Industrial Finance Corp. v. Capplemann

• Decision Date: 21 October 1922
• Docket Number: 1985.
• Citation: 284 F. 8
• Parties: INDUSTRIAL FINANCE CORPORATION v. CAPPLEMANN. In re BURNS MOTOR CO.
• Court: U.S. Court of Appeals — Fourth Circuit

284 F. 8

INDUSTRIAL FINANCE CORPORATION v. CAPPLEMANN.

In re BURNS MOTOR CO.

No. 1985.

United States Court of Appeals, Fourth Circuit.

October 21, 1922

W. C McGowan, of Columbia, S.C. (Benet, Shand & McGowan, of Columbia, S.C., on the brief), for plaintiff in error.

C. W McCants, of Columbia, S.C. (Barron, Frierson, McCants &amp Elliott, of Columbia, S.C., on the brief), for defendant in error.

Before WOODS and WADDILL, Circuit Judges, and GRONER, District Judge.

WOODS Circuit Judge.

In February, 1921, Burns Motor Company, automobile dealers in Columbia, S.C., purchased from Studebaker Corporation six motor cars for cash, paid in this manner: On arrival of bill of lading and sight draft of the Studebaker Corporation Burns Motor Company paid the Bank of Columbia 20 per cent. of the purchase price, and accepted a draft payable at a future day, drawn on it by the Industrial Finance Corporation, for the remaining 80 per cent. With this acceptance the Burns Motor Company executed a 'trust receipt' for the bill of lading in these terms:

'In consideration thereof, it is agreed that the undersigned will hold said property in trust as the property of said Industrial Finance Corporation, for the purpose of storing said property in a clean, dry place, free of charge; that the undersigned has not the right to, and will not, operate or use said property of the Industrial Finance Corporation for demonstration or other purposes, nor loan, rent, mortgage, pledge, incumber, sell or deliver said property except as authorized herein; that the undersigned may sell said property for the account of the Industrial Finance Corporation or holder of said acceptance, for cash or current funds approved by Industrial Finance Corporation, in amount not less than the sum then due on said acceptance, including interest; that the undersigned, upon demand prior to such sale, will return said property unused and in good condition to the order of the Industrial Finance Corporation; that in the event said property shall be sold as provided herein, the undersigned will hold the proceeds thereof in trust and separate from his (its, their) funds, and will forthwith account for and pay over said proceeds or sufficient thereof to satisfy said acceptance with interest, to the Industrial Finance Corporation for the holder of said acceptance. It is understood that nothing herein shall prevent the undersigned, at the time he first takes possession of said vehicle, from driving it direct from warehouse, factory or railroad station to his place of business but at his own risk (except in case of theft or fire), in the event of loss or damage to said car or to other property or to persons.'

The bank forwarded the acceptance and trust receipts with its own draft on the Industrial Finance Corporation, and the Industrial Finance Corporation paid the drafts. None of the papers were recorded.

On or about April 25, 1921, Industrial Finance Corporation being informed that Burns Motor Company had converted other Studebaker cars held by them on like trust receipts, it at once demanded possession of the six cars here in controversy. In pursuance of this demand five of the automobiles were delivered on April 30, 1921, and one on May 4, 1921. The attorneys for Industrial Finance Corporation gave a receipt for them in this form:

'Received of Burns Motor Company the following Studebaker automobiles. * * *

'The above-mentioned automobiles are received for the account of the Industrial Finance Corporation under the terms of certain trust receipts held by said Industrial Finance Corporation, covering said cars, said receipts now being in the possession of the Bank of Columbia. It is understood and agreed that the interest of any person, persons or parties in said automobiles other than the Industrial Finance Corporation will be protected by said Industrial Finance Corporation before said automobiles are disposed of. The above applies particularly to the amounts of the purchase price of each car advanced by the Bank of Columbia.'

According to agreed statement of facts, at the date of these receipts an audit of Burns Motor Company by certified accountants was in progress. This audit, dated May 11, 1921, showed insolvency of Burns Motor Company at the time that the Industrial Finance Corporation took possession of the cars. Insolvency was not then known to Industrial Finance Corporation, but suspicion of insolvency is shown by the statement of Coleman, owner of all the stock of Burns Motor Company, made at the time of the seizure, that if the audit showed solvency the business would be continued, if insolvency some other course would be pursued. Under an involuntary petition filed May 23, 1921, Burns Motor Company was adjudicated bankrupt May 24. There were creditors whose debts were contracted subsequent to the date of the trust receipt transaction, and before possession of the cars was taken by the Industrial Finance Corporation.

Cappelmann, trustee, brought this action to recover the cars on the grounds: (1) That the delivery of the cars to the Industrial Finance Corporation constituted an unlawful preference; (2) that the trust receipts were of no effect against subsequent creditors, and the taking of them by the Industrial Finance Corporation conferred no title or lien against such subsequent creditors. The District Court on the second ground adjudged the trustee entitled to recover the cars.

Section 47 of the Bankruptcy Statute, as amended in 1910 (9 Compiled Stat. Sec. 9631), provides:

'And such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.'

Under section 70, Compiled Stat. Sec. 9654:

'The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication.'

The following are the applicable statutes of South Carolina:

'3542. All deeds of conveyance of land, tenements or hereditaments, either in fee simple or for life; all deeds of trust or instruments in writing, conveying either real or personal estate, and creating a trust or trusts in regard to such property, or charging or incumbering the same; all mortgages or instruments in writing in the nature of a mortgage of any property, real or personal * * * shall be valid, so as to affect from the time of such delivery or execution the rights of subsequent creditors (whether lien creditors or simple contract creditors) or purchasers for valuable consideration without notice, only when recorded within ten days from the time of such delivery or execution in the office of the register of mesne conveyance or clerk of court. * * * '

'3740. Every agreement between the vendor and vendee, bailor or bailee of personal property, whereby the vendor or bailor shall reserve to himself any interest in the same, shall be null and void as to subsequent creditors (whether lien creditors or simple contract creditors) or purchasers for valuable consideration without notice, unless the same be reduced to writing and recorded in the manner now provided by law for the recording of mortgages; but nothing herein contained shall apply to livery stable keepers, innkeepers or any other persons letting or hiring property for temporary use or for agricultural purposes, or depositing such property for the purpose of repairs or work or labor done thereon, or as a...