In re Bement

• Decision Date: 13 April 1909
• Docket Number: 1,516.
• Citation: 172 F. 98
• Parties: In re BEMENT. v. MISHAWAKA WOOLEN MFG. CO. SMITH
• Court: U.S. Court of Appeals — Seventh Circuit

172 F. 98

In re BEMENT.

SMITH v. MISHAWAKA WOOLEN MFG. CO.

No. 1,516.

United States Court of Appeals, Seventh Circuit.

April 13, 1909

February 14th, 1907, upon petition, filed Dec. 8th, 1906, George B Bement was declared a bankrupt, and Frank L. Smith duly appointed trustee of the estate. The petition of appellee, a corporation organized under the laws of the state of Indiana alleges that on the 3d of February, 1906, it and Bement entered into two contracts in writing, by the terms of which petitioner agreed to sell and deliver to Bement, certain personal property therein described, a portion of it described as lot No. 1, and a portion of it as lot No. 2, all of which was subsequently delivered; that by the terms of the contracts 'the title and property in all the goods herein mentioned shall remain in the vendor until fully paid for in cash, if payment for the same shall not be properly made when due or if at any time before the same shall be fully paid for the purchaser shall become insolvent, or shall, in the opinion of the vendor, be in danger of insolvency, or the vendor, in its judgment, shall, for any reason, whatever deem itself in danger of losing the price of the said goods then the vendor may, at its option, reclaim and take possession of so much of the said goods as shall then remain in the hands of the purchaser unsold'; that no part of the purchase price of said goods has been paid, whereby the title remains in the petitioner; that upon a replevin suit in the Circuit Court of Green County, Wisconsin, the possession of said goods known as lot No. 1, were recovered; that the possession of said goods known as lot No. 2 were not recovered, although at the time Bement was adjudged a bankrupt, they were still in his possession, and are now in the possession of the trustee; and praying for an order upon the trustee to deliver over to petitioner the goods known as lot No. 2, and to ratify and confirm the taking of the goods embraced in lot No. 1; to which the trustee answers that by section 2317 of the Wis consin Statutes of 1898, every contract of the nature set forth, in order to be valid, must be filed in the office of the clerk of the town, village or city in which the vendee resides, or in which the goods are located; and that no such contract has ever been filed in the manner required; to which answer appellee, filed a general demurrer; which demurrer, though overruled by the referee, was sustained by the Court and the order appealed from was entered.

E. D. McGowan and Emerson Ela, for appellant.

Charles E. Buell, for appellee.

Before GROSSCUP, BAKER, and SEAMAN, Circuit Judges.

GROSSCUP Circuit Judge, after stating the facts as above, delivered the opinion.

In some states, by general law, conditional sales of goods that go into stock to be sold by retail are, as against creditors, held to be invalid; there being in this respect a clear distinction between machinery that becomes a permanent part of some factory building, and goods that go into the possession of the retailer for resale. Troy Wagon Co. v. Hancock, Trustee, 152 F. 605, 81 C.C.A. 595 (Circuit Court of Appeals, Seventh Circuit). The ground for this distinction is that to allow such secret title to attach to goods in the vendees' possession for resale is a constructive fraud upon creditors.

No conditional sale holding of this character, by the courts of Wisconsin, has been brought to our attention; nor any holding of the Wisconsin courts contrary thereto. But those courts have held, upon precisely the same grounds, that chattel mortgages on goods going into stock for resale-- no provision being made that the money thus received should be turned over to the mortgagee-- is a constructive fraud upon creditors; and though, technically, in the case of a chattel mortgage, title passes, while in conditional sales title is reserved, the considerations of public policy that make the transaction a constructive fraud upon creditors is the same in the one as in the other.

In the absence of decision by the Wisconsin courts we would hold this to be the law in Wisconsin; all the more so when we take into consideration section 2317 of the Wisconsin Statutes of 1898, as follows:

'No contract for the sale of personal property, by the terms of which the title is to remain in the vendor and the possession thereof in the vendee until the purchase price is paid or other conditions of sale are complied with, shall be valid as against any other person than the parties thereto and those having notice thereof unless such contract shall be in writing, subscribed by the parties, and the same or a copy thereof shall be

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