Petition for a Writ of Certiorari — Galt v. Commissioner

//3

a

JAN 1955

HAROLD B. WILLEY, Cle

IN THE

Supreme Court of the Anited States

Ocroser Term, 1954

No. 514

CenTRAL-States Corporation, Petitioner,

v.

Frank LutHer, TRUSTEE oF THE E'staTE OF GARDEN GRAIN

anp Seep Company, Inc., Bankrupt, Respondent

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS FOR THE

TENTH CIRCUIT

Martin W. Bet

1625 K Street, N. W.

Washington 6, D. C.

SamveEu Morean,

105 W. Adams Street,

Chicago, Illinois

Counsel for Petitioner

Press or Brron S. Apams, Wasurncron, D. C.

SUBJECT INDEX

Page

Opinions Below: Majority Opinion ................ 12

Dissenting Opinion .............. 25

Farmmiaae: MPI sss i oo oo oko isis on sia sce 2

Cmts TORI id on. bo og is Ve ce dba ens Pednces 2

IR ApS aU Rs duces cu wWecehae ne escn bane enadue 3

Monsees Toe Dre Week oi ivck vie Wow ciccccessccus 5

I aia 56S aa aR cis a aa ha eek eds 11

Appendix A: Opinions, Judgment and Order of the

Court of Appeals for the Tenth Cireuit 12

Appendix B: Kansas G. S. 34-248 (1949) .......... 29

Appendix C: Order Extending Time to File Petition

foe writ of Corterari 2.0.6.0 ccevesces 30

TABLE OF CASES

In Re Burton Coal Co., 7 Cir. 126 F. (2d) 447 ....... 5

In Re Bolognesi and Company, 264 F. 770, 773-774

COPE BI ns hoes SAN de ds San eKe es 9

Carson State Bank v. Grant Grain Co., 50 N.D. 558, :

pS SORTS Se rere re eae 7

Cunningham v. Brown, 265 U.S. 1, 13; 68 L. Ed. 873,

877; 44 S. Ct. 424, 427 (1923) .................. 10

Empire State Surety Company v. Carroll, 194 F. 593,

Soe eee OE OEE ok cosa bakawk cece Gah occas’ 9

Hall v. Pillsbury, 43 Minn. 33, 149; 24 N.W. 699 ..... 7

In Re International Power and Securities Corp., 174

We Se ve Adha cei inch hel ukeayicaei eens 5

Kastner v. Andrews, 49 N.D. 1059; 194 N.W. 824, 827-

GR nae as wo UREA Wn Ce RACER SS owe ha biabadous 7

Kipp v. Goffe & Carkener, 144 Kan. 95, 58 P. (2d)

OU AEE 3s ka 6 Gane rhe 65 Rana en neane ei ke 8

Smith v. Elevator Co., 9 Kan. App. 144, 58 Pac. 483

CRE a ha. Ss ahd seh sa Wan Cae eub hed s bad sae aaL ES 8

State v. Farmers Elevator Co., 59 N.D. 679, 231 N.W.

FS TE owas CERES CAN CEN CRE bbb ake baka vh kone 6

Torgenson v. Quinn-Shepherdson Co., 161 Minn, 380,

ee NE i ka vin NOM n pis Khas weeebewbcee se 8

STATUTES CITED

Ad, OR BUREN Dik sk Gade vnnsckevewdedad ces 2

Kansas GS. 34-248 (1949) ...........ccceeeecceece 7, 29

IN THE

Supreme Court of the Anited States

Ocroser Term, 1954

No.

CrenTRAL-States Corporation, Petitioner,

v.

Frank LutTHer, TRUSTEE oF THE EstaTE oF GaRDEN GRAIN

anp Sreep Company, Inc., Bankrupt, Respondent

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS FOR THE

TENTH CIRCUIT

Centrat-States Corporation prays that a writ of certio-

rari be issued to review the judgment of the United States

Court of Appeals for the Tenth Circuit, entered in the

above-entitled cause on August 13, 1954.

OPINIONS BELOW

The memorandum opinion of the Referee in Bankruptcy

(R. 10-23) is unreported. The District Court Judge filed

no opinion but merely entered an order sustaining the judg-

ment entered by the Referee in Bankruptcy (R. 23-24).

The opinion of the Court of Appeals is reported in 215

F. (2d) 38, and it is set forth in Appendix A to this peti-

2

tion, infra p. 12. A dissenting opinion, also appended to

this petition in Appendix A, infra p. 25, was filed by Circuit

Judge John C. Pickett.

JURISDICTION

The judgment of the Court of Appeals for the Tenth

Circuit was entered on August 13, 1954, infra p. 28. A peti-

tion for rehearing filed on August 27, 1954, was denied on

September 7, 1954, infra p. 28. The jurisdiction of this

Court is invoked under 28 U.S.C., See. 1254 (1). On Decem-

ber 6, 1954, this Court entered an order extending the time

for filing a petition for certiorari in the instant cause to and

including January 5, 1955. Appendix C, infra p. 30.

QUESTIONS PRESENTED

1. Does the Bankruptcy Court have jurisdiction to enter

an order directing the petitioner to turn over certain quan-

tities of grain allegedly belonging not to the bankrupt

estate but to grain depositor-creditors of the bankrupt’s

estate?

2. Grain having been purchased by the petitioner from

the bankrupt warehouseman on November 14, 1951, in

good faith and for full value, and partial deliveries having

been made by the bankrupt to the petitioner between

December 12, 1951, and January 7, 1952, did the Bankruptcy

Court, in the light of the fluctuating condition of the bank-

rupt’s grain accounts during the periods specified, properly

order an accounting by the petitioner as of November

14, 1951?

3. Are public warehouse receipts issued on a prescribed

statutory form void, invalid, or unenforceable because

they were not ‘‘registered’”’ and because the petitioner,

who purchased them in good faith and for full value, did

not physically deposit any grain as recited in the said re-

ceipts but erroneously assumed that the said grain was

deposited for the petitioner by the warehousemar?

3

4. Regardless of the provisions of a local statute relating

to the issuance of warehouse receipts for the deposit of

grain, is not a Bankruptcy Court required to apply the

first-in first-out rule to the moneys in a bankrupt ware-

houseman’s account for the purpose of tracing into a com-

mingled grain fund in possession of such a warehouseman

the sums paid by the petitioner for the purchase and acqui-

sition of grain?

5. Since, as established by the uncontradicted evidence

and as found by the Court of Appeals, the petitioner paid

to the bankrupt over two hundred thousand dollars for

grain at times when the balance in the bankrupt ware-

houseman’s sole bank account was negligible and since

almost all of the said moneys so paid were used by the

bankrupt warehouseman to purchase grain for its own

account, was the petitioner entitled to have a constructive

trust or an equitable lien imoressed upon the grain fund

which ultimately came into tae possession of the Trustee

in Bankruptcy?

6. Did the Court of Appeals depart from the accepted

and usual course of judicial proceedings and prejudice

the rights of the petitioner in certain other suits now pend-

ing by including in its opinion certain erroneous conclu-

sions which are not based upon the record or upon the

findings or memorandum of opinion of the trial court and

which were never even contended for by the respondent?

STATUTES INVOLVED

The pertinent statutory provisions are printed in Ap-

pendix B, infra, p. 29.

STATEMENT

An involuntary petition in bankruptcy was filed against

Garpen Grain anp Seep Company, Ino., a Kansas corpora-

tion (hereinafter referred to as the ‘‘bankrupt’’) on Janu-

ary 16, 1952. An order of adjudication was entered on

ane

a

January 18, 1952, and the cause was on that date referred

generally to a Referee in Bankruptcy. On July 14, 1952,

the petitioner filed a reclamation petition in the instant

cause praying, among other things, that it be allowed an

equitable lien on certain milo grain or the proceeds thereof

in the possession of the respondent (R. 27-34). An answer

was filed by the respondent admitting that the petitioner

was entitled to a common claim in the sum of $220,875.71

but denying all of the allegations of the reclamation peti-

tion by which the petitioner sought to establish an equitable

lien or a priority claim in any form (R. 46-47). Thereafter

the respondent filed an ‘‘ Action in the Nature of an Inter-

pleader,’’ praying (1) that the Court adjudge, decree, and

declare the owners and respective proportions of owner-

ship of the various claimants to the funds in the hands of

the respondent arising from the sale of milo, and (2) that

the Court specifically find that the petitioner has no interest

in said funds. After a full hearing before the United

States Referee in Bankruptcy for the District of Kansas

on November 25, 1952, the respondent filed an amendment

to his answer requesting that the petitioner account for

certain milo purchased, received, and paid for in full by

it in good faith within the four-month period prior to

the entry of the order of adjudication in bankruptcy herein

(R. 47-48). To this amendment the petitioner filed a motion

to strike (R. 51).

The Referee in Bankruptcy on March 25, 1953, entered

an order based upon findings of fact, a memorandum

opinion, and conclusions of law denying that petitioner

was entitled to an equitable lien or priority claim, direct-

ing the petitioner to turn over (a) 867,191 pounds of milo

purchased, received, and paid for as aforesaid by the peti-

tioner, or in lieu of such milo (b) the monetary value

thereof fixed at $19,771.95, and allowing the petitioner 4

general claim in the sum of $239,259.56 upon the condition

that said. 867,191 pounds of milo or the monetary value

thereof be turned over to the bankrupt estate (R. 10-23).

A petition for review having been filed (R. 1-23), the

—_—

5

United States District Judge for the District of Kansas

entered an order on October 13, 1953, sustaining the judg-

ment of the Referee in Bankruptcy (R. 23-24). On appeal

to the Court of Appeals for the Tenth Circuit the judgment

was sustained (infra p. 28) but a dissenting opinion was

filed by Circuit Judge John C. Pickett with respect to the

propriety of the said turnover order (mfra p. 25).

REASONS FOR GRANTING THE WRIT

1. As to Questions 1 and 2:

As pointed out by Circuit Judge Pickett in his dissenting

opinion, this is the first bankruptcy proceeding in which

it has ever been held that a turnover order may properly

be entered with respect to property which belongs to

third parties and which ‘‘will not in the slightest degree

affect the assets of the bankrupt.’’ In Re Burton Coal Co.,

7 Cir. 126 F. (2d) 447, and In Re International Power and

Securities Corporation, 174 F. (2d) 399, relied on by the

majority, involved reorganization proceedings and are

otherwise distinguishable factually. While it is true that

the petitioner made no objection to the jurisdiction of the

trial court, none was necessary; for what is involved here

is a question of jurisdiction over the subject matter and

not merely over the parties. So far as this particular point

is concerned, this is definitely a case of first impression

involving an important question of bankruptcy law which

has not beex, but should be, settled by this Court. If

the decision below is sustained, the old clear-cut distinction

between summary and plenary proceedings will be to a

large extent obviated and bankruptcy courts generally may

be burdened with the adjudication of innumerable side

issues having only a remote connection with the administra-

tion of bankrupt estates.

| Even if it be assumed that the trial court did have

jurisdiction, its disposition of the issue raised by the turn-

over order was patently in conflict with all applicable local

decisions on the subject. The petitioner purchased certain

——

6

quantities of grain from the bankrupt warehouseman on

November 14, 1951. The first partial delivery was made

on December 12, 1951, and certain other partial deliveries

were made between that date and January 7, 1952. The

petitioner had paid, in good faith and at full value, for

warehouse receipts evidencing all of the grain so delivered

and additional larger quantities of undelivered grain. All

of the warehouse receipts in question were on a prescribed

statutory form. Under the circumstances the petitioner

contended below that it was entitled to retain all of the

grain received by it.’ The Referee in Bankruptcy held,

however, that since a shortage existed in the bankrupt

warehouseman’s accounts and since in bis opinion the ware-

house receipts were invalid, the petitioner must account

for any shortage as of November 14, 1951, the date of

purchase. On that date, using the criteria adopted by the

Trustee, the bankrupt warehouseman’s position was long

to the extent of 1,013,159 pounds, or 867,191 pounds less

than the quantity actually delivered to the petitioner. On

November 28, 1951, the date of a second transaction be-

tween the bankrupt warehouseman and the petitioner, the

bankrupt warehouseman was long to the extent of 5,578,416

pounds. On December 12, 1951, the date of the first de-

livery, the bankrupt warehouseman was long 1,382,973

pounds. These figures are based on Schedule 16 appear-

ing at page 247 of the record. In compiling them, the

same criteria as those employed by the Trustee have been

used.

All of the applicable State decisions hold that although

a purchaser of grain, upon accepting delivery from a ware-

houseman who at the time is short in his grain account,

is liable to the depositors of grain for the amount in excess

of his pro rata share, such liability will be extinguished if,

subsequent to the excessive delivery, other grain is sub-

stituted therefor and made a part of the commingled mass.

Under such circumstances title to the substituted grain is

deemed vested in the depositors and holders of warehouse

receipts. State v. Farmers Elevator Co., 59 N.D. 679, 231

7

N. W. 725, 727; Carson State Bank v. Grant Grain Co.,

50 N.D. 558, 197 N. W. 146; Kastner v. Andrews, 49 N.D.

1059, 194 N. W. 824, 827-829; Hall v. Pilisbury, 43 Minn.

