In re James, Inc.

• Decision Date: 07 January 1929
• Docket Number: No. 116.,116.
• Citation: 30 F.2d 555
• Parties: In re JAMES, Inc.
• Court: U.S. Court of Appeals — Second Circuit

30 F.2d 555 (1929)

In re JAMES, Inc.

No. 116.

Circuit Court of Appeals, Second Circuit.

January 7, 1929.

Leo Oppenheimer, of New York City (Milton P. Kupfer and Phillip W. Haberman, both of New York City, of counsel), for appellant Commercial Investment Trust.

Tracy, Chapman & Tracy, of Syracuse, N. Y. (John Thomas Smith and Frank A. Gaynor, both of New York City, of counsel), for appellant General Motors Acceptance Corporation.

Costello, Cooney & Fearon, of Syracuse, N. Y., for appellants Syracuse Investment Corporation and Syracuse Mortgage Corporation.

Charles A. Phelps, of Watertown, N. Y., for appellees trustees of James, Inc.

Purcell, Cullen & Pitcher, of Watertown, N. Y. (Henry Purcell, of Watertown, N. Y., of counsel), for intervening respondents.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

MANTON, Circuit Judge.

Receivers in bankruptcy were appointed November 13, 1924, for James, Inc., a corporation. Prior thereto it had a selling agency for motorcars at Watertown, N. Y., and contiguous territory. It financed its purchase of cars through the appellants Commercial Investment Trust, General Motors Acceptance Corporation, Syracuse Investment Corporation, and Syracuse Mortgage Corporation, and the interveners, Northern New York Trust Company, Northern Acceptance Corporation, and Jefferson County National Bank. The securities given took the form of trust receipts in the cases of Commercial Investment Trust and General Motors Acceptance Corporation, chattel mortgages in the cases of the Northern New York Trust Company and Northern Acceptance Corporation, and conditional sales contracts in those of the Syracuse Investment Corporation, Syracuse Mortgage Corporation, and Jefferson County National Bank. Each of the creditors named began reclamation proceedings against the trustees to recover motorcars claimed as their property. The proceedings were consolidated into one. The automobiles were sold under written stipulation of all the parties, and the claims of the respective parties, it was agreed, should attach to the fund with the same force and effect as if the automobiles had not been so sold.

The practice followed, when loans were made by the Commercial Investment Trust and General Motors Acceptance Corporation, was that when James, Inc., wished a shipment of cars from the manufacturer, it purchased under order and requested that they be shipped to it, and notified the Commercial Investment Trust or General Motors Acceptance Corporation of this fact. The cars were shipped by the manufacturer, with sight draft attached to the bill of lading; both sight draft and bill of lading indorsed in blank by the manufacturer were sent to a local bank and held pending the completion of the transaction. James, Inc., sent to the bank, in the case of the Commercial Investment Trust, 20 per cent. of the sight draft, and, in the case of the General Motors Acceptance Corporation, 15 per cent. thereof.

In the case of the Commercial Investment Trust, the bank paid the sight draft with the funds furnished by it and made remittance to the manufacturer. It then required James, Inc., to pay 20 per cent. of the draft and execute a trust receipt and certain time drafts or acceptances to it for payment of the balance of the purchase price, all of which was delivered by James Inc., to the bank. It then in turn received the bill of lading under which the motorcars were obtainable. In the instance of the General Motors Acceptance Corporation, the bank received 85 per cent. of the sight draft from that corporation, and James, Inc., paid 15 per cent. to the bank and received the bill of lading. In both instances, however, James, Inc., had an investment of 20 per cent. or 15 per cent. of the cost of the motorcar before it signed the trust receipts, and it then took actual possession of the cars.

The Commercial Investment Trust provided in its receipt: "In consideration whereof we agree at our expense to hold said motorcar vehicle in trust for C. I. T. as their property and agree to return the same on demand in good order and unused, but with liberty to us to exhibit and sell the same for their account for cash for not less than $509.58, the intention being to preserve unimpaired, C. I. T.'s title thereof, * * * and we further agree in the case of such sale to keep the proceeds separate from our funds and immediately hand such proceeds to C. I. T. We further agree to keep a separate account of all motor vehicles delivered to us on this or any like receipt."

The General Motors Acceptance Corporation receipt differed from the Commercial Investment Trust, in that there was an agreement not to sell, loan, deliver, pledge, or mortgage or otherwise dispose of the motorcars to any other person without payment of the amounts shown on the original release orders held by the bank of like identification number and permission was given by the indorsement of the bank on record of release.

The trust receipts of the Commercial Investment Trust concerned 27 cars, and of these 22, either before or immediately after their purchase by the Commercial Investment Trust, were attempted to be liened by the Northern Acceptance Corporation under an alleged chattel mortgage. In obtaining this security, it attempted to take cars, at least in part, still in the possession of the common carrier, after ascertaining the serial numbers from memoranda invoices of the manufacturer then in the hands of the bankrupt. These chattel mortgages were all executed in bulk accounts, to replace prior defalcations of security underlying prior indebtedness, and without the advancement by it of any additional funds.

Of these 22 cars, 5 were also liened to the Syracuse Mortgage Corporation under date of November 8, 1924, and 29 other cars, which were subject to trust receipts of the General Motors Acceptance Corporation, were also liened by the Syracuse Mortgage Corporation. The latter had done business with the bankrupt for months before the Commercial Investment Trust transactions took place. The District Court held that the chattel mortgages were invalid for noncompliance with section 16 of the state Stock Corporation Law, relating to stockholders' consents, but further held that the appellants, holders of trust receipts, were unable to assert their invalidity. It is not shown that either of the trust receipt holders, appellants, knew or had reason to believe that the bankrupt's financial condition was unsound when it took its securities. The financial statements given by the bankrupt justified both of these trust receipt holders making the advances which they did.

The conditional contracts of sale taken by the Northern New York Trust Company, the Northern Acceptance Corporation, and the Jefferson County National Bank have been declared to be invalid as a preference security, and each of these interveners are now, by the decree, in the position of general creditors. They have not appealed, but appear and urge the affirmance of the decree below.

The Syracuse Mortgage Corporation and its affiliated company, the Syracuse Investment Corporation, in making its advances or loans, had the bankrupt execute a bill of sale to the Syracuse Investment Corporation, and the latter in turn executed a bill of sale to the Syracuse Mortgage Company, and the Syracuse Mortgage Company entered into a conditional sales contract with the bankrupt. A conditional sales contract contemplated a vendor and vendee, not a lender and borrower of money. The instruments of the Syracuse Mortgage Corporation, from October 8th until the receivership, involved many large accounts and covered many motorcars, and such were not purchased in the ordinary course of the automobile trade by it. Its officers had knowledge of the financing of the appellants General Motors Acceptance Corporation and Commercial Investment Trust.

The court below held that the Personal Property Law (section 43, subd. 1 Consol. Laws, c. 41) did not inure to the benefit of the trustees in bankruptcy, but that the trust receipts must be treated as conditional sales agreement, holding that the title never passed to the signer of the trust receipts, but went directly from the manufacturer to the finance corporation, saying: "This court * * * will hold that the trust receipts, so called, are conditional contracts of sale, rather than chattel mortgages, and are void for lack of filing." With respect to the Syracuse companies, the court held that they were not conditional sales contracts, as they purported to be in form, but chattel mortgages, and that as such, as against the trustees in bankruptcy, they were invalid for noncompliance with section 16 of the Stock Corporation Law (Consol. Laws, c. 59), and that the trust receipt holders were not in a position to assert the invalidity of these chattel mortgages.

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