granted by the United States for railway purposes could not be extinguished by adverse possession under the statute of limitations of the State in which the land lay. The ground of that decision was that the grant to the railroad was not a conveyance of the land in fee simple absolute but a limited grant 'upon an implied condition of reverter in the event that the company ceased to use or retain the land for the purpose for which it was granted.' This decision has been met for some similar cases elsewhere by the act of June 24, 1912, c. 181, 37 Stat. 138. Union Pacific R. R. Co. v. Laramie Stock Yards Co., 231 U. S. 190. Union Pacific R. R. Co. v. Snow, 231 U. S. 204. But it does not apply to a gift to a State for a public purpose of which that State is the sole guardian and minister. As long ago as 1856 it was decided "the trusts created by these compacts relate to a subject certainly of universal interest, but of municipal concern, over which the power of the State is plenary and exclusive," and it was held that the State of Michigan could sell its school lands without the consent of Congress. Cooper v. Roberts, 18 How. 173, 181. This decision adverted to the fact that it had been usual for Congress to authorize the sale of lands if the State should desire it, but suggested that it was unnecessary, (which, indeed, followed from what was decided), and thus met the further argument here pressed that a qualified permission to sell was given to Alabama by a much later act of March 2, 1827, c. 59, 4 Stat. 237. It also disposes of other forms of the same contention, that the state law impairs the obligation of its contract, or involves a breach of trust, supposing that such positions are open to the State to take. American Emigrant Co. v. Adams County, 100 U. S. 61. Spokane & British Columbia Ry. Co. v. Washington & Great Northern Ry. Co., 219 U. S. 166. The gift to the State is absolute, although, no doubt, as said in Cooper v. Roberts, 18 How. 173, 182, 'there is a sacred obligation imposed on its public faith.' But that obligation is honorary like the one discussed in Conley v. Ballinger, 216 U. S. 84, and even in honor would not be broken by a sale and substitution of a fund, as in that case; a course, we believe, that has not been uncommon among the States. See further Stuart v. Easton, 170 U. S. 383, 394. Some reliance was placed upon Trustees for Vincennes University v. Indiana, 14 Howard, 268, but the decision of the majority in that case rested upon the grant having been made to a private corporation of which the rights could not be impaired by the State. The result of Cooper v. Roberts and of what we have said is that the State had authority to subject this land in its hands to the ordinary incidents of other titles in the State and that the judgment must be affirmed. Northern Pacific Ry. Co. v. Ely, 197 U. S. 1, 8. Judgment affirmed. TANEY, TRUSTEE OF MILLER PURE RYE DISTILLING COMPANY, v. PENN NATIONAL BANK OF READING. APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT. No. 115. Argued December 9, 10, 1913.-Decided January 26, 1914. In determining the relative rights of the trustee in bankruptcy and a secured creditor the legal effect of the transaction securing the loan depends upon the local law. The rule that physical retention by the vendor of goods capable of delivery to the vendee is a fraud per se does not apply in Pennsylvania in a transaction, the inherent nature of which necessarily precludes delivery, or in which the absence of a physical delivery is excused by the applicable usages of trade. 232 U.S. Argument for Appellant. Under the revenue laws of the United States the Government, although not strictly a bailee, is in complete control of a distillery warehouse which is in effect a bonded warehouse of the United States. A distiller is not debarred from passing title or creating a special interest by way of pledge in whiskey deposited in his distillery warehouse in conformity with the revenue laws of the United States. This court will not condemn honest transactions growing out of the recognized necessities of a lawful business; and so held, that the established practice of the distillery business to issue warehouse receipts for whiskey deposited in the distillery warehouse and pledge such receipts as security for loans is not one opposed to public policy. In Pennsylvania, certificates issued by the owner of a distillery on whiskey in the distillery warehouse represent the property, and the delivery thereof as security for a loan made in good faith and in accordance with the usages of the trade amounts to actual delivery of the property itself. 