In re Ford-Rennie Leather Co., No. 509.

• Court: United States District Courts. 3th Circuit. United States District Court (Delaware)
• Writing for the Court: MORRIS
• Citation: 2 F.2d 750
• Parties: In re FORD-RENNIE LEATHER CO. Petition of SCHMOLL FILS & CO., Inc., Petition of DOHERR GRIMM & CO., Inc.
• Docket Number: No. 509.
• Decision Date: 30 October 1924

2 F.2d 750 (1924)

In re FORD-RENNIE LEATHER CO. Petition of SCHMOLL FILS & CO., Inc., Petition of DOHERR GRIMM & CO., Inc.

No. 509.

District Court, D. Delaware.

October 30, 1924.

William S. Hilles, of Wilmington, Del., for certain general creditors.

E. E. Berl (of Ward, Gray & Neary), of Wilmington, Del., for trustee.

James I. Boyce, of Wilmington, Del., for Schmoll, Fils & Co., Inc.

Caleb S. Layton (of Marvel, Marvel, Layton & Hughes), of Wilmington, Del., for Doherr, Grimm & Co., Inc.

MORRIS, District Judge.

Ford-Rennie Leather Company was adjudicated a bankrupt by this court on July 31, 1924. By separate petitions filed in the bankruptcy cause Schmoll Fils & Co., Inc., and Doherr, Grimm & Co., Inc., now seek to reclaim and obtain from the trustee in bankruptcy certain skins, or the proceeds thereof, delivered by the petitioners, respectively, to the bankrupt under terms and conditions set out in whole or in part in "trust receipts" delivered by the bankrupt to the petitioners. The trustee in opposing the petitions contends that the petitioners are without title to the skins, and that, if, in fact, they have title, they are not in a position successfully to maintain it against the trustee. In support of these ultimate contentions the trustee asserts: (1) That the right of the petitioners in, to, or against the skins is not that of

2 F.2d 751

legal ownership and title, but is that arising under an invalid and ineffective chattel mortgage; (2) that, if the petitioners have the legal title to the skins, their title, by reason of the provisions of the Bankruptcy Act and the doctrine of ostensible ownership, cannot prevail against the trustee; and (3) that, if under the terms of the contracts between the parties the title to the skins was reserved to the petitioners, the contracts were contracts of conditional sale, and the provisions therein reserving title are void as against the trustee in that as to Schmoll Fils & Co. the whole of the contract was not recorded, as required by chapter 192, volume 30, Laws of Delaware, and as to Doherr, Grimm & Co., no part of the contract was filed for record. The trustee has, however, urged but little the last-stated point. He has, on the contrary, stressed the contention that the proper field for use of the trust receipt is narrow; that it was not here employed in that field; and that when not so employed it is invalid as against a trustee in bankruptcy for the other reasons urged by him

In the case at bar both petitioners were dealers in hides and skins. The bankrupt was a leather manufacturer. On December 5, 1923, Schmoll Fils & Co., whose petition will be first considered, was the owner of certain skins with the acquisition of which by the petitioner the bankrupt had been in no wise concerned. With respect to those skins the petitioner and the bankrupt entered into an arrangement as follows:

"New York, December 5, 1923

"Ford-Rennie Leather Co., Dupont Bldg., Wilmington, Del. — Dear Sirs: We beg to confirm our sale to you as follows:

"Quantity: About (5 per cent. more or less) 38 bales of Cordoba goatskins, of which 17 bales Mataderos, 17 bales Campos, 4 bales Desechos, at 39 cents per pound for the Mataderos and Campos; Desechos at two-thirds price. Shrinkage guaranteed not to exceed 3%.

"Insurance: Ex warehouse New York.

"Shipment: Prompt shipment from New York.

"Terms: Payment 90 days' draft upon arrival of goods, interest for buyer's account.

"Remarks: Sellers will either invoice these goods immediately, in which case buyers will give a trust receipt with sellers' option of filing same, or sellers will ship the goods on memorandum, and final invoice will be rendered only at the maturity of the draft when same will be paid.

"The fulfillment of this contract by the sellers is subject to wars, revolutions, blockades, strikes, acts of Providence, prohibition of export or import of the merchandise sold, delays and/or withdrawals of steamers, all cases of force majeure and consequences thereof, and any other contingency over which the sellers have no control.

"Goods actually shipped, but lost, destroyed, or damaged in course of transportation, shall be deemed delivered under this contract. Hides and/or skins to be of the usual quality and assortment of their kind. No claims shall be valid unless made in writing within two weeks after the goods are delivered. Any controversy or claim made in time under this contract shall be settled amicably or by arbitration in New York City (unless otherwise stated). No claim for difference in kind or quality shall be valid unless at least 90 per cent. of the goods are in original condition and packing. In no case can the goods be left for the sellers' account.

