In re Nickulas, 10341.

• Decision Date: 18 January 1954
• Docket Number: No. 10341.,10341.
• Citation: 117 F. Supp. 590
• Parties: In re NICKULAS. REFRIGERATOR DISCOUNT CORP. v. TATELBAUM.
• Court: U.S. District Court — District of Maryland

117 F. Supp. 590

In re NICKULAS.

REFRIGERATOR DISCOUNT CORP. v. TATELBAUM.

No. 10341.

United States District Court D. Maryland.

January 18, 1954.

Solomon Levin, Baltimore, Md., for claimant.

Irving B. Grandberg, Baltimore, Md., for trustee.

CHESNUT, District Judge.

In the course of administration of the bankruptcy estate of Francis A. Nickulas, individually and trading as Manor Sales Furniture Store, the Refrigerator Discount Corporation (hereinafter called "Redisco") filed a petition for the reclamation of ten articles consisting of eight refrigerators, a freezer and a range, on the ground that the title to these articles had never passed to the bankrupt or to the trustee but were retained by Redisco under the authority of the Maryland statute known as the Trust Receipts Act, Article 95½, § 1 et seq., of Flack's Annotated Maryland Code of 1951. This Act was considered and discussed by this court in the case of In re Yost, D.C.Md., 107 F.Supp. 432. In that case it was held, affirming the order of the referee, that the claimant had not sufficiently complied with the Trust Receipts Act, but the nature and scope of the Act were considered by the court at some length and need not here be repeated as reference can readily be made to the opinion in the Yost case.

The trustee in bankruptcy filed a brief answer to the petition of Redisco neither admitting nor denying the averments of the petition but calling for strict proof. In due course thereafter the referee held a hearing at which some oral testimony was submitted, and on April 23, 1953, the referee passed his order denying the petition of Redisco. The latter duly filed its petition for review which is the matter now before the court. The certificate of the referee filed June 2, 1953 is a somewhat fuller statement of his findings and conclusions than appeared in his prior order.

The reason assigned by the referee for denying the petition of the claimant was put on two grounds. First, as to all ten articles he relied on sections 18 and 20 of Art. 2 of the Maryland Code, which in rather involved language, provides that persons doing a mercantile business as an agent for another or in a name other than his own must file in the clerk's office of the appropriate city or county a designation of the name and address of the true owner of the business; and if he fails to do so any creditor can sue the debtor in the name of the agent of the true owner of the business and subject any property on the premises to satisfy his claim. For the application of that Maryland statute to this case the referee points out that the bankrupt in the instant case was named Nickulas who, however, was trading as Manor Sales, or sometimes as Manor Sales Furniture Store (as stipulated by counsel in this case), and secondly, that in complying with the Maryland Trust Receipts Law Redisco filed a statement with the State Tax Commission stating that the trust receipts financing was to be done by Manor Sales. The referee also held that as to two of the ten articles there was not a sufficient description given in the trust receipts to identify the articles. I will discuss these two points separately.

On the first point as to the application of Art. 2, §§ 18 and 20, of the Maryland Code the referee relied on a decision of Judge Soper in 1927 (when District Judge) in In re Eichengreen, Reliance Shoe Co. v. Manly, D.C., 18 F.2d 101. It will be noted, however, that the main point decided in that case was that the claimant relied on a contract as a consignment but Judge Soper held that it was rather in the nature of a contract of sale or a conditional contract which had not been recorded as required. The point in the opinion relied on by the referee was a subordinate contention of the receiver in bankruptcy based on sections 18 and 20 of Art. 2 of the Maryland Code. The referee apparently did not note that the case was appealed to the Fourth Circuit, Reliance Shoe Co. v. Manly, 25 F.2d 381, and affirmed by the Court of Appeals on the point first mentioned, the opinion on appeal stating that it was found unnecessary to consider the second point. And with regard to the applicability of the second point in the Eichengreen case, there is an apparent difference on the facts when compared with the instant case. It is noted by Judge Soper in discussing the second point that the claimant had furnished to the bankrupt more than 50% of his stock in trade; while in the instant case the figures are quite different with respect to Redisco. Here the bankrupt's total indebtedness was about $145,000, of which amount about $98,000 were for secured claims of one kind or another, and of the secured claims Redisco was a security creditor to the extent of only $27,000 based on conditional sales, as to which there is no present dispute so far as I am advised, and more importantly the value of the ten articles sought to be reclaimed here under the Trust Receipts Act was only about $2,000.

