & Brittan Bank as
security for notes to the amount of $5,300, of which notes
or renewals thereof copies are shown in Exhibit E, and
delivered the remaining 18 receipts to the petitioner
McKeand, five of which were subsequently transferred to the
Citizens Bank of Mukwonago as security for a note of $2,000
held by said bank, of which note or renewal thereof a copy
is shown at Exhibit F, and the petitioner McKeand holds the
remainder as security for notes to the amount of $6,800,
copies of which notes or renewals thereof are shown at
Exhibit G. Upon the issue of such storage receipts,
manifests of the goods therein mentioned were made and
certified to by the bankrupt, and by the person named as
custodian by the warehousing company; at the foot of each
manifest was appended the certificate of the warehousing
company, signed by its district manager that storage
receipts had been issued upon the property, and giving the
numbers used for identification (see Exhibit H). The
storage receipts or warrants recited the receipt of the
therein designated goods to be stored, subject to the order
of the Racine Knitting Company, which latter company caused
them to be severally indorsed in blank by a proper officer,
and these warrants are the same warrants held by the
several petitioners and claimed by them to confer title and
the right of possession to the property therein referred to
as security upon the several promissory notes held by the
respective claimants and above referred to. It is admitted
for the purpose of this reference that the petitioners
received the several notes and warrants purporting to
secure the same, as stated and claimed by them, and are the
holders thereof, or of notes taken in renewal and extension
of the original notes upon the same alleged security,
except that as to the petitioner McKeand his claim is
disputed by the receivers and trustees, who claim that upon
the adjustment of unsettled balances between himself and
the bankrupt he would be found to owe the bankrupt-estate.
As such claims must be determined, in the opinion of the
referee, upon objections filed to McKeand's proof of
debt, in the ordinary course of procedure and not upon this
reference, neither party
is to be concluded or prejudiced by anything on this
reference as to the amount of McKeand's claim, or any
offsets, counterclaims or objections that the trustees may
have interposed or be advised to interpose hereafter.
'(6)
That the several petitioners and receipt holders, the Hyde
& Brittan Bank, Citizens Bank of Mukwonago, and W. B.
McKeand, at all times prior to the institution of the
bankruptcy proceedings were unacquainted, either from
inspection or inquiry, with the physical nature of the
storage of the manifested goods, or the warehousing methods
of the Security Warehousing Company, and did not inquire
with respect thereto either of the warehousing company or
the knitting company, but did make inquiry as to the
standing and reputation of the warehousing company and were
satisfied therefrom that such standing and reputation were
good and relied thereon and upon the contents of the
storage receipts themselves. But, that the Citizens Bank of
Mukwonago understood that its manifest goods were stored in
buildings belonging to or occupied by the bankrupt, and the
petitioner McKeand was at all times a director of the
bankrupt, and part of the time an officer thereof, and was
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