Taylor v. Fram, No. 142

No. 142 | 2d Cir. | Jun 7, 1918

ROGERS, Circuit Judge

(after stating the facts as above). The question which this appeal presents makes it necessary for this court to determine what the exact relationship was that existed between the bankrupt and the defendants at the time Charles Epstein was adjudicated a bankrupt. If Epstein was the agent of the defendants, he was a bailee of the. goods of the defendants, and the latter had a right i-to receive them back from him, in the manner they did. In that event we should be obliged to hold that the court below committed reversible error. If, on the other hand, the real relationship was that of vendor and vendee, the bankrupt being in reality a vendee, and not a bailee of defendants, no error was committed, and the decree must be affirmed.

[1] The general rule, of course, is that where a person receives property which he is not bound to return in the identical form in which he receives it, but may account therefor in money or other property or thing of value, the transaction amounts to a sale, and not to a bailment. But this rule is not applicable to consignments for sale;' the law being that the owner of a chattel may consign it or deliver it to an agent for sale without creating the relation of vendor and vendee between the parties. In re Smith (D. C.) 192 F. 574" court="D. Maryland" date_filed="1911-11-15" href="https://app.midpage.ai/document/in-re-smith-8781367?utm_source=webapp" opinion_id="8781367">192 Fed. 574; 6 C. J. 1091. In a sale title passes to the buyer, while in an agency or bailment title remains in the principal or bailor, although possession is transferred to the agent or bailee.

[2, 3] The defendants insist that they were bailors, and not vendors, and they rely upon Ludvigh v. American Woolen Co. of New York, 231 U.S. 522" court="SCOTUS" date_filed="1913-12-15" href="https://app.midpage.ai/document/ludvigh-v-american-woolen-co-of-ny-98023?utm_source=webapp" opinion_id="98023">231 U. S. 522, 34 Sup. Ct. 161, 58 L. Ed. 345" court="SCOTUS" date_filed="1913-12-15" href="https://app.midpage.ai/document/ludvigh-v-american-woolen-co-of-ny-98023?utm_source=webapp" opinion_id="98023">58 L. Ed. 345. That case holds that a contract under which goods are delivered by one party to another, to be sold, by the latter and proceeds paid to the former, less an agreed discount, the unsold goods to be returned to the consignor, is a contract of bailment only, and the consignor can, in the absence of fraud, take them back in case of the consignee’s bankruptcy. That case was an affirmance of the decision which this court made in the same case. 188 F. 30" court="2d Cir." date_filed="1911-05-08" href="https://app.midpage.ai/document/ludvigh-v-american-woolen-co-8779502?utm_source=webapp" opinion_id="8779502">188 Fed. 30, 110 C. C. A. 180.

If. the agreement into which the bankrupt and defendants in the case at bar entered on May 27, 1915, and upon which they rely, was made in good’ faith, and if the business was carried on in accordance with it, there is, of course, ho doubt that this case would be governed by the rule announced in Ludvigh v. American Woolen Co., supra, and the decree entered below would have to be reversed. The agreement of May 27th seems to have been drawn skillfully and with the terms of the agreement in the Ludvigh v. American Woolen Co. Case in mind. It provides (1) that all merchandise delivered to the bankrupt shall, at all times, be the property of the defendant; (2) that he shall sell the merchandise at retail as their agent, and in that capacity only; (3) that the price for the merchandise shall be designated on certain signed statements, and memorandum bills; (4) that the bankrupt shall not sell for less than the amount therein stipulated; (5) that any excess retained shall not be retained by the bankrupt for his services; (6) that the bankrupt shall account for all the moneys received by him weekly and pay over same to the defendants; (7) that the defendants shall be at liberty at all times to demand the return of the merchandise on hand; (8) that nothing in said agreement shall be construed as vesting any title in .the bankrupt; (9) that nothing in said agreement shall be changed or altered unless it be in writing; (10) that all business relations between the bankrupt and the defendants shall be governed absolutely and entirely by the provisions in said agreement contained.

There are numerous cases which may be cited to show that such an agreement creates a bailment, and not a sale, and that the bailor is at liberty at any time to retake his merchandise, irrespective of whether bankruptcy proceedings intervene or whether the debtor is solvent or not. All this we concede, and no> citation of authorities is necessary. But the above doctrine only applies where the agreement is entered into in good faith, and without intent to hinder, delay, or defraud creditors. In the Eudvigh Case all the courts agreed that there was no actual fraud in the transaction. In the case at bar the District Judge was convinced that there was a lack of good faith in the making of the original contract. lie also found that the business was not carried on in accordance with the agreement, and that the consignor had so acted upon the breach as to show, with respect to future consignments, that title passed in the transactions and that they were sales and not bailments.

