Beckwith Machinery Co. v. Matthews

• Decision Date: 19 March 1948
• Docket Number: 109.
• Citation: Beckwith Machinery Co. v. Matthews, 190 Md. 182, 57 A.2d 796 (Md. 1948)
• Parties: BECKWITH MACHINERY CO. v. MATTHEWS et al.
• Court: Maryland Court of Appeals

57 A.2d 796

190 Md. 182

BECKWITH MACHINERY CO. v. MATTHEWS et al.

No. 109.

Court of Appeals of Maryland

March 19, 1948

Appeal from Circuit Court, Garrett County; George Henderson, Judge.

Petition by Beckwith Machinery Company against Asa T. Matthews and another, receivers of Burnwell Coal Company, to recover machinery leased to the coal company before appointment of receivers. From a decree refusing the relief prayed and dismissing the petition, petitioner appeals.

Decree affirmed.

Walter C. Capper, of Cumberland (William S. Jenkins of Cumberland, on the brief), for appellant.

William C. Walsh, of Cumberland (Walter W. Dawson, of Oakland, on the brief), for appellees.

Before MARBURY, C.J., and DELAPLAINE, COLLINS, GRASON, HENDERSON and MARKELL, JJ.

GRASON Judge.

The Burnwell Coal Company, whose office is located at Grantsville, Garrett County, Maryland, was insolvent and receivers were appointed for it by the Circuit Court for Garrett County, in Equity. Prior thereto it entered into what is called a lease, of certain machinery, with the Beckwith Machinery Company, a corporation. This lease is in writing and was signed by the parties on July 23, 1946. The receivers took possession of this machinery and refused to return it to the corporation. The corporation filed a petition in that proceeding, praying the chancellor to decree that the receivers return the machinery covered by the contract to it. The receivers filed an answer to the petition, testimony was taken, solicitors were heard, and the chancellor filed his opinion, followed by a decree refusing the relief prayed, and dismissing the petition. The corporation appealed.

The so-called lease is captioned: 'Agreement for Rental of Machinery'. The term of rental ran for eight months from July 24, 1946. The total rent to be paid was $4,632, $579 was paid by the company to the corporation at the time the agreement was signed, and it was stipulated that $579 was to be paid on the 24th day of each calendar month until the said amount of $4,632 was paid. The company was engaged in strip-mining and used the machinery in its operations. It was delivered to the company at the corporation's place of business at Pittsburgh, Pennsylvania, and taken by truck to the company's place of business at Grantsville, Garrett County, Maryland. The agreement provides: 'That for and in consideration of the payments, covenants and agreements hereinafter set forth, and subject to the Terms and conditions printed on the reverse side and made part hereof, the Owner hereby leases and rents to the Lessee and Lessee agrees to rent and hire from the Owner * * * the following described machinery: * * * for and during the term of eight months * * * commencing on the 24th day of July 1946, for the total rental of $4,632.00, payable * * * $579.00 on the signing of this agreement, and $579.00 on or before the 24th day of each succeeding calendar month until the whole amount of said rental is paid. Lessee may, at his or its election, extend said term by retaining possession of the above described machinery after the expiration of the period aforesaid; and in such event Lessee agrees to pay to Owner, in the manner aforesaid, additional rental at the rate of $579.00 per month.'

It is further provided that lessee shall preserve said machinery in good operating condition and repair, replacing at its expense any parts that may become broken or worn out, and, at the expiration of the agreement, to return the machinery to the corporation in as good condition as when received, wear and tear excepted. Lessee agreed not to part with possession of the machinery nor to remove same from the State of Maryland nor assign any right thereunder without the written consent of the owner. It was further agreed: 'that at any time on or before the 24th day of March, 1947, Lessee, if Lessee be not then in default under any of the provisions hereof, shall have the right and option to purchase the aforesaid machinery for the total sum of Eight thousand two hundred forty-four dollars and sixty-four cents ($8,244.64); and in the event of Lessee's election so to purchase said machinery, there shall be applied upon the purchase price all installments of rental theretofore paid to Owner by Lessee hereunder. Six (6) per cent interest on the unpaid balance from the time of rental to time of the purchase shall be added to the purchase price.' It is further agreed, among other things, that: 'Lessee shall at Lessee's own expense, but in the name and for the benefit of the Owner, insure said Machinery against loss that may occur or be caused by fire, flood, accident, explosion, theft or otherwise, and liability of any and every kind.'

