Warehouse receipts offered as security for bills accepted by member banks must be issued by warehouses which are independent of the borrower. Where a corporation is formed as a subterfuge for the purpose of evading the spirit of the Board's ruling, this fact should be taken into consideration by a member bank accepting the bill and by the Federal Reserve bank to which it is offered for discount.
If the borrower exercises such control over the corporation issuing the warehouse receipt as to give him control over the goods in storage, the purpose of requiring a receipt of the independent warehouseman would be defeated. The corporation issuing such rceipt must be organized in good faith as an independent corporation and its affairs must be administered by duly authorized officers and agents independent of the borrower.
Where a separate corporation has been created and the warehouse receipts are issued by that corporation and not by the borrower, the requirements of the Board would appear to have been met. However, where both corporations have practically the same officers, the manager of the warehouse appointed to execute the receipts should not be an employee of the borrowing company, as the Board requires that the receipts should be issued by a company independent of the borrower, and this requirement should be met in substance as well as in form.
An informal ruling has been made by the Board in connection with the following: A borrowing corporation takes receipts for goods and materials stored in a warehouse controlled by a separate corporation engaged solely in the warehouse business, the entire stock of which is owned by the prospective borrower. If a representative of the accepting bank is given control of the warehouse under a proper resolution of the directors of the warehouse corporation, the fact that the stock of the corporation is owned by the borrower should not prevent the acceptance of drafts secured by the warehouse receipts. It should be agreed, however, that if by any future action of the warehouse corporation an attempt is made to exercise control over the warehouse, the representative of the acceptor should have the right to move the goods and to place them in storage elsewhere at the expense of the warehouse corporation.
A can goods concern proposes to place part of its readily marketable goods and materials in storage with a lessee of part of its premises. The lessee is then to issue warehouse receipts to the owner of the goods, which receipts are to be issued as security for drafts drawn against and accepted by a member bank.
If the premises in question are actually turned over to the lessee under a bona fide lease, the lessee being independent of the borrower and having entire custody and control of the goods, there would seem to be no objection to a member bank accepting drafts against the security of warehouse receipts issued by such lessee. It should, however, be expressly understood and agreed that the borrower shall not have access to the premises except with the permission of the lessee and that he shall exercise no control of any sort over the goods against which warehouse receipts are issued. The warehouse receipts must, of course, be in form to properly convey and secure title to the bank.
Custodian's certificate or receipt, if issued in proper form to convey or secure title, may be treated as a warehouse receipt and acceptance of member bank under such conditions would be eligible for rediscount. The wool in the above case was stored in buildings under control of custodian entirely independent of borrower.