Chattanooga Discount Corporation v. West, Civ. A. No. 1272.

• Decision Date: 19 July 1963
• Docket Number: Civ. A. No. 1272.
• Citation: 219 F. Supp. 140
• Parties: CHATTANOOGA DISCOUNT CORPORATION, a corporation, organized and existing under the laws of the State of Tennessee, Plaintiff, v. Clifton L. WEST, individually, and doing business as West Motor Company, Defendant.
• Court: U.S. District Court — Northern District of Alabama

219 F. Supp. 140

CHATTANOOGA DISCOUNT CORPORATION, a corporation, organized and existing under the laws of the State of Tennessee, Plaintiff, v. Clifton L. WEST, individually, and doing business as West Motor Company, Defendant.

Civ. A. No. 1272.

United States District Court N. D. Alabama, M. D.

July 19, 1963.

COPYRIGHT MATERIAL OMITTED

Inzer, Martin, Suttle & Inzer, Gadsden, Ala., and Frank M. Gleason, Rossville, Ga., for plaintiff.

Lusk, Swann & Burns, Gadsden, Ala., and L. Clyde Traylor, Fort Payne, Ala., for defendant.

GROOMS, District Judge.

Plaintiff brought this action to recover $16,915.00 plus the reasonable value of hire, interest and costs, for the alleged conversion of seventeen automobiles described in Exhibit A to the complaint.¹ A writ of detinue issued, and the United States Marshal took possession of two of the cars and delivered them to the plaintiff upon the execution of appropriate bond.

The defendant filed a plea of the general issue to the count in trover, and admitted possession of the two automobiles seized, but denied possession of the remaining automobiles.

Beginning on December 10, 1962, the evidence was taken before a jury. Extensive evidence was introduced, and when the evidence was in, both parties agreed that the jury should be dismissed and that the trial should proceed before the Court alone, and that the case should be decided as a nonjury case.

The evidence reveals that the plaintiff is a finance company in Chattanooga, Tennessee, operating under the laws of Tennessee, while the defendant individually operated an automobile business at Fort Payne, Alabama. It appears from the evidence that one Carl Ledbetter operated an automobile business in LaFayette, Georgia, and financed his automobiles with the plaintiff under the provisions of § 47-1001 et seq., of the Code of Tennessee Annotated, commonly referred to in that State as the "Uniform Trust Receipts Law."

The so-called trust receipts (There is a dispute as to whether they are true trust receipts.) were all executed in Tennessee and the automobiles apparently were at all times located in LaFayette, Georgia, prior to being sold by Ledbetter to the defendant. The trust receipts were not recorded in Georgia until after the sale by Ledbetter to the defendant.

The evidence further reveals that Ledbetter approached the defendant concerning the sale of the automobiles; that, after having gone to LaFayette to inspect the cars, the defendant indicated that he was not interested in purchasing them. Ledbetter, however, revisited the defendant at the defendant's cabin in Alabama, where the defendant offered to purchase 23 automobiles from Ledbetter for $13,500 (the 17 cars in question being included in the 23). Later, Ledbetter called the defendant by phone at the latter's home in Alabama and accepted his offer, and delivery was made by him during the night of April 19, 1962. These vehicles constituted all, or substantially all, of Ledbetter's stock of cars held by him for sale at his place of business in LaFayette.

Before concluding the purchase, the defendant made no inquiry as to any debt due upon the cars. Ledbetter made no payment to the plaintiff for the release of the cars as required by the trust receipts.

The plaintiff contends that Ledbetter was a mere trustee of the automobiles that are the subject of this suit, by virtue of the trust receipts which are alleged to be valid under the law of Tennessee; that under Tennessee and Georgia laws the so-called trust receipts need not be recorded; that the sale from Ledbetter to the defendant was fraudulent and in violation of the Bulk Sales Acts of Alabama and Georgia; that, therefore, the defendant could not be a bona fide purchaser.

The defendant's contention is that the sale from Ledbetter to him was in the usual and ordinary course of business and not in violation of the Georgia or Alabama Bulk Sales Acts; that since the property was at all times, before the sale in question, located in Georgia, the Georgia law as to the recordation of the trust receipts applies, and that under that law the trust receipts were not "true trust receipts" and were required to be recorded to be valid against a bona fide purchaser for value without notice, the defendant claiming that he was such a purchaser.

