taxation by the law of the State when the owner has chosen to give them a situs there as in this case.

Without further extending these views, I am constrained. to dissent from the opinion and judgment of the court in this

case.

MR. JUSTICE BREWER Concurs in this dissent.

SECURITY WAREHOUSING COMPANY v. HAND.

APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH

CIRCUIT.

No. 229. Argued March 7, 8, 1907.-Decided May 27, 1907.

The general law of pledge requires possession and it cannot exist without it, and this is the law in Wisconsin.

Where there is no delivery or change of possession receipts issued by a warehouse company are not entitled to the status of negotiable instruments, the transfer of which operates as a delivery of the property mentioned therein. Union Trust Co. v. Wilson, 198 U. S. 530, distinguished. Although the assignee or trustee in bankruptcy stands in the shoes of the bankrupt, and property in his hands unless otherwise provided in the bankrupt act is subject to all the equities impressed upon it in the hands of the bankrupt, on the facts in this case and the law of the State there was no valid pledge of, and no equitable lien on the merchandise in favor of the holders of warehouse receipts, which take precedence of the title of the trustee.

THE above-named appellants have appealed from a judgment. of the Circuit Court of Appeals of the Seventh Circuit, affirming a decree of the United States District Court for the Eastern District of Wisconsin dismissing certain petitions of the appellants for want of equity. 143 Fed. Rep. 32.

Certain creditors filed a petition in bankruptcy October 5, 1903, against the Racine Knitting Company, a company en

gaged in manufacturing hose and other knit goods, with factories at Racine and Stevens Point, Wisconsin. The company was, on the twenty-sixth of October, 1903, duly adjudged a bankrupt, and the appellees were appointed receivers and were later elected trustees. The appellees asserted the right to certain merchandise covered by receipts issued by the appellants, the security company, which company thereupon filed in the bankruptcy court an intervening petition asserting its exclusive possession and control of the merchandise in question and the issuing of its receipts therefor to the knitting company, and their negotiation by it prior to its bankruptcy, and that those receipts were given to the other appellants in good faith in due course of business as security for loans. The intervening petitioner alleged that the appellees were claiming title to the merchandise and were obstructing the petitioner in its possession, and the prayer was for an order that the appellees be restrained from interfering with the petitioner in its custody and control of the property. The other appellants then intervened and also set up the same facts, and prayed that the appellees might be restrained from interfering with the security company in delivering the merchandise to the petitioners, and from asserting any right or title to the property as against them. Issues were joined and the matters were referred to the referee, who reported his findings of fact. From these findings it appeared that the Security Warehousing Company was a corporation of the State of New York, duly licensed to do business in the State of Wisconsin, and that it was engaged in the business of "field warehousing," so called; that it owned no warehouse of its own and occupied no public warehouse at any place. The warehousing company leased certain premises from the knitting company in Racine, in the State of Wisconsin, and also certain premises at a place called Stevens Point, in the same State. These two places were occupied by the knitting company with their goods to be sold, and the goods were placed on the premises really occupied by the knitting company,

206 U. S.

Argument for Appellants.

although in form leased by it to the warehousing company, and the so-called warehouse receipts were given to the knitting company by the warehousing company, acknowledging the receipt of the property at such places. There was no change of possession in fact, and scarcely any in form. These receipts were in turn pledged by the knitting company to various banks, and moneys obtained upon the security of such receipts from them. The general character of business of this form is stated in Union Trust Company v. Wilson, 198 U. S. 530, but the particular facts in this case, given in detail as findings by the referee and adopted by the District Court and Circuit Court of Appeals, may be found in 143 Fed. Rep. 32, supra. Reference is made to that report for the findings of the referee. The report shows a radically different state of facts from the Wilson case.

Mr. Henry S. Robbins, for appellants, submitted:

This case is not distinguishable from the case of Union Trust Co. v. Wilson, 198 U. S. 530.

The fact that the boards constituting the enclosure were four to six inches apart instead of being closely fitted, as in the Wilson case, 198 U. S. 530, seems too trivial to require discussion. This was more favorable to publicity than a tightly fitted enclosure, as it enabled one seeing the enclosure from the outside to see also the signs that were within. Anyone making the most superficial inspection could see the enclosure, and the locked door, and were without being put upon notice of the warehousing company's control.

