137 F. 625 | U.S. Circuit Court for the Southern District of Georgia | 1905
This cause is under consideration for final decree. All of the evidence has been taken and submitted to the court. The contentions of the parties have been fully argued, and the court has taken time for consideration.
The case is a bill brought in equity to enforce the recovery of the price of certain machinery and equipment used in the manufacture of oil from cotton seed. The cost of the machinery, equipment,
The questions involved have not been free from difficulty. The contract is set out in a printed and written order. The blank order was furnished by the Tompkins Company, as is usual with them in such transaction. It was completed and signed by the defendant company, or, more accurately, by the projectors, who v/ere after-wards the incorporators. Of the responsibility of these parties, in case liability is established, .there is no question. The order is in 'evidence, and its material stipulation will be presently considered;
“Our work is to be considered completed when the mill is set in motion, and each machine is put on its legitimate work. At this time complete settlement must be made for unpaid balances in cash or by notes, as per order sheet.
“The plant will not be delivered over to purchasers until this settlement is completed as above.
“We guarantee all machinery and equipment to be first-class-in material and workmanship, and to work well for the purposes intended, if properly used.
“In case of original defect in any machine or part of machine, we agree to make good the defect by supplying a new machine or new part.”
These are the printed covenants. Another, in writing, and that upon which the controversy practically depends, was added. It is this:
“Mill to be completed ready for operation on Sept. 15th, 1902.”
The contract thus created by the order, the general conditions, and the acceptance will be found to contain no specification creating in behalf of the complainant the statutory lien relied upon. The law of Georgia authorizing or creating such a lien is found in section 2801 of the Code of 1895. This provides:
“All contractors for building factories, furnishing material for the same, or furnishing machinery for the same; and all machinists and manufacturers of machinery, including corporations engaged in such business, who may furnish or put up in any county of this state any steam mill or other machinery, or who may repair the same; and all contractors to build railroads, shall each have a special lien on such real estate, factories or railroads.”
Section 2804 provides:
“To make good the liens specified in section 2801, they must be created and declared in accordance with the following provisions, and on failure of either the lien shall cease, viz.: (1) A substantial compliance by the party claiming the lien with his contract for building, repairing, or improving, or for materials or machinery put up or furnished, as set forth in said section. (2) The recording of his claim of lien within three months after the completion of the work, or within three months after such material or machinery is furnished.”
Now it is insisted for the defendants that there was no such substantial compliance with its contract by the complainant as would make good this/lien. This contention, in our opinion, is supported by the evidence. It is plain that time was of the essence of this contract. As we have seen, it was expressly contracted in writing that the mill should be completed on the 15th day of September, but this was not done. The machinery was installed imperfectly not until the 6th of November, and even then was operated by the skilled workmen of the complainants until the 8th of December, when the machinery was so sufficiently adjusted that it might be turned over to the defendants. Now the written covenant as to the date of completion was made with a definite purpose. This was to enable the parties who were investing their means in the oilmill to utilize the cotton seed of the current crop year. It indeed ap
The prayer that the contract shall be treated as a conditional sale, in view of all the evidence, must also be denied. It is plain enough that there is on the face of the order an apparent attempt of reservation of title by the complainant. In all such cases, however, the court must look at the entire transaction, and ascertain what was the true intent of the parties. As stated in the very recent work of Isaac on Conditional Sales, par. 13:
“It sometimes becomes difficult to determine whether a particular transaction constitutes a.mortgage or a conditional sale. In such cases the question*629 must be determined by a consideration of the circumstances of the case and the intention of the parties.” Citing 1 Jones on Mortgages, § 258.
The learned author continues:
“In doubtful cases the courts are inclined to construe the transaction as .a mortgage, rather than a conditional contract of sale, for the reason that an error which converts a conditional contract of sale into a mortgage is less harmful than one which converts a mortgage into a conditional sale. Pioneer Gold Mining Co. v. Baker (C. C.) 23 Fed. 258; Dunbar v. Rawles, 92 Am. Dec. 311.”
This view finds strong support in the case of Herryford v. Davis, 102 U. S. 246, 26 L. Ed. 160. There the question was whether the contract constituted a mortgage or conditional sale. “What, then,” said Mr. Justice Strong, for the court, “is the true construction of the contract? The answer to this question is not to be found in any name which the parties may have given to the instrument, and not alone in any particular provision it contains, disconnected from all the language they have used. It is the legal effect of the whole which is to be sought for. The form of the instrument is of little account.” After reciting the provisions of the contract, the learned justice continues :
“In view of these provisions, we can come to no other conclusion than that it was the intention of the parties, manifested by the agreement, the ownership of the cars should pass at once to the railroad company, in consideration of their becoming debtors for the price. Notwithstanding the efforts to cover up the real nature of the-contract, its substance was an hypothecation of the cars to secure a debt due to the vendors for the price of a sale. The railroad company was not accorded an option to buy or not. They were bound to pay the price, either by paying their notes, or surrendering the property to be sold in order to make payment. This was in no sense a conditional sale. This giving the property as a security for the payment of a debt is the very essence of a mortgage, which has no existence in a case of conditional sale.”