The District Judge in his opinion attached importance to the fact that the bankrupt did nol advertise himself as an agent, nor have any sign to show that he was selling goods on consignment. We know of no rule of law which makes it incumbent upon one who receives goods upon consignment to sell that he should advertise the fact of his agency to his customers; and wc do not attach any importance to the nondisclosure by the bankrupt that he received the goods in his capacity as an agent Wc nevertheless concur in the conclusion which the District Judge reached that the bankrupt held the title to these goods, and was indebted for the same to the defendants, that he had no right to return the goods to them, and that they must pay to the complainant their value as decreed.

If the bankrupt had given the defendants a mortgage upon the stock in his store, and had been permitted to sell the stock covered by it and to deposit the moneys received in his general account, and use them) to meet his liabilities as if no mortgage existed, instead of paying them over to the mortgagee, we should be obliged to hold that the mortgage was fraudulent as against the trustee in bankruptcy. Southard v. Benner, 72 N.Y. 424" court="NY" date_filed="1878-02-05" href="https://app.midpage.ai/document/southard-v--benner-3631257?utm_source=webapp" opinion_id="3631257">72 N. Y. 424, 429; Haugen v. Hachemeister, 114 N.Y. 566" court="NY" date_filed="1889-06-18" href="https://app.midpage.ai/document/hangen-v--hachemeister-3605306?utm_source=webapp" opinion_id="3605306">114 N. Y. 566, 570, 571, 21 N.E. 1046" court="NY" date_filed="1889-06-18" href="https://app.midpage.ai/document/hangen-v--hachemeister-3605306?utm_source=webapp" opinion_id="3605306">21 N. E. 1046, 5 L. R. A. 137, 11 Am. St. Rep. 691. If that be so as to a mortgage of record, and of which creditors have constructive notice, it should follow a fortiori that an agreement of which creditors have no constructive notice, which reserves title to the consignor, who nevertheless and contrary to its terms permits the consignee to make sales, and deposit the proceeds of sales in his general bank account, and use them for his own purposes, is equally fraudulent as against the trustee.

The nature of the transaction in which these parties engaged is not to be determined from the written agreement which they made, for they did not keep it. It is more important to know what they did than it is to know what they agreed they would do, for the purpose of the writing may well have been to conceal from creditors the real nature of' the transaction. We do not need to concern ourselves about the writing, for we are forced to conclude that it was not made to be kept. No attempt was made to keep it. The bankrupt, who was to make returns each Monday, testifies that he never made a return showing what consigned goods he had sold, or how much of the consignment he still had on hand, and deféndants never demanded .any such statement from him. He failed to live up to his contract of agency from the very beginning, and has acted throughout as a purchaser of the goods consigned to him. This he has done with the full acquiescence of the defendants. Prior to the so-called agreement it is- admitted that the bankrupt and defendants dealt with each other as vendors and ven-dee. After the agreement the bankrupt admits that he fixed the price of the shoes sold. He testifies that he sold them at any price he wanted to, although the paper agreement, provided that he was not to sell for less than the price fixed by the defendants. When he sent defendants any money, he did not accompany it with any statement as to the goods which he had sold, but paid in so much on account. It was his habit to take the daily receipts of all sales made at his store and deposit them in his bank account, which contained the moneys realized from his general sales of defendants’ stock and everybody else’s stock. The bankrupt’s testimony that the cartons received had been marked either by himself or the defendants is contradicted flatly by a dealer, who was selling him goods and carefully examined the boxes, and testified that there were no initials on the front of any of the cartons in any part of the store.

If it be said that what was done was contrary to the agreement, the answer is that the defendants by their conduct permitted the agreement to be ignored. They knew that the bankrupt was not accounting to them on the Monday of each and every week for the moneys he had received from the sale of their merchandise. They knew that he was paying them by checks drawn on his general account, and, if they did not know, they certainly took no pains to find out, whether he was using their moneys, which they knew had gone into his general account, in the payment of other claims than theirs. Under the circumstances, we do not think the defendants are in a position to invoke the written agreement as against the trustee. They cannot now come into court to set up that agreement to shield them in the retention of the property which was surrendered into their possession by the bankrupt, who took practically everything of value which the store contained, not overlooking the cash register. The law has no sanction for such a proceeding.

Judgment affirmed.

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