James Talcott, Inc. v. Associates Discount Corporation

• Decision Date: 09 May 1962
• Docket Number: No. 16800.,16800.
• Citation: 302 F.2d 443
• Parties: JAMES TALCOTT, INC., Appellant, v. ASSOCIATES DISCOUNT CORPORATION and Mr. and Mrs. F. O. McConnell d/b/a McConnell Heavy Hauling, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

302 F.2d 443 (1962)

JAMES TALCOTT, INC., Appellant, v. ASSOCIATES DISCOUNT CORPORATION and Mr. and Mrs. F. O. McConnell d/b/a McConnell Heavy Hauling, Appellees.

No. 16800.

United States Court of Appeals Eighth Circuit.

April 18, 1962.

Rehearing Denied May 9, 1962.

W. P. Hamilton, Jr., of Moore, Chowning, Mitchell, Hamilton & Burrow, Little Rock, Ark., for appellant.

A. L. Barber, of Barber, Henry, Thurman & McCaskill, Little Rock, Ark., for appellee.

Before VOGEL, VAN OOSTERHOUT and BLACKMUN, Circuit Judges.

BLACKMUN, Circuit Judge.

This diversity case, with jurisdiction established, is a replevin action to recover possession of a dragline which was the subject of a double sale and double financing by a now bankrupt seller. The suit was instituted by James Talcott, Inc., the assignee of the purchase paper in the second sale, against Associates Discount Corporation (and others whose status on this appeal is not now important), the assignee of the purchase paper in the first sale. The case was tried to the court and resulted in a dismissal with prejudice. 193 F.Supp. 642. Talcott appeals.

The facts are not in substantial dispute. They are largely developed in the trial court's reported decision. We list the basic ones chronologically:

1. In September 1957 Associates and Kern-Limerick, Inc., a Little Rock dealer in heavy construction equipment, executed an agreement reciting conditions under which Associates would purchase conditional sale contracts from Kern-Limerick. This agreement, as modified, provided that Kern-Limerick warranted its contracts to be genuine and free from defenses; that each contract would evidence a valid reservation of title; that repossessed property might be stored upon the premises of Kern-Limerick without cost; that upon repossession Kern-Limerick would pay all delinquent instalments and thereafter all instalments becoming due; and that by 120 days after repossession Kern-Limerick would pay the balance in full.

2. In November 1958 Kern-Limerick sold the dragline to H. D. Stayton. This was a bona fide sale. Stayton executed the usual form of note and conditional sale contract providing for retention of title in the vendor and for the payment of the cost balance, remaining after trade-in allowance and down payment, in 36 monthly instalments. The contract was immediately assigned for value by Kern-Limerick to Associates. The note was indorsed by Kern-Limerick with recourse. The required monthly instalments were thereafter received by Associates with fair regularity; some of them came direct from Stayton and others from Kern-Limerick on Stayton's behalf.¹

3. In August 1959 Stayton became dissatisfield with the dragline's performance and it was taken to Kern-Limerick for repairs. It was never returned to Stayton. In September he traded it in for another dragline. Kern-Limerick treated this as a repossession on its books. Kern-Limerick was obligated, upon the trade-in, to pay Associates the entire remaining balance on the Stayton account. It did not do so. With Stayton's aid it concealed the trade-in from Associates. This was accomplished by changing the serial number on Stayton's new dragline to coincide with the serial number on the old and by continuing payments required under the conditional sale contract and note primarily through the device of Kern-Limerick paying Stayton and Stayton issuing his own check to Associates with no notation as to the source of his funds.

4. In November 1959 Kern-Limerick resold the dragline to J. W. Spires, an innocent purchaser. Spires executed a conditional sale contract and accompanying note calling for monthly payments and the vendor's retention of title. These were immediately assigned by Kern-Limerick to Talcott. The required monthly payments were made by Spires with fair regularity. This resale was unknown to Associates.

5. In early April 1960, upon a routine collection call by Associates' representative, Stayton's wife stated that her husband did not have the original dragline, that he had not had it for some time, and that he was making the monthly payments to Associates with Kern-Limerick aid. On inquiry of Stayton he, however, denied this. The representative then inspected the machine in Stayton's possession and was satisfied, because of its falsified serial number, that it was the original. Thus, despite Mrs. Stayton's confession, Kern-Limerick and Stayton managed to satisfy Associates of the regularity of the situation at that time. Even another instalment payment to Associates on Stayton's contract was thereafter made.

