In re Bettman-Johnson Co.

• Decision Date: 07 May 1918
• Docket Number: 3096.
• Citation: 250 F. 657
• Parties: In re BETTMAN-JOHNSON CO. Petition of GOLDMAN, SACHS & CO.
• Court: U.S. Court of Appeals — Sixth Circuit

250 F. 657

In re BETTMAN-JOHNSON CO. Petition of GOLDMAN, SACHS & CO.

No. 3096.

United States Court of Appeals, Sixth Circuit.

May 7, 1918

Stricker & Johnson, of Cincinnati, Ohio, and Steinhardt & Goldman, of New York City (Sidney G. Stricker, of Cincinnati, Ohio, of counsel), for appellants.

B. L Heidingsfeld, and Pogue, Hoffheimer, & Pogue, all of Cincinnati, Ohio (Harry M. Hoffheimer, of Cincinnati, Ohio of counsel), for appellee.

Before KNAPPEN and DENISON, Circuit Judges, and SATER, District Judge.

SATER District Judge.

The plaintiffs, Goldman, Sachs & Co., assert by intervention the right, by virtue of the unverified and unfiled trust receipt held by them, to be paid the full purchase price of cherries imported from Italy by the defendant, the Bettman-Johnson Company, now bankrupt, for use in its manufacturing business. The referee, Charles T. Greve, in an exhaustive and learned opinion, denied their claimed right to priority of payment and ruled that, in view of the broad scope of the Ohio conditional sales act (section 8568, Ohio General Code) their position is that of a general creditor only.

The case is here on a challenge to the correctness of the judgment of the District Court affirming the referee.

The defendant, desiring cherries in brine for its manufacturing business, obtained, on April 24, 1913, from the plaintiffs a letter of credit, by the terms of which the defendant's agent was authorized to draw on their correspondent bank at Naples, Italy, on account of the defendant, for any sum or sums not exceeding in all 100,000 lire, for cherries to be shipped in bond to Cincinnati. The bill of lading was to be issued to the order of and forwarded to the plaintiffs along with the consular invoice, pure food certificate, and marine insurance to be effected by the defendant. All drafts, the remaining bills of lading, abstracts of invoices, and weigher's certificates were to be presented to the drawee. The plaintiffs obligated themselves to honor, when presented by the drawee, all such bills, drawn in compliance with the terms of the letter of credit.

In consideration of the issuance of such letter of credit, the defendant accepted, at Cincinnati, Ohio, all of its terms and conditions, and, to meet the bills that might be drawn thereunder and the plaintiffs' commission of three-fourths of 1 per cent., bound itself to furnish plaintiffs, prior to the maturity of such bills, satisfactory demand bills of exchange or to pay the equivalent in cash. It further gave a specific claim and lien on all policies of insurance, bills of lading, and goods purchased, as well as on the proceeds thereof, on account of which the plaintiffs or their correspondent bank became liable, with full power and authority to take possession and dispose of the same. In case the defendant should fail to provide for the payment of any draft or drafts made under the letter of credit, the balance of the credit unused should immediately become due and payable, and with all unpaid drafts should thereafter, until paid beef interest at the rate of 6 per cent. per annum. All securities deposited by the defendant under the agreement were to be held and applied by plaintiffs on any of the defendant's existing or future indebtedness or liability. It was further agreed that neither the plaintiffs nor their correspondent should be held responsible for delay, or deviation from instructions, or any loss due to any difference in the quality or character of the goods shipped from what was stipulated and expressed in the invoice, or bills of lading, or other instruments relating to the drafts, or for the correctness or genuineness of documents representing shipments, or signatures thereto.

In June, 1913, the defendant purchased in Italy through its agent, and shipped in bond to Cincinnati to the order of the plaintiffs, 373 barrels of cherries in brine, in payment for which the agent gave a four-months draft on the Naples bank, which draft was by such bank duly accepted. The bills of lading were made to the order of the plaintiffs, to whom the cherries were shipped, and to whom one bill of lading, with a consular invoice and pure food certificate, were forwarded. The remaining bills of lading, with abstracts of invoices and weigher's certificates, were attached to the draft. Marine insurance, with loss payable to the plaintiffs, was effected by the defendant. On or about June 20 the plaintiffs indorsed and surrendered to the defendant the bill of lading covering the cherries, at which time the plaintiffs delivered and the defendant received them. As a part of the same transaction the defendant executed and delivered to plaintiffs at Cincinnati a trust receipt, of which the following is a copy:

Received from Goldman, Sachs & Co. the goods and merchandise, their property, specified in the bill of lading per S. S. Venesia dated Naples, June 4, 1913, which goods and merchandise are marked and numbered as follows:

B.J.C. 1/373.