33, 149, 24 N. W. 699. Although Schedule 16, which is

uncontradicted, clearly shows that the bankrupt’s position

was at least temporarily improved subsequent to November

14, 1951, that date was arbitrarily chosen for the aecount-

ing. Even Circuit Judge Pickett in his dissenting opinion

failed to take said Schedule 16 into consideration and

erroneously concluded that the evidence did not disclose

the condition of the bankrupt warehouseman’s grain

account after delivery to the petitioner. The State deci-

sions cited are all in conflict with the holding of the trial

court and the Court of Appeals but even if they did not

exist, as a matter of equity and sound judicial practice,

November 14, 1951, should not have been selected as the

date for an accounting.

2. As to Question 3:

The Court of Appeals ruled that the warehouse receipts

issued to the petitioner were invalid and unenforceable

because they had not been ‘‘registered.’’ This conclusion

was based upon Kansas G.S. 34-248 (1949). (See Appendix

B below.) In its opinion the Court of Appeals summarized

all of the provisions of this statute, save the following:

**Provided, That at the option of the chief inspector,

a public warehouseman may issue unregistered nego-

tiable receipts for grain of which the warehouseman

is not the owner, either solely, jointly, or in common

with others.’’ (Italics supplied).

Since the warehouse receipts here in question were issued

under the authority of the language quoted, and since

each of them bore the caption, ‘‘Uniform Unregistered

Bailment Local Public Warehouse Receipts,’’ it is difficult

to understand by what logic the Court of Appeals deter-

mined that the receipts were required to be registered.

In further substantiation of its conclusion the Court of

Appeals held that the instant cause was ‘‘by appropriate

8

analogy’’ subject to the holding in Kipp v. Goffe & Car-

kener, 144 Kan. 95, 58 P. (2d) 102 (1936). In that case

it was held that wnlicensed warehousemen had no authority

to issue warehouse receipts and that one who dealt with an

unlicensed warehouseman did so at his peril. The decision

was designed to enforce the announced public policy of

Kansas requiring all warehousemen to obtain licenses and

to post an adequate bond under the appropriate statute.

In the instant cause the bankrupt warehouseman was li-

censed, had posted the required bond, and had issued

warehouse receipts on the prescribed statutory form. In

the Kipp case itself the Supreme Court of Kansas was

eareful to distinguish the facts before it from those in

Torgenson Vv. Quinn-Shepherdson Co., 161 Minn. 380, 201

N. W. 615, in which a licensed warehouseman was involved.

It is the contention of the petitioner that the holding in

the Kipp case was never intended to be applied to a

licensed warehouseman and that the decision of the Court

of Appeals in the instant case is probably in conflict with

the local Kansas law, both statutory and judicial. See

Smith v. Elevator Co., 9 Kan. App. 144, 58 Pac. 483 (1899).

The Court of Appeals failed to recognize that the purpose

of the Kansas statute is to impose certain requirements

and duties upon grain warehousemen doing business in

the State, and to impose certain penalties upon such ware-

housemen if they fail to discharge their duties and respon-

sibilities. It is not the statutory intent to penalize inno-

cent holders for value of warehouse receipts (on the regu-

lar statutory forms) for the misconduct of duly licensed

warehousemen.

3. As to Questions 4 and 5:

While correctly summarizing the facts upon which the

petitioner relied for the purpose of tracing its moneys

into the grain fund of the bankrupt warehouseman and

thus impressing a constructive trust or an equitable lien,

the Court of Appeals failed to consider or even to discuss

the first-in first-out rule strenuously urged by the peti-

9

tioner. Immediately prior to the first and second trans-

actions with the petitioner the bankrupt had $435.13 and

$115.06, respectively, in its bank account (R. 121-123).

On the first occasion, $127,680.00 of the petitioner’s money

was then deposited in the bankrupt’s account, and on the

second $65,800.00 was therein deposited (R. 121-123). Im-

mediately after the first transaction with the petitioner,

the bankrupt spent $112,786.59 for milo (R. 112, 143-145,

163, 177). Similarly, immediately aft: + the second trans-

action, the bankrupt spent $92,514.33 fc milo (R. 151-153,

167-171, 177). Since in each instance the bankrupt had

only nominal sums on deposit in its bank account prior to

the deposit of the sight drafts drawn on the petitioner,

it must be presumed under the first-in first-out rule that

the milo acquired was paid for with the petitioner’s money

which was the first money deposited after the bankrupt’s

account had been reduced to the low levels described. In

the case of the third transaction the bankrupt had a balance

of $15,480.42 in its account before the amount of the last

sight draft drawn on the appellant was deposited (R. 131).

The amount expended by the bankrupt, however, between

December 12 and December 18, 1951, for milo was $89,756.50

which, of course, was substantially more than the said

balance (R. 159, 175, 177). The difference under the first-in

first-out rule must be presumed to have been paid from

the first deposit thereafter made in the bankrupt’s account

which consisted of the sight draft drawn on the petitioner.

The evidence adduced by the petitioner shows that its

moneys were used for the purchase of milo which was de-

posited in the bankrupt’s warehouse. If any evidence to

the contrary existed, the burden of adducing it rested upon

the respondent. That burden was never assumed.

The omission of the Court of Appeals to apply the first-in

first-out rule is in conflict with such decisions by other

Courts of Appeals as In Re Bolognesi and Company, 254

F. 770, 773-774 (CCA 2d 1918), and Empire State Surety

Company v. Carroll, 194 F. 593, 605 (CCA 8th 1912).

10

Moreover, it is in conflict with decisions of this Court such

as Cunningham v. Brown, 265 US. 1, 13, 68 L. Ed. 873, 877,

44 §. Ct. 424, 427 (1923), in which the first-in first-out rule

was recognized though not applied.

4, As to Question 6:

The majority opinion of the Court of Appeals states

that ‘‘no physical deposit of grain was ever intended by

the petitioner.’ It is true that no physical deposit of

grain was made by the petitioner itself, and none was in-

tended to be made by the petitioner itself, but the record

clearly establishes that the petitioner placed a purchase

order for grain, paid for the grain in good faith, and sin-

cerely believed that the grain had been deposited on its

behalf by the bankrupt in the pankrupt’s warehouses. As

the majority opinion now reads, it carries the implication

that the petitioner paid out over $260,000.00 of its money

for warehouse receipts which it knew to be worthless. This,

of course, could not have been the case. Indeed, it was

never so contended by the respondent.

The majority opinion further states that ‘‘the claimant

knew that no grain was deposited with the bankrupt for

storage and it knew that the receipts did not indicate on

their face that they had been registered.’? There was

absolutely nothing before the Court of Appeals to sub-

stantiate a finding that the petitioner at any time prior

to the adjudication in bankruptcy knew that no grain had

been deposited with the bankrupt. Furthermore, no such

finding was ever urged by the respondent.

In certain suits now pending in the United States District

Court for the District of Kansas the bonding companies

which underwrote certain statutory bonds for the bankrupt

warehouseman are contending that the said findings now

establish the bad faith of the petitioner. Since these find-

ings have no basis in the record, in the conclusions of the

Referee in Bankruptcy, or of the District Court, or even

in the argument of counsel for the respondent, it is respect-

fully suggested that the Court of Appeals has so far

11

departed from the accepted and usual course of judicial

proceedings as to call for an exercise of this Court’s power

of supervision.

CONCLUSION

For the foregoing reasons this petition for writ of cer-

tiorari should be granted.

Respectfully submitted,

eer eee eee eee eee errr eee rer wreee

1625 K Street, N. W.

Washington 6, D. C.

SamvueEx Morean,

105 W. Adams Street,

Chicago, Illinois

Coumsel for Petitioner

12

APPENDIX A

The Opinions, Judgment and Order of the Court of Appeals

for the Tenth Circuit

1. The Cpinions:

CrentraL States CoRPoRATION,

Appellant,

vs.

Frank Luruer, Trustee,

Appellee.

IN re GARDEN GRAIN & SEED CO., Inc.,

Bankrupt.

No. 4791—May Term, 1954

United States Court of Appeals, Tenth Circuit.

Aug. 13, 1954.

Samuel Morgan, Chicago, Ill. (W. A. Kahrs, Wichita,

Kan., with him on the brief), for appellant.

Malcolm Miller, Wichita, Kan., for appellee.

William C. Farmer, U. 8. Atty., Wichita, Kan., Warren

E. Burger, Asst. Atty. Gen., Melvin Richter and John G.

Laughlin, Dept. of Justice, Neil Brooks, Associate Solici-

tor, Washington, D. C., Giles H. Penstone, Kansas City,

Mo., Donald A. Campbell, Washington, D. C., Gerald J.

O’Rourke, Dept. of Agriculture, Washington, D. C., on the

brief for the United States amicus curiae.

Before Bratton, Huxman and Pickett, Circuit J udges.

Bratton, Circuit Judge.

This is a controversy arising in a bankruptcy proceed-

ing. Garden Grain and Seed Company, Inc., was a licensed

warehouseman under the laws of Kansas, and it operated

elevators in that state in which grain was received for

storage and transfer. Under date of January 16, 1952, the

corporation was adjudged a bankrupt, and a trustee was

_ es

13

seasonably selected. At the time of adjudication, the

bankrupt had in its possession 4,320,900 pounds of milo

which was later sold under order of the bankruptcy court

for $103,995.25. The proceeds of the sale were placed in

a special fund, and the controversy revolves around cer-

tain claims to the fund.

Central States Corporation, hereinafter referred to as

the claimant, filed in the proceeding a reclamation peti-

tion and proof of debt. It was alleged in the pleading

that on November 14, 1951, the claimant purchased from

the bankrupt 100,000 bushels of milo and paid therefor

$127,680; that the bankrupt issued an invoice showing the

sale; that the milo purchased was immediately stored by

the claimant in the warehouse of the bankrupt; that the

bankrupt issued twenty negotiable warehouse receipts in

the form authorized by the laws of Kansas, each receipt

showing ownership in the claimant of 5,000 bushels of milo

stored in the warehouse of the bankrupt; that at the direc-

tion of the claimant and upon surrender of eight of such

warehouse receipts, the bankrupt released to the claimant

33,577 bushels and 38 pounds of milo; and that the bank-

rupt failed to deliver to the claimant as owner thereof the

balance of the stored grain although demand had been

made for such delivery. In like terms, it was alleged that

on November 29, 1951, the claimant purchased from the

bankrupt 50,000 bushels of milo for which it paid $65,800;

that an invoice was issued; that the grain was immediately

stored by the claimant in the warehouse of the bankrupt;

that ten negotiable warehouse receipts were issued, each

showing ownership in the claimant of 5,000 bushels of milo

stored in the warehouse of the bankrupt; and that although

demand had been made therefor, the bankrupt failed to

deliver such grain to the claimant. And similarly, it was

alleged that on December 15, 1951, the claimant purchased

from the bankrupt 50,000 bushels of milo for which it paid

$68,880; that an invoice was issued; that the grain was

immediately stored by the claimant in the warehouse of

the bankrupt; that ten negotiable warehouse receipts were

14

issued, each showing ownership in the claimant of 5,000

bushels of milo stored in the warehouse of the bankrupt;

and that although demand had been made therefor, the

bankrupt had failed to deliver such grain to the claimant.

It was further alleged that each of such receipts created

a trust fund of milo of which the corporation was trustee

and the claimant was cestui que trust; that such trust

funds were commingled with other trust funds of a similar

nature evidenced by warehouse receipts; that the grain

owned by the claimant and not delivered by the bankrupt

was or should be in the possession of the bankrupt; and

that the value of such grain was $219,487.61. Copies of

the warehouse receipts were attached to the pleading.

Each receipt was designated as negotiable and contained

the statement that the bankrupt had received from the

claimant a specified number of bushels of milo ‘‘in store’’;

that the bankrupt was ‘‘not the owner of the grain covered

by this receipt, either solely, jointly, or in common with

others’’; and that the milo thus deposited by the claim-

ant with the bankrupt ‘‘has been graded * * * and may be

stored with other grain of the same grade’”’. The prayer

of the pleading was that the claimant have judgment for

the possession of the milo and funds in the possession of

the trustee as thereinbefore alleged; that the court fix and

establish claimant’s liens against the property of the bank-

rupt and the property in the possession of the trustee as

thereinbefore alleged; and that the claimant be allowed a

general claim for the difference, if any, between the value

of the milo, cash, liens, and securities received by the

claimant and the sum of $219,487.61. The trustee admitted

payment of the three sums to the bankrupt ; admitted that

the claimant did not receive 9,319,650 pounds of milo for

which it held warehouse receipts; and denied that the

claimant had any lien on any of the assets coming into the

hands of the trustee. And by amendment to the answer,

the trustee. pleaded that the claimant received from the

bankrupt 1,880,350 pounds of milo which was not owned by

the bankrupt or the claimant, but was owned by persons

15

who had deposited it with the bankrupt for storage. In

addition to answering the petition of the claimant, the

trustee filed an action in the nature of an interpleader. The

claimant and others were joined as parties. It was alleged

among other things in the petition in interpleader that the

claimant asserted a claim to the fund but that the trustee

did not believe it had any valid rights therein. The prayer

was that the court adjudge and decree the owners and re-

spective proportions of ownership of the various claimants

to such fund in the hands of the trustee arising from the

sale of the milo found among the assets of the bankrupt;

and that the court adjudge and decree that the claimant

and certain others had no interest in such fund.

After making findings of fact and conclusions of law,

the referee entered an order determining that the claim-

ant was not entitled to an equitable lien upon or priority

to the special fund in the hands of the trustee; that the

claimant should retain as its own property 1,013,159 pounds

of milo which it received from the bankrupt; that it should

return to the trustee to be placed in the special fund 867,191

pounds of milo, or the value thereof which was fixed at

$19,771.95; and that upon the return of the grain or pay-

ment of the money, the claim of the claimant would be

allowed in the sum of $239,259.56 as a common claim. On

petition for review, the district court sustained the order

of the referee, and the claimant appealed. For conveni-

ence, continued reference will be made to the parties as

claimant and trustee, respectively.

