In re Sachs

• Decision Date: 16 January 1929
• Docket Number: No. 2739.,2739.
• Citation: 30 F.2d 510
• Parties: In re SACHS. JOSEPH v. WINAKUR.
• Court: U.S. Court of Appeals — Fourth Circuit

30 F.2d 510 (1929)

In re SACHS.

JOSEPH v. WINAKUR.

No. 2739.

Circuit Court of Appeals, Fourth Circuit.

January 16, 1929.

Abram C. Joseph and J. Wallace Bryan, both of Baltimore, Md. (Daniel C. Joseph, of Baltimore, Md., on the brief), for appellant.

Louis Mitnick and Randolph Barton, Jr., both of Baltimore, Md., for appellee.

Before PARKER and NORTHCOTT, Circuit Judges, and BAKER, District Judge.

PARKER, Circuit Judge.

This is an appeal from an order entered in a proceeding instituted by the trustee in bankruptcy of Louis Sachs against one Eleazer Winakur for the purpose of recovering from him certain secondhand automobiles or their value. During the progress of the litigation the automobiles were sold under order of court, pursuant to an agreement that the rights of the parties should be transferred to their proceeds. There were two distinct classes of the automobiles, those covered by chattel mortgages and placed in the possession of Winakur at the time of the execution of the mortgages, and those covered by bills of sale and so-called "consignment" contracts and left in possession of the bankrupt until the day before the filing of the petition in bankruptcy, when they were seized under legal process and taken into possession by Winakur. The automobiles covered by the mortgages proper sold for $3,122.37, and those embraced in the bills of sale and consignment contracts for $6,604.60. The District Judge held that Winakur was entitled to the proceeds of both classes, and from this holding the trustee in bankruptcy has appealed.

With respect to the automobiles covered by the chattel mortgages proper, it not only appears that the mortgages were properly recorded, but also, as stated above, that the automobiles themselves were placed in possession of Winakur at the time of the execution of the mortgages and remained there until after the bankruptcy. There can be no question, therefore, that as to the proceeds of these the ruling of the learned District Judge was correct; and counsel for the trustee so admitted on the argument before us. These, then, need not be further considered.

With respect to the proceeds of the automobiles covered by the bills of sale and consignment contracts, however, very different questions arise. It is contended on behalf of the trustee in bankruptcy that the bills of sale were given merely as security for loans made by Winakur; that, although they were duly recorded as bills of sale, the recording amounted to nothing under the laws of Maryland, because the so-called consignment contracts, which were a part of the same transactions, were not also recorded, and that this left Winakur in the position of a mortgagee with an unrecorded mortgage void as against creditors; and that Winakur's position was not helped by the seizure on the day preceding the filing of the petition in bankruptcy, since under the law of Maryland unrecorded chattel mortgages are void as against the rights of all subsequent creditors, and not merely as against the rights of those who have perfected liens. On Winakur's behalf it is contended that his relationship to Sachs with respect to the automobiles covered by the bills of sale was that of bailor and bailee, and it is denied that the statutes of Maryland relied on by the trustee have any application. The contention is made also that, however these questions may be decided, the seizure of the automobiles prior to the filing of the petition in bankruptcy perfected the lien of Winakur before the lien of the trustee attached and defeated any rights which the trustee otherwise might have acquired. Three questions, therefore, are presented for our determination: (1) What was the relationship between Sachs and Winakur with respect to these automobiles? (2) What was the effect under the law of Maryland of the failure to record the consignment agreements along with the bills of sale? And (3) what was the effect of the seizure of the automobiles by Winakur on the eve of bankruptcy?

On the first question, we think that there can be no doubt that the relationship between Sachs and Winakur was that of debtor and creditor, and that the bills of sale were executed by Sachs, not for the purpose of transferring absolute property in the automobiles which they covered, but as security in the nature of a mortgage for money loaned. In the agreed statement of facts it is stipulated that bankrupt began borrowing from Winakur two years prior to the bankruptcy, and continued to borrow until the bankruptcy occurred; that on the first few transactions Winakur charged 3½ per cent. per month interest, but later reduced this charge to 2½ per cent. per month; that in most instances Winakur took from bankrupt a bill of sale covering an automobile and contemporaneously executed a consignment agreement; that the consideration for the automobile in the bill of sale and the "cost value" in the corresponding consignment agreement was the same "and represented the amount of the loan in each case from Winakur to Sachs"; that Winakur holds on each of the automobiles involved in this proceeding either a chattel mortgage or bill of sale and consignment agreement, "in each case securing a loan actually made at the time"; and that, although the rate of interest provided to be paid "on the transactions involved in this proceeding" was 2½ per cent. per month, Winakur now asserts his claim "for interest at the rate of 6 per cent. per annum from the date of the making of the loan in each case."