It is further provided that title in the machinery shall at all times 'be and remain with the Owner unless transferred to the Lessee by separate written instrument.'

It is further provided that the owner may repossess the machinery in case of default by the lessee in any of the terms, agreements, and covenants of the lease, and it may repossess the same if lessee becomes a bankrupt.

It is stated in the appellant's brief: 'There is certainly no case in Maryland tending to hold that a rental agreement with an option to purchase, or a bailment lease with an option to purchase, can ipso facto be converted into a conditional sales contract and rendered void under the Maryland statute.'

Appellant contends that this so-called lease is 'a bailment lease with an option to purchase', and the corporation is not required to record the same under our statute in order to protect itself from subsequent creditors of the company.

The appellees contend that the lease in question is a conditional sales contract, and except as between the parties thereto, or one with notice thereof, is void as to those extending credit to the company after it received the machinery in question, under the provision of Section 71 of Article 21, Code 1939, which is, in part, as follows: 'Every note, sale or contract for the sale of goods and chattels, wherein the title thereto, or a lien thereon, is reserved until the same be paid in whole or in part, or the transfer of title is made to depend upon any condition therein expressed and possession is to be delivered to the vendee, shall, in respect to such reservation and condition, be void as to third parties without notice until such note, sale or contract be in writing, signed by the vendee, and be recorded.'

The agreement here concerned was not recorded in Garrett County, Maryland, and, as far as the evidence shows, it was not recorded anywhere. There is no question that the company was given credit by various merchants after the machinery was received and used by the company in its business located in Garrett County, Maryland. The question in this case is whether the agreement in question is a conditional sales contract. If it is, then the chancellor's ruling was right. If it is not such a contract, the ruling was wrong.

A conditional sales contract, wherein title to the article sold is reserved by the vendor, and possession thereof given the vendee, must be recorded, if the vendor wishes to protect himself from subsequent creditors of the vendee. The section of the Code referred to so requires, and this court has so decided. Meyer Motor Car Co., Inc., v. First Nat. Bank, 154 Md. 77, 140 A. 34; Stieff, Inc., v. Wilson, 151 Md. 597, 135 A. 407; Gunby v. Mack International Motor Truck Corporation, 156 Md. 19, 142 A. 596.

The question whether a given instrument is a bailment lease or a conditional sales contract has given the court much difficulty. The matter is treated at length in 43 A.L.R. 1257; 92 A.L.R. 323; 17 A.L.R. 1441; 47 Am.Jur., page 26, sec. 837.

Williston on Sales, second edition, section 336 page 780, in part, says: 'Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of the term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in instalments since the due payment of the agreed amount results, by the terms of the bargain, in the transfer of title to the lessee. This has been clearly recognized and many of the statutes relating to conditional sales in express terms include leases within their scope. Apart from statutes courts have disregarded the form of the transaction and have held that where payment of so-called rent nearly or quite pays the price of the goods the bargain is conditional sale and subject to the rules governing that kind of transaction.'

In re Rainey, D.C., 31 F.2d 197, 199, is a case similar to the one at bar. There the court said:

'In order to determine the true character of the agreement, it is necessary to look through form to substance. In the present case the rental of the machinery for three months, the full term of the lease, amounted to 60 per cent of its entire value. A charge so disproportionate to the term of user in relation to the value of the articles, all of which were secondhand, in and of itself certainly suggests a sale.'

'The distinction between an ordinary lease and a conditional sale is obvious. A lease contemplates only the use of the property for a limited time and the return of it to the lessor at the expiration of that

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