Walter A. Wood Co. v. Eubanks

• Decision Date: 15 February 1909
• Docket Number: 820.
• Citation: 169 F. 929
• Parties: WALTER A. WOOD CO. v. EUBANKS.
• Court: U.S. Court of Appeals — Fourth Circuit

169 F. 929

WALTER A. WOOD CO. v. EUBANKS.

No. 820.

United States Court of Appeals, Fourth Circuit.

February 15, 1909

This is a petition to superintend and revise in a matter of law the proceedings of the court in bankruptcy for the Western district of North Carolina. On October 16, 1906, a contract was made between the Walter A. Wood Company and the Implement & Supply Company by which certain goods of the former were sold and delivered to the latter. As a part of said contract the Implement & Supply Company made the following agreement:

'All goods on hand, and the proceeds of all sales of all goods received under this contract, whether such proceeds of sales consist of notes, cash or book accounts, the party of the second part agrees to hold as collateral security in trust and for the benefit of the party of the first part, until all obligations hereunder due party of the first part from party of the second part are paid in cash.'

The Implement & Supply Company purchased goods from the Walter A Wood Company, and sold the same to its customers on time, and took certain promissory notes and mortgages therefor aggregating $524.90, which identified as such are now in the possession of the trustee in bankruptcy. The said the Implement & Supply Company still owes the Walter A. Wood Company for the whole of the contract price of the goods sold and delivered to it under said contract.

Upon the foregoing facts, the Walter A. Wood Company moved before W. C. Erwin, Esq., referee in bankruptcy, for an order directing H. M. Eubanks, trustee in bankruptcy of said the Implement & Supply Company, to turn over said notes and mortgages, amounting to $524.90, under the provisions of the contract aforesaid. The referee declined to make such order and the Walter A. Wood Company excepted and appealed to the District Judge, who, after hearing the same, overruled the objections and exceptions of the appellant, and made an order affirming the order and rulings of the said referee in bankruptcy.

Charles H. Armfield and Wilfred D. Turner, for petitioner.

Before PRITCHARD, Circuit Judge, and MORRIS and BRAWLEY, District judges.

PRITCHARD Circuit Judge (after stating the facts as above).

To properly determine the questions involved in the controversy now before us, it becomes necessary to ascertain the nature of the contract between the Walter A. Wood Company and the Implement & Supply Company. This contract being in writing, free from ambiguity and plain in its terms, it is purely a question of law as to its interpretation. Hence this case comes before us on a petition to superintend and revise in matters of law the proceedings of the District Court. The referee found the following facts and conclusions of law:

'(1) That the Walter A. Wood Company sold to the bankrupt, under contract dated 17th day of October, 1906, certain machinery and implements described therein; that the same was absolute, and not conditional or by way of consignment.

'(2) That said contract of sale was never registered.

'(3) That said contract, which was signed by the bankrupt corporation, contained the following clause: 'All goods on hand, and the proceeds of all sales of goods received under this contract, whether such proceeds of sales consist of notes, cash or book accounts, the party of the second part agrees to hold as collateral security in trust and for the benefit of the party of the first part, until all obligations hereunder due party of the first part from the party of the second part are paid in cash.'

'(4) That the total indebtedness of the Implement & Supply Company for said machinery is still due and unpaid.

'(5) That certain of said machines and implements were sold by the bankrupt in due course of trade for cash, and that the money arising from said sale was deposited by said company to its general credit in the First National Bank at Statesville, and said money was used by the bankrupt as other funds belonging to it; and that certain of said machines and implements were sold by the bankrupt on credit or partly on credit; and that part of the proceeds of sale was evidenced by notes taken by the bankrupt and payable to bankrupt's order, and by a book account against one Turner Jennings for thirty ($30) dollars; that said notes and book accounts have been fully identified; that the aggregate amount thereof is $524.90, and that a true list thereof appears in the accompanying petition of the said Walter A. Wood Company.

'(6) That said notes were in possession of the bankrupt at the time of the adjudication, were embraced in the schedule, and are now in the possession of the trustee in bankruptcy.

'Conclusions of Law.

