General Motors Acceptance Corporation v. Kline

• Decision Date: 26 August 1935
• Docket Number: No. 7675.,7675.
• Citation: 78 F.2d 618
• Parties: GENERAL MOTORS ACCEPTANCE CORPORATION v. KLINE.
• Court: U.S. Court of Appeals — Ninth Circuit

78 F.2d 618 (1935)

GENERAL MOTORS ACCEPTANCE CORPORATION v. KLINE.

No. 7675.

Circuit Court of Appeals, Ninth Circuit.

July 8, 1935.

Rehearing Denied August 26, 1935.

Eggerman & Rosling, of Seattle, Wash., for appellant.

Sam L. Levinson, of Seattle, Wash., for appellee.

Before WILBUR, GARRECHT, and MATHEWS, Circuit Judges.

WILBUR, Circuit Judge.

This action was brought in the superior court of the state of Washington, in and for King county, by appellee Kline, the receiver of the Kirksey Chevrolet Company, who had been appointed as such by the state court. The case was transferred to the District Court of the United States on motion of the defendant, General Motors Acceptance Corporation.

The action was one for the conversion of 14 automobiles alleged to be of the value of $8,339.55. It was alleged in the complaint and not denied, that on the 29th of January, 1931, the Kirksey Chevrolet Company was insolvent. The various documents evidencing the transaction were attached to the answer and their execution was admitted. The case was tried without a jury, and the District Court made its findings of fact and conclusions of law. The trial court found the receiver was appointed February 2, 1931; that at that time the appellant was a creditor of the insolvent in the amount of $8,500, and this amount has been increased as the result of subsequent litigation to $12,500; that the reasonable value of the automobiles on the date of seizure was $8,339.55; that the automobiles were in possession of the Kirksey Chevrolet Company, exposed for sale, and displayed in its salesroom to the public, some from four to six weeks, and others from seven to ten days; that the automobiles were seized on the 29th of January by the appellant without right upon their claim asserted on certain trust receipts; that on January 7th, 9th, 10th, and 20th, the Kirksey Chevrolet Company executed and delivered to the appellant four promissory notes for $1,958, $1,952, $1,958, and $2,313, respectively; that on December 30, 1930, the Chevrolet Motor Company of California executed to the appellant certain bills of sale covering the automobiles in question; that attached to each bill of sale was a trust receipt which was executed by the Kirksey Chevrolet Company at the time of the delivery to the Kirksey Chevrolet Company of the automobiles described in the bill of sale. This trust receipt acknowledged that the motor vehicles in question are the property of the General Motors Acceptance Corporation; that the Kirksey Chevrolet Company agreed to take and hold the same at its own risk, not to operate them for demonstration or otherwise, and return the motor vehicle to the General Motors Acceptance Corporation on its order or demand, to pay or discharge all taxes and encumbrances and claims relative thereto, and not to sell, loan, deliver, pledge, mortgage, or otherwise dispose of said motor vehicles to any other person until after payment of amounts shown on dealer's record of purchase and release of like identification number herewith; it was further agreed that the deposit made by the Kirksey Chevrolet Company in connection with the transaction may be applied for reimbursement for any expenses incurred by the General Motors Acceptance Corporation in the event of breach of this trust or repossession of said vehicle. The court further found that the promissory notes payable three months after date, and the bills of sale, were sent to the bank with instructions that upon the execution of the notes and trust receipt by the Kirksey Chevrolet Company the automobiles be delivered to that company and they were so delivered and placed in the salesroom and showroom of the Kirksey Chevrolet Company for the purpose of sale, and that, upon default in the payment of the indebtedness above named, defendant sought to obtain possession of the automobiles from the Kirksey Chevrolet Company and made demand therefor, which was refused, but nevertheless took possession of the automobiles. It is not clear just what is meant by this finding in view of the fact that the promissory notes in question were not yet due, nor is it entirely clear what is intended by the finding of the court with reference to the automobiles which were delivered for the purpose of sale "and sold in due course and payments made from time to time, with the result that the amount as aforestated was due and unpaid, and that there is due and unpaid from the Kirksey Chevrolet Company the amount of $8500," for it is clear that the automobiles were not sold by the Kirksey Chevrolet Company. As conclusions of law the court held that the receiver was entitled to judgment for the amount demanded in his complaint, and stated: "The trust receipt is neither a chattel mortgage nor a conditional sale, and cannot have the operation or effect of retaining title, within the provisions of the laws of the state of Washington, the defendant not having complied with the recordation acts, nor the provisions requiring special oath to chattel mortgages with relation to the indebtedness at the time of delivery or obtaining evidences of indebtedness." It is not entirely clear whether the trial judge intended to use the word "either" or "neither." If it were "neither a chattel mortgage nor a conditional sale," it is not contended that the laws of Washington required its recordation. If the recordation was not required by the law of Washington, an unauthorized recordation would have no effect whatever. Flynn v. Garford Motor Truck Co., 149 Wash. 264, 270 P. 806.

