Dunlop v. Mercer

• Decision Date: 31 October 1907
• Docket Number: 2,711.,86
• Parties: DUNLOP v. MERCER et al. In re DUNLOP.
• Court: U.S. Court of Appeals — Eighth Circuit

156 F. 545

DUNLOP v. MERCER et al.

In re DUNLOP.

Nos. 86, 2,711.

United States Court of Appeals, Eighth Circuit.

October 31, 1907

Syllabus by the Court

A conditional sale is one in which the vesting of the title in the purchaser is subject to a condition precedent, or in which its revesting in the seller is subject to a failure of the buyer to comply with a condition subsequent.

An agreement that the purchaser will buy and pay for merchandise, that he may sell it in the regular course of his business, but that the proceeds shall be applied as a credit or as collateral security to the debt of the vendee at the option of the vendor, and that the latter will sell and deliver the goods on condition that the title to them shall remain in him until the notes and accounts of the vendee are paid in cash, is a valid contract of conditional sale.

An option in the purchaser to pay, or to refuse to pay, for the property, is not essential to a conditional sale.

A stipulation that the purchaser may sell the merchandise in the regular course of business, and that he shall apply the proceeds to his debt as a credit or as collateral security at the option of the vendor, does not render such a contract fraudulent or voidable against creditors. It does not make it a chattel mortgage with a secret lien.

The failure to record a contract of conditional sale renders it voidable by attachment creditors, judgment creditors, and bona fide purchasers only, in Minnesota; and, where there were no such creditors and purchasers when the petition in bankruptcy was filed, such failure did not render it voidable by the trustee, because he had no better title, in the absence of fraud, than the vendee and his creditors had at the filing of the petition.

Section 70a (5) of the bankruptcy law (Act July 1, 1898, c. 541, 30 Stat. 566 (U.S. Comp. St. 1901, p. 3451)), is inapplicable to property held by a bankrupt purchaser under such a contract. The 'property which prior to the filing of the petition he could by any means have transferred' is property which he could have transferred lawfully on the same terms that he transfers it by law to the trustee. It does not include property of a third party which he was authorized to transfer only on condition that he sold it for value, or on condition that he sold it and held the proceeds for its owner.

If a contract of conditional sale is void because violative of a statute which permits a foreign corporation to do business in the state only upon certain conditions, and prescribes penalties other than the invalidity of contracts for doing business without a compliance with the conditions it is void in every part, and the property in the possession of the vendee under it for which he has not paid remains the property of the vendor.

If a contract of absolute sale is void for the same reasons, and the property sold remains in the possession of the vendee who has not paid for it, an implied contract to return it arises, and the property or its value may be restored to the vendor. Pullman's Palace Car Company v. Central Transportation Co., 171 U.S. 138, 151, 18 Sup.Ct. 808, 43 L.Ed. 108.

The statute of Minnesota provides that before a foreign corporation of the character of the vendor here shall be authorized to do business in the state, or to acquire or hold property, or to maintain suits in its courts, it shall have a public place of business in the state, shall appoint a resident agent to accept service of process, and, perhaps, shall pay a license fee, and that, if such a corporation does business in the state and fails to comply with these conditions, it shall be subject to a fine of $1,000, and shall not be permitted to maintain any suit or action in the courts of the state. Held:

Contracts innocent or beneficial in themselves, made by foreign corporations while doing business in the state without complying with this statute, were not intended to be and were not made void thereby. The purpose and effect of the statute were to require foreign corporations doing business in the state to subject themselves to the jurisdiction of its courts and to a compliance with the other prescribed conditions, and in case of their failure to do so to refuse to permit them to use those courts to maintain their suits and to impose upon them a penalty of $1,000 for each offense.

The general rule that illegal contracts are void is not of universal application.

