In re Wright-Dana Hardware Co., 211 F. 908

In re Wright-Dana Hardware Co.

211 F. 908 | 2d Cir. | 1914

ROGERS, Circuit Judge

(after stating the facts as above).’ The question which is involved in this case depends upon whether the paint which the Warren Paint Company shipped to the Wright-Dana Hardware Company became the property of the latter or continued to be the property of the former. If it remained the property of the paint company, as the court below held it did, then that company had a right to the possession of its property and no preference was obtained over other creditors. But, if the title was vested in the hardware company, it is evident that the paint company obtained a preference under the Bankuptcy Act when it was allowed to take into its possession a portion of the stock on the day the hardware company was adjudicated a bankrupt, and that its claim should have been disallowed until its preference was surrendered.

[1] An examination of the record convinces us that the title to the paint which the paint company shipped to the hardware company was not vested in the bankrupt, but remained in the paint company. It appears that, undjpr the agreement between the two companies, the paint company, from time to time consigned a stock of its paints to the hardware company; the former company paying the freight on goods so shipped. The paints, while in the possession of the hardware company, were kept insured by the paint company, down to the time of the bankruptcy. Both the paint company and the hardware company had the right to sell from the stock of paint thus carried, but the price at which sales could be made was fixed by the paint company. If prices rose during the year, the price at which the paint could be sold out of the consigned stock was advanced by the paint company. If prices declined, then the paint company reduced the price at which the hardware company could sell. When the hardware company took inventories of its. own assets, it never included the stock of consigned paint. The hardware company at the close of a year (for the arrangement between the companies extended over a series of years) ascertained from the inventory of the year before the amount of paint it then had on hand. To this it would add the amount of paint shipped to it by the paint company during the year. It would then deduct the amount of paint sold during the year out of the stock to its cus*911tomers by the paint company as well as the amount shown to be still on hand by the inventory then taken. The difference disclosed what goods the hardware company had sold during the year, and for these goods the paint company was paid, less the 10 per cent, commission which it was allowed on its sales. For goods sold out of the stock by the paint company, the hardware company never received any compensation except a commission of 8 per cent, which was intended to compensate the hardware company for its trouble in packing the goods and shipping them to the persons who had purchased direct from the paint company. As to the sales made by the hardware company, that company was itself responsible to the paint company for the payment by its own customers. The hardware company never paid for any stock of paint it received but only on sales made out of such stock. On June 26, 1911, the paint company wrote the hardware company:

“We regard all of the shipments that have been made to you and all the goods that you retain as being on consignment.”

And'there is nothing in the record to show that the hardware .company at any time understood the matter in a different manner, but much to show that that company understood it in the same way. The facts as disclosed in the record are consistent only with the theory that the title to the paint consigned to the hardware company was retained by the paint company, and that both companies so understood the matter and at all times acted in conformity to that understanding. The paint consigned from time to time was not sold to the hardware company. Indeed, that company refused to buy and never agreed to pay for any part of it except such as it sold, and there is no evidence to justify the theory of a conditional sale. The transaction was a bailment; the bailee being given the privilege of selling to its own customers any part of the stock of paint intrusted to it. But the fact that the hardware company had this privilege did not convert what otherwise would have been a contract of bailment into a contract of sale except as to such portions of the stock as the company actually sold to its customers. See Walter A. Wood Mowing & Reaping Mach. Co. v. Vanstory, 171 Fed. 375, 96 C. C. A. 331.

The claim of the trustee seems to be that as these goods were in the warehouse of the bankrupt at the time of the bankruptcy, and as the bankrupt had the right to make sales from this stock of merchandise, no provision that the title was to remain in the manufacturer, the Warren Paint Company, could be effectual as against the creditors of the hardware company. That would undoubtedly be true if the transaction had been an absolute or even a conditional sale. In re Howland (D. C.) 109 Fed. 869; In re Garcewich, 115 Fed. 87, 53 C. C. A. 510. But in the case at bar, as we have pointed out, the merchandise was not sold either absolutely or conditionally to the hardware company.

[2] As the transaction was simply a bailment, the title continued in the bailor, and inasmuch as the bailee, the bankrupt, never had the title, it is difficult to see how its trustee could get it. The title which the trustee takes is the title which the bankrupt had. It is true that in some respects a trustee’s rights are greater than those of his bank*912rupt. Thus he may set aside fraudulent transfers or liens which the bankrupt himself could not do. But the trustee does not assert any fraud in this case. On the contrary, his counsel admitted in his argument that there had been no fraudulent transfer. There can be no doubt that a trustee in bankruptcy is not entitled to goods in the possession of the bankrupt which have been left simply for repairs, storage, or upon other bailments. Remington on Bankruptcy, vpl. 1, § 1887. “The general rule is that the trustee succeeds to the bankrupt’s title and stands in his shoes and takes the property, in cases unaffected by any fraud of the bankrupt toward creditors, in the same plight and condition in which the bankrupt held it and subject to all equities and rights imposed upon it in the hands of the bankrupt.” Remington on Bankruptcy, vol. 1, § 1144.

[3] It has been held that, where a creditor of a bailee seizes the bailed property, the bailor may recover possession unless the bailor has by his acts estopped himself from asserting his title to the property. Hardy v. Hunt, 11 Cal. 343, 70 Am. Dec. 787; Small v. Hutchins, 19 Me. 255; Bellows v. Denison, 9 N. H. 293; Kings v. Humphreys, 10 Pa. 217; Caldwell v. Cowan, 9 Yerg. (Tenn.) 262; Hart v. Hyde, 5 Vt. 328; 5 Cyc. 208.

[4] It is true that the Bankruptcy Act, § 70, provides that the trustee shall be-vested by operation of law «with the title of 'the bankrupt to “property which prior to the filing of the petition he could by any means have transferred, or which might have been levied upon and sold under judicial process against him.” We do not, however, understand that this clause includes, or was intended to include, property in the hands of a bankrupt bailee or of a bankrupt agent who never had the title but who may have had a right to sell the property for the benefit of his bailor or principal. It is impossible to give the act any such construction. The bailor cannot thus -be divested of his title.

The decree is affirmed, with costs.