157 F. 801 | 4th Cir. | 1907
Lead Opinion
Upon petition filed April 15, 1905, by the United Lumber Company, the S. U. Price Machinery Company, and Omohundro Brothers, unsecured creditors, the Builder’s Lumber Company, a North Carolina corporation, was on May 3, 1905, by the court below, adjudged a bankrupt. In the course of the proceeding three matters of controversy arose which constitute the foundation for
Touching the first question, the material facts may be stated as follows: W. J. Edwards, on the 23d day of November, 1903, was receiver for both the Carolina Northern Railroad Company and the Southern Saw Mills & Lumber Company. He subsequently organized the Builder’s Lumber Company, and obtained its charter of date April 5, 1904, at the time substantially owning its stock and becoming its vice president and general manager. On said 23d day of November, 1903, he undertook as receiver of the Carolina Northern Railroad Companj', without authority, to issue certain receiver’s certificates against this railroad company, among others, three to Harper, Saunders, and Lynn, one for $6,000 on account “of purchase of box cars for said road,” a second for $2,000 on account “of purchase of rails for terminals,” and the third for $7,500 on account “of purchase of flat cars for said road.” Harper was president, Saunders vice president, and Lynn cashier, of the American National Bank of Washington, D. C. Neither box cars, rails, nor flat cars were purchased by this receiver of them. The fact was they agreed to and did furnish him $15,500 in cash for these certificates by indorsing personally said certificates, the first to H. Clay Harding, the second to the Loudoun National Bank, and the third to the National Bank of Manassas. For thus securing for him this $15,500 on these certificates Edwards agreed to give them $750. The Builder’s Lumber Company at this time had no corporate existence. Some time after this transaction it was discovered that Edwards had not only issued these receiver certificates without authority, but had also misappropriated the money, and the court called him to account, requiring him personally to take them up and surrender them to it for cancellation. In this situation of things Edwards appealed to Harper, Saunders, and Lynn to take up these three certificates which he had issued to them and they had indorsed to others, and proposed to secure the amount necessary
But again we must go a step farther. For these parties to secure from this insolvent lumber company this deed of trust, sufficient to consume the sum total of its assets, to secure debts not its own, but personal ones alone of its principal stockholder and manager; debts of his incurred before its corporate birth, not one dollar of which, so far as shown, it derived any benefit of — not only stamps the transaction outside of the saving subdivision “d” of section 67 of the act, but clearly brings it within the scope of subdivision “e” of that section. It must
Coming now to the consideration of the second matter of controversy, the one relating to the claim of the American Wood Working Machinery Company, the material facts may be stated to be these: Edwards, as receiver, without authority, but representing himself to have such, purchased from the American Wood Working Machinery Company $6,000 worth of machinery, which he represented was to be incorporated in a branch plant of the Southern Saw Mills & Lumber Company, to be erected by him under order of court. The contract of sale was a conditional one in writing, whereby title to the property was to remain in the selling company until purchase price fully paid. This contract was signed by Edwards as receiver of the Southern Saw Mills & Lumber Company. A number of checks in part payment were signed and sent by him as such receiver, and it is very clear that the company recognized no other than Edwards as receiver, bound as purchaser; in fact refused to recognize any other. The machinery was in fact, by Edwards, incorporated in and made part of the plant of the Builder’s Lumber Company at Marietta, N. C., instead of in that of the Southern Saw Mills & Lumber Company at Kemper, to which latter point it was shipped. The contract agreement was recorded by the American Wood Working Machinery Company on February 22, 1905. Thirty days before the Builder’s Company was adjudged bankrupt the American Wood Working Machinery Company, in an action instituted in a state court, replevied and took -nominal possession of the machinery, but, under protest, it suffered it subsequently to be sold by the trustee in bankruptcy. It is further insisted that the Builder’s Company in fact paid $4,000 of the purchase price to the American Wood Working Machinery Company under this contract with the Southern Company, although this is doubtful. Under these circumstances the court below reached the conclusion that the American Wood Working Machinery Company was not entitled in law to a lien upon the specific property set forth in the conditional sale contract because the machinery had become fixture to Builder’s Company’s plant, because the latter had paid $4,000 thereon, and because said contract with the Southern Company although dated June 23, 1903, was not recorded until February 22, 1905. The court further held that the