It is qualified by the exception that where a contract is not evil in itself, and its invalidity is not denounced as a penalty for its violation by the express terms of the statute, or by rational implication from the language of the statute which it violates, and that statute prescribes other specific penalties, it is not the province of the courts to do so, and they will not thus affix an additional penalty not intended by the lawmaking power.

The true rule is that the court should carefully consider in each case the entire statute which prohibits an act under a penalty, its object, the evil it was enacted to remedy, the effect of holding contracts in violation of it to be void, for the purpose of ascertaining whether or not the Legislature intended to make agreements violative of it void, and if from all these considerations it is manifest that the Legislature had no such intention, such contracts should be sustained and enforced; otherwise, they should be adjudged void.

The provision of the Minnesota statute which prohibits unqualified foreign corporations doing business in that state from maintaining suits in its courts, was not intended to, and it does not, restrict or affect the power or duty of the national courts to determine controversies in bankruptcy proceedings or other controversies of which the Constitution and the acts of Congress gave them jurisdiction.

The power of the federal courts was not granted by, and it may not be revoked, impaired, or restricted by, any law or act of a state.

Geo. S. Grimes (Victor J. Welch and Frank R. Hubachek, on the brief), for appellant.

Nathan H. Chase (M. H. Boutelle, on the brief), for appellees.

Before SANBORN and VAN DEVANTER, Circuit Judges, and PHILIPS, District judge.

SANBORN Circuit Judge.

Two corporations of Arizona, which had been doing business in Minnesota, were adjudged bankrupts in the United States District Court in that state. The trustee of one of them, of the Waterbury-Zimmer Implement Company, filed a petition in the court below in the matter of the bankruptcy of the other, the Western Implement Company, for an order that certain vehicles, machinery, and other merchandise, which were in the possession of the Western Company when it was adjudged a bankrupt and thence came to the possession of the trustees of its estate, be delivered to the trustee of the property of the Zimmer Company, because, as he alleged, this property had been sold and delivered by the Zimmer Company to the Western Company under an agreement, dated February 5, 1906, to the effect that the title and ownership thereof should remain in the vendor until the goods were paid for in cash, and no payment on account of them had been made. The trustees of the Western Company defended on the grounds that the contract was not made until September 8, 1906, after most of the property had been delivered; that it was made with the intent to defraud the creditors of the Western Company; that it was withheld from record with like intent; that the Zimmer Company was not qualified to do business in Minnesota until June 30, 1906, after the larger part of the property had been delivered; and that the contract on its face evidenced an absolute sale of the property to the Western Company. Evidence was introduced, and the court overruled all the defenses except the last, but sustained that, and denied the prayer of the petition. This ruling was assigned as error, and the case is presented by petition to revise and by appeal. As it involves the consideration of the evidence of the relation of the parties and of their acts in making and performing the contract, it will be considered on the appeal, and the petition to revise is dismissed.

While the evidence is not conclusive, and there is proof of suspicious circumstances surrounding the execution and performance of the contract, the conclusion of the court below that the agreement was made on or about February 5 1906, the day of its date, that it was not made nor withheld from record with any actual intent or purpose to defraud the creditors of the Western Company, and that the vehicles and merchandise in question were delivered by the Zimmer Company to the Western Company in the performance of the contract, and in that way came to the possession of the trustees of its estate, is supported by the weight of the testimony and is affirmed. Counsel insist, however, that if there was no actual intent to defraud, yet the contract upon its face evidenced an absolute sale, so that the title to the property delivered under it vested in the Western Company before it was paid for. The terms of the agreement pertinent to this question are that the Zimmer Company, in selling the goods to the Western Company, does so with the distinct understanding that the title to them shall remain in the Zimmer Company until all the accounts and notes of the Western Company are paid in cash, when the former will give a bill of sale of the remaining goods to the Western Company, and that the Western Company shall have the privilege of selling the articles shipped in the regular course of business, with the understanding that their proceeds shall remain the property of the Zimmer Company, to be held as collateral or credited on the notes or accounts of the Western Company at the option of the Zimmer Company. ...