Bailey in the Matter of Grant Brothers, Bankrupts, Appt., v. Baker Ice Machine Company

• Decision Date: 29 November 1915
• Docket Number: No. 42,42
• Citation: 36 S.Ct. 50,239 U.S. 268,60 L.Ed. 275
• Parties: J. F. BAILEY, Trustee in Bankruptcy in the Matter of Grant Brothers, Bankrupts, Appt., v. BAKER ICE MACHINE COMPANY
• Court: U.S. Supreme Court

239 U.S. 268

36 S.Ct. 50

60 L.Ed. 275

J. F. BAILEY, Trustee in Bankruptcy in the Matter of Grant Brothers, Bankrupts, Appt.,

v BAKER ICE MACHINE COMPANY.

No. 42.

Argued November 2, 1915.

Decided November 29, 1915.

By a contract in writing, made at Omaha, Nebraska, October 14, 1911, between the Baker Ice Machine Company and Grant Brothers, the former agreed to deliver and install upon the premises of the latter at Horton, Kansas, an ice making and refrigerating machine for the sum of $5,940, to be paid partly in cash and partly in deferred instalments evidenced by interestbearing notes. It was specially stipulated that the title to the machine should be and remain in the Baker Company until full payment of the purchase price; that the machine should not be deemed a fixture to the realty prior to full payment; that in the meantime Grant Brothers should keep the machine in good order and keep it insured for the benefit of the Baker Company; that if default was made in the payment of the purchase price, the Baker Company should have the right to resume possession and take the machine away; and that, in the event this right was exercised, the company should be reimbursed for all expenses incurred under the contract, should be compensated for any damage done to the machine in the meantime, and should be allowed a rental for its use equal to 6 per cent per annum upon the purchase price from the date of the installation to that of the resumption of possession. And it was further stipulated that the Baker Company should have the right to file a mechanics' lien for the materials and labor furnished under the contract, and that no notice of a purpose to file such a lien, other than that afforded by this stipulation, would be required.

The machine was installed in February, 1912, the cash payment was made and notes were given for the balance of the purchase price, all as contemplated by the contract. A partial payment upon two of the notes brought the total payments up to $3,200.14, and nothing more was paid. May 15, 1912, but not before, the contract was filed for record in the county register's office. At that time Grant Brothers were insolvent, and if the contract operated as a transfer of the machine from them to the Baker Company, all the elements of a preferential transfer, in the sense of the bankruptcy act, were present.

July 11, 1912, within four months after such filing, Grant Brothers presented to the district court for the district of Kansas their voluntary petition in bankruptcy, and on the next day were adjudged bankrupts. Possession of the machine, which had remained with them up to that time, was then passed to the trustee in bankruptcy. Shortly thereafter, the balance of the purchase price being due and unpaid, the Baker Company intervened in the bankruptcy proceeding, asserted that it owned the machine and was entitled to the possession in virtue of the contract, and applied for an order directing that the possession be surrendered to it. Upon a hearing before the referee the application was denied, and upon a petition for review his action was sustained by the district court. An appeal to the circuit court of appeals resulted in a reversal of the decree, with a direction that the machine be delivered to the Baker Company unless, within a time to be named, the trustee pay the balance of the purchase price. 126 C. C. A. 425, 568, 209 Fed. 603, 844.

During the pendency of the controversy, as now appears, the machine was sold for $2,800, pursuant to an order of the referee, requested by the parties, whereby the proceeds were to take the place of the machine and be disposed of according to the final decision.

Messrs. Edwin A. Krauthoff, Charles Curtis, W. S. McClintock, and Arthur L. Quant for appellant.

Messrs. H. C. Brome and Clinton Brome for appellee.

Statement by Mr. Justice Van Devanter:

Mr. Justice Van Devanter, after making the foregoing statement, delivered the opinion of the court:

The referee and the courts below held the contract to be one of conditional sale; that is, one making full payment of the purchase price a condition precedent to the passing of title; and this is criticized by the trustee, who insists that the contract was one of absolute sale with a chattel mortgage back, securing the deferred instalments.

In harmony with the prevailing view, the statutes of Kansas and the decisions of the supreme court of the state recognize that there is a real distinction between a conditional sale and an absolute sale with a mortgage back, in that, under the former, the vendor remains the owner, subject to the vendee's right to acquire the title by complying with the stipulated condition, while under the latter the vendee immediately becomes the owner, subject to the lien created by the mortgage. Gen Stat. 1909, §§ 5224-5226, 5232-5234, 5237; Sumner v. McFarlan, 15 Kan. 600; Hallowell v. Milne, 16 Kan. 65; Hall v. Draper, 20 Kan. 137; Standard Implement Co. v. Parlin & O. Co. 51 Kan. 544, 33 Pac. 360; Moline Plow Co. v. Witham, 52 Kan. 185, 34 Pac. 751; Big Four Implement Co. v. Wright, 47 L.R.A.(N.S.) 1223, 125 C. C. A. 577, 207 Fed. 535. In Hall v. Draper, the true effect of a contract of conditional sale was drawn in question, and the court said, speaking through Justice Brewer, afterwards a member of this court: 'The title, and all the rights of control and possession flowing from title, were theirs [the vendors'], except as in terms restricted by the contract. The only limitations upon their full control of the organ were those created by this instrument; and the only rights Leveridge [the vendee] had were those obtained by it. In this respect such a conditional sale differs from an absolute sale with a mortgage back. In such case the vendee has everything except as limited by the terms of the mortgage. Here he has nothing except as expressed in his contract.' True, in Christie v. Scott, 77 Kan. 257, 94 Pac. 214, there is general language which, if taken broadly, makes against this distinction. But, according to a familiar rule (Cohen v. Virginia, 6 Wheat. 264, 399, 5 L. ed. 257, 290; Pacific Exp. Co. v. Foley, 46 Kan. 457, 464, 12 L.R.A. 799, 26 Am. St. Rep. 107, 26 Pac. 665), this language should be regarded as restrained by the circumstances in which it was used. The case did not present a controversy over property conditionally sold, but only the question whether the contract there shown entitled the vendor, after reclaiming the property and crediting the proceeds upon the purchase price, to enforce payment of the balance by the vendee. Without criticizing or referring to cases like Hall v. Draper, the court concluded its discussion of the question by saying: 'Under the contract attached to these notes, we hold that the plaintiff was authorized to take the property and sell it and apply the proceeds toward the payment of the notes, and that by so doing the law does not imply a revocation of the contract of sale, nor does the law imply that there remains no consideration for the payment of the balance due on the notes.' It therefore is plain that we ought not to treat the decision as overruling or qualifying those before mentioned.

In jurisdictions where regard is had for the distinction here indicated between a conditional sale and an absolute sale with a mortgage back, the question whether a particular contract shows one or the other turns upon the ruling intention of the parties as disclosed by the entire contract, and not upon any single provision separately considered. Invoking this test, the trustee contends that this contract was one of absolute sale with a mortgage back, notwithstanding the stipulation that the title should be and remain in the vendor until full payment. The contention does not appear to have support in any decision of the supreme court of Kansas, and in our opinion is not tenable. Requiring the vendee to give notes for the deferred instalments of the purchase price was no incon- sistent with the retention of title in the vendor pending payment of the notes. William W. Bierce v. Hutchins,...