"Goods arrived on dock are deemed delivered to buyers, and sellers may substitute delivery order in place of domestic shipping documents for all purposes of this contract.

"No warranties of any kind (either expressed or implied) form part of this contract, unless specifically set forth in writing. Unless otherwise stated, any sales tax hereafter imposed by the United States government shall be added to the above price.

"Duty, if any, for buyer's account. (This includes both import and export duty.)

"Term c. i. f. does not include war risk unless so stated.

"Each shipment to be considered a separate contract.

"Yours very truly "Schmoll Fils & Co., Inc "Accepted: Ford-Rennie Leather Co., "Signed James I. Ford, "Treas., Buyer."

Three days later Schmoll Fils & Co. wrote the bankrupt thus:

"We understand these skins have arrived at your tannery, and in order that you could take prompt delivery we surrendered bill of lading to the New York agents of the B. & O. Railroad, with instructions to wire release of this merchandise to the agent at Wilmington. * * * Draft and trust receipt will follow by next mail."

On December 10 Schmoll Fils & Co. again wrote the bankrupt as follows:

"New York, December 10, 1923.

"Messrs. Ford-Rennie Leather Co., Dupont Building, Wilmington, Del. — Gentlemen:

2 F.2d 752

Inclosed is draft for $13,870.09 maturing March 7th, covering invoice of December 4th, of 38 bales Cordoba goatskins, plus interest and revenue stamp charges as per the inclosed statement.

"We also inclose trust receipt covering this merchandise. Please accept our draft and sign the trust receipt, returning it to us as promptly as possible.

"Very truly yours, "Schmoll Fils & Co., Inc., "Signed P. L. Fox, Cashier."

The draft was accepted and the trust receipt signed by the bankrupt, and both were returned to Schmoll Fils & Co. The trust receipt is in the following language:

"Received from Schmoll Fils & Co., Inc., New York, the merchandise specified in the bill of lading, the property of Schmoll Fils & Co., Inc., viz.: 20,002 twenty thousand two Cordoba goatskins, marks: S Argentina 365-367/370 372-384/394 418/421-423/ 425 427/429-431/435 437/438 447/450, pledged under the terms of their acceptance dated December 10, 1923, for ($13,870.09) thirteen thousand eight hundred seventy dollars nine cents issued by us for our account. In consideration of the delivery of said merchandise as the property of Schmoll Fils & Co., Inc. (with liberty only to manufacture), until all bills of exchange, trade acceptances or notes given by us to the said Schmoll Fils & Co., Inc., for the purchase price thereof shall have been paid.

"We agree to keep said property insured at its full value against loss or damage of any nature, by fire, or otherwise, insurance payable in case of loss to the said Schmoll Fils & Co., Inc., for its account with the understanding that the said Schmoll Fils & Co., Inc., is not to be chargeable with any expenses incurred thereon.

"Schmoll Fils & Co., Inc., may cancel this trust, and take possession of said goods wherever the said goods may then be found, in the event of any suspension or failure, or bankruptcy, or assignment for the benefit of creditors on our part, or of the nonpayment at maturity of any obligation or acceptances made by us for or in connection with said merchandise.

"The intention of this agreement is to protect and preserve unimpaired the ownership and right of the said Schmoll Fils & Co., Inc., in and to said merchandise in whatever form or condition it may be and to give said Schmoll Fils & Co., Inc., all rights in respect to said merchandise until the purchase price thereof has been fully paid. 38 bales Cordoba goatskins lot 19, stamped Z 3.

Dated: New York, December 11, 1923. "Ford-Rennie Leather Co., "James I. Ford, Treasurer."

Many of the skins came into the possession of the trustee in bankruptcy. Others were destroyed by fire before the adjudication in bankruptcy, and the bankrupt received the insurance money therefor. The draft was not paid in whole or in part by the bankrupt. The petitioner seeks to have the remaining skins returned to it and the insurance money received by the bankrupt for the burned skins paid to it. The trust receipt was recorded in the office designated by the statute of the state of Delaware for the recording of conditional sales contracts and chattel mortgages. The memorandum of December 5 was not recorded.

Is the title to the remaining skins in the petitioner or in the trustee in bankruptcy? One of the things essential to be considered in this connection is the legal nature and effect of a trust receipt. The most comprehensive discussion of the trust receipt that I have found or to which I have been referred is the monograph of Mr. Karl T. Frederick published in the issues of the Columbia Law Review for May and June, 1922. Mr. Frederick says that in the typical case the trust receipt is used when R., an importer, desiring to obtain from abroad merchandise for manufacture or sale in this country, requests his bank to issue a letter of credit authorizing A. B. & Co., from whom the goods are to be purchased abroad, to draw their drafts upon the bank for the cost of the goods to be...