In re Grand Union Co.

• Decision Date: 15 December 1914
• Docket Number: 87.
• Citation: 219 F. 353
• Parties: In re GRAND UNION CO.
• Court: U.S. Court of Appeals — Second Circuit

219 F. 353

In re GRAND UNION CO.

No. 87.

United States Court of Appeals, Second Circuit.

December 15, 1914

On Petition for Rehearing, January 22, 1915.

This cause comes here on petition to revise and appeal from a final order made and entered in the United States District Court for the Southern District of New York on June 8, 1914 denying a motion made by the Hamilton Investment Company for an order directing the receiver and trustee of the Grand Union Company to account to it for any and all moneys that he had collected or that had come into his possession from the Grand Union Company out of certain leases and for other relief.

The Grand Union Company is a corporation organized under the laws of the state of New York, which maintained a place of business at No. 311 Third avenue, borough of Manhattan, city of New York. It was engaged in the business of selling pianos upon the installment plan and giving leases instead of bills of sale to the purchasers; the purchasers agreeing to pay weekly or monthly, as the case might be, for the pianos purchased. The Hamilton Investment Company is a corporation organized under the laws of the state of Illinois and having its principal office in Chicago in that state.

On January 20, 1912, the Grand Union Company and the Hamilton Investment Company entered into a contract with each other in which the former agreed to 'sell' and the latter agreed to 'buy' from time to time piano leases. Portions of the contract follow:

'First. First party hereby agrees to sell and second party agrees to buy from time to time such of said contracts which shall draw 6 per cent. interest per annum, and which second party shall indicate will be acceptable to it, paying therefor 70 per cent. of the face value thereof, upon delivery duly assigned and guaranteed and their acceptability duly indicated by second party, and paying a further 20 per cent. of the face value of said contracts as nearly as practicable in quarterly installments, but not to exceed 20 per cent. of the amounts that shall from time to time be thereafter collected upon said contracts until a total of 90 per cent. shall have been paid, as the full purchase price of said contracts.

'When first party shall sell pursuant hereto contracts which shall have been given by divers purchasers payable in installments, and any of which shall not be promptly met, first party shall promptly repurchase any such contracts so in arrears for cash at par for the balance uncollected thereon, or substitute therefor other acceptable contracts of equal value and shall then also pay cash for such portions as shall be then in default.

'Second. First party shall in every case execute an absolute assignment and guaranty satisfactory in form to second party of all its right, title, and interest in and to each of the contracts which upon delivery second party shall control, and second party shall thereafter be alone entitled to receive all moneys due and owing thereon and shall have sole and exclusive charge of the collections of same.

'And whereas, the business of first party is such that it is deemed desirable that the collections on the contracts shall be made at its own office or place of business, it is therefore agreed that first party shall have the right to designate some acceptable person to act as agent of second party to receive all moneys in behalf of second party and to do such other work in connection therewith as the second party may desire. First party hereby guaranteeing and holding itself responsible for the acts of such agent and agreeing that it will see that such agent execute and give acceptable surety bond to protect the interests and rights of second party in the discharge of said acts and duties. By way of remuneration of such services second party hereby agrees to pay said agent the sum of twenty-five dollars per month and it is understood that second party shall at any time in the exercise of its own judgment have power to remove or dismiss from its employ any such agent and replace him by another.

'Fourth. First party hereby guarantees the prompt payment of the principal and interest of all such contracts.

'Fifth. It is agreed and understood that in the event of nonpayment at maturity of any of the installments of principal or interest on any of said contracts by reason of the insolvency of the debtors or for any reason, then second party is hereby given the right and option without notice to apply any moneys in its hands or that may thereafter come into its possession, belonging to said first party in settlement and discharge of such installments so in default. * * *

'In the event of failure or refusal of any debtor to retain the merchandise after delivery to him, the title thereto shall revert to and remain in second party until the amount due on any such contracts is fully paid and discharged. * * *

In the event of the failure or refusal of the debtor indicated in any of said contracts for any reason whatsoever to pay the whole amount due upon any contract so purchased or to be purchased by it hereunder, and if first party shall have failed to repurchase the same within the time herein provided, then second party is hereby authorized if it sees fit to institute such legal proceedings as in its judgment or of its attorney may be necessary or proper to enforce the payment of any such contract. First party expressly agrees to pay and reimburse second party for all costs, expense, including attorney's and stenographer's fees, which may be incurred thereby.'

On January 2, 1913, an involuntary petition in bankruptcy was filed against the Grand Union Company in the District Court for the Southern District of New York and a receiver and trustee were successively appointed in such proceeding. Thereafter, because of the interference by the receiver with the collection by the Hamilton Investment Company of the installments due and payable on the piano leases purchased from the Grand Union Company, the Hamilton Investment Company made application to the District Court for an order permitting it to proceed with the collection of the balances due on all of the leases purchased by it from the bankrupt, and restraining the receiver from in any manner attempting to collect any of the installments maturing under the leases, and directing him to account for any and all moneys that he had collect, or that had come into his possession from the bankrupt arising out of any or all of said leases. It was alleged that prior to the filing of the petition in bankruptcy the Grand Union Company collected on the leases certain moneys amounting approximately to $2,898.33, which under the contract belonged to the Hamilton Investment Company, and which had not been turned over to it. It was also alleged that the receiver had collected or was about to collect all amounts due under the leases assigned and that he intended to include the same in the general fund and assets of the bankrupt estate. The Hamilton Investment Company claims to be the true and lawful owner of the leases assigned to it under the contract.

The trustee opposing the application of the Hamilton Investment Company claims that the contract is not a contract for the sale and purchase of leases, but one providing for loans with the leases as security; that such a contract of loan is contrary to the charter of the petitioner and the statutes of Illinois and is ultra vires and void; that it is contrary to the Banking Law of the state of New York; that the relation between the petitioner and the bankrupt is that of debtor and creditor; that the relief sought should be denied and judgment entered ordering the delivery to the trustee of all the leases assigned by the bankrupt to the petitioner.

Henry J. & Charles Aaron, of Chicago, Ill., for appellant.

Myers & Goldsmith, of New York City (Henry A. Heiser, of New York City of counsel), for appellee.

Before LACOMBE, WARD, and ROGERS, Circuit Judges.

ROGERS Circuit Judge (after stating the facts as above).

The court below denied the petitioner's application because in its opinion the contract was in reality not a contract for the purchase and sale of piano leases as it purported on its face to be, but was one providing for loans with the leases as security. The court was also of the opinion that such a contract of loan was contrary to the charter of the petitioner and the existing statutes of the state of Illinois and was ultra vires and void. It also adjudged the contract to be in violation of the Banking Law of the state of New York, and it held that the transactions between the bankrupt and the petitioner created a relation of debtor and creditor. Judgment was accordingly entered ordering the delivery to the trustee of all the piano leases assigned by the bankrupt to the petitioner, and the petitioner was ordered to account to the trustee for moneys which it had collected on the leases subsequent to the receivership. It was also ordered that all moneys received under the contract by the petitioner prior to the filing of the involuntary petition in bankruptcy should be credited by it to an amount not exceeding the sum actually paid and advanced by it to the bankrupt upon leases in reduction of the indebtedness for moneys paid by it to the bankrupt.

We have to determine in the first place, therefore, whether error was committed in holding that the contract into which these parties entered was one of loan and not of sale. The kind of business the petitioner is engaged in has grown within the past few years to large proportions. There are a number of concerns in different parts of the United States which are engaged in the same kind of transactions. The question involved is new and the case may almost be said to be one of first...