187 Fed. Rep. 689, affirmed. THE facts, which involve the relative rights of the trustee in bankruptcy, and the holder as security for loans of warehouse receipts for whiskey in a distilling warehouse issued by the distiller, are stated in the opinion. Mr. Joseph Hill Brinton for appellant: The company retained physical possession and control of the whiskey and received for its own use the charges for storage, except in so far as the Government's interest is concerned in the protection of its taxes. The whiskey ordinarily could not be subject to the pledge in the absence of an actual or constructive delivery. Nothing appeared on the books of the company, and no other step was taken or attempted to negative the apparent ownership of the bankrupt company in whose possession and under whose control the whiskey was when the trustee took charge. Where the pledge is left in the possession of the debtor, the burden of proof that there was a constructive delivery is upon the creditor claimant. Barr v. Reitz, 53 Pa. St. 256; Hunter Construction Co. v. Lyons, 233 Pa. St. 561. Argument for Appellant. 232 U.S. Pennsylvania has adopted the English rule that if there be nothing but the absolute conveyance without the possession, that in point of law is fraudulent. Appearances must agree with the real state of things, and the real state of things must be honest and consistent with public policy, affording no unnecessary facility for deception. Clow v. Woods, 5 S. & R. (Pa.) 277. Where possession has been withheld pursuant to the terms of the agreement some good reason for the arrangement besides the convenience of the parties should appear, since public policy requires change of possession. Where the subject of the sale or pledge is in the possession of a third party as bailee, constructive delivery is sufficient. The law of Pennsylvania controls, and the courts of that State have universally held that a man may not be his own warehouseman. Bank v. Jagode, 186 Pa. St. 556; Moors v. Jagode, 195 Pa. 163; Security Warehousing Co. v. Hand, 206 U. S. 415; In re Millbourne Mills Co., 172 Fed. Rep. 177. Appellant contends that: Either actual delivery by payment of tax and release of the whiskey for that purpose, or constructive delivery by removal to a general bonded warehouse and delivery of its warehouse receipt, was practicable, but neither means was adopted. No constructive or symbolical delivery could be or was made by the so-called warehouse receipt given to the appellee. The alleged custom of the trade, being contrary to public policy, cannot be sustained. Individual interests arising from such a custom must suffer the consequences when the courts hold that they exist contrary to public policy. Collins' Appeal, 107 Pa. St. 590. The convenience of the parties is not of moment. Jenkins v. Eichelberger, 4 Watts (Pa.), 121. 232 U.S. Argument for Appellant. The real test is one of public policy and the question is not what rights as to possession the owner may have exercised, as between himself and the Government, but what opportunity he had of creating secret liens to the prejudice of the innocent and credulous. A building erected by a distiller on the distillery premises pursuant to the statute has none of the characteristics of a regular warehouse. Bucher v. Bucher v. Commonwealth, 103 Pa. St. 523; National Bank v. Sherer, 225 Pa. St. 470. Should the distiller desire to sell or pledge whiskey the act of August 27, 1894, §§ 51, 52, 28 Stat. 564, affords ample relief. The court, for reasons of public policy, will not permit a man to be his own warehouseman and pass title by delivery of receipts, and thus afford an opportunity for duplication and fraud. The supervision of the Government lessens the danger of such fraud. Although the District Court held that the Government is a bailee, it is clear that in the one respect essential to prevent fraud, it is in no sense a bailee for it does not issue or control the issue of warehouse receipts and keeps no record of change of ownership. Generally speaking, the Government cannot be said to be a bailee. It issues no receipts, recognizes no transfer of title or other interest, assumes no responsibility, and is not chargeable with negligence. The Federal Government exercises the same control over the distillery as it does over the warehouse proper. The Internal Revenue Acts of the United States, Rev. Stat., §§ 3267, 3276, 3287, 3288, 3293, 3292 A, 3301, 3303, provide for the warehouse construction and custody and control thereof by the Government. In no sense are the goods bailed to the Government, so as to permit constructive delivery to be made. United States v. Thirty-six Barrels, 7 Blatchf. 459; Witten v. United States, 143 U. S. 76. In order that both the Government and the public VOL. CCXXXII-12 |