Kemp-Booth Co. v. Calvin

• Decision Date: 01 June 1936
• Docket Number: No. 7768.,7768.
• Citation: 84 F.2d 377
• Parties: KEMP-BOOTH CO., Limited, v. CALVIN.
• Court: U.S. Court of Appeals — Ninth Circuit

84 F.2d 377 (1936)

KEMP-BOOTH CO., Limited, v. CALVIN.

No. 7768.

Circuit Court of Appeals, Ninth Circuit.

June 1, 1936.

Riddell & Brackett, of Seattle, Wash., for appellant.

Earl G. Rice, McClure & McClure, Walter A. McClure, and Wm. E. McClure, all of Seattle, Wash., for appellee.

Before WILBUR, GARRECHT, and DENMAN, Circuit Judges.

DENMAN, Circuit Judge.

J. M. Galvin, trustee in bankruptcy of the House of Irving, a corporation of Seattle, Wash., brought this action against Kemp-Booth Company, hereinafter called appellant, to recover alleged preferences paid by the bankrupt to the appellant shortly before the commencement of bankruptcy proceedings. The case was tried to the court as one in equity, findings of fact and conclusions of law were made, and a decree rendered, awarding the trustee the relief prayed.

The facts as found by the court, supplemented in some particulars by our own study of the record, may briefly be stated as follows:

On July 26, 1930, the bankrupt, a tailor doing business in Seattle, entered into a contract with appellant whereby the latter was to provide the bankrupt with woolen suitings. The bankrupt's business, so far as concerns the appellant, was to fit suits for its individual customers, make up the suits from the woolens supplied by the appellant, and sell them to the customers. The contract under which the parties engaged to operate provided for the "consignment" by appellant to the bankrupt of woolen suitings which "are suitable for sale for the party of the first part appellant by the party of the second part bankrupt." The bankrupt was to receive for the sale of the consigned goods a commission, the amount of which was to be fixed by the appellant. The bankrupt was to render regular inventories to appellant and was to keep the goods insured in favor of appellant. The appellant was given the right at all times to check up on, inspect, and withdraw any or all of the consigned merchandise without notice to the bankrupt. In conclusion, the contract specified: "Tenth: The party of the second part bankrupt shall have the right until otherwise directed in writing by the party of the first part appellant, to make up any part or parts of said merchandise into garments, but in such case the title to all such garments shall remain in the party of the first part; and on the sale of any and all such garments the party of the second part shall receive and retain for their services and expenses in making up such garments such part of the selling price as shall exceed the sale price of the consigned merchandise used therein, as well as the usual commission on such merchandise."

Suitings were sent by appellant to the bankrupt under the contract, and the bankrupt carried on the business of making and selling suits until forced to close by bankruptcy proceedings.

It is undisputed that the contract provisions for payment of commissions were not observed. The bankrupt's compensation consisted of the difference between the list price of the woolens and the resale price of the finished suits.

The bankrupt never sold woolens in their unfinished state; its entire business consisted of making and selling finished suits. Hence the tenth paragraph of the contract is the section under which the parties operated. There is some conflict in the testimony as to whether the provisions of the paragraph relating to the retention by appellant of title to finished suits was observed; some of the evidence tending to show that when woolens were made into finished suits the parties considered the title thereto to be in the bankrupt, and that the bankrupt was obligated to appellant for the price of the woolens regardless of whether or not a finished suit was sold to a customer. This evidence is not clear, however, and there is testimony showing the contrary. We therefore indulge the reasonable inference that the parties intended to follow their expressed agreement, and find that the paragraph in question was operative.

Early in 1932, the bankrupt found itself in extremis financially, and far more in debt to appellant than to its other creditors. Appellant was fully aware of the existing state of insolvency. In January and February, 1932, in order to discharge its debt to appellant the bankrupt redelivered to it woolen suitings previously received from it, of the stipulated value of $1,652.23. There was also delivered certain accounts receivable of the bankrupt, such accounts arising from sales by the bankrupt to customers of suits made from appellant's woolens, a portion of which accounts were subsequently collected by appellant.

On March 25, 1932, less than four months after the delivery of the woolens and the assignment of the accounts to appellant, a petition in bankruptcy was filed against House of Irving, which was subsequently adjudicated bankrupt. The trustee later brought this action in the District Court, alleging that the transfer and assignment were preferential, under section 60b of the Bankruptcy Act, as amended (11 U.S.C.A. § 96 (b). The prayer of the complaint was for a money judgment against the appellant for the value of the transferred woolens, a reassignment of the uncollected accounts receivable which arose from suits made and sold by the bankrupt from appellant's woolens, and for an accounting and payment of the amounts collected by appellant on assigned accounts receivable.

The District Court entered its decree awarding the trustee the relief prayed; basing its decision on the sole ground that the tenth paragraph of the contract between the parties, providing that the bankrupt might make up woolens into suits and sell the finished suits to customers, keeping as its own compensation the difference between the final sale price and the price of the woolens, made the transaction between the bankrupt and the appellant one of conditional sale, with reservation of title in the seller merely as a security device. In so holding, the trial judge rejected appellant's contention that the transaction was a consignment of goods on the part of a principal to his agent to be sold by the agent for the principal. Having concluded that the contract was one of conditional sale, the judge found that it was inoperative to protect the appellant's title against the trustee in bankruptcy by reason of the fact that the contract was never filed for record and so fell within the terms of the Washington statute (Rem.Rev.Stat. § 3790), which provides: "That all conditional sales of personal property, or leases thereof, containing a conditional right to purchase, where the property is placed in the possession of the vendee, shall be absolute as to all bona fide purchasers, pledgees, mortgagees, encumbrancers and subsequent creditors * * * unless within ten days after the taking of possession by the vendee, a memorandum of such sale, stating its terms and conditions and signed by the vendor and vendee, shall be filed in the auditor's office of the county, wherein, at the date of the vendee's taking possession of the property, the vendee resides."

On this appeal the only issue argued is the correctness of the trial court's classification of the transaction between the parties as a contract of conditional sale. Appellant admits that if it was properly so classified, the trustee is entitled to the recovery he seeks, by reason of the conceded application of the statute.

Before addressing ourselves to the issue of the case on the merits, a point arising upon the argument in this court must be resolved; namely, whether the trustee properly sought his relief by way of a suit in equity instead of an action at law, and if he did not, what effect his erroneous choice should have on this appeal. Both parties have filed memoranda, in accord with each other, that the case was properly brought in equity, and that if it were not the error was waived. We agree with this viewpoint and see no reason for disturbing the decree on the ground that the action was brought on the wrong side of the court. In the first place, the complaint prayed for an accounting, which is an historic field of equity jurisprudence....