The question therefore resolves itself into the inquiry of whether the Builder’s Company itself as assignee or purchaser is protected by this statute. It is now well settled that a conditional sale, independent of statute and not assailable for fraud, is valid, and a purchaser who has chattel property delivered to him under the condition that title to him shall not pass until payment is made cannot convey title to it or subject it to execution for his debt. In Harkness v. Russell, 118 U. S. 663, 7 Sup. Ct. 51, 30 L. Ed. 285, the effect of these conditional sales with delivery of property is fully discussed, and the state of the law in many states pointed out. From this case we may safely conclude, first, that these state statutes, requiring registration of conditional sale contracts, were largely called into existence, so far as purchases from the vendee are concerned, to protect innocent purchasers pf the subject-matter from what otherwise would be the superior right of property still remaining in the contractor; and, second, that this protection was solely designed to the extent only of giving notice of such superior right to prospective purchasers. In other words, to subordinate that superior right only when such purchaser was innocently ignorant of its existence. It therefore logically follows that the recordation itself is not essential, provided knowledge of this superior right is otherwise brought home to the prospective purchaser. Mr. Justice Bradley in Harkness v. Russell concludes the discussion by saying:
“But whatever the law may be In regard to a bona fide purchaser from the vendee in a conditional sale, there is a circumstance in the present case which makes it clear of all difficulty. The appellant in the present case was not a bona fide purchaser without notice. The court below finds that at the time of and prior to the sale he knew that purchase price of the property had not been paid, and that Russell & Co. claimed title thereto until such pay*806 ment was made. Under such, circumstances, it is almost the unanimous opinion of all the courts that he cannot hold the property as against the true owners.”
And we understand the rulings of the Supreme Court of North Carolina on this question to be in accord with these views. In Brem & McDowell v. Bockart, 93 N. C. 191 — 195, the court in applying its statute to a case similar to this says:
“The contract, the effect of which is now in dispute, has never been admitted to registration, and as the defendant is an assignee for a valuable consideration and without notice of the contract of sale, his title must prevail.”
Herein, as we understand it, is a recognition of the principles that “a defendant with notice of the contract of sale, although not registered, cannot prevail.”
See, also, York Mfg. Co. v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782.
Applying these principles to this case it is very clear that the Builder’s Dumber Company cannot be held to be an innocent purchaser of this machinery without notice of the conditional contract under which it was purchased. Edwards, as receiver, purchased it for the Southern Company. Edwards, as such receiver, sold or turned it over to Edwards, the vice president and general manager of the Builder’s Company. It was Edwards as such managing officer who caused it to be incorporated in the Builder’s Company’s plant; and it was Edwards as receiver and vice president and manager who made the payments. In all these transactions it was the same man Edwards contracting, selling, and buying. Nor can the claim be denied on the ground that Edwards, as receiver, had no authority as such to purchase this machinery. While this could be complained of only by those interested in the Southern Company, nevertheless, conceding such lack of authority, the contract in such case would be held to be his individual contract, and his transfer to the Builder’s Company would be none the less with notice of the contract. Finally, the view that this machinery must not be paid for because it became fixture to the plant cannot avail. If it became so fixed it was by reason of the Builder’s Company’s acts, and no one is permitted to plead his own wrong to defeat another’s right.
As to the third and last matter of controversy in regard to the integrity of the debts of the United Dumber Company little need be said. The whole question is whether these debts were paid by the issuance of certain stock of the Builder’s Company to the United Dumber Company, or whether such stock was simply issued and deposited with the United Dumber Company as collateral to secure these debts. The question is solely one of fact, and the evidence is conflicting. There is no question about the original justness of the debts nor of the fact that the stock is, and was, wholly worthless. The court below held the debts valid, and that the stock was issued only as collateral. With this view we concur. It therefore follows that we affirm the rulings of the court below1 as to the first and third matters of controversy hereinbefore set forth, and reverse its ruling^ as to the second. The cause will therefore be sent back with directions to
Concurrence Opinion
I concur in the opinion of the court in so far as it relates to the claims of the American Wood Working Machinery Company and the United Lumber Company. However, I feel constrained to dissent from the opinion of the court in regard to the claim of W. H. Saunders, R. H. Lynn, and R. N. Plarper.
Dissenting Opinion
Plaving dissented when the opinion was filed in this case as to the claim of W. H. Saunders, R. H. Lynn, and R. N. Harper, and now, after a careful consideration of the petition presented for a rehearing, I am of opinion that the rehearing asked for as to this claim should be granted, and I am constrained, therefore, to dissent from that part of the order of the court refusing to grant a rehearing in this case as to this claim.
Rehearing
On Petition for Rehearing.
Rehearing denied.