The referee concluded that the warehouse receipts held

by the claimant were invalid and the district court in

effect sustained the conclusion. The claimant challenges

that conclusion. It asserts that the receipts are valid.

The question must be determined under the laws of

Kansas. Interstate Banking & Trust Co. v. Brown, 6 Cir.,

235 F. 32, certiorari denied, 242 U.S. 632, 37 S.Ct. 15, 61

L.Ed. 537. Chapter 194, Laws of 1931, section 34-223 et

seq., General Statutes of Kansas 1949, relates to the ware-

housing of grain in public warehouses. The act is elabo-

16

rate but only part of its provisions have any present ma-

terial bearing. Authority is contained in the act for the

issuance of two kinds of warehouse receipts. Section

34-939 authorizes the issuance of receipts for grain stored

in a warehouse licensed under the act and provides the es-

sential contents of such receipts. Section 34-240 author-

izes a public warehouseman operating a warehouse to

make a valid sale or pledge of warehouse receipts issued

for grain of which he is the owner, either solely or jointly

or in common with others, and provides that the recital

of such ownership in the receipts shall constitute notice

to all the world of the right to sell or pledge the same and

of the title or specific lien of the transferee or pledgee

upon the warehouseman’s grain represented by such re-

ceipts, provided that such receipts are registered accord-

ing to the provisions of the act. Section 34-243 defines a

non-negotiable receipt. Section 34-244 defines a negotiable

receipt. Section 34-246 provides that no warehouse re-

ceipt shall be issued except upon actual delivery of grain

into the warehouse from which it purports to be issued.

Section 34-247 provides for the appointment and qualifi-

cation of registrars of receipts. Section 34-248 provides

that it shall be the duty of every public warehouseman

issuing negotiable receipts upon receipt of grain to issue

or cause to be issued a receipt therefor in compliance with

the act, and to file with the registrar a report showing

the amount of grain received, the name of the owner

thereof, and the numbers of receipts therefor issued, ac-

companied by the warehouse receipts for registration. The

statute further provides that a public warehouseman must

in all cases register every negotiable receipt issued by him

for grain of which he is the owner, either solely, jointly,

or in common with others. And the statute further pro-

vides that upon receipt of such report and warehouse re-

ceipts, it shall be the duty of the registrar to register such

legal receipts in a book to be kept for that purpose and to

stamp on each of them with the official state grain inspec-

tion department registration stamp the word ‘‘registered”’

17

with the date of registration, and affix his signature there-

to. Section 34-290 makes it a criminal offense for a ware-

houseman, or any officer, agent, or servant of a warehouse-

man, to issue or aid in the issuance of a warehouse receipt

knowing that the grain for which such receipt is issued has

not been actually received by such warehouseman, or is not

under his actual control at the time of the issuance of such

receipt. Section 34-291 makes it a criminal offense for a

warehouseman, or any officer, agent, or servant of a ware-

houseman, fraudulently to issue a receipt for grain, know-

ing that it contains a false statement. And section 34-298,

provides that unless otherwise provided in the act, any

person, firm, or corporation, or any officer or agent of any

person, firm, or corporation, who shall violate any of the

provisions of the act shall be guilty of a misdemeanor. It

will be observed with poignant significance that the perti-

nent language contained in the act in respect to receipts

not being issued unless the grain has been actually de-

posited with the warehouseman and is under his control, as

well as the language in respect to receipts issued for grain

of which the warehouseman is the owner being registered,

is not directory or permissive. Such provisions in the act

are unequivocal, mandatory, and imperative. And they

represent the considered public policy of the state in re-

spect to the matters falling within their compass. Mil-

lers National Insurance Co. v. Bunds, 158 Kan. 662, 149 P.

2d 350, 153 A.L.R. 176.

[1] The claimant did not deliver any grain to the bank-

rupt for storage. No physical deposit of grain was made

and none was ever intended by the parties. The receipts

were never registered and the word ‘‘registered’’ was

never stamped upon them with the official registration

stamp. The claimant knew that no grain was deposited

with the bankrupt for storage, and it knew that the receipts

did not indicate on their face that they had been registered.

The receipts were not conventional bona fide vouchers is-

sued to a depositor of grain. Neither were they receipts

a

for grain belonging to the bankrupt and then presently

stored in its warehouse. It seems clear that the transac-

tions between the claimant and the bankrupt, which in-

eluded as an integrated part thereof the issuance and de-

livery of the receipts, did not conform to the statutory

exactions of the state in respect to the issuance of ware-

house receipts. Our attention has not been called to any

ease decided by the Supreme Court of Kansas involving

the validity of warehouse receipts issued under similar

or fairly comparable circumstances to those present here.

But in Kipp v. Goffe & Carkener, 144 Kan. 95, 58 P. 2d 102,

108 A.L.R. 918, it was held that one dealing with a ware-

houseman who had not been licensed under the act was

bound to know that the warehouseman had no right, power,

or authority as a public warehouseman to receive grain for

storage or transfer for the public; and that one storing

grain with such a non-licensed warehouseman and taking

receipts therefor could not invoke the protection of the act.

If one who accepts from a warehouseman not licensed un-

der the act receipts for grain stored in his warehouse can-

not invoke the protective provisions of the act, it must

follow by appropriate analogy that where one, in disre-

gard of the act, obtains warehouse receipts from a licensed

public warehouseman without depositing with such ware-

houseman any grain for storage and without the receipts

being registered in the manner specified in the act cannot

be heard to urge with success that the receipts were validly

issued under the act and therefore constitute sustainable

basis for the assertion in bankruptcy of a right of reclama-

tion, an equitable lien, or preferred claim. First Camden

National Bank & Trust Co. v. J. R. Watkins Co., 3 Cir., 122

F. 2d 826.

[2] Another contention advanced is that, having traced

the money which it paid to the bankrupt into purchases of

milo deposited in the elevators of the bankrupt and there

commingled with the common mass of milo which ulti-

mately came into the hands of the trustee, the claimant is

18

—

19

entitled to have such common mass of grain impressed

with a constructive trust or equitable lien in its favor, even

though no express fiduciary relationship ever existed be-

tween the claimant and the bankrupt. It is said in sup-

port of the contention that the money which the bankrupt

received from the claimant was paid for the specific pur-

pose of purchasing and depositing for the claimant milo

in the warehouses of the bankrupt; that in violation of its

clear duty, the bankrupt converted, misappropriated, and

wrongfully used such money to acquire grain in its own

name; and that in such circumstances a constructive trust

or equitable lien in favor of the claimant was created and

should be recognized. Although no evidence whatever was

adduced which tended to show that the claimant paid its

money to the bankrupt with the understanding that the

bankrupt would use it to purchase grain for the claimant

and deposit such grain in the name of the claimant in the

elevators belonging to the bankrupt, that fact may be as-

sumed for the moment. Payment of the money to the

bankrupt with the understanding that it would be used to

purchase grain which would be stored in the name of the

claimant in the elevators of the bankrupt, and the wrong-

ful misappropriation of such money to acquire and deposit

grain in the name of the bankrupt, standing alone, was not

sufficient to vest in the claimant any right to a construc-

tive trust, an equitable lien, or other priority of claim

upon the milo which went into the hands of the trustee. It

was not enough for the claimant merely to show that its

money or the grain purchased therewith went into the

assets of the bankrupt. In order for the claimant to be

entitled to a constructive trust, an equitable lien, or pre-

ferred claim in the proceeds arising from the sale of the

milo which reached the hands of the trustee, it was en-

cumbent upon the claimant to show clearly that the milo

purchased with the money which the claimant paid to the

bankrupt went into the common mass of milo which reached

the hands of the trustee and was later sold. Hoffman v.

Rauch, 300 U.S. 255, 57 S.Ct. 446, 81 L.Ed. 629; Kershaw

: E

v. Jenkins, 10 Cir., 71 F.2d 647 ; Johnson v. Morris, 10 Cir.,

175 F.2d 65.

[3] The claimant apparently recognizes that, as a pre-

requisite to the establishment of a constructive trust or an

equitable lien, the legal duty rested upon it to trace into

the common mass of milo which reached the hands of the

trustee milo purchased with money which the claimant

paid to the bankrupt. To discharge the burden of proof

resting upon it, the claimant relies heavily upon certain

facts and circumstances shown upon the trial. At the

time of the first transaction between the claimant and the

bankrupt, the bankrupt was insolvent; its liabilities on

warehouse receipts and storage tickets issued for milo ex-

ceeded the amount of milo which it then had in storage;

and it had in its bank account a balance of only $435.13.

At the time of the second transaction, the bankrupt was

insolvent; was short in its milo account; and the balance

in its bank account was only $115.06. And at the time of

the third and last transaction between the parties, the

bankrupt was still insolvent; was still short in its milo

account; and the balance in its bank account was $15,480.42.

The three sums which the claimant paid to the bankrupt

were promptly deposited in the bank account of the bank-

rupt and they augmented such account by the respective

amounts thereof. And immediately after the making of

each deposit, the bankrupt spent large sums of money for

milo. But continuously from the time the claimant made

its first payment to the bankrupt to the filing of the peti-

tion in bankruptcy, the bankrupt was actively engaged

from day to day in the grain and elevator business. It

received grain for storage, shipped grain which had been

stored, bought and sold grain on its own account, received

money from various sources, paid money for various pur-

poses, and kept its money in a single bank account into

which money was deposited and against which checks were

drawn. In other words, the bankrupt received and deliv-

ered or shipped large quantities of milo and it received

ee

21

and paid out large sums of money. The money which the

claimant paid to the bankrupt was commingled in the bank

account with more than $700,000 obtained from other

sources and was expended in the conduct of the business.

And as we understand the record, throughout the period

involved here the bankrupt was short in its inventory posi-

tion. The record presents a complicated factual situation,

but it is fairly apparent that continuously after the first

transaction between the claimant and the bankrupt the

bankrupt did not have in storage sufficient milo to dis-

charge its obligations under outstanding warehouse re-

ceipts, open storage tickets, and other like commitments to

its depositors. The claimant failed to show clearly by

augmentation or otherwise that the milo or any part

thereof which reached the hands of the trustee was pur-

chased with money which the claimant paid to the bank-

rupt. And in the absence of a clear tracing into the hands

of the trustee of milo purchased with the money which the

bankrupt received from the claimant, the right to a con-

structive trust, an equitable lien, or preferred claim upon

the $103,995.25 in the special fund in the hands of the

trustee was not established.

[4,5] The question is presented whether the bank-

ruptey court had jurisdiction to determine in a summary

proceeding the controversy in respect to the delivery to the

claimant of the 867,191 pounds of milo. A court of bank-

ruptey does not have jurisdiction to adjudicate in a sum-

mary proceeding a controversy respecting property which

is held adversely to the bankrupt estate without the con-

sent of the adverse claimant. Unless the adverse claim-

ant consents to the adjudication of the controversy in that

manner, resort must: be had to a plenary suit. Harrison v.

Chamberlin, 271 U.S. 191, 46 S.Ct. 467, 70 L.Ed. 897. The

claimant did not challenge the jurisdiction of the bank-

ruptecy court to adjudicate in a summary proceeding the

controversy in respect to the grain which it received from

the bankrupt. Instead, it litigated the question on its

ee.

merits and thus impliedly consented to the adjudication

of the controversy in that manner. Accordingly, the order

is not fatally infirm for want of jurisdiction of the bank-

ruptey court to adjudicate in a summary proceeding the

controversy in respect to the grain received from the

bankrupt.

[6,7] The turn-over provision in the order of the referee

is challenged upon ihe further ground that the controversy

in respect to the return of the 867,191 pounds of grain or

payment of the value thereof was one between third parties

which did not involve the bankrupt or its property and

therefore the bankruptcy court did not have jurisdiction to

adjudicate it. It is the general rule that a bankruptcy

court is without jurisdiction of a controversy solely and

exclusively between third parties which does not involve

directly or indirectly the bankrupt or his property. In re

Chakos, 7 Cir., 24 F.2d 482; Evarts v. Eloy Gin Corp., 9

Cir., 204 F.2d 712, certiorari denied, 346 U.S. 876, 74 S.Ct.

129. Buta court of bankruptcy does have jurisdiction and

power to determine a dispute between third parties con-

cerning the ownership of property in which neither the

bankrupt nor the trustee has title if it is impossible to

administer completely the estate of the bankrupt without

determining the controversy. In re Burton Coal Co., 7

Cir., 126 F.2d 447; In re International Power Securities

Corp., 3 Cir., 170 F.2d 399. The grain which the bankrupt

delivered to the claimant had been in the custody of the

bankrupt as bailee. The depositors of such grain are

creditors of the bankrupt estate. The claimant is also a

creditor. Manifestly, it would be impossible to administer

the bankrupt estate completely without determining

whether the claimant shall return to the trustee the grain

which the bankrupt delivered to it or pay the value thereof

because upon the adjudication of that question depends

the amount of the claims of the depositors against the

bankruptestate and the source or sources from which such

claims shall be paid in whole or in part. And in these

22

wa

23

circumstances, the jurisdiction of the bankruptcy court was

broad enough to include the adjudication of the contro-

versy as to whether the claimant should return the grain

to the trustee or pay the value thereof. In re Burton

Coal Co., supra; In re International Power Securities

Corp., supra.

