First National Bank of Fort Smith, Ark. v. Phillips

• Decision Date: 11 December 1958
• Docket Number: No. 17362.,17362.
• Citation: 261 F.2d 588
• Parties: FIRST NATIONAL BANK OF FORT SMITH, ARKANSAS, and Gulf Screen & Wire Company, Inc., Appellants, v. H. A. PHILLIPS, Trustee in Bankruptcy for Nico Wire Cloth Corporation, Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

261 F.2d 588 (1958)

FIRST NATIONAL BANK OF FORT SMITH, ARKANSAS, and Gulf Screen & Wire Company, Inc., Appellants, v. H. A. PHILLIPS, Trustee in Bankruptcy for Nico Wire Cloth Corporation, Bankrupt, Appellee.

No. 17362.

United States Court of Appeals Fifth Circuit.

December 11, 1958.

Charles R. Vickery, Jr., Houston, Tex., Liddell, Austin, Dawson & Huggins, Houston, Tex., of counsel, for appellants.

Jarrell D. McDaniel, Houston, Tex., Vinson, Elkins, Weems & Searls, Houston, Tex., of counsel, for appellee.

Before HUTCHESON, Chief Judge, and RIVES and WISDOM, Circuit Judges.

HUTCHESON, Chief Judge.

By this appeal from an order¹ entered in a bankruptcy proceeding, denying their petition for review of the order² of the Referee denying their petition to reclaim 4 Fitz 36" Wire Weaving Looms, claimants-appellants seek to test its correctness.

Appellants agree that the "rental-purchase" agreement was not filed as a chattel mortgage in compliance with the Texas Statute³ for the reservation of title as chattel mortgage, and that if it was in law a conditional sale or other reservation of the title to or property in chattels as security for the purchase money thereof, and, therefore, was in effect a mortgage, it was void against appellee and the reclamation petition is without merit.

Insisting, however, "the rental-purchase agreement is not a conditional sale because the bankrupt had no obligation to buy and no obligation to pay the purchase price", they urge upon us that it was a bona fide lease agreement, under the express terms of which the bankrupt acquired no interest whatever in the looms until after the last cent was paid and a bill of sale was issued.

On his part, appellee points out that, while in the printed contract form, which it was agreed was borrowed from a company actually engaged in the business of renting road equipment, the document was called "equipment rental agreement", in the actual contract as signed, the printed word "rental" was stricken and there was typed in in lieu thereof the words "rental-purchase". Further pointing out that, after identifying the property dealt with as four Fitz 36" Wire Weaving Looms, valued at $11,880, there was typed into the contract this significant, indeed vital, language:

"* * * above machinery furnished by Lessor under 36 months rental-purchase contract, last eight months rental payable in advance. Bill of sale to be issued at end of contract. Monthly payments to be made as per schedule "A" attached."⁴

and insisting that this language compels an answer to the question posed by this appeal, "Is the equipment rental-purchase contract a conditional sale required to be recorded as a chattel mortgage or is it a bona fide lease?", which requires an affirmance of the judgment, appellee thus correctly summarizes the content and effect of the Rental-purchase agreement, appellants' contentions as to it, and appellee's answer thereto:

"In summary, the agreement in substance states that Nico Wire Cloth Corporation agrees to pay $2640.00 prior to the delivery of the property in question, and agrees to pay a further sum of $9,240.00 in twenty-eight equal monthly payments and, Gulf Screen and Wire Co., Inc. agrees to issue and deliver a bill of sale (transfer of title) for the property in question, which was valued at $11,880.00, the exact amount of the payments which the Lessee agrees to pay. Further, the agreement contains a proviso that either party may terminate the agreement upon notice.

"Appellant\'s entire case is bottomed upon the premise that the Bankrupt did not agree to pay the sum of $11,800.00 or any other price for the property in question. After assuming this premise, the appellants conclude that there can be no sale. Appellee, in theory, hastens to agree with Appellant\'s conclusion, for absent an agreement to purchase, there can be no sale. But, Appellee emphatically denies the validity of Appellant\'s premise, for not only does the agreement expressly contain an agreement to pay the full purchase price, the entire transaction evidences an intention to so purchase."

We find ourselves in full agreement with these views. In 37A Texas Jurisprudence, "Sales", Sec. 113, Reservation of Title, it is said:

"Under the common law, a sale with a reservation of title in the seller pending the fulfillment of the condition is a conditional sale. This is true of a sale in Texas, evidently, unless title is reserved as security for the purchase money. As to sales of the latter class, the statute provides that all reservations of title to or property in chattels, as security for the purchase money thereof, shall be held to be chattel mortgages, and shall, when possession is delivered to the vendee, be void as to creditors and bona fide purchasers, unless such reservations be in writing and registered as required of chattel mortgages. Petersime Incubator Co. v. Bunn Tex.Civ.App., 239 S.W.2d 416."

Under the rule as above stated, in general accord with the courts of other states which have similar statutes, the Courts of Texas have without wavering, neither shadow of turning, uniformly held that the public policy of this state requires the closest scrutiny of all purchase agreements such as the one in question here to prevent the defeat of that policy by the use of forms, pretenses or devices designed to conceal the true nature of the agreement. Cf. Tyler State Bank & Trust Co. v. Bullington, 5 Cir., 179 F.2d 755, 757.

Perhaps as good a statement of the applicable principle as can be found appears in the opinion of the Supreme Court of Maryland in Beckwith Machinery Co. v. Matthews, 190 Md. 182, 57 A.2d 796, 801, Annotation 175 A.L.R. 1360. There, holding that a purported lease rental agreement was a conditional sales contract, though it contained no agreement in terms to purchase, the court, after quoting to the same general effect from Williston on Sales, 2nd Ed., Sec. 336, p. 780, stated:

"In determining whether or not a given instrument is a conditional sales contract, we must find what the intention of the parties was at the time it was entered into. The situation of the parties, their purpose, the thing they sought to accomplish, and the method employed, are all important. Once the intention of the parties becomes clear, it is immaterial what the instrument is called, nor how skillfully the real intention of the parties is disguised. What the parties tried to disguise was evasion of the Federal regulation in regard to a down payment. We cannot give much credit to the testimony that if the full purchase price of this machinery had been paid in monthly installments of $579, by the company to the corporation, the corporation would not have transferred full title to machinery to the company. In transacting business in our modern day, some people desire not to know what the law is, but how to evade the law. However clever the form of such evasion may take, when discovered, it is denounced by the courts."

In Billiter v. Ledbetter Johnson, Contractors, 60 Ga.App. 1, 2 S.E.2d 677, the court held:

"Although a contract may refer to the payment to be made as rent, where it also provides that title to the property

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