Court Opinion

ID: 8815019
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:15:40.258341+00
Date Added: 2024-06-11T17:04:26.083447
License: Public Domain

Mr. Justice Clark dissenting: I do not think the doctrine of estoppel by verdict or that of res adjudicata applies. In my judgment a trustee is in a different position than the bankrupt or a receiver of a bankrupt. The receiver could only have sold the property if it was in the possession of the bankrupt. The trustee, on the other hand, may proceed in the same way that an attaching or execution creditor could have proceeded prior to the adjudication of the insolvency of the bankrupt. In the case last referred to in the majority opinion, Security Warehousing Co. v. Hand, 206 U. S. 415, Mr. Justice Peckham sets forth the views of the court as to the powers of a trustee. On page 425 it is said: “By section 70a, the trustee in bankruptcy is vested by operation of law with the title of the bankrupt to all property transferred by him in fraud of his creditors, and to all property which, prior to the filing of the petition, might have been levied upon and sold by judicial process against him; and by subdivision (e) of the same section the trustee in bankruptcy may avoid any transfer by the bankrupt of his property, which any creditor of the bankrupt might avoid, and may recover the property so transferred, or its value. Here are special provisions placing the title to the property transferred by fraud, or otherwise as mentioned, in the trustee in bankruptcy, and giving him the power to avoid the same.” In Mueller v. Nugent, 184 U. S. 1, it is said: “It is as true of the present law as it was of that of 1867, that the filing of the petition is a caveat to all the world, and in effect an attachment and injunction. ’ ’ The question of whether or not the National Storage Company was in rightful possession of the seed was not determined in the Federal Court. The District Court undertook to determine that question, but it was held by the Supreme Court that it had no jurisdiction so to determine. First Nat. Bank v. Chicago Title & Trust Co., 198 U. S. 280. It was, doubtless, with the thought in mind that the receiver and trustee held different relations to the estate that the suggestion was made by the Supreme Court that the order should have been without prejudice to the trustee to begin proceedings in a court having jurisdiction, namely, the state court. It is impossible for me to reach the conclusion from the evidence that the Storage Company was in possession of the property. The facts, as well as the view of the law which I think should control, are so succinctly stated in the opinion of Mr. Justice Jenkins in the futile appeal to the Court of Appeals, that I quote his language, as follows In re Rodgers, 60 C. C. A. 567, 125 Fed. 169, 177: “The bankrupt was largely engaged in purchasing seed upon credit, storing the property purchased in his warehouse. He occupied the premises as a place of business, maintaining an office there, with clerks to assist in the management of the business, and with porters to handle the seed. The premises were subject to a rental of $250 a month. He arranged with the storage company, which had no warehouse of its own, that it would issue warehouse warrants or receipts to the bankrupt for property upon the bankrupt’s premises for a certain small charge per month upon the value of the property covered by the receipts. He executed a lease of the premises to the storage company, to continue so long as the bankrupt should desire, and so long as property remained thereon for which warrants or receipts had been issued; and this without any payment of rent by the storage company, the rental in fact being paid by the bankrupt. The storage company neither required, nor was it given, any key to the premises. The bankrupt remained in possession of the premises as before the agreement, continuing to transact his business there as he had formerly done. There were certain signs placed upon the different floors of the building, indicating that the storage company controlled the premises. These were small and obscure signs, not likely to attract attention, and most of them hidden behind piles of bags of seed. No sign was displayed upon the exterior of the building indicating any proprietorship of the storage company, or giving notice to the world that any other than the bankrupt had possession and control. There was no open, notorious manifestation of a change of possession, none was intended, and there was none in fact. Upon each pile of bags of seed for which the warehouse receipts or warrants were issued there was placed a small tag, which might be discovered upon careful search. The bankrupt substantially treated this property as his own, at times going through the forms prescribed by the storage company, and, whenever he found it necessary, ignoring them. We do not find that the storage company had knowledge of this action of the bankrupt, but it certainly knew that it was possible under the circumstances for the bankrupt to do with the property as he would, since' it was left within his control. “It is difficult for us to look upon this transaction as a warehousing of property. The storage company assumed no liability to the