[8,9] One remaining contention urged for reversal of

the judgment merits discussion. That contention is thai

the turnover provision contained in the order of the ref-

eree was improperly and illegally included therein. It is

said in support of the contention that the milo delivered

to the claimant was purchased by the claimant in good

faith and paid for in full; that it represented property ac-

quired with the claimant’s money; and that it did not con-

stitute a preferential transfer. It is further said that the

creditors of the bankrupt have no legal or moral right to

the grain purchased with the claimant’s money. And it is

further said that having traced its money into the com-

mingled fund of milo which came into the hands of the

trustee, and having established an equitable lien or con-

structive trust upon such fund, it must be held that the

claimant had the right to enforce its warehouse receipts

pro-rata by accepting the delivery of grain made to it. It

is the well established rule of law in Kansas and else-

where that where owners of grain deposit it with a ware-

houseman for storage with an express or implied under-

standing that it will be mixed with other grain of like

kind and quality, the relationship among the several de-

positors is that of tenants in common of the commingled

mass, the relationship between them and the warehouse-

man is that of bailors and bailee with the deposited grain

being redeemable by grain of similar kind, quality, and

quantity, and the right of the warehouseman to sell or

make other disposition from the common mass is limited

to the excess thereof over and above the quantity neces-

sary to redeem the receipts or other commitments issued

to the depositors. Moses v. Teetors, 64 Kan. 149, 67 P.

24

526, 57 L.R.A. 267; Zuber v. Minshall, 123 Kan. 595, 256 P.

806; Flour Mills of America v. Burrus Mills, 174 Kan.

709, 258 P.2d 341; Kastner v. Andrews, 49 N.D. 1059, 194

N.W. 824; Carson State Bank v. Grant Grain Co., 50 N.D.

558, 197 N.W. 146; Torgerson v. Quinn-Shepherdson Co.,

161 Minn. 380, 201 N.W. 615; Hoven v. McCarthy Bros.

Co., 163 Minn. 339, 204 N.W. 29. The referee found as a

fact that the bankrupt delivered to the claimant milo in

the amount of 867,191 pounds when it did not have in the

common mass any excess over and above the amount re-

quired to discharge its obligations to depositors of milo.

Therefore, the delivery to the claimant of that grain

amounted to a transfer from the common mass which did

not belong to the bankrupt but to the depositors thereof

as tenants in common. Of course, the claimant could not

be blameworthy for adopting any legal course to save itself

from financial loss arising out of its dealings with the

bankrupt. But it did not have any warrant in law to en-

force pro-rata its rights against the bankrupt by accepting

the delivery of grain which belonged to the depositors

thereof, not the bankrupt.

[10-12] A bankruptcy court is a court of equity and is

guided by equitable principles and doctrines except when

they are inconsistent with the Bankruptcy Act, 11 U.S.C.A.

§ 1 et seq. Continental Illinois National Bank & Trust

Co. v. Chicago, Rock Island & Pacific Railway Co., 294 US.

648, 676, 55 S.Ct. 595, 79 L.Ed. 1110; Securities and Ex-

change Commission v. United States Realty & Improve-

ment Co., 310 U.S. 434, 455, 60 S.Ct. 1044, 84 L.Ed. 1293. In

passing upon the allowance of claims, a bankruptcy court

sits as a court of equity clothed with jurisdiction to sift

the circumstances surrounding any claim to see that in-

justice and unfairness is not done in the administration

of the bankrupt estate. Pepper v. Litton, 308 U.S. 295, 60

§.Ct. 238, 84 L.Ed. 281; W. F. Sebel Co. v. Hessee, 10 Cir.,

914 F.2a 459. And acting within the framework of the

Bankruptey Act, a court of bankruptcy has power to sub-

25

ordinate the claim of one creditor to the claims of other

creditors where subordination is necessary to prevent the

consummation of conduct which is inequitable; has power

to attach appropriate conditions to the allowance of a

claim; and has power to require a claimant to do equity

before receiving equity in the proceeding. Pepper v. Lit-

ton, supra; American Surety Co. of New York v. Sampsell,

327 U.S. 269, 66 S.Ct. 571, 90 L.Ed. 663; Heiser v. Wood-

ruff, 327 U.S. 726, 66 S.Ct. 853, 90 L.Ed. 970; In re Erick-

son, 7 Cir., 106 F.2d 937; In re Commonwealth Light &

Power Co., 7 Cir., 141 F.2d 734; In re Kansas City Journal-

Post Co., 8 Cir., 144 F.2d 791; In re V. Loewer’s Gam-

brinus Brewery Co., 2 Cir., 167 F.2d 318. Having received

from the bankrupt 867,191 pounds of milo which did not

belong to the bankrupt but to the depositors thereof, it

would be a devastating impingement upon plain principles

of equity to permit the claimant to retain unto itself such

grain or the value thereof and at the same time share

ratably with such depositors and other creditors in the dis-

tribution of the assets of the bankrupt estate. The order

requiring the claimant to return the grain referred to or

pay the value thereof, and conditioning the allowance of

the claim of the claimant as a common claim upon the re-

turn of such grain or payment of the value thereof, was

well within the discretion of the bankruptcy court.

The judgment is Affirmed.

Pickett, Circuit Judge (dissenting in part).

I concur in the majority opinion except that part which

upholds the so-called ‘‘turnover order’. This order condi-

tions the allowance of the Central States’ claim as a com-

mon creditor upon its delivery to the trustee of 867,191

pounds of milo, or its value, fixed at $19,771.95.

The referee found that this amount of grain did not be-

long to the bankrupt, but was the property of those who

had deposited it in the bankrupt’s elevator. Concededly,

this grain could not become an asset of the bankrupt es-

tate. When received, the trustee will deliver it, or its

E

value, to the depositors. It will not in the slightest degree

affect the assets of the bankrupt. It is true that a deter-

mination of the title to the grain may affect the amount

of the claim of the depositors or Central States, but it will |

not affect the bankruptcy estate. So long as Central States |

retains the grain, its claim will be reduced and the claim

of the depositors will be increased in the amount of the

value of the grain. If the grain was wrongfully delivered,

the depositors could proceed directly against Central

States to recover the grain, or the amount which they

have been damaged, and I think it is a matter to be settled

between the claimants outside the bankruptcy court. If

this type of a proceeding, as it related to this particular

grain, is sanctioned, it will permit the use of the broad

powers of the bankruptcy court to be used in a summary

manner to adjudicate claims to property in which the trus-

tee has no interest and will result in no benefit to the

bankrupt estate.

It is recognized that the bankruptcy court does not have

jurisdiction over controversies exclusively between third

parties which do not involve the bankrupt or his property.

Evarts v. Eloy Gin Corp., 9 Cir., 204 F.2d 712, certiorari

denied 346 U.S. 876, 74 S.Ct. 129; In re Lubliner & Trinz

Theatres, 7 Cir., 100 F.2d 646; Smith v. Chase Nat. Bank

of City of New York, 8 Cir., 84 F.2d 608. It is said that

the bankruptcy court does, however, have jurisdiction and

power to determine disputes between third parties con-

cerning the ownership of property which does not belong

to the estate, if it is impossible to completely administer

the bankrupt estate without determining that dispute. In

re Burton Coal Co., 7 Cir., 126 F.2d 447, and In re Inter-

national Power Securities Corp., 3 Cir., 170 F.2d 399, 405,

are cited as authority for these statements. The pro-

ceedings in these cases were for reorganization. In the

Burton Case there was a dispute as to the ownership of

stock inthe bankrupt corporation which was seeking a re-

organization. The court there said that the reorganiza-

tion could not proceed without a settlement of that dis-

26

27

pute. In the International Power Case, the question of

jurisdiction arose over the right to enjoin or dispose of

bonds of the corporation which was seeking reorganization.

In upholding its jurisdiction, the court stated that the ‘‘re-

organization could not be formulated prior to the resolu-

tion of the questions of ownership of the bonds and the

asserted equitable rights.’’ The facts in those cases

clearly distinguish them from this case. I have found no

case which has upheld the jurisdiction of the bankruptcy

court in an ordinary bankruptcy proceeding to enter a

turnover order with respect to property which was not

claimed as the property of the bankrupt estate. Collier

on Bankruptcy, 14th Ed., Sec. 23.10. I would hold that

the bankruptcy court does not have jurisdiction to deter-

mine the depositors’ title to grain which had been deliv-

ered to a purchaser prior to bankruptcy. It appears to me

that the trustee is assuming the burdens and expense

of the grain depositors in this matter.

In determining the amount of grain which Central

States was required to account for and turn over, the

referee allowed Central States to retain only the overage

which the bankrupt owned at the date the purchase was

made. The purchaser of grain from a warehouseman who

receives delivery at a time when the warehouseman has a

shortage is as a general rule, liable to the depositors of

grain for the amount in excess of his pro rata share. 56

Am. Jur. Warehouses Sec. 208. But, if subsequent to the

excessive delivery the warehouseman substitutes other

grain therefor and places it in the commingled mass, then

the title to the substituted grain is vested in the depositors

and holders of the warehouseman’s receipts. State ex rel.

Hermann v. Farmers Elevator Co., 59 N.D. 679, 231 N.W.

725, 727; Carson State Bank v. Grant Grain Co., 50 N.D.

558, 197 N.W. 146; Kastner v. Andrews, 49 N.D. 1059, 194

N.W. 824, 827-829; Hall v. Pillsbury, 43 Minn. 33, 44 N.W.

673, 7 L.R.A. 529; National Exchange Bank v. Wilder, 34

Minn. 149, 24 N.W. 699. The evidence does not disclose,

and the referee made no finding, as to the condition of the

——

28

bankrupt’s grain account after delivery to Central States

was made. Consequently, I am of the view that the turn-

over order was based upon improper criteria and can-

not stand.

2. Judgment:

Forty-fifth Day, May Term, Friday, August 13th, 1954.

Before Honorable Sam G. Bratton, Honorable Walter A.

Huxman and Honorable John C. Pickett, Circuit Judges.

This cause came on to be heard on the transcript of the

record from the United States District Court for the Dis-

trict of Kansas and was argued by counsel.

On consideration whereof, it is ordered and adjudged

by this Court that the judgment of the said district court

in this cause be and the same is hereby affirmed.

3. Order: Petition for Rehearing Denied.

Fifty-ninth Day, May Term, Tuesday, September 7th,

1954. Before Honorable Sam G. Bratton, Honorable

Walter A. Huxman and Honorable John C. Pickett, Cir-

cuit Judges.

This cause came on to be heard on the petition of appel-

lant for a rehearing herein and was submitted to the court.

On consideration whereof, it is ordered by the court that

the said petition is hereby denied.

ae

29

APPENDIX B

‘“‘It shall be the duty of each and every public ware-

houseman ‘issuing negotiable receipts upon receipt of

any grain, to issue or cause to be issued a receipt therefor,

in compliance with this act, and to by twelve o’clock the

following business day, or such time that the inspector

shall designate, file with the registrar of warehouse receipts

designated by the chief inspector, a report as hereinafter

provided, and showing the amount of grain received, the

name of the owner thereof, and the numbers of receipts

therefor issued, accompanied by the warehouse receipts

for registration: Provided, That at the option of the chief

inspector, a public warehouseman may issue unregistered

negotiable receipts for grain of which the warehouseman

is not the owner, either solely, jointly, or in common with

others: And provided further, That a public warehouse-

man must, in all cases, register every negotiable receipt

issued by him for grain of which the warehouseman is the

owner, either solely, jointly, or in common with others.

And it shall be unlawful for any grain warehouseman to

limit or modify his responsibility imposed by law by any

words inserted in any such receipt or by any contract

relative thereto. Upon receipt of such report, as herein-

after provided, and warehouse receipts, it shall be the

duty of the registrar of warehouse receipts to register

such legal receipts in a book to be kept for that purpose

and to stamp on each of such receipts with the official state

grain inspection department registration stamp the word

‘registered’ with the date of registration and affix his

signature thereto.’’ Kansas G.S. 34-248 (1949).

30

APPENDIX C

SUPREME COURT OF THE UNITED STATES

No. ——, October Term, 1954

CentraL-States Corporation, Petitioner,

v.

Frank Luruer, Trustee of the Estate of Garden Grain

and Seed Company, Inc., Bankrupt

Order Extending Time to File Petition for

Writ of Certiorari

Upon Consmeration of the application of counsel for

petitioner,

Ir Is Onperep that the time for filing petition for writ

of certiorari in the above-entitled cause be, and the same

is hereby, extended to and including January 5th, 1955.

/s/ Tom ©, CiaRk

Associate Justice of the

Supreme Court of the

United States.

Dated this 6th

day of December, 1954

oo FILED

FEB 3 1955

IN THE HAROLD B. WILLEY, C

Supreme Court of the United States

OCTOBER TERM, 1954

No. 514

CENTRAL STATES CORPORATION, PETITIONER,

VS.

FRANK LUTHER, TRUSTEE OF THE ESTATE OF

GARDEN GRAIN AND SEED COMPANY, INC.,

BANKRUPT, RESPONDENT.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE TENTH CIRCUIT.

BRIEF FOR RESPONDENT IN OPPOSITION

JOHN F’. EBERHARDT,

608 Fourth National Bank Building,

Wichita 2, Kansas,

MALCOLM MILLER,

608 Fourth National Bank Building,

Wichita 2, Kansas,

Counsel for Respondent.