Nor does a substantial difference between the two cases arise out of the fact that in the case at bar the custodians appointed by the warehousing company to watch the property and release it upon the return of the receipts, were also employés of the dealer. Sumner v. Hamlet, 12 Pick. 76.

Nor does any material difference between this and the Wilson case arise out of the fact found in the case at bar by the master that on three or four occasions "manifested goods VOL. CCVI-27

Argument for Appellants.

206 U. S.

were taken out of the enclosures by the custodian" and other goods were substituted therefor. The quantities thus taken out were trifling. But whatever be the law as to chattel mortgages, substitutions-especially such trifling ones do not invalidate a pledge. Blydenstein v. N. Y. Security Co., 67 Fed. Rep. 469; 15 C. C. A. 14; Sumner v. Hamlet, 12 Pick. 76; Clark v. Iselin, 21 Wall. 360; Colebrooke on Collateral Securities, 2d ed. § 15; Sawyer v. Turpin, 91 U. S. 114; Cook v. Tullis, 18 Wall. 332.

Nor is the Wilson case inapplicable to the case at bar because the former arose in Illinois and the latter in Wisconsin.

The law of Illinois abhors secret liens as much as does that of Wisconsin, and this was pressed upon the attention of this court in the Wilson case. See Funk v. Staats, 24 Illinois, 632; Harkness v. Russell, 118 U. S. 663.

In both States, as well as generally, a change of possession is essential to the validity of a pledge or warehouse receipt. The appellant creditors acquired at least equitable liens, which were superior to the title of the trustees in bankruptcy. If there was not a sufficient change of possession to support a pledge or warehouse receipt, still the delivery by the knitting company of these receipts as security for loans created equitable. liens. Union Trust Company v. Trumbull, 137 Illinois, 146.

The receipt holders here were unacquainted with the physical nature of the storage or the methods of the Security Warehousing Company. Equitable liens have been upheld by this court in Hauselt v. Harrison, 105 U. S. 401; Walker v. Brown, 165 U. S. 654. Equitable liens are recognized in Wisconsin. McDonald v. Daskam, 116 Fed. Rep. 276; S. C. 53 C. C. A. 554.

An equitable lien is superior to the title of the trustee in bankruptcy-so held under the act of 1841. Fletcher v. Morey, 2 Story, 555; S. C. Fed. Cas., 4,864; Winsor v. McLellan, 2 Story, 492; S. C. Fed. Cas., 17,887. And under the act of 1867. Hauselt v. Harrison, 105 U. S. 401; Yeatman v. Savings Inst., 95 U. S. 764; Stewart v. Platt, 101 U. S. 731.

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Argument for Appellees.

The present bankrupt act did not intend to change this rule.

Reading clauses (a) and (d) of § 67 together, as they should be, the proper construction is that liens "accepted in good faith," and which are of a nature to be recorded, such as chattel mortgages, are not good against the estate unless recorded; but that liens accepted in good faith, but not of a nature to be recorded, shall be unaffected by the bankrupt act, although not superior to writs of attachment and execution.

There is a clear distinction between a fraudulent conveyance -to avoid which both parties must have participated in the fraudulent intent and an equitable lien in which, as at bar, the creditor is not a participant in any legal or actual wrong doing. See York Mfg. Co. v. Cassell, 201 U. S. 344; Thompson v. Fairbanks, 196 U. S. 516-520; Hewit v. Berlin Works, 194 U. S. 296; In re Economical Printing Co., 110 Fed. Rep. 514; S. C. 49 C. C. A. 133.

Mr. John B. Simmons for appellees:

The receipts issued by the Security Warehousing Company were not warehouse receipts within the legal or commercial signification of the term, and their endorsement in blank and delivery as collateral in no way affected the title to the goods of the bankrupt.

In controversies of this sort, involving the validity of transfers of property by warehouse receipts, chattel mortgage, and the like, the law of the State where the property is situated must govern. In re St. Paul & Kansas City Grain Co. (Minn.), 94 N. W. Rep. 218; Hallgarten v. Oldham, 135 Massachusetts, 1; Etheridge v. Sperry, 139 U. S. 276, 277; Bamberger v. Schoolfield, 160 U. S. 149; Hartford Ins. Co. v. C., M. & St. Paul Ry. Co., 175 U. S. 91.

The facts shown by the record do not establish the existence of valid liens by way of pledge. Union Trust Co. v. Wilson, 198 U. S. 530, distinguished.

In respect to a pledge, as distinguished from a mortgage