326 F.2d 526 (5th Cir. 1964), 20417, Fowler v. Pennsylvania Tire Co.

Docket Nº:20417.
Citation:326 F.2d 526
Party Name:Leon W. FOWLER, Trustee in Bankruptcy, in the matter of Jeff Martin, Jr., d/b/a Martin's DX, Manly's Associates, Manly's and Martin's Tire & Appliance, Appellant, v. PENNSYLVANIA TIRE COMPANY, Appellee.
Case Date:January 10, 1964
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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326 F.2d 526 (5th Cir. 1964)

Leon W. FOWLER, Trustee in Bankruptcy, in the matter of Jeff Martin, Jr., d/b/a Martin's DX, Manly's Associates, Manly's and Martin's Tire & Appliance, Appellant,



No. 20417.

United States Court of Appeals, Fifth Circuit.

January 10, 1964

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Leon W. Fowler, Tyler, Tex., for appellant.

LeRoy Neal, Gladewater, Tex., Shirley W. Peters, Denton, Tex., for appellee.

Before HUTCHESON and BROWN, Circuit Judges, and SIMPSON, District Judge.

SIMPSON, District Judge.

This is an appeal by the trustee in bankruptcy from a judgment 1 of the District Court reversing an Order 2 of the referee in bankruptcy denying the petition

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for reclamation as filed by the appellee, Pennsylvania Tire Company. The question for decision is whether the agreement by which the appellee delivered its tires to the appellant-bankrupt for resale was a consignment for sale or an absolute sale with a right of return.

On May 27, 1960, Pennsylvania Tire Company and Jeff Martin, Jr. d/b/a Martin's DX, Manly's Associates, Manly's and Martin's Tire & Appliance Co., (hereinafter referred to as Bankrupt), entered into a contract, 3 whereby the former agreed to deliver tires to the latter for

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resale at prices and terms fixed by the latter. This contract was termed a consignment with the title expressly being reserved with the appellee. While

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monthly inventory reports were required, there was no provision for any sort of segregating or earmarking of these tires.

On April 17, 1962, bankrupt filed a voluntary petition in bankruptcy, and on the following day, an order of adjudication was entered. On May 1st, Pennsylvania filed its petition for reclamation of these tires still in bankrupt's possession, asserting that this transaction was a consignment, and therefore, the title to the tires did not pass to the bankrupt and consequently could not pass to the trustee under Sec. 70, sub. c of The Bankruptcy Act (Title 11 U.S.C. § 110, sub. c). 4 The outcome of this litigation depends on a determination of who had title to these tires. In addition to the express reservation of title in the contract, it is necessary for the Court to examine the transaction and, if possible, to ascertain the correct intent of the parties. Texas Farm Products Co. v. Burus Feed Mills, Inc., (C.A.Tex.), 337 S.W.2d 203; Garrett et al. v. International Milling Co., (C.A.Tex.), 223 S.W.2d 67.

First of all, the appellant contends that this agreement amounted to a sale and not a consignment and secondly, that if this was not an absolute sale, then it was at least a conditional sales contract. In support of this second contention, the appellant claims that the parties agreed to be bound by Ohio law, and Ohio law declares that conditional sales contracts are void as to subsequent creditors, unless they are properly recorded. The trustee claims to be in the shoes of a subsequent creditor by virtue of Sec. 70, sub. c, which position we agree with. However, we hold that this agreement created a consignment, and not a sale, so it is not necessary to discuss recordation under Ohio law.

Since this is a bankruptcy case in which the laws of both Texas and Ohio are relied on by the parties, it seems appropriate to discuss briefly the law that is applicable in order that the resulting confusion be obviated. Such a problem poses two questions . Whether the law of one state should control as opposed to that of another state, and whether the Bankruptcy Act should override the state law of the state in which the Court sits?

In the absence of a conflict between the state and bankruptcy laws, the former governs as to questions pertaining to the title to property and to related problems such as defining the nature of a particular transaction. Arnold v. Phillips, 5 Cir., 117 F.2d 497, cert. den. 313 U.S. 583, 61 S.Ct. 1102, 85 L.Ed. 1539; Jaffke v. Dunham, 352 U.S. 280, 77 S.Ct. 307, 1 L.Ed.2d 314; Whitehouse Bros. v. Abbott & Son, (C.A.Tex.) 228 S.W. 599. In the case of In re Tansill, 4 Cir., 17 F.2d 413 at 415, the Court said:

'The nature of the transaction, that is to say, whether for instance, it amounts to a sale or bailment or pledge or mortgage or some other transfer of property, or whether sufficient delivery has been made to pass title, or whether recording or filing of an instrument, be required, and, if so, as to whom it will be void for lack of recording, etc., is to be

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determined by the state law, and the bankruptcy court will take it as so determined.'