INDEX

Opinions Below 1

Jurisdiction 2

Questions Presented 2

I 2

II 2

Ill 3

IV 3

V 3

VI 3

Statutes Involved 3

Statement 4

Argument 8

I 9

II 13

Ill 16

IV 17

Vv 19

VI 20

Conclusion 22

Appendix 23

CASES

Alexander v. Hillman, 296 U. S. 222, 80 L. Ed. 192 _10, 11, 12

American Service Co. v. Henderson, 120 F. 2d 525

(C. A. 4) 20

American Surety Co. v. Sampsell, 327 U. S. 269, 90 L.

Ed. 663 15

II . INDEX

Banco Kentucky Co.’s Receiver v. National Bank, 281

Ky. 784, 137 S. W. 2d 357 __________-_____---— 11

Bank v. Elevator Co., 9 Kan. App. 144, 58 Pac. Pe.

Barnes v. Patrick, 176 Wash. 142, 28 P. 2d 293, 91...

AL 2) 9,14

Beeching v. Beeching, 135 Kan. 1 P. I

Bradford v. Chase National Bank, 24 Fed. Supp. 28

(S. D. N. Y.), affirmed 105 F. 2d 1001 (C. A. 2),

affirmed 309 U. S. 632, 84 L. Ed. 990 18

Brown Memorial Foundation v. Rohrer, 152 Kan. 291,

103 P. 2d 814 _ 17

Carson State Bank v. Grant Grain Co., 197 N. W. 146,

6 Xx. D. 666 ET 14

Case v. Los Angeles Lumber Products Co., 308 U. S. 106,

i Ns BI eset Stee mere 11

Century Ins. Co. v. First Nat. Bank, 102 F. 2d 726

(‘CA 0) cate ase edie. 9,11

Chase National Bank v. Lyford, 147 F. 2d 273 (C. A.

2) ! 11-12

Columbia Foundry v. Lochner, 179 F. 2d 630 (C. A. 4) 12

Conway v. Union Bank of Switzerland, 204 F. 2d 603

(C. A. 2) ; 2 12

Cunningham v. Brown, 265 U. S. 1, 68 L. Ed. 873 ___-- 18

DeLaney v. City and County of Denver, 185 F. 2d 246

.(C. A. 10) 9

Dows v. National Exchange Bank of Milwaukee, 91 U.

S. 618, 23 L. Ed. 214 14

Farmers Grain Co. v. A., T. & S. F. Ry. Co., 121 Kan.

10; 120 Kan. 21, 245 Pac. 734 14

Fidelity-Philadelphia Trust Co. v. Hale & Kilburn

Corp., 24 Fed. Supp. 3 (E. D. Pa.) 11

Fireman’s Ins. Co. of Newark v. Smith, 180 F. 2d 371

(C. A. 8) 11

First Camden National Bank & Trust Co. v. Bey &

Watkins Co. 122 F. 2d 826 (C. A. 3) 15

Florance v: Kresge, 93 F. 2d 784 (C. A. 4) —__---— 12

Floro Realty & Inv. Co. v. Steem Elec. Corp., 128 F. 2d

ww ic. A. 8) 12

“ae

INDEX III

Flour Mills of America v. Burrus Mills, 174 Kan. 709,

I ie I ibiicctessnchoksssd. ce catbicicehelenetbentcienacdomanamaiiaieetod 14, 15

Gardner v. New Jersey, 329 U. S. 565, 91 L. Ed. 504. 13

Giffin v. Vought, 175 F. 2d 186 (C. A. 2) 12

Graham v. Frazier, 60 S. E. 2d 833, 82 Ga. App. 185

affirmed 66 S. E. 2d 77, 84 Ga. App. 458 ___.. ee 14-15

Gramil Weaving Corp. v. Raindeer Fabrics, 185 F. 2d

537 (C. A. 2) 12

Great Atlantic & Pacific Tea Co. v. Citizens Nat. Bank,

66 F. 2d 883 (C. A. 3) 20

Green v. Fortune, 151 Kan. 598, 100 P. 2d 631 _.____. 17

Hall v. Pillsbury, 44 N. W. 673, 43 Minn. 33 14

Harris v. Avery Brundage Co., 305 U. S. 160, 83 L. Ed.

100 9

Heiser v. Woodruff, 327 U. S. 726, 90 L. Ed. 970 15

Hoven v. McCarthy Bros. Co., 204 N. W. 29, 163 Minn.

339 14

In re Bowling Green Milling Co., 132 F. 2d 279 (C.

A. 6) 14

In re Burton Coal Co., 126 F. 2d 447 (C. A. 7) 10

In re Gillespie Tire Co., 54 Fed. Supp. 336 (W. D. So.

Cr 12

In re Gubelman, 9 F. 2d 486 (C. A. 2) 19

In re Harbor Stores Corp., 29 Fed. Supp. 749 (S. D.

N. Y.) 15

In re House of Gus Holder, Inc., 91 Fed. Supp. 841

(D. N. J.) 12

In re International Power Securities Corp., 170 F. 2d

399 (C. A. 3) — 10

In re Larkin & Metcalf, 202 Fed. 572 (D. So. Dak.) .. 20

In re Mercury Engineering Co., 60 Fed. Supp. 786

(S. D. Calif.) 12

In re Morris Bros., Inc., 282 Fed. 670 (D. Ore.), af-

In re Nathan, 98 Fed. Supp. 686 (S. D. Calif.) ....... i2

In re Pacat Finance Corp., 27 F. 2d 810 (C. A. 2) _ = ae

In re Petroleum Conversion Corp., 196 F. 2d 728 (C. A.

3) 12

IV INDEX

In re Poston Const. Corp., 115 Fed. Supp. 323 (N. D.

Ohio)

In Ayy Quandt Brewing Co., 44 Fed. Supp. 750 (N. D.

oe

In re Seaboard Engineering’ Co., 292 Fed. 106 (C. A. 4)

In re Seminola Macaroni Co., 109 Fed. Supp. 453

(D. R. I.)

In re Solar Mfg. Co., 200 F. 2d 327 (C. A. 3) ———-—---— se

In re Superior Motor Truck Co., 275 Fed. 623 (N. D.

oo ae

In re Walter J. Schmidt & Co., 298 Fed. 314 (S. D.

N. Y.)

In re Whitehall Stores, 196 F. 2d 667 (C. A. 7) -——- es

Jackson v. Sevatson, 82 N. W. 634, 79 Minn. 275 _—

Kastner v. Andrews, 194 N. W. 824, 49 N. D. 1059 _

Kipp v. Goffe & Carkener, 144 Kan. 95, 58 P. 2d 102

Leslie v. Milling Co., 109 Kan. 146, 197 Pac. 1094 __.

Lowden v. Northwestern National Bank & Trust Co.,

84 F. 2d 847 (C. A. 8)

McComb v. Frank Scerbo & Sons, 177 F. 2d 137 (C. A.

2)

McDonnell v. Bank of China, 33 F. 2d 816 (C. A. pede

McKey v. Paradise, 299 U. S. 119, 81 L. Ed. 75 —

Milliorn v. Clow, 70 Pac. 398, 42 Ore. 169 ________-

Mitchell v. Munn Whs. Co., 86 P. 2d 174, 59 Idaho 661_

Moses v. Teetors, 64 Kan. 149, 67 Pac. 526 -._____-

National Labor Relations Board v. Pittsburgh ‘Steam-

ship Co., 340 U. S. 498, 95 L. Ed. 479

Nieter v. McCaull-Dinsmore Co., 199 N. W. 85, 159

Minn. 395

Pepper v. Litton, 308 U. S. 295, 84 L. Ed. 281

Pittman v. Union Planters Nat. Bank & Trust Co., 118

F. 2d 211 (C. A. 6)

Porter v. Warner Holding Co., 328 U. S. 395, 90 L. Ed.

1332

Queenan v. Mayes, 90 F. 2d 525 (C. A 19) occ.

INDEX Vv

Railroad Credit Corp. v. Hawkins, 80 F. 2d 818 (C. A.

4) 11

Rossman v. Blunt, 104 F. 2d 877 (C. A. 6) 20

Scott v. Bankers Union, 73 Kan. 575, 85 Pac. 604 17

Sexton-Abbott v. Graham, 4 N. W. 1090, 53 Iowa 181. 15

Shugar v. Antrim, 177 Kan. 70, 276 P. 2d 372 17

Solomon v. Boschulte, 200 F. 2d 482 (C. A. 3) —. 2Q

State v. Broadwater Elevator Co., 201 Pac. 687, 61

Mont. 215 15

State v. Farmers Coop. Elevator Co., 167 N. W. 223, 39

N. D. 235 15

State v. Inter-State Surety Co., 189 N. W. 679, 45 S. D.

592 : 15

State v. Oakley, 225 Pac. 425, 129 Wash. 553 _... 15

State v. Robb-Lawrence Co., 115 N. W. 846, 17 N. D.

257 15

St. Louis & S. F. R. Co. v. Spiller, 274 U. S. 304, 71

L. Ed. 1060 19

firmed 293 Fed. 294 (C. A. 9) 19-20

Stutsman v. Cook, 204 N. W. 976, 53 N. D. 162 i? ae

Switow v. Sher, 186 So. 519, 136 Fla. 284 11

Taylor v. Producers Pipe & Supply Co., 114 F. 2d 785

(C. A. 10) 11

Torgerson v. Quinn-Shepherdson Co., 201 N. W. 615,

161 Minn. 380 14

United States v. City of Jacksonville, 167 F. 2d 366

(C. A. 5) 14

Wheat Growers Association v. Rowan, 125 Kan. 710, 266

Pac. 101 17

Whitney v. Wenman, 140 Fed. 959 (S. D. N. Y.) __._ 15

W. S. Brown Merc. Co. v. Yielding Bros. Dept. Store,

76 So. 4, 200 Ala. 412 14

Zuber v. Minshall, 123 Kan. 595, 256 Pac. 806 ____ . 14

vI INDEX

MISCELLANEOUS

56 Am. Jur.—

Par. 28, p. 334 14

Par. 37, p. 339 15

Par. 167, p. 397 14, 15

Par. 168, p. 398 14

Par. 206, p. 415 14

67 C. J—

23, p. 456 14

24, p. 457 14

172, p. 538 15

173, p. 539 15

STATUTES

General Statutes of Kansas 1949—

34-238 3, 16, 23

34-239 3, 16, 23

34-240 3, 16, 24

34-246 3, 16, 25

34-247 3, 16, 26

34-248 3, 16, 26

IN THE

Supreme Court of the United States

OCTOBER TERM, 1954

No. 514

CENTRAL STATES CORPORATION, PETITIONER,

VS.

FRANK LUTHER, TRUSTEE OF THE ESTATE OF

GARDEN GRAIN AND SEED COMPANY, INC.,

BANKRUPT, RESPONDENT.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE TENTH CIRCUIT.

BRIEF FOR RESPONDENT IN OPPOSITION

OPINIONS BELOW

The Central States Corporation has filed a petition

praying that a writ of certiorari be issued to review the

judgment of the United States Court of Appeals for the

—

2

Tenth Circuit. Such judgment of affirmance was entered

on August 13, 1954, and a petition for rehearing denied

September 7, 1954. The opinion of the Court of Appeals

is reported in 215 F. 2d 38.

The controversy originated in Bankruptcy in the

United States District Court for the District of Kansas

and the first decision was made by the Honorable E. R.

Sloan, Referee in Bankruptcy. Such opinion is unre-

ported but is contained in the record at pages 10 through

23. A petition for review of the Referee’s order was

made to the Honorable Delmas C. Hill, Judge of the United

States District Court for the District of Kansas. Such

court did not write an opinion but entered an order sus-

taining in all respects the findings of fact, memorandum

opinion and conclusions of law of the Referee. Such order

is contained in the record at pages 23 and 24.

JURISDICTION

The jurisdictional requisites are set forth in the peti-

tion.

QUESTIONS PRESENTED

I

Whether the Bankruptcy Court had jurisdiction to re-

quire an accounting from Petitioner for Milo wrongfully

taken from the Bankrupt’s inventory when Petitioner

and many others filed claims to ‘such Milo inventory

which was in the custody of the Court.

II

Assuming jurisdiction, whether the Courts below

properly rendered an accounting using correct criteria in

a

3

requiring Central States Corporation, as a condition to the

allowance of its claim as a common claim against the

general assets of the Bankrupt, to account for 867,191 lbs.

of Milo to the Milo inventory.

III

Whether the Courts below properly held that the

warehouse receipts purchased by the Petitioner, Central

States Corporation, from the bankrupt warehouseman

were void, invalid and unenforceable under the applicable

statutes of the State of Kansas.

IV

Whether the Bankruptcy Court was required to apply

the first in first out rule to monies deposited in the bank-

rupt warehouseman’s bank account for tracing purposes.

Vv

Whether the Petitioner, Central States Corporation,

established a constructive trust or equitable lien on any

funds traced into the hands of the Trustee of the bank-

rupt warehouseman.

VI

Whether the Court of Appeals included erroneous con-

clusions in its opinion and thereby departed from the ac-

cepted and usual course of judicial proceedings.

STATUTES INVOLVED

The pertinent statutory provisions of the General

Statutes of Kansas dealing with warehouses and the issu-

ance of warehouse receipts are G. S. 1949, 34-238, 34-239,

34-240, 34-246, 34-247, 34-248. All such pertinent statu-

tory provisions are printed in the appendix herein, begin-

ning on page 23.