At the outset, the Court is met with a choice-of-law problem. In determining the formal and substantial validity of conveyances of tangible movables, the most widely held modern view is that the law of the actual physical situs of the property at the time of the transfer controls, 15 C.J.S. Conflict of Laws § 18d(1), pages 929-930; 2 Beale, Conflict of Laws, §§ 286.1 and 287.1 (1935); 11 Am.Jur., Conflict of Laws, § 69; and the law of the actual situs of a chattel at the time of the transfer determines whether the transfer is fraudulent. 15 C.J.S. Conflict of Laws § 18d(6).

Although it appears that the Alabama courts have not had occasion to decide the particular question of choice-of-law with respect to bulk sales, the recent case of McRae v. Bandy, 270 Ala. 12, 115 So. 2d 479 (1959), and authorities relied upon there, demonstrates that the Alabama choice-of-law rule is in accord with the above discussed principle that the validity of the conveyance of a chattel is controlled by the law of the state where the chattel is actually situated at the time of the transfer.² The following of this rule of law makes it unnecessary for the Court to determine whether the sale from Ledbetter to the defendant was made in Alabama or in Georgia, inasmuch as the undisputed evidence at the trial established that the vehicles involved were located at LaFayette, Georgia, at the time the transfer was consummated. The provisions of the Georgia Bulk Sales Act and other related laws, therefore, control in this respect.

A trust receipt is a method of financing commercial transactions, frequently employed in the marketing of automobiles. Motor Contract Co. v. Citizens & Southern Nat. Bank, 66 Ga. App. 78, 17 S.E.2d 195. There are two types of trust receipts transactions. The first is the so-called tripartite or "true trust" receipt where a finance company advances funds for the purchase of a chattel, purchases it, and receives title to it from the manufacturer, and delivers possession to the dealer, who gives his trust receipt to the finance company. The second type or the bipartite, which is recognized and validated by the Uniform Trust Receipts Act, is where the dealer has purchased and received title directly from a manufacturer or another and gives his receipt to the finance company. 89 C.J.S. Trust page 698. It is the latter type of trust receipt that we are dealing with in this case.

Trust receipts are not of recent origin as a convenient means of financing commercial transactions, and their application is discussed at length in the Second Circuit Case of In re A. E. Fountain, Inc., 282 F. 816, 25 A.L.R. 319.

Numerous decisions, too voluminous to consider in extenso, have attempted a comparison between a true trust receipt and a bailment or pledge, a chattel mortgage, or a conditional sales contract, and the only conclusion is that it is akin to but not exactly any of these mediums of trade, although it is at times treated as one of them. See In re James, Inc., 2 Cir., 30 F.2d 555, 558. Some courts have shown a disposition to look through and disregard the form of the transaction and who has strict legal title at the time the trust receipt is given, and determine who the parties actually intended the real owner to be, General Finance Corp. v. Krause Motor Sales, 302 Ill.App. 210, 23 N.E.2d 781, without much, if any, regard to the name by which it was designated. Motor Contract Co. v. Citizens & S. Nat. Bank, 66 Ga.App. 78, 17 S.E.2d 195.

In In re Harpeth Motors, W.D. Tenn., 135 F.Supp. 863, the Court held that under the Tennessee Trust Receipt Act, the entruster had a security interest in the property. Generally, a trust receipt is regarded as a security transaction. 53 Am.Jur., Trust Receipts, § 1, page 961.

The plaintiff here contends that under the Tennessee Uniform Trust Receipts Act, a trust receipt need not be recorded. Section 47-1014 provides that the entruster is entitled to file with the Secretary of State of Tennessee a statement of trust receipt financing, setting forth that the entruster and the trustee propose to engage in financing under trust receipt transactions. After filing with the Secretary of State, the security interest of the entruster, under individual trust receipts, is protected³ against general creditors, subsequent lien creditors, and purchasers other than in the ordinary course of trade. The plaintiff has apparently complied with this requirement by so filing with the proper Tennessee officials. The purpose of this filing procedure is obviously to facilitate financing of automobiles and other chattels, and to prevent cluttering the records with innumerable documents whose usefulness would be short lived. Therefore, this appears to be a procedural aspect of the trust receipt law of Tennessee as opposed to a substantive one, inasmuch as such filing is not required as a condition to the validity of a trust receipt, because the entruster could record each transaction if he chose to do so. Assuming the correctness of this hypothesis, the State of Georgia, which has not adopted the Uniform Trust Receipts Act,^3a would not be bound to accept the procedural aspects of the Tennessee Act.

Under the decision of Motor Contract Co. v. Citizens & Southern National Bank, supra, the trust receipts here involved are not "true" trust receipts,...