In re A.E. Fountain, Inc., 182

• Decision Date: 03 July 1922
• Docket Number: 303.,182
• Citation: 282 F. 816
• Parties: In re A. E. FOUNTAIN, Inc. In re CARL DERNBURG & SONS, Inc.
• Court: U.S. Court of Appeals — Second Circuit

282 F. 816

In re A. E. FOUNTAIN, Inc. In re CARL DERNBURG & SONS, Inc.

Nos. 182, 303.

United States Court of Appeals, Second Circuit.

July 3, 1922

In the first case, the bankrupt, an importer, manufacturer, and dealer in dolls, borrowed $3,000 from the respondent on March 9, 1921, giving a demand note and as security therefor a document, purporting to be a trust receipt of certain merchandise then owned by and in possession of the bankrupt which read as follows:

'Trust Receipt.

'In consideration of the sum of three thousand dollars ($3,000) to us this day loaned by the Bank of the Manhattan Company 31 Union Square, New York, we have set aside as the property of the said bank the following goods and merchandise, as specified in the schedule hereto annexed. And in consideration of the said loan we hereby agree to hold said goods in trust for them and as their property, with liberty to sell the same for their account, but without authority to make any other disposition whatever of the said goods (or the proceeds thereof), either by way of conditional sale, pledge, or otherwise, and further agree, in case of sale, to hand the proceeds to them as soon as received to apply against the demand loan of $3,000 by said Bank of the Manhattan Company for our account, and for the payment of any other indebtedness or obligation of ourselves to them.

'We agree to keep said goods insured to their full value against fire, payable in case of loss to the said Bank of the Manhattan Company, with the understanding that they are not to be chargeable with the storage, premiums of insurance, or any other expenses incurred on said goods. We further agree that no failure or omission on our part to fully carry out any of the terms of this or any similar receipt or agreement, or of the agreement under which the said Bank of the Manhattan Company, makers of the loan of $3,000, shall be deemed a waiver by said bank of any of its rights or remedies, under either or any of said papers, unless said waiver shall be in writing, indorsed thereon, and signed by the said bank.

'The Bank of the Manhattan Company may at any time cancel this trust, and take possession of said goods, and of the proceeds of such of the same as may then have been sold, wherever the said goods or proceeds may then be found. The intention of said agreement is to protect, and preserve unimpaired, the title of said Bank of the Manhattan Company to the said merchandise and the proceeds thereof.

'A. E. Fountain, Inc.,

'A. E. Fountain, Jr., Treas.

'Dated New York, March 9, 1921.

"Schedule.
10 Doz. 198 @ $ 33.00 Doz.....................................	$ 330.00
20 " 200 " 41.00 ".......................................	820.00
20 " 200 " 41.00 ".......................................	820.00
20 " 280 " 56.00 ".......................................	1,120.00
10 " 201 " 64.00 ".......................................	640.00
10 " 201C " 76.50 ".......................................	765.00
20 " 203 " 73.00 ".......................................	1,460.00
10 " 302 " 104.00 ".......................................	1,040.00
	---------
	$6,995.00

"The above merchandise consisting of fully manufactured dolls, has been set

aside in accordance with trust receipt, dated March 9, 1921, to secure demand

loan of $3,000 of the same date.

A. E. Fountain, Inc.

'A. E. Fountain, Jr., Treas.'

A. E. Fountain, Jr., the treasurer of the bankrupt, who executed the trust receipt on its behalf, has made affidavit that: 'At or about the same time I saw to it that certain quantities of goods, of certain lot numbers, were upon the shelves of A. E. Fountain, Inc., and I thereupon listed such goods, which I had in mind as being the subject of the trust receipt, and thereupon signed in behalf of A. E. Fountain, Inc., the statement to the effect that the goods mentioned in the document had been set aside. These goods, which I saw to it were upon the shelves of A. E. Fountain, Inc., in the quantities mentioned in said document, stating that they had been set aside, were the goods which I referred to in said document as having been set aside. I understood that A. E. Fountain, Inc., had the right to sell all or any of said goods.'