373 Barrels of Cherries in Brine

-- and in consideration thereof I (we) hereby agree to hold said goods and merchandise in trust for them and as their property, with liberty to sell the same for their account or to manufacture and remanufacture the same without cost or expense to them and I (we) also agree to keep said goods and merchandise and the manufactured product and proceeds thereof, whether in the form of money or bills receivable separate and capable of identification as their property, and to hand the proceeds to them to apply against the acceptance of Banca Commerciale Italiana, Naples, on my (our) account under the terms of letter of credit No. 3130, issued for my (our) account and for the payment of any other indebtedness of mine (ours) to Goldman, Sachs & Co. or to Banca Commerciale Italian, Naples.

Goldman, Sachs & Co. may at any time cancel this trust and resume possession of said goods and merchandise, or the manufactured product or of the proceeds of such of the same as may have been sold, wherever the said goods or merchandise or said proceeds may then be found, and in the event of any suspension, proceedings in bankruptcy, failure or assignment, for benefit of creditors on my (our) part, or of the nonfulfillment of any obligation or of the nonpayment at maturity of any acceptance made by me (us) under said credit or under any other credit issued by Goldman, Sachs & Co. or Banca Commerciale Italiana, Naples, on my (our) account, or of any indebtedness on my (our) part to either of them, all obligations, acceptances and liabilities whatsoever shall thereupon (with or without notice) at once, at their option, mature and become due and payable.

I (we) agree, at my (our) expense, to keep the said goods and merchandise and the manufactured product thereof, while in my (our) possession, fully insured against loss by fire, to make the loss, if any, payable to Goldman, Sachs & Co. and to hand the policies of insurance to them; and the insurance money received for any loss shall be subjected to the trust herein contained in the same manner as the goods and merchandise themselves.

Cincinnati, June 20th, 1913.

(Signed) The Bettman-Johnson Co., A. Seasongood, Vice-Pres.

The plaintiffs did not verify and file the trust receipt, or other instrument relating to the transaction, in the office of the recorder of the county in which Cincinnati is situated and in which the defendant had its residence and principal place of business. The cherries, after their arrival at Cincinnati and until after the commencement of the bankruptcy proceedings against the defendant, remained in its possession or that of the receiver appointed for it by the state court on July 17, 1913. The receiver refused a demand made on him by the plaintiffs for the surrender of the cherries. On August 16 a petition in bankruptcy was filed against the defendant. The present trustee was named as receiver and took possession of all the bankrupt's property. The plaintiffs thereupon demanded of such receiver the cherries still remaining in their original packages, the manufactured product of such as had been prepared for marketing, and the proceeds of such, if any, as had been sold. Refusal of the demand followed, and the processing and sale of the cherries, which had proceeded under both receivers, continued. At the time the receiver appointed by the state court took possession, practically all of the cherries were capable of identification, either as originally received or as a partially manufactured product. The situation in this respect had not materially changed when the proceedings in bankruptcy were commenced. The plaintiffs made a third demand, similar to that last mentioned, and further requested that, pending the delivery of the goods, the receiver keep them and the manufactured product and the proceeds thereof separate from other goods and capable of identification and deliver to them the proceeds to apply against the acceptance by the Naples bank drawn by the defendant against the bill of lading covering the cherries, which draft represented, in so far as the record indicates, plaintiffs' only advancement for defendant and its entire indebtedness to them, and was paid by them, in pursuance of their guaranty, on September 23. An agreement was thereupon made between the receiver and the plaintiffs whereby $7,000 were set apart to cover the cost of the cherries ($6,343.60), with interest and costs, which fund was to be applied in satisfaction of plaintiffs' claim in full, should it ultimately be determined that they were thus entitled, and was derived from the sale of the general mass of cherries with which the contents of the 373 barrels were commingled by the receivers after the respective demands upon them by the plaintiffs had been made, but...