In re Eichengreen

• Decision Date: 25 February 1927
• Citation: 18 F.2d 101
• Parties: In re EICHENGREEN et al. RELIANCE SHOE CO. v. MANLY et al.
• Court: U.S. District Court — District of Maryland

18 F.2d 101 (1927)

In re EICHENGREEN et al. RELIANCE SHOE CO. v. MANLY et al.

District Court, D. Maryland.

February 25, 1927.

COPYRIGHT MATERIAL OMITTED

Bartlett, Poe & Claggett, of Baltimore, Md., for Reliance Shoe Co.

Baldwin & Sappington and Louis W. Hollander, all of Baltimore, Md., for receivers.

SOPER, District Judge (after stating the facts as above).

Irving W. Eichengreen and Sigmund M. Adler, as individuals and as copartners trading as Eichengreen & Co., were adjudicated bankrupts on July 17, 1926, and receivers were appointed to take charge of their assets. The copartners (hereinafter called the dealers) had been engaged in the wholesale and retail shoe business, with stores in Baltimore, Md., and York, Pa. On July 23, 1926, the Reliance Shoe Company (hereinafter called the manufacturer) filed a petition in the bankruptcy case praying for an order directing the receivers to deliver to it 3,639 pairs of shoes, of the invoice value of approximately $12,130, found in the bankrupts' stores. This merchandise was delivered by the manufacturer to the dealers under the terms of an agreement of March 3, 1926, between the parties, which the manufacturer contends was a contract of consignment for sale. The receivers admit the execution of the agreement in connection with a supplemental agreement of March 22, 1926, whereby it was provided that the contract should not be recorded unless the dealers should become insolvent. The receivers, however, contend that these instruments did not constitute a contract of consignment, but a contract of sale, which, in order to secure the payment of the purchase money, was intended to be either a conditional sale, with reservation of title by the vendor, or an absolute sale with a vendor's lien on the property.

If it be a sale, it is not necessary to determine whether it is conditional or absolute since the contract was not recorded as provided by article 21, § 55, of the Annotated Code of Maryland. The statute declares that every contract for the sale of goods and chattels, wherein the title thereof, or a lien thereon, is reserved until the same be paid in whole or in part, and possession is to be delivered to the vendee, shall, in respect to such reservation, be void as to third persons without notice until such contract be recorded. The Court of Appeals of Maryland in Roberts & Co. v. Robinson, 141 Md. 41, 118 A. 198, has decided that a trustee in bankruptcy may oppose the reservation of a title in such an unrecorded contract on behalf of creditors without notice.

The question for consideration, therefore, is whether the contract is one of sale or of consignment for sale. The provisions of the contract are not entirely consistent with either theory. As tending to show that it is a contract of consignment, it is noteworthy that it expressly declares that the dealers shall act as "consignees, factors, or agents for the sale" of merchandise, and that no right, title, or interest in the goods shall be vested in them. They agree to keep and forward weekly to the manufacturer a correct list of the merchandise on hand and sales, and to account weekly for all merchandise sold. They agree neither to remove nor to sell any merchandise from their stores, except in the usual and ordinary course of business, and to insure all merchandise to its full value in the manufacturer's name, and in the event of loss, to pay to the manufacturer the proceeds of insurance up to the invoice value of the merchandise, less 7 per cent. They further agree that the manufacturer shall have the right at reasonable times to enter their stores for the purpose of examining merchandise and verifying accounts, and to repossess unsold goods in case of the termination of the agreement, or of the bankruptcy of the dealers. Finally they agree not to interfere with or prevent the manufacturer from recovering the goods when it so desires to do.

On the other hand, the manufacturer agrees to ship merchandise as ordered by the dealers, who have the right to return any shoes not ordered, and to cancel any order not shipped within 5 days. The compensation of the dealers is the amount by which the proceeds of their sales exceed the invoice price, less 7 per cent. If the dealers return any merchandise without cause, the manufacturer may sell it at private sale, without notice, and charge the dealers with the difference between the proceeds of sale and the invoice price. The dealers guarantee the payment of all goods sold by them on credit, and agree to pay all uncollected accounts within 75 days from the date of sale. Upon the termination of the agreement, the dealers agree at the option of the manufacturer to accept all merchandise previously ordered but not shipped. A liquidating period of 3 months after notice of termination is provided during which the dealers may sell the merchandise already ordered or on hand in the usual course of business and make weekly remittances and accounts, and at the end of the period the manufacturer has the right to repossess and sell the unsold merchandise, and, if sold for less than the invoice price less 7 per cent., the dealers agree to make up the difference. There is a similar provision of repossession and sale in case of bankruptcy. Moreover, the dealers agree that they will pay the manufacturer in any event for all merchandise ordered and received by them and remaining unsold 3 months from the date of shipment. While the terminology of some of the provisions last mentioned is not usually found in agreements of sale, yet practically the burdens imposed and the benefits conferred thereby upon the parties resemble very closely the rights and obligations of vendor and vendee. Bearing in mind that the terms of the instrument do not fully support either contention, it is necessary to ascertain and give effect to the dominant thought, regardless of formal statement, for the true nature of the transaction depends less on the terms in which it is described than upon the rights and liabilities which it creates.

The characteristic of a bailment, which differentiates it from a sale, is that a bailment contemplates no transfer of ownership to the bailee. When the identical article is to be returned in the same or in some altered form, the contract is one of bailment, and the title to the property is not changed. On the other hand, when there is no obligation to return the specific article, and the receiver is at liberty to return another thing of value, he ordinarily becomes a debtor to make the return, the title to the property is changed, and the transaction is a sale. Williston on Sales, § 92; Sturm v. Boker, 150 U. S. 312, 14 S. Ct. 99, 37 L. Ed. 1093. "An agreed price, a vendor, a vendee, an agreement of the former to sell for the agreed price, and an agreement of the latter to buy for and to pay the agreed price are essential elements of a contract of sale. * * * The power to require the restoration of the subject of the agreement is an indelible incident of a contract of bailment." In re Columbus Buggy Co. (C. C. A.) 143 F. 859. "The test would seem to be: Has the sender the right to compel a return of the thing sent, or has the receiver the option to pay for the thing in money?" In re Galt (C. C. A.) 120 F. 64, 68.

However, it should be borne in mind, as indicated in Sturm v. Boker and In re Galt, supra, that the ordinary or common-law liabilities of a bailee may be enlarged, without destroying the essential character of the contract. Consequently too much emphasis should not be put on certain of the provisions suggested above as indicating a sale rather than a consignment. Thus the fact that the contract provides that the receiver of the goods may fix the selling price and may retain the difference between it and a price fixed by agreement to recompense him for insurance, storage, expenses and commissions, does not constitute the contract an agreement...