When we look at the intention of the parties in the case before the court, it is apparent that, notwithstanding the verbal reservation of title in the order, neither anticipated that the reservation should be made effective as such. If, however, the contract be held to constitute originally a conditional sale, with the express right of recaption in the vendor, the court would not now, under all the circumstances of this case, permit the destruction of the mill of the defendant company, when there is no good reason why this should be done. The company and the incorporators who signed the contract are wholly solvent. There is no averment or pretense to the contrary. The complainant will have no difficulty in enforcing any recovery we may decree. The amount justly due is in fair dispute. It would be unconscionable, therefore, to grant to the complainant an order which would justify a demolition and destruction of the defendants’ solvent and presumably profitable enterprise. It is the duty of a court of equity, under such circumstances, to secure the rights of the complainant with as little injury as possible to the defendants. This, as it will presently appear, may be accomplished by treating the contract upon which the complainant relies not as a lien or a conditional sale, but as an equitable mortgage, not only upon, the machinery sold and furnished, but upon the real estate
Our conclusion that this contract creates, under all the circumstances, an equitable mortgage, depends upon the following material clauses of the order for the machinery:
“It is understood and agreed that the title to the machinery and equipment named shall remain with and be vested in you until the payment in legal currency of all the above amounts.
“Failure to execute notes and deliver same to you, as provided, or to pay any of the above amounts at maturity, shall entitle you to take possession of the machinery and other property named, and sell it by private or public-sale, after thirty days’ advertising, and without process of law, and retain and balance that may be unpaid on all notes, together with interest, traveling expenses, attorney’s and other fees, connected with collection, and pay us any surplus and collect from us any deficiency.”
Here, as stated, the title is apparently reserved. This is done, however, not for the purpose of giving the complainant absolute control over the machinery and equipment in case default inpayment shall be made, but merely to secure the amount of its claim. It is true that complainant, on such default, is entitled to take possession of the machinery and other property named. There is, however, no independent and absolute right to hold or dispose of such property. On the contrary, the complainant is expressly obliged to sell it at private or public sale after 30 days’ advertising. It is also authorized to retain any balance that may be due on all notes, together with interest, traveling expenses, attorney’s fees, and other fees connected with collection. This imports, of course, any balance which may remain after the proceeds of such sale are credited upon the notes. Even more significant is the stipulation that the complainant is obliged to “pay us” (the defendants) any surplus: This is also characteristic of a mortgage rather than of a conditional sale. If, however, there is not enough of the proceeds of the machinery to pay the debt, by the same clause complainant is given the right to collect the deficiency from the defendants. All of these features are characteristic of a mortgage rather than a conditional sale. We conclude, as between the parties to the contract itself, the rights of no third person having intervened, that this is nothing more or less than an equitable mortgage. This view seems fully sustained by the Supreme Court in Chicago Railway Equipment Co. v. Merchants’ Bank, 136 U. S. 268, 10 Sup. Ct. 999, 34 L. Ed. 349. There the instrument in question was a note. It contained this stipulation:
“On the failure of the maker to pay the principal and interest of any one of the notes of said series, and all of said notes are given for the purchase pric-e of two hundred and fifty railway freight cars manufactured by the payee hereof and sold by said payee to the maker hereof, which cars are numbered from 13,000 to 13,249 inclusive, and marked on the side thereof with the words-*631 and ¡fitters, ‘Blue Line, C. & E. I. R. Go.,’ and it is agreed by the maker hereof that the title to said ears shall remain in the said payee until all the notes of said series, both principal and the interest are fully paid, all of said notes being equally and ratably secured on said cars.”
It was held that the title was retained only by way of security for the payment of the notes, and the agreement for the retention for that purpose was a short form of a chattel mortgage. Said Mr. Justice Harlan, for the court:
“The transaction is, in legal effect, what it would have been if the maker, who purchased the cars, had given a mortgage back to the payee, securing the notes on the property until they were all fully paid.”
This view would seem to meet and to provide for all the equities of the parties. It accords to the complainant a lien as good as another for the amount it is actually entitled to recover. It will afford equal opportunity to the defendants to have the amount claimed diminished by the justly ascertained damages which it has actually sustained for breach of contract. It will preserve the integrity of the cotton oil plant, for which the defendants have already paid the complainant $10,000, and subject it to no such destructive process as the removal of its machinery. • Thus no unnecessary injury will result to either party. This construction will, on the one hand, avoid the harsh and drastic enforcement of the alleged lien—a remedy granted in derogation of common right—and, on the other, the great loss to the parties, after their extensive and costly preparation, which would result, should the court be obliged to sustain the motion to dismiss the bill for want of equity. The parties are here with full proofs. There is the proper diversity of citizenship. The jurisdictional amount is also involved. Finding the defense in part, at least, meritorious, the court feels obliged to disallow the claim for attorney’s fees, traveling expenses, and other fees connected with collection. Nothing, then, remains to be done, save to ascertain by how much the complainant’s demand shall be reduced because of the failure on its part to complete the contract by the time and in the manner it engaged to do. This task will be referred to a master, with direction to compute such damages, and to restrict his attention to the evidence upon which the court has passed. On hearing the report of the master, and such proceedings as may be appropriate thereto, the court will grant a decree to enforce the mortgage for the sum ascertained to be due the complainant, and will at the same time determine how the costs shall be apportioned.