In re Lexington Appliance Company, 10988.

• Decision Date: 16 March 1962
• Docket Number: No. 10988.,10988.
• Citation: 202 F. Supp. 869
• Parties: In the Matter of LEXINGTON APPLIANCE COMPANY, Inc., Bankrupt.
• Court: U.S. District Court — District of Maryland

202 F. Supp. 869

In the Matter of LEXINGTON APPLIANCE COMPANY, Inc., Bankrupt.

No. 10988.

United States District Court D. Maryland.

March 16, 1962.

Louis J. Sagner, Baltimore, Md., for Sanford A. Harris, Trustee.

Morris A. Baker, Baltimore, Md., for Allied Appliance Distributors, Inc.

WINTER, District Judge.

This petition to review the decision of the Referee in Bankruptcy challenges the determination by the Referee that certain merchandise in the possession of the bankrupt, and delivered to it by Allied Appliance Distributors, Inc., was on consignment, and that title did not pass to the Trustee.

After the bankrupt had consented to an order of adjudication, and while a receiver was in possession of the bankrupt estate, an order was passed authorizing the receiver to sell electrical appliances and kindred products and merchandise at public auction. Allied Appliance Distributors, Inc. (Allied) then filed its petition seeking a return of certain described appliances which it claimed were delivered to the bankrupt under an agreement whereby title to the merchandise remained with Allied until the merchandise was paid for by the bankrupt. Allied and the receiver agreed that the public sale should proceed and that the claim of Allied, if any, should be transferred to the proceeds derived from the sale. After full hearing, the Referee directed the Trustee to pay $3,043.80 to Allied, and the Trustee questions the correctness of this determination.

The formal findings of fact of the Referee, made after all testimony was considered, included, inter alia, the following:

"(3) On July 11, 1956 petitioner Allied shipped radios, television sets and phonographs to the bankrupt. The invoice for this shipment shows in the blank where the word `Terms' is printed the typewritten words `Trust Receipt.'

"(4) Thereafter from March 21, 1957 to August 14, 1958 petitioner shipped additional merchandise to the bankrupt under invoices which indicate that the terms were either `Trust Receipt' or `Net 10 days.' The great majority of these invoices bear the typewritten notation: `Title of said merchandise remains with Allied Appliance Distributors, Inc. until said merchandise is paid for.'

"(5) The bankrupt, by authorized agent, signed a copy of these invoices and thereby acknowledged receipt of the merchandise but the petitioner did not file a statement of trust receipt financing as authorized by Maryland law. The parties did not intend to enter into trust receipt transactions.

"(6) Petitioner's books indicate that when merchandise was delivered to the bankrupt entries were made debiting sales and crediting accounts receivable. At the end of the year, petitioner included those articles supplied to the bankrupt and not sold by it in the inventory of petitioner's goods. In addition, petitioner carried fire insurance in the amount of $10,000.00 upon `merchandise on consignment' which was intended to cover merchandise at the two places of business of the bankrupt. Petitioner also took a complete count of all merchandise supplied to the bankrupt and on hand once a month. Petitioner from time to time recalled merchandise which had been supplied to the bankrupt.

"(7) The bankrupt was given a duplicate of the petitioner's ledger cards covering merchandise supplied. The bankrupt was not called upon to pay for merchandise supplied in accordance with this agreement until the goods were sold by it except in a few instances where items supplied by the petitioner were found to be missing and the bankrupt paid for them even though they had apparently been stolen and not sold. The evidence does not disclose that the petitioner controlled the price to be charged by the bankrupt. When the merchandise was sold by the bankrupt, the bankrupt was not required to segregate the proceeds of the sale. The bankrupt would remit the invoice price of the goods supplied by petitioner and sold by the bankrupt within one month after the date of the sale by it. The remittance would identify the article or articles sold. The bankrupt was allowed to return merchandise supplied by the petitioner when the bankrupt felt that it was overstocked or in the case of air conditioners when the season for such goods ended so long as the merchandise was in sealed cartons." (Italics supplied.)

From these findings, the Referee concluded that the arrangement between Allied and the bankrupt was a consignment agreement, that the consignment agreement was not abandoned, and that Allied was entitled to receive the net proceeds of the sale of the merchandise shipped to the bankrupt in accordance with the agreement.

A careful reading of the transcript of testimony presented to the Referee shows that the Referee's findings of fact were amply supported by the evidence, and they are adopted by the Court. When the applicable rules of law are considered, the conclusion of the Referee that the merchandise was in the hands of the bankrupt pursuant to a consignment agreement was manifestly correct.

A consignment is generally defined as a bailment for care or sale, where there is no obligation to purchase on the part of the consignee. The presence or lack of an obligation to purchase or pay for the goods on the part of the consignee is the most important factor in determining whether the agreement may be termed a consignment, because, if the alleged consignee is absolutely bound in all events to pay for the goods unsold, even though title is reserved in the alleged consignor, the transaction is a sale, or at least a conditional sale. These characteristics of a consignment appear from the following authorities: Sturtevant Co. v. Cumberland, Dugan & Co., 106 Md. 587, 617-618, 68 A. 351 (1907); McGaw v. Hanway, 120 Md. 197, 87 A. 666 (1913); In re Sachs, 31 F.2d 799 (D.C.Md.1929); In re Sachs, 21 F.2d 984, 986 (D.C.Md.1927), aff'd. in part, rev. in part, 30 F.2d 510 (4 Cir. 1929); Reliance Shoe Co. v. Manly, 25 F.2d 381 (4 Cir. 1928); 4 Collier, Bankruptcy, § 70.18(5. Collier collects numerous authorities on the point. One, discussing most fully the elements of consignments and stressing that in alleged consignments the principal criterion is the obligation, if any, on the part of the alleged consignor to pay for the goods, is In re National Home & Hotel Supply Co., 226 F. 840 (D.C.E.D.Mich. 1915). The Reliance Shoe case, supra, makes it clear that if there be conflict, the acts of the parties...