STATEMENT

The Garden Grain & Seed Co., Inc., was a licensed

warehouseman under the laws of the State of Kansas. A

creditors’ petition was filed on January 16, 1952, and an

order of adjudication was entered on January 18, 1952, and

the case referred to the Referee in Bankruptcy. (R. 12).

At bankruptcy the bankrupt had in its possession in stor-

age 4,320,900 lbs. of Milo which was sold under order of

the Court and the proceeds held by the Trustee in a special

fund. (R. 12, 51). The bankrupt was incorporated under

the laws of Kansas on June 28, 1949. It commenced busi-

ness with $10,000.00. Its stock was issued in return for

assets valued at $83,719.32. Only $25,000.00 thereof was

represented by the stock, the remainder, $58,719.32, being

reported on the annual report to the Secretary of the State

of Kansas as “Paid in Surplus”. (R. 186-190). The cor-

poration consistently lost money. (R. 193). It was short

in its grain position in a rising market. (R. 209).

Petitioner on July 14, 1952, filed a reclamation peti-

tion and proof of debt alleging that it purchased in 1951

on November 14, November 29 and December 15, 100,000

bushels, 50,000 bushels, and 50,000 bushels, respectively, of

Milo from the bankrupt which was immediately stored in

the warehouses of the bankrupt and 20, 10 and 10 ware-

house receipts, respectively, were issued to Petitioner by

the bankrupt. (All such warehouse receipts were on the

same form. One is pictured in the record at page 37).

A part of such receipts were surrendered to the bankrupt

and shipments of Milo were made to Petitioner totaling

1,880,350 Ibs., leaving a total amount of Milo allegedly

owned by. Petitioner of 166,422 bushels and 18 Ibs. It was

alleged that such warehouse receipts created a trust fund

of Milo and that, using the first in first out rule, Petitioner

_

5

had the first right to the Milo on deposit in the bankrupt’s

warehouses at the time the petition in bankruptcy was filed.

Petitioner also alleged that the monies it paid to the bank-

rupt as a result of the transactions of November 14, Novem-

ber 29 and December 15 constituted a trust fund and that it

had a first and prior lien on any monies obtained by the

bankrupt through the sale of Milo and on any property pur-

chased with the funds so paid to the bankrupt. (R. 27-34).

The Respondent answered admitting the payments

made by Petitioner and admitting further that the Peti-

tioner held warehouse receipts purporting to represent 9,-

319,650 lbs. of Milo but denied that such receipts repre-

sented any grain or that Petitioner had any lien on any

of the properties coming into the hands of the Respondent

as receiver and later Trustee. (R. 46). An amendment

to such answer was filed alleging that the 1,880,350 Ibs. of

Milo delivered to the Petitioner did not belong to Peti-

tioner but belonged to individuals who made bailment con-

tracts with the bankrupt warehouseman. A demand was

made for an accounting for such delivered Milo. (R. 47,

48).

The Respondent also filed an action in the nature of

interpleader setting forth that he obtained possession of the

bankrupt’s Milo inventory of 4,320,900 lbs. which was sold

under order of the Court and the proceeds retained by him

in a special fund and made parties thereto all persons

who made claim to such Milo inventory. Such pleading

disclosed that nearly 100 individuals made claim to such

fund and that the total of such claims was over thirty-four

million pounds. Respondent set forth therein the facts as

he had been able to reconstruct them as to all the claims

filed alleging ownership of Milo and prayed that the Court

adjudge, declare and decree the owners and respective por-

Bie

tions of ownership of the various claimants to the Milo in-

ventory. (R. 51-62).

6

The Referee in Bankruptcy entered an order denying

that the Petitioner was entitled to an equitable lien or con-

structive trust on any property but was entitled only to

be recognized as a common claimant. The Referee found

also that the Petitioner had obtained 867,191 lbs. of Milo

to which it was not entitled and which belonged to those

individuals who successfully made claim to the Milo inven-

tory of the bankrupt. The Referee conditioned the allow-

ance of Petitioner’s claim as a common claim on the re-

turn of such 867,191 Ibs. of Milo. (R. 10-23). The United

States District Court for the District of Kansas affirmed

on petition for review. (R. 23, 24). The Court of Appeals

for the Tenth Circuit affirmed on appeal, 215 F. 2d 38.

The first transaction between the Petitioner and the

bankrupt with which we are here concerned was on No-

vember 14, 1951, when the bankrupt sold Petitioner its

warehouse receipts numbers 128 through 147, each for

5,000 bushels, making a total of 100,000 bushels. (R. 181).

The bankrupt drew a sight draft on the Petitioner which

it deposited in the Garden National Bank for immediate

credit. (R. 68, 69, 118, 121). Such draft was paid by Peti-

tioner by its check dated November 19, 1951. (R. 118).

On November 29, 1951, the Petitioner purchased 10

warehouse receipts from the bankrupt, being numbers 164

through 173, for 5,000 bushels each of Milo, or a total of

50,000 bushels. (R. 183). The bankrupt drew a sight draft

on Petitioner which it deposited in the Garden National

Bank for immediate credit. (R. 72, 119, 123). This sight

draft was paid by Petitioner by its check dated December

3, 1951. €R. 119).

On December 15, 1951, Petitioner purchased 10 ware-

house receipts from the bankrupt, being numbers 179

7"

7

through 188, each for 5,000 bushels of Milo, or a total of

50,000 bushels. (R. 184). The bankrupt again drew a sight

draft on petitioner and deposited it in the Garden National

Bank for immediate credit. (R. 120, 131). Such sight

draft was paid by Petitioner by its check dated Decem-

ber 17, 1951. (R. 120).

All such warehouse receipts sold by the bankrupt and

purchased by the Petitioner in the three transactions were

on the Kansas State form to be used for producer-deposi-

tors and recited that there was deposited in store by the

Central States Corporation, Petitioner herein, a quantity

of Milo which was not ownec', in whole or in part, by the

warehouseman (R. 37, 39, 115, 117). The Petitioner de-

posited no Milo whatever with the bankrupt at any time.

(R. 200, Schedule 16 of Audit Report, R. 211 through 249).

The same Schedule 16 discloses that the warehouseman

was many million pounds short in its Milo position from

and after November 14. After November 14 and before

the petition in bankruptcy was filed, the bankrupt ob-

tained $777,182.78 (in addition to the $262,360 it obtained

from the Garden National Bank for the sight drafts drawn

on the petitioner) which it used to purchase Milo and to

operate its business and which was exhausted except for

$1,224.85 by the end of December, 1951. (R. 121-123, 131-

133). Milo was purchased during this period, including

approximately five and one half million pounds which had

been deposited in the bankrupt’s warehouses prior to No-

vember 14. Thus the accounts payable for Milo purchased

was reduced from over eight and one-half million pounds

(R. 247) to 3,304,037 Ibs. (R. 249). The bankrupt pur-

chased approximately twenty-one and one-half million

pounds of Milo in addition to such reduction in accounts

payable for Milo during the same period. (R. 143-179, 209).

During the same period it made sales of Milo (excluding

8

any amount to the Petitioner, Central States Corporation)

totaling nearly twenty-five million pounds. (R. 209, 247-

249).

The Milo inventory of the bankrupt on November 13,

just before the first transaction with Petitioner, taking

shrink into consideration (R. 203) was 20,143,856 lbs. It

had liability to depositors for open storage and warehouse

receipts of 7,337,422 Ibs. and 1,589,959 lbs., respectively. (R.

247).

On the same basis at the time the petition in bank-

ruptcy was filed, the inventory of Milo was 4,976,230 lbs.

and the liability to depositors for open storage and ware-

house receipts was 3,379,371 Ibs. and 2,742,147 lbs. (R. 249).

ARGUMENT

There are no issues involved herein warranting review

by this Court on certiorari. From Rule 19 of the revised

rules of the Supreme Court of the United States and this

Court’s statements in National Labor Relations Board Vv.

Pittsburgh Steamship Company, 340 U. S. 498, 502, 95 L.

Ed. 479, 482, the granting of certiorari is limited to cases

involving principles that are of importance to the public

generally and in cases where there is a basic conflict of

opinion and authority between the Courts of Appeal. This

Court is, of course, greatly interested in insuring that the

lower Federal Courts make a fair assessment of the case

but obviously can not grant certiorari because on a con-

sideration of the entire record, a different decision might

be reached. The Petitioner endeavors at this late date and

for the first time by attacking jurisdiction to bolster a

petition which otherwise quite obviously is not material for

this Court and deals only with the correctness of the de-

_ <i

cisions rendered below. There is no conflict of decision on

the jurisdictional question posed by the Petitioner and the

decisions thereon below are manifestly correct. The cor-

rectness of the decisions below on the remaining questions

is equally clear. We will, however, present herein a brief

argument on each question raised.

9

]- » , —

Som r)

Petitioner asserts that the trial court did not have

jurisdiction of the subject matter so as to enable it to order

an accounting under which as a condition to the allowance

of its claim, the Central States Corporation had to return

to the special fund resulting from the liquidation of the

Milo inventory 867,191 lbs. of Milo or the value thereof.

Jurisdiction is, of course, composed of two elements—juris-

diction of the subject matter and jurisdiction of the person.

There is no question raised concerning the custody of the

Court below over the Milo inventory of 4,320,900 Ibs. or the

special fund resulting from the liquidation of such inven-

tory. (R. 51). This fund was the subject matter of the

controversy insofar as the accounting to the Milo inventory

is concerned. There can be no question but what the Court

had jurisdiction of this res since it had custody of such

fund. See Harris v. Avery Brundage Co., 305 U. S. 160, 83

L. Ed. 100; DeLaney v. City and County of Denver, 185 F.

2d 246 (C. A. 10); Century Insurance Co. v. First National

Bank, 102 F. 2d 726 (C. A. 5); In re Quandt Brewing Co.,

44 Fed. Supp. 750 (N. D. N. Y.); Barnes v. Patrick, 176

Wash. 142, 28 P. 2d 293, 91 A. L. R. 901.

Approximately 100 individuals claimed the Milo in-

ventory of the bankrupt and their claims totaled over

thirty-four million pounds. Clearly these claims had to be

adjudicated by the trial court in order to determine which

Ones were valid against the Milo inventory and in what

10

quantities as a condition precedent to the determination of

which claims were valid against the general assets of the

bankrupt and in what quantity. See the opinion below,

215 F. 2d 38, 45; and see In re Burton Coal Co., 126 F. 2d

447 (C. A. 7); In re International Power Securities Corp.,

170 F. 2d 399 (C. A. 3). In order to accomplish the first

step and to determine the rights of the many claimants to

the Milo inventory, Respondent filed an action in the

nature of interpleader (R. 51-62).

Obviously the Court had jurisdiction since it had cus-

tody of the fund and had before it the many claimants to

such fund resulting from liquidation of the Milo inventory.

The only jurisdictional question which could arise under

these circumstances concerns whether the trial court could

require an accounting from one of such claimants for a

portion of the Milo inventory withdrawn from the bank-

rupt’s warehouses. Certainly the Court having jurisdiction

of the subject matter (the fund) and of the person (the

claimants) had jurisdiction in respect of all defenses that

might be made to any of the claims. The general rule of

equity jurisprudence is that the court will decide all mat-

ters in dispute and decree complete relief. Equity does

not work by halves. In the broad sense the subject matter

embraces not only the fund in the custody of the court but

any properties wrongfully withheld from such fund. This

Court has decided the identical question in Alexander Vv.

Hillman, 296 U. S. 222, 80 L. Ed. 192. In such case the

Court had custody of a fund and had before it a receiver

and many claimants to such fund. A question arose con-

cerning whether one of such claimants wrongfully with-

held property that in equity belonged in the fund. This

Court determined that it was proper for the trial court to

hear all defenses, all cross-claims and counter-claims and

to decree complete relief including affirmative relief.

11

The court below did exactly what this Court deter-

mined it should do. It had custody of a fund and had

before it many claimants to such fund. There arose a

question concerning whether one of the claimants wrong-

fully withheld from such fund by virtue of obtaining a

part of the Milo inventory before the Respondent took

over the custody of the Milo inventory on the day of ad-

judication. It proceeded to decide all matters in contro-

versy and decree complete relief. The fact that the

trial court below was also a court of bankruptcy has, we

submit, no bearing on the identity of the issues here

appearing and those before this Court in Alexander v.

Hillman, supra.*

Alexander v. Hillman, supra, is followed by appro-

priate analogy in cases dealing with the bankruptcy court’s

jurisdiction under the Bankruptcy Act where a contro-

versy arises over distribution of the general assets of the

bankrupt and where questions arise concerning defenses

to claims because of the act of a claimant in wrongfully

withholding from such general assets. Thus the Court

of Appeals for the Second Circuit through a series of

cases beginning with Chase National Bank v. Lyford, 147

*Alexander v. Hillman, supra, has been followed many times

and by the Court of Appeals, 10th Circuit. Taylor v. Producers

Pipe & Supply Co., 114 F. 2d 785 (C. A. 10); Porter v. Warner

Holding Co., 328 U. S. 395, 399, 90 L. Ed. 1332, 1338; Case v. Los

Angeles Lumber Products Co., 308 U. S. 106, 126, 84 L. Ed. 110,

126; Fireman’s Ins. Co. of Newark v. Smith, 180 F. 2d 371 (C. A.