In passing it may also be noted that the opinion in the Eichengreen case on the second point relies to a considerable extent on several cases in the Fourth Circuit dealing with the effect of a Virginia statute, § 5224 of the Factor's Act, Va.Code 1919, presently § 55-152 of the Va.Code of 1950, which, as will now be noted, apparently differs in at least some material respects from the Maryland statute. The Virginia statute requires that the true name of the owner must be posted on a sign on the place of business. It therefore seems to fall in the category of such statutes as are called "sign" statutes. The Maryland Act, however, does not require the posting of a sign on the place of business but merely the filing of a certificate with the clerk of the court. Its category, therefore, is in the nature of a "recording" statute.¹

In a later case in this court Judge Coleman also considered the application of sections 18 and 20 of Art. 2 of the Maryland Code which was cited by the trustee in bankruptcy against a petition for reclamation based on a consignment for sale. In re Sachs, D.C., 31 F. 2d 799, 800. He held that those sections were not controlling by reason of section 9 of Art. 2 of the Maryland Code which provides:

"`the owner of any such goods, wares or merchandise in the hands of an agent or factor, unsold and not pledged, may demand and recover the same from such agent or factor, or trustee of such agent or factor in the event of his insolvency and in preference of all other creditors of such agent or factor.'"

Judge Coleman's opinion in 1929 did not refer to the prior Eichengreen case and I have not been able to find that either sections 18 and 20, or section 9 of Art. 2 of the Maryland Code have been considered or applied by the Court of Appeals of Maryland with respect to such a situation as we have in the instant case. See, however, Mundon v. Taxicab Co., 151 Md. 449, 455, 135 A. 177; Syriani v. Gebhart, 195 Md. 69, 72 A.2d 766.

But more importantly I think it is to be noted that the Maryland Trust Receipts Act passed in 1941 is very much later in date than sections 18 and 20 of Art. 2 enacted in 1922, and long after the decisions by Judges Soper and Coleman. The dominant point in this case is whether the claimant has substantially complied with the requirements of this later Act. The last section provides that "This article may be cited as the Uniform Trust Receipts Act." This uniform Act has been passed in many other states, by at least 29 up to 1951. It seems to have been designed to enable small business dealers, without large capital, to procure merchandise for resale and at the same time protect prospective creditors of the dealer by giving recorded notice of the particular form of financing the business. Its wide adoption by a majority of the states indicates that it has found large favor as a new form of business financing. While I am not aware of any decision in the Maryland Court of Appeals, it seems a reasonable inference that in view of its wide adoption it should be liberally applied in business matters where there has been a reasonably full and substantial compliance with the requirements of the Act. The referee himself expressed this view in another connection.

Counsel for the trustee contends that there was an obligation on the claimant to comply not only with the Trust Receipts Act but also to see that the bankrupt had complied with sections 18 and 20 of Art. 2; but my view is that the Trust Receipts Act itself dispenses with that additional requirement because section 16 provides:

"16. (Election Among Filing Statutes.) As to any transaction falling within the provisions both of this Article and of any other act requiring filing or recording, the entruster shall not be required to comply with both, but by complying with the provisions of either at his election may have the protection given by the act complied with; except that buyers in the ordinary course of trade as described in sub-section (2) of Section 9, and lienors as described in Section 11, shall be protected as therein provided, although the compliance of the entruster be with the filing or recording requirements of another act."

The purpose of the Act is to protect the entruster where he complies with the Trust Receipts Act. That Act does not require him to do more. Section 16 is seemingly to the contrary. The Uniform Trust Receipts Act is a complete and independent Act of itself and when complied with protects the "entruster" of the goods against attack by the trustee in bankruptcy. See Coin Mach. Acceptance Corp. v. O'Donnell, 4 Cir., 192 F.2d 773, upholding a claim of an "entruster" who had complied with the Virginia Trust Receipts Act against the contentions of the trustee in bankruptcy based on recent amendments of the Bankruptcy Act. My conclusion is that Art. 2, §§ 18 and 20 of the Maryland Code do not apply to the instant case.

The objection to the validity and enforceability of the trust receipts as a whole is based only on...