The bills of sale were in the usual form, and in them bankrupt, for the consideration recited, did "bargain, sell, assign and transfer" to Winakur the automobiles described. The bills of sale were duly recorded; but the consignment agreements, which were executed contemporaneously with them, and which contained the terms upon which the loans were made, were not recorded. These were signed by Winakur and Sachs, the bankrupt. They set forth that Winakur had left in the possession of Sachs at the latter's premises the automobile covered by the bill of sale at a certain "cost value for purposes of this memorandum" (which cost value, it is admitted, was the same as the consideration set forth in the corresponding bill of sale). They contained an agreement that Sachs should be permitted to hold the automobiles and to sell them in the usual course of business, and within 90 days either redeliver them to Winakur or out of the proceeds of sale pay him the "cost value" as shown, with 3½ per cent. per month from date, and that settlement should be made immediately upon sale. They contained provisions, also, that Winakur was to receive the money "absolutely net to him"; that all costs and expenses were to be borne by Sachs; that the automobiles were to be at the risk of Sachs and were to be insured by him; that Winakur was not to be considered a partner, but the relationship was to be that of consignor and consignee; and that Winakur should have the right at any time without notice to take possession of the automobiles and terminate the consignment. At the time of securing the loan in each case, in addition to executing the bill of sale and consignment agreement, Sachs indorsed in blank and delivered to Winakur the automobile title certificate, which Winakur "retained in his possession until the car was sold and the proceeds of the loan repaid."

Upon these facts, which are admitted by stipulation of counsel, it is too clear to admit of argument that what we are dealing with is not a consignment, but a chattel mortgage. Winakur was not in the automobile business, but in the business of lending money. It was evidently not intended that he should have the general property in the automobiles, but merely the legal title as security for the money which he was lending. The bankrupt was to have the right to sell the automobiles at any price that he pleased, and his only obligation was to account to Winakur for the amount of the loan, plus the interest of 3½ or 2½ per cent. per month.

Equity looks through the external forms in which parties may have clothed their transactions and has regard for the substance of their agreements. In this case, however, the form as well as the substance shows that the transactions were mortgages to secure debts and not consignments; for, when the so-called consignment agreement is read in connection with the bill of sale, what we have is a mortgage with a power of sale on the part of the mortgagor, and with the right on the part of the mortgagee to take possession, if sale is not made within a certain time. Manifestly calling such a transaction a consignment does not make it a consignment; for, where personal property is transferred or assigned as security for a debt, the transaction will be regarded as a mortgage of the property, whatever the parties may have called it. 11 C. J. 398-401; 5 R. C. L. 384, 388; Morgan's Assignees v. Shinn, 15 Wall. 105, 21 L. Ed. 87; Title Guaranty & Surety Co. v. Witmire (C. C. A. 6th) 195 F. 41, 44; In re Southern Textile Co. (C. C. A. 2d) 174 F. 523, 526; Kerr v. Gilmore, 6 Watts (Pa.) 405; Smith v. Pfluger, 126 Wis. 253, 105 N. W. 476, 2 L. R. A. (N. S.) 783, 110 Am. St. Rep. 911; Wilcox v. Cherry, 123 N. C. 79, 31 S. E. 369; Dougherty v. McColgan, 6 Gill & J. (Md.) 275, 281, 282; Waters v. Riggin, 19 Md. 536; Gaither v. Clark, 67 Md. 18, 31, 8 A. 740; Funk v. Harshman, 110 Md. 127, 72 A. 665.

As said by the Pennsylvania court in Kerr v. Gilmore, supra: "The result of these cases seems to be, that, if the agreement is in substance a loan of money, no management or contrivance of the lender; no form of expression in the instruments; not even dating the defeasance several days after the deed; not even the lender uniformly stating that he will not have a mortgage, will avail. A sale in form, but which in fact and substance may be avoided by the payment of money within a given time, is and will be held to be a mortgage."

The rule is well stated in 5 R. C. L....