In the affidavit of A. E. Fountain, Sr., the president of the bankrupt, he has stated: 'That at no time were any manufactured dolls or other merchandise set aside, or marked, or appropriated, or in any other shape, manner, or form designated as belonging to the Bank of the Manhattan Company, or as holding as collateral for the said bank in connection with the note of A. E. Fountain, Inc., to the bank for $3,000, dated March 9th, 1921, and the trust receipt of the same date. That on the contrary despite the note and trust receipt, the business of A. F. Fountain, Inc., was at all times before and after March 9, 1921, and until the bankruptcy herein, conducted in the ordinary manner. When dolls were manufactured they were placed in cardboard boxes on shelves in the stock room of A. E. Fountain, Inc., at No. 352 West Thirteenth street. In the regular course of business, sales were made and dolls were taken from the shelves in the stock room at random (except, of course, that dolls of the particular style, pattern, etc., called for were selected), to apply against the said orders. That before and after March 9, 1921, various and sundry sales of dolls were thus made, including sales of dolls of the pattern, style, etc., mentioned in the schedule annexed to the trust receipt of March 9, 1921. That the said sales were filled by taking dolls from the stock room shelves in the manner above set forth. That none of such sales were made for the account of the bank, nor were the proceeds received therefrom turned over to the bank or held for its account.'

On July 20, 1921, an involuntary petition in bankruptcy was filed against A. E. Fountain, Inc. Robert P. Stephenson was appointed receiver, and there were found among the assets of the company 30 dolls less of style No. 198, 79 less of style No. 200, and 79 dolls less of style No. 201C, than the number of dolls of those styles set forth in the schedule annexed to the trust receipt. John S. Baker, a vice president of the bank, has stated in his affidavit that, shortly before the petition in bankruptcy was filed, A. E. Fountain, Jr., informed him 'that he was at any time able to pick out the merchandise called for in said trust receipt. ' The debt due the bank remained unpaid, and the latter demanded of the receiver that he deliver possession to the bank of the merchandise on hand mentioned in the schedule. This demand was refused, whereupon a petition was filed in the District Court, praying for such delivery, and an order was made directing delivery, from which this appeal was taken.

It seems evident from the foregoing syllabus of the affidavits filed in the District Court that the merchandise sought to be covered by the trust receipt was ostensibly part of the stock in trade of A. E. Fountain, Inc., and was essentially treated as such.

In the second case. the Irving National Bank loaned $10,000 on June 4, 1921, to the copartnership of Carl Dernburg & Son taking their promissory note for that amount, with interest, and as security a negotiable warehouse receipt for certain fox skins, indorsed in blank by the partnership. Thereafter, and while the debt was still due, the corporation of Carl Dernburg & Sons, Inc., was organized and took over all the assets and liabilities of the partnership. On August 26, 1921, the bank issued to the corporation a delivery order for 1,337 of the fox skins embraced in the warehouse receipt, which the bank held to secure the loan that was still unpaid, and took back from the corporation a so-called trust receipt, the material clauses whereof were as follows:

'New York, 8/26/21.

'Received in trust from Irving National Bank, New York, the merchandise specified in the (bill of lading, or warehouse receipt) described on back hereof, dated June 4, 1920, issued by Fur Merchants' Cold Storage Company, Inc., 238/250 West Twenty-Eighth street, and in consideration thereof the undersigned hereby agrees to hold said merchandise in storage as the property of said bank until all terms hereof have been complied with, with the liberty to sell the same for its account, but without liberty to pledge, and in case of sale to hand, as trust funds so received, the avails as soon as received to the said bank to apply against its loan to the undersigned; and further agrees to hold said merchandise and/or the proceeds thereof in trust for the payment of said loan and of any other indebtedness of the undersigned to said bank. It is understood, however, that, if the proceeds of any sale or disposition of said merchandise shall be in notes or bills receivable, such notes or bills receivable shall be turned over to the bank upon receipt; but they shall not be applied hereunder until paid, but with liberty meanwhile to said bank to sell or discount, and so apply the net proceeds. If the merchandise is sold on open account, the undersigned agrees to mark accounts on its books as being 'assigned to Irving National Bank,' and further agrees to turn over the original checks to the bank when and as received to be applied on the loan. It is further understood that the undersigned may manufacture and remanufacture the above trust property, always taking such precautions as are necessary to properly identify the product, and may also sell the product of the same on the terms above mentioned. When in process of manufacture or remanufacture, so that the product can no longer be identified, the undersigned thereupon agree to keep and hold in

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