8); McComb v. Frank Scerbo & Sons, 177 F. 2d 137, 138 (C. A. 2);

Century Ins. Co. v. First National Bank, 102 F. 2d 726 (C. A. 5);

Banco Kentucky Co.’s Receiver v. National Bank, 281 Ky. 784,

137 S. W. 2d 357, 370; Switow v. Sher, 186 So. 519, 524, 136 Fla.

284; Railroad Credit Corp. v. Hawkins, 80 F. 2d 818, 822 (C. A. 4);

Fidelity-Philadelphia Trust Co. v. Hale & Kilburn Corp., 24 Fed.

‘Supp. 3, 13 (E. D. Pa.).

12

F. 2d 273 (C. A. 2), through Giffin v. Vought, 175 F. 2d

186, particularly at note page 190 (C. A. 2), and continu-

ing in Gramil Weaving Corp. v. Raindeer Fabrics, 185 F.

2d 537 (C. A. 2), and concluding in Conway v. Union Bank

of Switzerland, 204 F. 2d 603 (C. A. 2), has held that a

claimant to the general assets of a bankrupt who files a

claim in the bankruptcy proceedings exposes himself to

every defense that may be made to his claim, including

set-offs and counter-claims, and since Alexander v. Hill-

man, supra, the bankruptcy court may not only adjudicate

summarily all defenses, but it may decree complete relief

and grant an affirmative judgment in favor of the Trustee.

The Court of Appeals for the Fourth Circuit is in

accord. See Florance v. Kresge, 93 F. 2d 784 (C. A. 4);

Columbia Foundry v. Lochner, 179 F. 2d 630 (C. A. 4); as

are the Eighth Circuit, Floro Realty & Inv. Co. v. Steem

Elec. Corp., 128 F. 2d 338 (C. A. 8); and the Third Cir-

cuit, In re Solar Mfg. Co., 200 F. 2d 327 (C. A. 3); In re

Petroleum Conversion Corp., 196 F. 2d 728 (C. A. 3).”

The basic legal principles underlying these cases are

the same, we submit, which prompted this Court to

reach its decision in Alexander v. Hillman, 296 U. S. 222,

80 L. Ed. 192. A claimant who petitions for part of the

general assets, the res, can not complain of the Court’s

action in determining whether such claimant wrongfully

withholds from the res not only as a defense to the claim

but also as to an affirmative judgment. Such decisions

*There are many other cases in accord. In re Poston Const.

Corp., 115 Fed. Supp. 323 (N. D. Ohio); In re Nathan, 98 Fed.

Supp. 686 (S. D. Calif.); In re House of Gus Holder, Inc., 91 Fed.

Supp. 841 (D. N.J.); In re Mercury Engineering Co., 60 Fed. Supp.

786 (S. D. Calif.); In re Seminola Macaroni Co., 109 Fed. Supp. 453

(D. R. L.); In re Gillespie Tire Co., 54 Fed. Supp. 336 (W. D.

So. Car.).

13

are, we submit, in accord with the basic philosophy of

the Bankruptcy Act as exemplified by this Court’s opin-

ion in Gardner v. New Jersey, 329 U. S. 565, 91 L. Ed.

504. Under traditional bankruptcy law, one who invokes

the aid of the Bankruptcy Court by offering a proof of

claim and demanding its allowance must abide the con-

sequences of such procedure.

Il

Assuming that the Court had jurisdiction, the second

question concerns the correctness of the accounting or-

dered by the courts below. The Referee ordered that the

Petitioner return to the Trustee to be placed in the special

fund resulting from the liquidation of the Milo inventory,

867,191 lbs. of Milo or the value thereof as a condition

precedent to the allowance of its common claim. (R. 23).

The court allowed the Petitioner to retain 1,013,159 Ibs. of

Milo also received by it. There was no appeal from this

determination and it is not involved here.

Plainly from the facts appearing in the record and as

found by the courts below, Petitioner purchased ware-

house receipts from the bankrupt. (R. 181 through 185).

Clearly under the facts shown by the record, the ware-

houseman was short in its Milo inventory and had insuf-

ficient Milo to redeem its obligations at the times of the

transactions between Petitioner and the bankrupt. (R. 247,

249). Petitioner in its brief filed below in the Court of

Appeals recognized these facts and called the attention of

the court at pages 4, 7 and 8 to the great shortage in the

bankrupt’s Milo inventory at all pertinent times as dis-

closed by the record, Schedule 16. (R. 247, 249).

It has long been recognized that the rights of bailors

who make bailment contracts with a licensed warehouse-

man for the storage of fungible goods, as the Milo with

14

which we are here concerned, are those of tenants in com-

mon with pro rata rights among themselves to the inven-

tory of the warehouseman to the extent there is an in-

ventory up to that amount which will redeem all storage

obligations and all bailment contracts. The warehouseman

itself may store its cwn grain in common but has no right

to any grain from the inventory except that portion which

exceeds the amount necessary to redeem all bailment con-

tracts. No one, whether by the purchase of warehouse

receipts or by the purchase of actual grain, can acquire

from the warehouseman rights to any grain except that

quantity owned by the warehouseman over and above the

amount necessary to redeem all bailment contracts. This

Court so determined in the early case of Dows v. National

Exchange Bank of Milwaukee, 91 U. S. 618, 23 L. Ed. 214.

The Supreme Court of Kansas is in accord in Moses v.

Teetors, 64 Kan. 149, 67 Pac. 526; Flour Mills of America

v. Burrus Mills, 174 Kan. 709, 258 P. 2d 341; Farmers Grain

Co. v. A., T. & S. F. Ry. Co., 121 Kan. 10; 120 Kan. 21, 245

Pac. 734; Leslie v. Milling Co., 109 Kan. 146, 197 Pac. 1094;

Zuber v. Minshall, 123 Kan. 595, 256 Pac. 806.*

*This accords with the law generally in these United States.

Hall v. Pillsbury, 44 N. W. 673, 43 Minn. 33; Jackson v. Sevatson,

82 N. W. 634, 79 Minn. 275; Kastner v. Andrews, 194 N. W. 824,

49 N. D. 1059; Nieter v. McCaull-Dinsmore Co., 199 N. W. 85, 159

Minn. 395; Torgerson v. Quinn-Shepherdson Co., 201 N. W. 615,

161 Minn. 380; Barnes v. Patrick, 28 P. 2d 293, 176 Wash. 142;

Carson State Bank v. Grant Grain Co., 197 N. W. 146, 50 N. D.

558; Hoven v. McCarthy Bros. Co., 204 N. W. 29, 163 Minn. 339;

In re Bowling Green Milling Co., 132 F. 2d 279 (C. A. 6); 56 Am.

Jur., Par. 28, p. 334; par. 167, p. 397; par. 168, p. 398; par. 206,

p. 415; United States v. City of Jacksonville, 167 F. 2d 366 (C. A.

5); 67 C. J. 23, p. 456; 24, p. 457, and cases therein cited; Milliorn

v. Clow, 70 Pac. 398, 42 Ore. 169; W. S. Brown Merc. Co. V.

Yielding Bros. Dept. Store, 76 So. 4, 200 Ala. 412; Graham V.

Frazier, 60 S. E. 2d 833, 82 Ga. App. 185, affirmed 66 S. E. 2d 77,

15

The petitioner admittedly did not deposit any Milo.

It therefore could only acquire rights to Milo from the

bankrupt warehouseman. The bankrupt warehouseman

could not in any manner give Petitioner rights to Milo ex-

cept to that quantity in excess of the amount necessary to

redeem all its bailment contracts. It did not own any

such Milo. Therefore the Petitioner could not acquire any

rights to the Milo inventory which came into the Trustee’s

hands. The action of the court below accords with general

accounting principles. See McDonnell v. Bank of China,

33 F. 2d 816 (C. A. 9); 56 Am. Jur., par. 167, p. 397; Flour

Mills of America v. Burrus Mills, 174 Kan. 709, 719, 258 P.

2d 341; Beeching v. Beeching, 135 Kan. 242, 10 P. 2d 7.

The same result is reached by applying the well rec-

ognized equitable principle of subordination entitling the

court to subordinate the claim of one creditor to the claims

of other creditors in situations where such subordination

is necessary to prevent the consummation of a course of

conduct by one creditor inequitable as to other creditors.

See Heiser v. Woodruff, 327 U. S. 726, 90 L. Ed. 970; Ameri-

can Surety Co. v. Sampsell, 327 U. S. 269, 90 L. Ed. 663;

Pepper v. Litton, 308 U. S. 295, 84 L. Ed. 281.

84 Ga. App. 458; State v. Inter-State Surety Company, 189 N. W.

679, 45 S. D. 592; State v. Oakley, 225 Pac. 425, 129 Wash. 553;

Mitchell v. Munn Whs. Co., 86 P. 2d 174, 59 Idaho 661; 67 C. J.,

Par. 172, p. 538, par. 173, p. 539 and the cases therein cited;

56 Am. Jur., par. 37, p. 339; Stutsman v. Cook, 204 N. W. 976,

53 N. D. 162; State v. Farmers Coop. Elevator Co., 167 N. W. 223,

39 N. D. 235; State v. Robb-Lawrence Co., 115 N. W. 846, 17 N. D.

257; First Camden National Bank & Trust Co. Vv. J. R. Watkins

Co., 122 F. 2d 826 (C. A. 3); In re Harbor Stores Corp., 29 Fed.

Supp. 749 (S. D. N. Y.); Whitney v. Wenman, 140 Fed. 959 (S. D.

N. Y.); Sexton-Abbott v. Graham, 4 N. W. 1090, 53 Iowa 181;

State v. Broadwater Elevator Co., 201 Pac. 687, 61 Mont. 215.

16

Ill

The third question concerns the validity of the ware-

house receipts purchased by the Petitioner. The question

is answered by the applicable Kansas statute set forth in

the appendix to this brief. G. S. 1949, 34-238 provides for

the issuance by a licensed public warehouseman of ware-

house receipts to be printed by the state printer. 34-239

provides for the form of such receipts. 34-240 provides

for the issuance by a public warehouseman of a receipt

on his own grain providing such receipt signifies such

ownership and is registered according to the statutory

provisions. 34-246 provides that no warehouse receipt

shall be issued except upon the actual delivery of grain

into store in the warehouse from which it purports to be

issued. 34-247 provides for the appointment of a registrar

and 34-248 provides for the registration of receipts issued

for the warehouseman’s own grain.

Obviously the statute provides for two types of ware-

house receipts: (1) Ordinary bailment receipts issued to

depositors which need not be registered, upon the actual

delivery in store of grain; (2) Warehouse receipts issued

by the warehouseman itself on grain owned by the ware-

houseman, which receipts must state such ownership and

be registered.

Our question is only whether the warehouse receipts

purchased by Petitioner come under either of the two

alternatives just indicated. Petitioner did not deposit any

grain and therefore can not come under (1) above. The

receipts which Petitioner purchased were not registered

and did not recite the ownership of the warehouseman and

therefore can not come under (2) above. Obviously, there-

fore, the receipts which it purchased were not valid.

As a matter of law in the State of Kansas, the Peti-

tioner was on notice that the receipts which it purchased

17

were not valid since it knew such receipts were not regis-

tered and did not show that the warehouseman owned grain

as the statute required and it knew that it had deposited

no grain itself with the warehouseman. See Wheat

Growers Association v. Rowan, 125 Kan. 710, 266 Pac. 101;

Brown Memorial Foundation v. Rohrer, 152 Kan. 291, 103 P.

2d 814; Scott v. Bankers Union, 73 Kan. 575, 85 Pac. 604;

Kipp v. Goffe & Carkener, 144 Kan. 95, 58 P. 2d 102; Green

v. Fortune, 151 Kan. 598, 100 P. 2d 631; Shugar v. Antrim,

177 Kan. 70, 276 P. 2d 372.

The Uniform Warehouse Receipts Act does not apply,

since there was no negotiation of the receipts and under

Kansas law, Chapter 34 and the sections herein summar-

ized and contained in the appendix herein control. See

Kipp v. Goffe & Carkener, 144 Kan. 95, 102, 58 P. 2d 102.

The case cited by Petitioner, Bank v. Elevator Co., 9 Kan.

App. 144, 58 Pac. 483, was decided before the enactment

of the applicable statute. Petitioner can not as a matter

of law come to this Court in the guise of an innocent pur-

chaser. It obviously knew the admitted fact that it did

not deposit Milo and it had to know therefore that the

only valid receipts it could obtain under the laws of the

State of Kansas where it purchased the receipts had to

be registered and show ownership by the warehouseman

and the receipts which came into its possession were not

registered and did not show such ownership. Petitioner’s

receipts recited that it had deposited Milo and the ware-

houseman was not the owner thereof. (R. 37, 115).

IV

In its next question Petitioner asserts that the courts

below were required to apply the first in first out rule to

the monies in the bankrupt’s bank account for the purpose

of tracing into the commingled grain fund which came

18

into the hands of the Respondent the sums paid the bank-

rupt by Petitioner. This is a secondary question since it

pre-supposes facts which would give rise to a right to re-

claim property if it could be traced, which is considered

under question 5. The first in first out rule is applicable

only where all the funds in a bank account are trust funds.

See Bradford v. Chase National Bank, 24 Fed. Supp. 28

(S. D. N. Y.), affirmed 105 F. 2d 1901 (C. A. 2), affirmed

309 U. S. 632, 84 L. Ed. 990. Even here the rule is not

applicable where it would produce inequitable results.

The principle of equality is equity prevails, particularly

in bankruptcy, since it is the very spirit of the Bankruptcy

Act. See Cunningham v. Brown, 265 U. S. 1, 68 L. Ed.