The only question for review is whether the findings support the judgment.

According to the arrangement, the title to the automobiles passed from the manufacturer to the appellant and remained in the appellant unless the execution of the promissory notes and trust agreement by the Kirksey Chevrolet Company operated to transfer title to the Kirksey Chevrolet Company so far as the creditors are concerned, notwithstanding the fact that the trust agreement expressly provided to the contrary. As between the Kirksey Chevrolet Company and the General Motors Acceptance Corporation the contract is valid and is to be enforced as to them according to its terms. By the agreement the General Motors Acceptance Corporation was clearly within its right in taking possession of the automobiles in question. This conclusion was reached by the Supreme Court of Washington in a decision rendered by it subsequent to the argument of this case in such a situation. Johnson-Stephens & Shinkle Shoe Co. v. Marlatt & Miller, Inc., 44 P.(2d) 819. The court in that case held that the agreement was not to be construed as one of consignment. For the purposes of the opinion the court accepted the contention of the appellant that the contract was one of conditional sale which by the terms of the Washington statute, Rem. Rev. Stat., § 3790, was required to be recorded, and that in default of such recordation the sale would be absolute as to purchasers, encumbrancers, and subsequent creditors in good faith. As the rights of third persons were not involved, the court sustained the right of the holder of the trust receipt to take possession. The appellee in the case at bar, however, contends that the transaction between the Kirksey Chevrolet Company and the General Motors Acceptance Corporation was in legal effect a chattel mortgage by the former to the latter, and because not recorded the agreement was void under the law of Washington, both as to existing and subsequent creditors, regardless of whether or not they have acquired liens on the property. This is in accordance with an express provision to that effect in section 3780, Rem. Rev. Stat. of Washington, in the case of unrecorded chattel mortgages. In the case of Seattle Association of Credit Men v. University Chevrolet Co., 43 P.(2d) 46, the Supreme Court of Washington stated that such an unrecorded chattel mortgage was void as to existing and subsequent creditors, and that as to them the title was in the mortgagor free from the lien of the mortgage.

The question as to the nature and effect of these trust receipts is not a new one. They have been variously interpreted by various courts. The decisions with reference to their effect and validity are dependent upon the laws of the state in which the transaction occurred, and the diversity of opinion is due in part to statutory differences.

If the title to the automobiles had passed in the first instance from the manufacturer to the Kirksey Chevrolet Company and the arrangement had been made between that company and the appellant contemporaneously or subsequently thereto, by which the appellant advanced money to the Kirksey Chevrolet Company either for the purpose of paying the purchase price of the automobiles or for any other purpose and the trust receipt and notes here involved had been executed under those circumstances, the transaction would unquestionably be in legal effect a chattel mortgage. Such was the holding of the Circuit Court of Appeals for the Second Circuit in Re A. E. Fountain, Inc., 282 F. 816, 826, 25 A. L. R. 319, in a well-considered opinion. The court, however, in that case carefully pointed out the distinction between trust receipts wherein the title of the holder was derived from the person who executed the trust receipt and those in which the title of the holder was derived from some one other than the debtor. In the opinion in that case the court stated the distinction as follows: "The only cases where the holders of trust receipts have been allowed by this court to prevail against the ultimate purchaser or...