3 F.2d 375 (2nd Cir. 1924), 18, In re Klein

Docket Nº:18.
Citation:3 F.2d 375
Party Name:In re KLEIN. v. CLARK. KAPLAN et al.
Case Date:November 03, 1924
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 375

3 F.2d 375 (2nd Cir. 1924)

In re KLEIN.

KAPLAN et al.



No. 18.

United States Court of Appeals, Second Circuit.

November 3, 1924

Page 376

I. Gainsburg, of New York City (Harold R. Medina, Joseph Segal, and Leander I. Shelley, all of New York City, of counsel), for petitioners.

Isaac Steinhaus, of New York City, for respondent.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

MANTON, Circuit Judge.

Walter Klein, a dealer in suits and cloaks, was adjudged a bankrupt on an involuntary petition filed November 12, 1921. The petitioners were wholesale dealers of cloaks and suits, and delivered certain garments to the bankrupt pursuant to an agreement entered into on August 31, 1921. The petitioners assert these goods were delivered on consignment, whereas the trustee declares that there was a sale of the goods, and that the petitioners must share their loss with the other creditors. About August 31, 1921, the bankrupt called at the petitioners' place of business and stated that he desired to purchase cloaks and suits. Their sales manager refused to sell, but suggested that the petitioners might be willing to let him have them on consignment, and that this could only be done after the credit department of the firm approved. After some negotiations an agreement was entered into whereby it was provided that the petitioners would deliver 'on memorandum or consignment' such goods as might be thereafter agreed upon. It reserved the right to demand the return of the merchandise consigned upon Monday of any week, and, in case the bankrupt failed to return it, the petitioners had the option to accept in lieu thereof payment at the rate specified in the invoices which accompanied the goods. Title to the goods was to remain in the petitioners until they exercised their option to accept payment and charge the goods to the bankrupt. The bankrupt agreed to keep a separate consignment or memorandum book of the merchandise, and a separate record of the consigned merchandise disposed of, and a separate account of the moneys received from the consigned merchandise to which the petitioners should have access at any time. It provided that the moneys received by the bankrupt upon the disposal of any of the consigned merchandise was to be held in trust for the petitioners, and to be turned over to them on Monday of each week. In the event of the failure of the bankrupt to turn over to the petitioners either the consigned merchandise or the identical proceeds thereof he was adjudged to be guilty of conversion. The bankrupt agreed to carry insurance upon the consigned merchandise. The invoices accompanying the goods delivered pursuant to the agreement were to indicate that the goods were delivered on consignment only.

The special master reported that certain cloaks and suits were delivered pursuant to this agreement, but denied the right of the petitioners to reclaim the goods for the reason that he held this was a collusive agreement between the parties made and carried out with the exclusive idea of protecting the petitioners in case of bankruptcy so that they would receive an unfair advantage to the detriment of the other creditors. The district judge confirmed this result, holding that to rule otherwise would enable the petitioners

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to obtain a preference over other creditors of the bankrupt.

We think the agreement of August 31, 1921, created a mere bailment, and title to the goods remained in the petitioners. Unless the agreement was made in bad faith for the purpose of defrauding other creditors, the petitioners should succeed in their present application. The effect of similar...

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