In re Voight-Pros't Brewing Co.

• Decision Date: 15 November 1940
• Docket Number: No. 8290.,8290.
• Citation: 115 F.2d 733
• Parties: In re VOIGHT-PROS'T BREWING CO. MICHAEL YUNDT CO. v. NATIONAL BANK OF DETROIT et al.
• Court: U.S. Court of Appeals — Sixth Circuit

115 F.2d 733 (1940)

In re VOIGHT-PROS'T BREWING CO. MICHAEL YUNDT CO. v. NATIONAL BANK OF DETROIT et al.

No. 8290.

Circuit Court of Appeals, Sixth Circuit.

November 15, 1940.

Malcolm K. Whyte and Herman E. Friedrich, both of Milwaukee, Wis. (Lecher, Michael, Whyte & Spohn, of Milwaukee, Wis., on the brief), for appellant.

Henry H. Sills, of Detroit, Mich. (Butzel, Levin & Winston and Anderson, Wilcox, Lacy & Lawson, all of Detroit, Mich., on the brief), for appellees.

Before HICKS, HAMILTON, and ARANT, Circuit Judges.

ARANT, Circuit Judge.

This appeal arises out of a reclamation controversy in connection with a proceeding under § 77B of the National Bankruptcy Act. 11 U.S.C.A. § 207. The debtor's predecessor, to secure a bond issue of $100,000, had executed to the National Bank of Detroit a trust mortgage covering all its real and personal property then owned and thereafter to be acquired. The indenture trustee and the trustee of the debtor's assets under the reorganization proceeding are appellees herein, though the latter filed no pleadings either here or in the court below.

Appellant, the Michael Yundt Company, of Milwaukee, Wisconsin, sold a bottle washer and pasteurizer, under a title-retaining contract dated April 6, 1936, to the debtor, the Voigt-Pros't Brewing Company, of Detroit, Michigan, which had constructed a new building the previous winter. The machinery was brought into the building through an opening about twelve feet square which had been left in one of the walls and which was subsequently bricked up. The contract provided for installment payments totalling $27,900, of which the debtor had paid approximately $9,500 before default.

The District Court denied appellant's petition to restrain appellees from interference with reclamation of the machinery and from the temporary removal essential thereto of a portion of the wall, and also granted the indenture trustee's prayer that a previous order granting appellant's petition for reclamation be vacated. There were no findings of fact or conclusions of law by the Court.

The indenture trustee contends that the contract under which appellant sold the machinery was in law a chattel mortgage, junior to the trust mortgage, but that, in any event, removal is precluded because the freehold would be substantially injured. Appellant, on the other hand, claims that its agreement with the debtor was a conditional sale; that the machinery never became the property of the debtor within the meaning of § 77B and, therefore, is not subject to the indenture mortgage; that it remains personal property subject to reclamation and that making the necessary temporary opening in the wall will result in no substantial injury to the freehold.

If, as contended by appellant, the machinery was sold under a conditional sale contract, it did not become the property of the debtor and is not subject to the reorganization proceeding. In re Lake's Laundry, D.C., 11 F.Supp. 237, affirmed, 2 Cir., 79 F.2d 326, 328, Learned Hand, J., dissenting, certiorari denied, Lake's Laundry v. Braun, 296 U.S. 622, 56 S.Ct. 144, 80 L.Ed. 422; In re Burgemeister Brewing Co., 7 Cir., 84 F.2d 388. But compare 35 Columbia L.Rev. 1305; 49 Harv.L. Rev. 328; 34 Mich.L.Rev. 579.

The Supreme Court of Michigan has sharply distinguished between a "pure conditional sale" and an "absolute sale" with reservation of title for security only, holding the latter to be in legal effect a chattel mortgage and the intent of the parties the controlling factor in determining the category into which the agreement falls. Burroughs Adding Machine Co. v. Wieselberg, 230 Mich. 15, 203 N.W. 160; Federal Savings Bank v. Clay Machinery Co., 230 Mich. 33, 38, 203 N.W. 166, 43 A.L.R. 1245.

In In re Berghoff Printing Co., 6 Cir., 62 F.2d 493, 494, Judge Moorman stated the test as follows: "Where the instrument specifically reserves title in the seller, the test of this distinction, under the Michigan cases, is whether the seller can retake the goods and then sue for the deficiency in the sale price. If he can do both, the instrument is a mortgage; but, if upon the retaking he can do no more than sue for the rental value of the property or nonperformance of the contract, then it is a conditional sale with title retained in the seller until he elects to sue for the purchase price."

The contract in the instant case differs in no material respect from that considered in the Berghoff Case, supra. Both authorized the seller to retake the machinery upon default and accelerate maturity of negotiable notes given for the price, and neither expressly provided that the seller's remedies should be alternative and not cumulative. Both provided that title should remain in the seller until the purchase price was fully paid and that, upon default, the vendor might reclaim the property and retain payments made as damages for breach of the contract. Neither provided for resale of the property and liability of the vendee for any deficiency.

An agreement that upon default payments may be retained by the seller as compensation for use of the property or as damages for breach of the contract indicates an intention that reclamation shall terminate all rights of both parties under the contract. Such a clause was recently said by the Supreme Court of Michigan to outweigh a provision in the same contract that the vendor's remedies should be cumulative and not alternative. Mills Novelty Co. v. Morett, 266 Mich. 451, 254 N.W. 163. Whatever the earlier Michigan cases intimated, it is now clear that neither the vendee's execution of a promissory note for the balance due on a chattel, his agreement to pay taxes on it, nor his promise to insure it for the vendor's benefit converts an instrument that in other respects is a...