'Upon the foregoing facts I conclude:

'(1) That the contract between the petitioning creditors and the bankrupt did not constitute a valid pledge of the choses in action, for that there was no delivery to the pledgee or to any third party for its use.

'(2) That the same did not constitute a valid mortgage as against the trustee, for that it was not registered.

'(3) That it did not constitute such an equitable lien as could be enforced against the trustee in bankruptcy.'

That portion of the contract which is pertinent to the question presented here reads as follows:

'All goods on hand, and the proceeds of all sales of all goods received under this contract, whether such proceeds of sales consist of notes, cash, or book accounts, the party of the second part agrees to hold as collateral security in trust and for the benefit of the party of the first part until all obligations hereunder due party of the first part from the party of the second part are paid in cash.'

Under the terms of this contract, the Implement & Supply Company purchased certain goods of the Walter Wood Company with the distinct agreement at the time of such purchase that the Implement & Supply Company would hold all goods on hand, the proceeds of sales consisting of notes, cash, or book accounts, as collateral security, in trust for the Walter A. Wood Company, until all the obligations under the contract should be paid in full in cash. It was clearly the intention of the parties that the goods sold and delivered to the Implement & Supply Company and the proceeds arising from the sale thereof should be held in trust for the exclusive use and benefit of the Walter A. Wood Company until the obligations incurred thereunder should be fully discharged by the payment of the same in cash. Pursuant to this agreement, the Implement & Supply Company, at the time it was adjudged a bankrupt, held certain notes taken in payment for goods sold to the bankrupt by the petitioner, and those notes went into the hands of the trustee, as shown by the referee's report.

It is well settled that the trustee of a bankrupt stands in the shoes of the bankrupt, and occupies the same relation to the creditor that the bankrupt sustained prior to the date on which he was adjudged a bankrupt. Therefore, in dealing with this question, we will consider the trustee as possessing all the rights of the bankrupt, and for the time being acting in his stead. 'A trustee in bankruptcy gets no better title than that which the bankrupt had, and is not a subsequent purchaser in good faith within the meaning of section 112 of chapter 418, p. 540, of the Statutes of 1897 of New York, and, as a vender's title under a conditional sale is good against the bankrupt, it is also good against the trustee. ' Hewit v. Berlin Machine Works, 194 U.S. 296, 24 Sup.Ct. 690, 48 L.Ed. 986.

The Supreme Court of the United States, in the case of Thomas v. Taggart, 209 U.S. 389, 28 Sup.Ct. 520, 52 L.Ed. 845, speaking through Justice Day, says:

'The rule is generally recognized that if the title to property claimed is good as against the bankrupt and his creditors, at the time the trustee's title accrued, the title does not pass and the property should be restored to its true owner; or, if the property has been sold, the proceeds of the sale takes the place of the property. Loveland on Bankruptcy (3d Ed.) Sec. 152; Hewit v. Berlin Machine Works, 194 U.S. 296, 24 Sup .Ct. 690, 48 L.Ed. 986; York Mfg. Co. v. Cassell, 201 U.S. 344, 26 Sup.Ct. 481, 50 L.Ed. 782.'

While the decisions of the District Courts, as well as those of the Circuit Courts of Appeals, are conflicting, yet there are many cases in which it is held that an unrecorded conditional sale, if not forbidden by the statute, is good between the vendor and the trustee of the bankrupt, upon the theory that the trustee, for the time being, is the representative of the bankrupt, and as such sustains the same relation to the vendor that the bankrupt sustained at the time the contract was executed.

Under the circumstances, the inquiry naturally arises as to whether the Walter A. Wood Company and the Implement & Supply Company had the right to enter into this contract at the time they did for the purposes for which it was intended, and as to the intent and meaning of the provisions contained therein. It is not seriously contended that the parties did not have the right to contract, which leaves only the question as to the scope and extent of such contract. The court below sustained the conclusions of the referee to the effect that the contract between the petitioning creditors and the bankrupt did not constitute a valid pledge of the choses in action for that there was no delivery to the pledgee or to any third party for its use; that the same did not constitute a valid mortgage as against the...