As to which state law applies, Kansas City Title Ins. Co. v. Butler (C.A.Tex.), 265 S.W.2d 154, held that in the absence of some specific pleading or invocation of Texas Rules of Civil Procedure, rule 184a, it will be presumed that the law of another state is similar to the law of Texas. In Frederick v. Burg, 148 F.Supp. 673, (W.D.Pa.), plaintiffs brought a damage suit in the Western District of Pennsylvania for injury to their land located in Ohio. When concerned with which state law to apply, the Court stated:

'Inasmuch as plaintiffs have been unable to cite any Ohio law or cases to support their position, and in fact no cases from any jurisdiction in support of their position, this Court will assume that the law of Ohio is the same as the law of Pennsylvania, the state in which this Court is sitting.'

In the case at bar, appellants have failed to cite any cases or statutory law of Ohio which would necessitate a different result than arrived at under Texas law. Texas has a statutory provision for the recording of conditional sales contracts, 5 but there is no corresponding requirement that consignments be likewise recorded. Therefore, it will be presumed that the law of Ohio does not require recording of consignment contracts, and consequently, it becomes immaterial which state law is applicable.

Turning to the controlling issue in this case of whether the transaction was a consignment for sale or a sale with the right of return, the trustee persistently contends that nowithstanding the express language in the contract-- that the title is reserved with Pennsylvania Tire Company-- the agreement is a sale with the right to return any of the tires which the bankrupt does not sell. The basis for this contention is that subsequent to the contract, the actions of the parties indicated that they were treating the tires as belonging outright to the bankrupt. The trustee takes the position that the conduct of the parties finally determines the position of the parties with reference to their intentions, citing Goodyear Tire & Rubber Co. v. Orebaugh, 6 Cir., 79 F.2d 738, to support his argument. But the facts there are distinguishable, which difference results in the application of another principle of law. In the above case, the manufacturer sold tires to the bankrupt, and having some doubt as to the latter's financial ability, attempted to take back title through the issuance of credit memoranda. The bankrupt never gave up possession of the tires and failed to earmark them as the property of Goodyear. The Court held that as to third parties, the transaction was ineffective to divest the bankrupt of his title to the tires. In the instant case, title never passed to the bankrupt by the terms of the agreement, so there is no need to decide whether there occurred sufficient later acts to divest the bankrupt of his title. There is language in the case of Matter of Klein, 2 Cir., 3 F.2d 375, to the effect that a test of the good faith of an agreement purporting to be a consignment for sale is to ascertain whether the parties adhered to the agreement and performed its terms or ignored it and, in violation of its terms, treated deliveries of goods as actual sales. The force of this language relates to discovering the intentions of the parties as to whether they actually intended to effect a consignment or whether the arrangement was only a cloak intended to conceal an actual sale. There is no question here of any bad faith or collusive dealings between the parties which could result in detriment to third parties.

As to determining the intent of the parties, the prevailing view is that

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it will be determined solely by the words employed in the written instrument, where the meaning of such instrument is clear and unambiguous. Garrett et al v. International Milling Co., (C.A.Tex.), 223 S.W.2d 67; Edgewood Shoe Factories, Division of General Shoe Corp. v. Stewart, 5 Cir., 107 F.2d 123; Samson Tire & Rubber Co. v. Eggleston, 5 Cir., 45 F.2d 502. But where the contract or agreement is unclear or of doubtful meaning, the Court in interpreting what the parties were called upon to do, may properly consider acts done by the parties in the course of performance. Ross & Sensibaugh v. McLelland, (C.A.Tex.), 262 S .W.2d 205 reh. den.; Samson Tire & Rubber Co. v. Eggleston, supra. The foundation for this latter principle is that a person's construction of his own language constitutes the highest evidence of his intentions. However, this rule is applicable only if the contract is ambiguous or of doubtful meaning; it does not apply to any agreement that is free of ambiguity...

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