6. In May Kern-Limerick went into bankruptcy.

7. In June Associates, having learned that Spires had the dragline, took possession of it. Talcott then instituted this action.

During the two and one-half years prior to its bankruptcy, Kern-Limerick had sold Associates 376 contracts, all "with recourse", with about 50 repossessions. The general course of dealing between Associates and Kern-Limerick as to repossessions on the one hand and trade-ins on the other is of interest.

With respect to slow accounts and repossessions the record shows that Kern-Limerick assisted in collections and occasionally, because it was obligated eventually to pay the balance on the contract if there was repossession, made a payment from its own funds to Associates to keep an account current; that Associates knew of such payments by Kern-Limerick; that Associates permitted Kern-Limerick to repossess property upon delinquent accounts and to do so with a fairly free hand; and that it allowed Kern-Limerick to place repossessed equipment on its lot, without segregation from its own property and without indication of Associates' existing interest, and to offer the equipment for sale to prospective buyers. Associates made an initial inspection at the time of any repossession and semi-monthly spot checks of property on the Kern-Limerick lot. On occasion a machine would be missing; Associates would then demand immediate payment in full from Kern-Limerick. When repossessed property was sold Kern-Limerick was required promptly to pay the outstanding balance. At times pressure had to be exerted on Kern-Limerick. A new buyer was not informed that the property he was buying had been repossessed or was subject to an outstanding contract. Except as noted, Associates said its dealings with Kern-Limerick as to repossessions were satisfactory.

With respect to trade-ins the record, while not clear that any concerning Associates had taken place in the past, indicates in any event that Kern-Limerick would advise Associates when a customer wanted to trade-in equipment on which Associates held a contract. Kern-Limerick would then be required to pay the outstanding balance and would not be allowed merely to receive the property, pay up delinquent instalments, and display it on the lot for sale as was done for up to 120 days with repossessed property.

Talcott's basic argument here is that Associates was lax in its overall daily dealings with Kern-Limerick, exercised only minimal control, and was well aware of Kern-Limerick's propensity to stray from the terms of its agreements with others; that it thus placed Kern-Limerick in a position to do harm to innocent third persons and, specifically, to Spires and Talcott; that it never repudiated a sale; that its course of conduct with respect to repossessed equipment, viz., its acquiescence in the indiscriminate placement on the lot without identification and in the offering for sale, estops Associates from asserting its legal title as a defense; and that any claimed distinction between repossession and trade-in is a distinction without a difference so far as rights of third parties are concerned. Associates resists replevin on the ground that its title to the dragline arose out of the first sale; that no title was obtained by Spires in the unauthorized second sale out of which Talcott's asserted interest comes; and that its own conduct did not at all provide grounds for estoppel.

The trial court, in deciding the case against Talcott, placed some emphasis upon the fact that this was not a controversy between an innocent purchaser for value and the assignee of an existing conditional sale contract but was, instead, one between two assignee finance companies which dealt with Kern-Limerick on substantially the same terms. It concluded that the situation was one for the application of the usual rule that one who purchases from a vendor who has no title obtains none, and it rejected Talcott's estoppel arguments.²

The only issue here is whether the facts give rise to estoppel.

Arkansas law, of course, governs. Until the adoption by Arkansas of the Uniform Commercial Code, Acts 1961, No. 185, now Arkansas Statutes, Title 85, effective at midnight on December 31, 1961, there was no general provision for the recording in Arkansas of a conditional sale contract; also the Arkansas Motor Vehicle Registration Law, particularly §§ 75-160 and 75-161 of Arkansas Statutes, adopted in 1949, has no application to construction equipment such as the dragline here. Securities Investment Co. of St. Louis v. Williams, E.D.Ark., 1960, 190 F.Supp. 261, 265, footnote 1. There is no factor, therefore, of any record notice in this case. Further, because the pertinent events all took place prior to 1962, because Arkansas had not adopted the Uniform Conditional Sales Act, and because its version of the Uniform Sales Act had been made specifically inapplicable to conditional sales, Arkansas Statutes § 68-1479 (now repealed by the Uniform Commercial Code); Cloud Oak Flooring Co. v. J. A. Riggs Tractor Co., 1954, 223 Ark. 447, 266 S.W.2d 284, 287; Gentry v. Little Rock Road Machinery Company, 1960, 232 Ark. 580, 339 S.W.2d 101, 103, it is Arkansas common law which is applicable. Securities Investment Co. of St. Louis v. Williams, supra, p. 266 of 190 F.Supp.

Reference to certain general principles of Arkansas law is perhaps in order:

1....