bankrupt, and assumed only such responsibility as the law imposes upon it with respect to those advancing money upon the faith of its warehouse warrants or receipts. The name of the company is in itself, under the circumstances, a false pretense. It did not store property. It had no premises upon which to store property. The bankrupt stored the property. The bankrupt paid the rental of the premises. It is true that an agent of the storage company occasionally visited the premises and inspected the property in a sort of a way, but exercised no supervision or control that would prevent the bankrupt from doing ivith it as his will might dictate or his financial necessities might require. We cannot but regard this arrangement as a subterfuge, a mere device to enable the bankrupt to hypothecate the warehouse warrants or receipts, and so to raise money upon secret liens upon property in his possession and under his control. The written agreement indicates this. It is somewhat startling to learn that a warehouse company should store goods of this character for another upon the premises of that other, taking compensation for storage, not related to the cost of storage, or to the expense of receiving and delivering the property, not according to the space occupied by the property, but according to the value of the property. The fact here is patent that the storage company assumed to the bankrupt no liability, and that the sole purpose was to issue warehouse warrants or receipts, making such inspection only as, in its judgment, would protect it from liability to third persons by reason of the issue of its warrants. To uphold such a scheme would permit every merchant in the state, notwithstanding the de-' dared policy of the state to the contrary, to have possession of large stocks, thereby inducing credit, and to cover them with secret liens, thereby deceiving creditors. It would, in effect, permit such merchant to pledge his entire stock without change of possession, without record of it, and without notice to the world. Such a scheme is disapproved by the law of the. state of Illinois, which in this instance we are bound to uphold, however specious may be the device or however attractive may be the form by which it is cloaked. Such a scheme within the state of Illinois is constructively fraudulent as to creditors, and voidable by creditors. “Nor can we uphold this transaction as a pledge of the property to the bank and to H. W. Rogers & Brother. Actual or symbolical possession of personal property in the pledgee is essential to its pledge. It is true that when the actual delivery is to a carrier or warehouseman, and bill of lading or warehouse receipt is given therefor, the transfer of the instrument and its delivery to the pledgee is regarded in the law as delivery of possession to the pledgee of the property represented by the instrument; but it is a necessary condition to the existence of such symbolical possession by the pledgee that the property itself be in the possession of some person other than the pledgor. Two different persons cannot be in the actual adverse possession of the same property or premises at the same time, and, as we find the actual possession and actual control of the property in dispute to have been in the bankrupt, the transfer of these warehouse receipts to bona fide holders for value, even without notice of the fact, cannot constitute a valid pledge of the goods, as the storage company had not possession and control of the goods. Union Trust Company v. Trumbull, supra” (137 Ill. 146). The language of Mr. Justice Peckham in Security Warehousing Co. v. Hand, supra, might be well' applied to this case: “There was scarcely^ a semblance of an attempt at such change of possession from the hands of the knitting company to the hands of the warehousing company. Actual possession of the property in question was exercised by and existed with the knitting company substantially the same after the issuing of the receipts as before. It is a trifling with words to call the various transactions between the knitting company and the warehousing company a transfer of possession from the former to the latter. There was really no delivery, and no change of possession, continuous or otherwise. The alleged change was a mere pretense, a sham.”' In my opinion a trustee, unlike a receiver in bankruptcy, has not only the title to the property which the bankrupt has, but he may also, in his capacity and as acting for creditors, who are powerless to pursue and enforce their rights, assail all transfers and incumbrances to the same extent as could such creditors. It may be admitted that the First National Bank and H. W. .Bogers & Brother are bona fide holders for value, and without notice, of the warehouse receipts, having given therefor a full consideration; but these warrants were not commercial paper,. and the bank and Bogers & Brother should not be allowed to profit by a secret lien, apparently entered into for their benefit by the bankrupt in fraud of the rights of his other creditors. We should not be led astray by the fact that the Chicago Title & Trust Company acted both as receiver and trustee. Its powers in the latter capacity are distinctly different from its powers in the former capacity.