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Statement of the Case.

"GERMANTOWN, O., Feb. 23, 1906.

"Received in my Distillery Bonded Warehouse No. 11, First District of Ohio, for account and subject to the order of E. M. Pattison, deliverable only on the return of this warehouse receipt and the written order of the holder thereof, and on payment of the United States Government tax and all other taxes and storage at the rate of five cents per barrel per month from storage free,

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

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"Gauged by F. P. Thompson, U. S. Gauger.

"Loss or damage by fire, the elements, riots, accidents, evaporation and shrinkage at owner's risk. It is hereby guaranteed that the loss by natural evaporation and on account of defective cooperage on each and every barrel of this whiskey shall not be more than one gallon in excess of the Government allowance during the first seven years of the bonded period.

"It is expressly provided that in the payment of excess under this guarantee the basis of settlement shall be the cost price of said whiskey in bond at the date of tax payment figured upon the original contract price therefor, and the carrying charges thereon added thereto, together with the Internal Revenue tax thereon at the rate of tax imposed by the Internal Revenue law upon distilled spirits at the date of the withdrawal.

VOL. CCXXXIV-26

Statement of the Case.

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

"This warehouse receipt is given in conformity with the warehouse laws of the State of Ohio and the laws of the United States in force at this date.

"DAVID ROHRER, Proprietor." By an amendment to his intervening petition, Pattison set forth:

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

Counsel for Parties.

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

The trustees filed a general demurrer, which was sustained by the referee, and the order sustaining it was affirmed by the District Court (186 Fed. Rep. 997). The Circuit Court of Appeals reversed the District Court, and remanded the case for further proceedings (196 Fed. Rep. 5). Thereupon the District Court, in obedience to the mandate, overruled the demurrer and rendered final judgment in favor of Pattison, which was affirmed by the Court of Appeals; and an appeal to this court was then allowed.

Mr. Lee Warren James for appellants.

Mr. W. H. Mackoy, with whom Mr. M. L. Buchwalter was on the brief, for appellee.

Opinion of the Court.

MR. JUSTICE PITNEY, after making the foregoing statement, delivered the opinion of the court.

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The transactions in question, as between Rohrer, the bankrupt, and Pattison, the appellee, are not distinguishable from those that were under consideration in Taney v. Penn Bank, 232 U. S. 174. In that case the Distilling Company deposited as security for the loan made by the Bank certain gauger's certificates, in addition to warehouse receipts issued by itself. But the sole significance of the gauger's certificates was that they constituted evidence that the whiskies had been deposited in the storehouse in barrels marked and numbered as required by the act of Congress. Since it is admitted in the present case that the whiskies in question were in fact on storage, as mentioned in the warehouse receipts delivered by Rohrer to Pattison, and that the barrels were stamped, marked, and numbered as therein stated, the fact that no gauger's certificate was delivered to Pattison is of no present consequence.

The legal effect of such a transaction depends upon the local law. In Taney v. Penn Bank, upon finding that, by the law of Pennsylvania, the ordinary rule as to the effect of the retention of physical possession by the vendor of personal property, which he is capable of delivering to the vendee, is not applied by the courts of that State to cases where the inherent nature of the transaction and the attendant circumstances are such as to preclude the possibility of a delivery by the vendor that would be consistent with the avowed and fair purpose of the sale, or where the absence of a physical delivery is excused by the usages of the trade or business in which the sale is made, we held that, considering the situation of the property and the usages of the business, the transaction between the distiller and the bank was valid, and gave to the latter a lien upon the whiskey superior to that of the trustee in bankruptcy.

The question here presented is whether the local law of

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Opinion of the Court.

Ohio so far differs from that of Pennsylvania that a different result should be reached. In behalf of appellants it is insisted that there is in Ohio a settled legislative policy with reference to the change of possession necessary for the creation of liens on personal property. Section 8560 of the General Code is cited (formerly § 4150, Rev. Stat.). It reads as follows:

"SEC. 8560. A mortgage, or conveyance intended. to operate as a mortgage, of goods and chattels, which is not accompanied by an immediate delivery, and followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, subsequent purchasers, and mortgagees in good faith, unless the mortgage, or a true copy thereof, be forthwith deposited as directed in the next succeeding section."

It is insisted that this clearly and unmistakably establishes the doctrinè that any transaction designed to give a security in personal property, if not accompanied by an actual change of possession, must be placed in the form of a chattel mortgage and filed for record, in order to be good as against creditors. It seems to us, however, that we should not fail to consider the well-recognized distinction between a chattel mortgage and a pledge. A mortgage of chattels imports a present conveyance of the legal title, subject to defeasance upon performance of an express condition subsequent, contained either in the same or in a separate instrument. It may or may not be accompanied by a delivery of possession. On the other hand, where title to the property is not presently transferred, but possession only is given, with power to sell upon default in the performance of a condition, the transaction is a pledge, and not a mortgage.

There is no question that in Ohio, as elsewhere, a chattel mortgage, as well as a pledge, is valid between the parties, although not recorded. And, without the statute, it would

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