873; Lowden v. Northwestern National Bank & Trust

Co., 84 F. 2d 847 (C. A. 8); and see In re Walter J. Schmidt

& Co., 298 Fed. 314 (S. D. N. Y.).

Petitioner offered no evidence whatever to show that

the funds commingled in the bankrupt’s sole bank account

during the pertinent period, which exceed $1,000,000.00,

were trust funds to which the first in first out rule could

in any case apply. Petitioner did maintain that its funds.

constituted trust funds. If it is conceded for the sake of

argument that its funds were trust funds and were com-

mingled in the bankrupt’s bank account, the rule is that

such bankrupt would first spend its free funds and last

spend the trust funds. See Cunningham v. Brown, 265

U. S. 1, supra. Petitioner sought to trace its funds from

the bank account into the Milo inventory on the dates

the sight drafts were written and discounted by the Garden

National Bank, November 15, November 29 and December

15 (R. 118 to 120, 121, 123, 131). Petitioner parted with no

funds until it issued its own checks in payment of such

sight drafts on November 19, December 3 and December 17

(R. 118-120). It obviously could not trace its funds, even

_ eee

19

conceding that they were trust funds, until such dates.

It made no attempt to trace them thereafter. Petitioner

obviously did not trace any of its funds into the hands of

the Respondent.

Vv

In its fifth question presented in an effort to convince

this Court that it should grant certiorari, Petitioner as-

serts that under the uncontradicted evidence, it was en-

titled to have a constructive trust or equitable lien im-

pressed upon the grain fund which ultimately came into

the possession of the Trustee in bankruptcy. The argu-

ment on this question is that the Petitioner paid its monies

to the bankrupt for the specific purpose and with the

understanding that the Bankrupt would purchase Milo

and deposit it in its warehouse for Petitioner. As the

Court of Appeals noted, at page 43 of its opinion (Petition

Appendix “A,” page 19) there was no evidence whatever

adduced tending to show that the Petitioner paid its

money to the bankrupt with such understanding. The

record does disclose that Petitioner purchased warehouse

receipts (R. 181, 183, 184). It later surrendered receipts

and ordered shipments of grain. Evidently it made ad-

vance payments to the bankrupt on the purchase price

of property to be delivered on demand. There is no

evidence that the funds paid were to be held in any

separate account and they were in fact commingled with

other funds totaling over $777,000 received by the bank-

rupt from other sources. There is no trust under these

facts. See St. Louis & S. F. R. Co. v. Spiller, 274 U. S. 304,

71 L. Ed. 1060; In re Gubelman, 9 F. 2d 486 (C. A. 2); In

re Superior Motor Truck Co., 275 Fed. 623 (N. D., Ga.);

In re Seaboard Engineering Co., 292 Fed. 106 (C. A. 4);

In re Morris Bros., Inc., 282 Fed. 670 (D. Ore.), affirmed

20

293 Fed. 294; Queenan v. Mayes, 90 F. 2d 525, §31:: (C. A;

10); In re Pacat Finance Corp., 27 F. 2d 810 (C. A. 2); Great

Atlantic & Pacific Tea Co. v. Citizens Nat. Bank, 66 F. 2d

883 (C. A. 3); Rossman v. Blunt, 104 F. 2d 877 (C. A. 6).

There was no trust res. Petitioner deposited no Milo and

the bankrupt warehouseman owned no Milo which can

here be the subject matter of a trust. A mere failure to

pay a debt does not create a constructive trust. See Mc-

Key v. Paradise, 299 U. S. 119, 81 L. Ed. 75; Solomon v.

Boschulte, 200 F. 2d 482 (C. A. 3); In re Whitehall Stores,

196 F. 2d 667 (C. A. 7); American Service Co. v. Hender-

son, 120 F. 2d 525, 530 (C. A. 4).

Not only was there no evidence under which a trust

could arise, the record discloses that there was a commin-

gling of the funds paid by Petitioner with other funds in

such manner that the property itself was commingled as

was its avails. In this situation tracing is not possible.

Pittman v. Union Planters Nat. Bank & Trust Co., 118 F.

2d 211 (C. A. 6); In re Morris Bros., Inc., 293 Fed. 294 (C.

A. 9); In re Larkin & Metcalf, 202 Fed. 572 (D. So. Dak.).

As the statement of facts herein discloses and as disclosed

by the record itself, the purchases of Milo were exceeded

by sales of Milo and the Milo inventory of the bankrupt

went down drastically from November 14 to the day the

petition in bankruptcy was filed. Obviously the remain-

ing inventory belonged to the depositors of Milo and was

far less than the quantity necessary to redeem the ordi-

nary bailment contracts.

VI

In a last attempt at posing a situation which would

cause this, Court to grant its petition, Petitioner asserts

that the Court of Appeals so far departed from the accepted

and usual course of judicial proceedings as to call for the

_—

21

exercise of this Court’s power of supervision. This argu-

ment is based on two statements contained in the opinion

of the Court of Appeals: ‘No physical deposit of grain

was made and none was ever intended by the parties.” and

“The claimant knew that no grain was deposited with the

bankrupt for storage, and it knew that the receipts did r<t

indicate on their face that they had been register<zd.” Both

statements are contained in the petition Appendix “A,”

p. 17. Both statements, taken in the context in which they

are written, are absolutely true. Indeed the Petitioner

wrote itself in its brief filed in the Court of Appeals, on

page 22 thereof, “Actually no physical deposit of Milo was

made by the Appellant and none was ever intended by

the parties.”’ It seems in the poorest of grace to now com-

plain that the Court of Appeals, using substantially the

same language as that contained in Petitioner’s own brief,

departed from the accepted and usual course of judicial

proceedings to such an extent that this Court should ex-

ercise its power of supervision. As a matter of fact, Peti-

tioner knew it deposited no grain. It also knew from the

receipts it purchased that such receipts were not registered

since the word “registered” was not stamped on their face.

The statements made by the Court of Appeals were mani-

festly correct. Not being a depositor and not purchasing

registered receipts showing the warehouseman’s ownership,

Petitioner has no rights against the Milo inventory and

any quantities it took from such inventory not in excess of

that amount necessary to redeem all bailment contracts,

were unlawfully received.

22

CONCLUSION

For the foregoing reasons it is respectfully submitted

that this petition for writ of certiorari should be denied.

Respectfully submitted,

JOHN F. EBERHARDT,

608 Fourth National Bank Building,

Wichita, Kansas,

Ma.Lcotm MILLER,

608 Fourth National Bank Building,

Wichita, Kansas,

Counsel for Respondent.

23

APPENDIX

_ General Statutes of Kansas 1949

Sec. 34-238. Persons who may issue receipts. Ware-

house receipts may be issued by any licensed public ware-

houseman, as herein defined, and must be issued in man-

ner and form as provided by this act, and the form of all

receipts shall be approved by the chief inspector of the

State Grain Inspection Department. The chief inspector

shall be authorized to have printed by the state printer

all of the warehouse receipts issued by public warehouse-

men licensed under this act. All of the expense incurred

shall be paid by the State Grain Inspection Department

out of the state grain inspection revolving fund, and he

shall distribute such warehouse receipts printed to the

licensed public warehouses at cost, and the revenue from

such distribution shall be by said chief inspector remitted

to the state treasurer and credited to the state grain in-

spection revolving fund in the same manner as other fees

collected. It shall be unlawful for any public warehouse-

man to issue any warehouse receipts for any grain re-

ceived except upon warehouse receipts furnished by the

State Grain Inspection Department on and after June 1,

1939; Provided, That nothing in this section shall be con-

strued to affect the legality or validity of any receipt, or

receipts, issued under authority of this act if the same

contains all the provisions required by section 34-239 of

the General Statutes of 1935, and issued before June 1,

1939.

34-239. Form of receipt for storage grain. Every re-

ceipt issued for grain stored in a warehouse licensed under

this act shall embody within its written or printed terms:

24

(a) The location of the warehouse where the grain is

stored; (b) the statement whether the grain received will

be delivered to bearer, to a specified person, or to a speci-

fied person or his order; (c) the date of the issuance of

the receipt; (d) the rate of the storage charges or the

basis for such charges; (e) the net weight and percentage

of dockage, together with the grade; (f) the words, non-

negotiable, not negotiable, or negotiable, according to the

nature of the receipt, clearly and conspicuously printed or

stamped thereon; (g) the signature of the warehouseman

which may be made by his authorized agent; (h) if the

receipt for grain of which the warehouseman is owner

either wholly or jointly, or in common with others, the

facts about such ownership; (i) a statement of the amount

of the advances made or the liability incurred, for which

the warehouseman claims a lien, but if the precise amount

of such advances made, or of such liabilities incurred, be

at the time of the issuance of the receipts unknown to the

warehouseman, or to his agent who issues it, a statement

of the fact that advances have been made, or liabilities in-

curred and the purpose thereof, is sufficient. A warehouse-

man shall be liable to any person injured thereby for all

damages caused by the omission from a negotiable receipt

of any of the terms herein required.

34-240. Warehouseman’s receipt on own grain valid.

Any public warehouseman operating a warehouse in this _

state may make a valid sale or pledge of any warehouse

receipts issued for grain of which the warehouseman is

the owner, either solely or jointly or in common with

others, and the recital of such ownership. in the receipt

shall constitute notice to all the world of the right to sell

or pledge the same and of the title or specific lien of the

transferee’or pledgee upon the warehouseman’s grain rep-

resented by such receipts, provided that said receipts are

registered according to the provisions of this act.

25

34-246. Issuance and cancellation of receipts; division

and consolidation. That no warehouse receipt shall be

issued except upon actual delivery of grain into store in

the warehouse from which it purports to be issued. Nor

shall any receipt, or receipts, be issued for a greater quan-

tity of grain than was contained in the lot or parcel so re-

ceived for storage, nor shall more than one receipt be is-

sued for the same lot of grain, except in cases where a

receipt for a part of a lot is desired, and then the aggre-

gate receipts for a particular lot shall cover that lot and

no more. In cases where a part of the grain represented

by the receipt, or receipts, is delivered out of store and

a remainder is left, a new receipt, or receipts, shall be is-

sued in the form and manner as prescribed by the chief

inspector, and it shall be stated on the face of the new

receipt, or receipts, that such new receipt, or receipts, rep-

resent the balance of the original receipt, or receipts, and

the new receipt, or receipts, shall bear thereon the num-

ber, or numbers, of the original receipt, or receipts, and

the original receipt, or receipts, upon which a part of the

grain has been delivered shall be canceled in the manner

as if all of the grain has been delivered. In case it is de-

sirable to divide one receipt into two or more, or in case

it is desirable to consolidate two or more receipts into

one and the warehouseman consents thereto, the original

receipt, or receipts, shall be canceled in the same manner

as if the grain had been delivered from store, and the new

receipt, or receipts, shall express on the face thereof that

such new receipt, or receipts, represent a part of another

receipt or the consolidation of other receipts, as the case

may be, and the number and date of the original receipt,

or receipts, shall also appear on the new receipt, or re-

ceipts, issued in lieu thereof. Provided, That no consolida-

tion of receipts differing more than thirty days in date

Shall be permitted. All new receipts issued for old ones

26

canceled, as herein provided, shall bear the notation of

the date of the receipt or receipts, as originally issued.

All receipts issued on grain in special bins, shall bear the

number of the bin, and the notation “special bin”, and all

divisions or consolidations shall bear the bin number of the

original receipt, and the notation “special bin”. Upon de-

livery of grain ‘rom store upon any receipt issued by a

public: warehouse, such receipt shall be plainly marked

across its face “canceled” with the date and the name of

the person canceling the same and thereafter be void and

shall not again be put in circulation. No grain shall be

delivered twice upon the same receipt.

34-247. Appointment of registrar. The chief inspec-

tor may appoint some person, or persons, as registrar of

receipts, who shall execute a corporate surety bond to the

state of Kansas in the penal sum of $5,000, the sureties to

be approved by the chief inspector, conditioned that he

well and faithfully discharge all his duties as such regis-

trar of receipts according to law and truly account for

and turn over to his successor all moneys, books, files and

papers that may come in his hands as such registrar and

that he pay all loss and damage that may be sustained by

any person or persons by reason of his neglect, failure, or

refusal to properly perform the duties of his said office.

34-248. Registration of receipts. It shall be the duty

of each and every public warehouseman issuing negotiable

receipts upon receipt of any grain, to issue or cause to be

issued a receipt thereof, in compliance wth this act, and to

by twelve o’clock the following business day, or such time

that the chief inspector shall designate, file with the regis-

trar of warehouse receipts designated by the chief inspec-

tor, a report as hereinafter provided, and showing the

amount of. grain received, the name of the owner thereof,

and the numbers of receipts therefor issued, accompanied

27

by the warehouse receipts for registration: Provided,

That at the option of the chief inspector, a public ware-

houseman may issue unregistered negotiable receipts for

grain of which the warehouseman is not the owner, either

solely, jointly or in common with others: And provided

further, That a public warehouseman must, in all cases,

register every negotiable receipt issued by him for grain

of which the warehouseman is the owner, either solely,

jointly or in common with others. And it shall be unlaw-

ful for any grain warehouseman to limit or modify his

responsibility imposed by law by any words inserted in

any such receipts or by any contract relative thereto. Upon

receipt of such report, as hereinafter provided, and ware-

house receipts, it shall be the duty of the registrar of ware-

house receipts to register such legal receipts in a book to

be kept for that purpose and to stamp on each of such

receipts with the official state grain inspection department

registration stamp the word “registered” with the date of

registration and affix his signature thereto.