Whitney v. Wenman, 198 U.S. 539 (1905)

Please note: this case begins in mid-page. It therefore shares a citation with the last page of the previous case. If you are attempting to follow a link to the last page of 198 U.S. 530, click here.

Whitney v. Wenman

No. 576

Submitted April 24, 1905
Decided May 29, 1905
198 U.S. 539

APPEAL FROM THE DISTRICT COURT OF THE UNITED

STATES FOR THE SOUTHERN DISTRICT OF NEW YORK

Syllabus

The bankruptcy court has jurisdiction of a proceeding in the nature of a plenary action brought by the trustee to determine controversies in relation to property held by the bankrupt or by other parties for him, and the extent and character of liens thereon, and this applies to a suit brought against parties claiming possession of goods in the bankrupt’s store, as warehousemen, under a nominal lease of the store from the bankrupt.

A receiver in bankruptcy is appointed as a temporary custodian, and it is his duty to hold possession of property until the termination of the proceedings or the appointment of the trustee, and meanwhile the bankruptcy court has possession of the property and jurisdiction to hear and determine the interests of those claiming liens thereon or ownership thereof, and this jurisdiction cannot be affected by the receiver’s turning the property over to any person without the authority of the court.

Edward B. Whitney, as trustee in bankruptcy of Daniel LeRoy Dresser and Charles E. Riess, members of the firm of Dresser & Company, filed a bill in equity against Charles H. Wenman, Stuyvesant Fish, and George C. Boldt, in the District Court of the United States for the Southern District of New York. Upon demurrer to the bill, the court dismissed the same for want of jurisdiction. The allegations of the bill set forth in substance that, on September 17, 1903, the complainant was duly appointed trustee in bankruptcy of Dresser and Riess, doing business as Dresser & Company, and that as such trustee he qualified on September 29, 1903. That during the time mentioned in the bill, and up to March 7, 1903, Dresser & Company were carrying on business as merchants in the City of New York. That the defendants the Security Warehousing Company and the United States Mortgage & Trust Company were corporations of the State of New York. That the defendant Charles H. Wenman acted as the agent and attorney in fact of the defendants Fish and Boldt. Prior to March 7, 1903, the bankrupts, partners, as Dresser & Company, became insolvent, and on that day assigned all their property for the benefit of their creditors. On March 9, 1903, upon the petition of certain creditors, Robert C. Morris and Charles S. Mackenzie were appointed by the District Court for the Southern District of New York receivers in bankruptcy of Dresser & Company. That at least six months prior to March 7, 1903, the firm of Dresser & Company had been insolvent and unable to pay its debts, and was only able to continue in business by borrowing large sums of money, and, in order not to injure the creditors, it became necessary to pledge the goods, wares, and merchandise in which the company was dealing, but to conceal said pledge from the unsecured creditors. That the goods dealt with by Dresser & Company consisted, for the most part, of Japanese silks imported for sale. For the purpose of pledging these goods with certain of the creditors without the knowledge of the other creditors, Dresser & Company entered into a plan or arrangement with the defendants the Security Warehousing Company, to-wit, a certain alleged lease of the store, display and sales rooms was made by Dresser & Company to the Security Warehousing Company at a nominal rental of $1 a year, in order that thereafter the said warehousing company might claim that the goods and display and sales rooms belonged to it. That the goods in reality belonged to the firm of Dresser & Company, and there was no change of location or ownership of the said goods, but Dresser & Company remained in possession and control thereof, and permitted the display of them in the same manner as that firm had done prior to the pretended storage. Dresser & Company exhibited the goods to their customers, sending portions to dyers and manipulators, and generally handled and used them as if they were their own, and free and clear from all claims and encumbrances. That the Security Warehousing Company exercised no supervision or control over the said goods, but merely employed, or pretended to employ, the confidential clerk and secretary of Daniel LeRoy Dresser and Dresser & Company, as its alleged custodian, in whose charge it was claimed the goods had been placed at a salary of one dollar per month. She exercised no control or supervision over the goods, but, during the period of her employment, continued to act as the confidential secretary of the bankrupts. The security company also placed a few small tags on the shelves and bins in which the goods were stored and displayed for sale, upon which tags the name of the security company was printed, but the tags were not easily discovered, and in most instances were so placed as not to be readily seen, and were not of such a character as to identify the goods.

The bill then avers the issue of certain warehouse receipts upon said goods, representing that they had been stored with the company at its warehouse at 15-17 Greene Street, New York, which was in fact the store of Dresser & Company. Then follow allegations as to the delivery of the warehouse receipts, some to the United States Mortgage & Trust Company and some to the defendant Wenman for himself or defendants Fish and Boldt. And it is averred that the security instruments did not describe the goods in such a way as to make them capable of identification. That Daniel LeRoy Dresser was one of the incorporators of the Security Warehousing Company, and one of its directors and stockholders. That, at the time of the delivery of the security instruments, Charles S. Mackenzie was general counsel of the security company, and was fully cognizant of the system of pretended storage before described, and was also personal counsel for Daniel LeRoy Dresser. That, after the delivery of the warehouse instruments, Dresser & Company continued to display and sell and dispose of the goods and manage the business in the same manner that they had been in the habit of doing prior to the said pretended storing, without objection from the Security Warehousing Company. Then follow allegations as to the knowledge or opportunity for knowing, on the part of the defendants, of the situation above described. When the receivers, Morris and Mackenzie, went into possession of the stock of Dresser & Company on March 9, 1903, upwards of $150,000 worth of the goods was still in the possession and under control of Dresser & Company. After the receivers had taken possession of the store the Security Warehousing Company notified them that it claimed that the store, display and sales rooms belonged to it under the alleged lease, and that the goods therein contained had been stored with it by Dresser & Company, and requested the delivery of all the goods to it. The receivers did not dispute this claim of the warehousing company, but complied with it. Neither the court nor the unsecured creditors of Dresser & Company were advised of the facts concerning this claim or the character of the pretended storing upon which the issue of the so-called warehouse house receipts was based. Then follow allegations as to the sale of the goods, and that the Security Warehousing Company claimed that certain of the goods supposed to have been stored with it by Dresser & Company, and covered by the security instruments, had been sold by Dresser & Company before March 7, 1903, amounting to the sum of $22,000. That said receivers collected upwards of $20,000 of accounts receivable of Dresser & Company, and paid the same over to the Security Warehousing Company. That these goods were sold and the accounts collected by the warehousing company before the appointment of complainant as trustee in bankruptcy of Dresser & Company. None of said goods or their proceeds have come into the hands of the trustee except the sum of $1,944.93, paid to the complainant by the security company. Then follow averments as to the payment of the proceeds of the goods sold and accounts collected to the other defendants and the holders of said warehouse receipts. It is averred that the books and records of the Security Warehousing Company are lost or destroyed. It is alleged that the attempt to create a lien upon the goods in the manner aforesaid was contrary to law and the statutes of the State of New York. That the silk goods had been sold at much less than their value. The prayer of the bill is that the security instruments be declared invalid, fraudulent, and void, and that the complainant be decreed the owner of the goods and accounts, and that the defendants be required to account for the value of the same, and for general relief, as the nature of the case may require.