US SUPREME COURT DECISIONS

The legal effect of a transaction involving pledge or hypothecation depends upon the local law, and if the state law permits the pledged property to remain under certain conditions in the possession of the pledgor and those conditions exist, the trustee in bankruptcy of the pledgor takes subject to the rights of the pledgee. Taney v. Penn Bank, 232 U. S. 174.

There is a well recognized distinction between a chattel mortgage and a pledge, and a state statute requiring the delivery of the chattel or recording of the instrument does not necessarily apply to a pledge of personal property so situated that it is not within the power of the owner to deliver it to the pledgee.

Where property is, from its character or situation, not capable of actual delivery, the delivery of a warehouse receipt or other evidence of title is sufficient to transfer the property and right of possession. Gibson v. Stevens, 8 How. 384.

Notwithstanding §§ 8560 and 8619, General Code of Ohio, the law of that state recognizes the force of long continued commercial usage and the effectiveness of a symbolical delivery of personal property by the transfer of warehouse receipts representing the same.

Where neither statutes nor decisions of the courts are directly to the contrary, the courts may refer to established trade customs as evidence of what has been long understood to be the law. Gibson v. Stevens, 8 How. 384.

The law of Ohio not being dissimilar from that of Pennsylvania in recognizing the validity of transfers by delivering warehouse receipts representing property under conditions similar to those involved herein, this case is controlled by Taney v. Penn Bank, 232 U. S. 174.

196 F. 5 affirmed.

David Rohrer for many years prior to November 5, 1909, owned and operated a distillery in Montgomery County, Ohio. On that day, he was adjudicated a bankrupt, chanrobles.com-red

Page 234 U. S. 400

and the appellants were appointed his trustees. In the following month, they filed an application in the bankruptcy proceedings, setting forth that in the distillery warehouses of the bankrupt there were stored about 9,800 barrels of Bourbon and rye whiskies, to which there were many conflicting claims; among the claimants being certain named persons to whom it was alleged the bankrupt had pledged or hypothecated certain barrels of the whiskies. One of the parties so named was the respondent, Edward M. Pattison. The application prayed that all of the claimants be notified of the proceedings, be made parties thereto, and be required to set up their respective claims. Pattison filed an answer and intervening petition, claiming that 210 barrels of whisky (specifying them by numbers) were a part of a lot of 800 barrels that had been pledged or hypothecated to him by Rohrer as security for certain loans; the remainder of the 800 barrels having been sold by Rohrer without the knowledge of Pattison. It was denied that the whiskies were or ever had been in Rohrer's possession, it being alleged that all of them, as soon as manufactured, were placed in the storage warehouse in the possession and control of the government of the United States, and that certain moneys were loaned by Pattison to Rohrer, to secure payment of which the latter assigned and transferred in writing to the former his entire interest in certain designated barrels of whisky then on storage in said warehouse, the agreement and transfer being evidenced by documents in the form of warehouse receipts, of which the following is a sample, of their manufacture, the warehouse stamps thereon, and the number of the bonded

"No. 750"

"Stored in Warehouse"

"56 bbls. in No. 2"

"94 bbls. in No. 1"

"The David Rohrer Distillery, Montgomery County"

"Fire Copper Bourbon and Pure Rye"

"Brand and Distillery Established in 1847 chanrobles.com-red

Page 234 U. S. 401

"

"Germantown, O., Feb. 23, 1906."

"Received in my distillery, Bonded Warehouse No. 11, 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,"

"One hundred and fifty barrels D. Rohrer pure Bourbon whisky, entered into bond as follows: 56 bbls. Rye; 94 bbls. Bourbon."

Special Net wine Proof When Warehouse

number gallons Proof gallons made stamp

107,853

------- Feb. 10, 12, 13, Y

108,002 7,600.48 102 7,405.70 14, & 15/06 44,953

------

45,102

56 Rye

94 Bourbon

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 of excess under this guaranty, 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 at the rate of tax imposed by the internal law upon distilled spirits at the date of the withdrawal. "

Page 234 U. S. 402

"The owner of the whisky under this receipt, in accepting it, agrees to furnish the money to pay all taxes when the same become 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"

By an amendment to his intervening petition, Pattison set forth:

"That for more than forty years last past, and ever since the enactment by the Congress of the United States of the laws relating to the storing by distillers of whisky in distillery bonded warehouses, it has been and still continues to be the usual and customary course of doing business by distillers of whisky to sell, pledge, and transfer whisky deposited by them in their distillery bonded warehouses by the making, issuing, and delivering by them of their warehouse receipts to the vendee or pledgee of the barrels of whisky sold or pledged (describing and identifying in said warehouse receipts the barrels of whisky sold or pledged, by their serial numbers, the date warehouse in which situated), and agreeing in said warehouse receipts to hold said barrels of whisky sold or pledged for the account and subject to the order of the vendee or pledgee thereof, and in and by the sale and pledge as aforesaid of barrels of whisky in their distillery bonded warehouses to obtain money and advances of money to enable them to carry on business as distillers, and during all of said time it has been and continues to be among distillers and bankers, brokers, dealers in whisky, and all persons having transactions with distillers, an established custom and a commercial usage generally known and acted upon to regard and consider said warehouse receipts as giving constructive possession of the barrels of whisky mentioned therein, and as conveying

Page 234 U. S. 403

either an absolute title or a 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 warehouse receipts with the title, property in, or possession of the barrels of whisky mentioned in said warehouse receipts according to the rights of the original parties to the transaction, and as constituting the owner of the distillery bonded warehouse issuing and delivering such warehouse receipts, as the bailee for the vendee or pledgee of the barrels of whisky in said warehouse receipts mentioned, and this practice and method of doing business has obtained for more than forty years, and become an important part of the commercial system of the country, so that it is well understood and according to the usual course of business that the use and purpose of a warehouse receipt is to enable the owner of said distillery bonded warehouse to sell, pledge, and transfer the title or the possession of the barrels of whisky in his bonded warehouse for the purpose of raising money or securing advances thereon either by sale or pledge."

The trustees filed a general demurrer, which was sustained by the referee, and the order sustaining it was affirmed by the district court (186 F.9d 7). The circuit court of appeals reversed the district court, and remanded the case for further proceedings (196 F. 5). Thereupon the district court, in obedience to the mandate, overruled the demurrer and rendered final judgment in favor of Pattison, which was affirmed by the court of appeals, and an appeal to this Court was then allowed. chanrobles.com-red

Page 234 U. S. 404