Walton v. Commercial Credit Co.

• Decision Date: 17 July 1941
• Docket Number: 8391
• Court: South Dakota Supreme Court
• Parties: BYRON A. WALTON, Trustee in bankruptcy of the Aberdeen Storage Battery Company, Respondent, v. COMMERCIAL CREDIT COMPANY, and P L. Conlan, Appellants

68 SD 151, 299 NW 300 (1941)

BYRON A. WALTON, Trustee in bankruptcy of the Aberdeen Storage Battery Company Respondent v. COMMERCIAL CREDIT COMPANY, and P L. Conlan,

Appellants

South Dakota Supreme Court

Appeal from Circuit Court, Brown County, SD

Hon. Howard Babcock, Judge.

#8391–Judgment reversed.

Cherry & Braithwaite, Sioux Falls, SD

Dwight Campbell, Aberdeen, SD

Attorneys for Appellants.

Max Stokes, Aberdeen, SD

Attorney for Respondent.

Opinion filed Jul 17, 1941; Rehearing Denied Sep 9, 1941

WARREN, J.

This action was instituted by Byron A. Walton, trustee in bankruptcy of Aberdeen Storage Battery Company, Inc., a corporation, bankrupt, for the alleged conversion of 48 washing machines and one Blue Flash Cooler of the value of $2,356.85 by the Commercial Credit Company, a corporation, and P L. Conlan, and for damages. From an adverse judgment awarding plaintiff the full amount of the alleged conversion, $2,356.85 and costs, the defendants appeal.

During the course of its business operations the bankrupt accumulated obligations in the amount of $21,518 and had assets exclusive of the property involved in this action of about $10,000 on the eve of its bankruptcy. The petition in involuntary bankruptcy was filed November 4, 1938, by the creditors of the bankrupt. October 27, 1938, eight days prior to the filing of the petition, the appellants repossessed, with full knowledge and consent of parties in possession of the goods, the articles which are the subject of this controversy under the terms of contracts signed and executed by the parties entitled “Trust Receipts” which reserved the title in the Commercial Credit Company and gave it the right to repossess on demand the machines in the custody of the Aberdeen Storage Battery Company which had not been paid for. These trust receipts were never filed of record.

Among numerous assignments of error the appellants strenuously urge two main propositions: (1) The contracts involved are trust receipts reserving title in appellant and do not need to be filed of record, and (2) they are therefore valid contracts between the parties and may be enforced according to their terms to the exclusion of the creditors.

Respondent maintains that the trial judge committed error in allowing the contracts called trust receipts to be entered in evidence under a general denial. It is our opinion that the contracts were admissible under a general denial because under a general denial in an action for conversion the defendant not only denies the conversion, but the plaintiff’s title, and in order to prove there is no title in plaintiff he may enter evidence to show title in himself. Bowers on Conversion, See. 532, P 388; McClelland v. Nichols, 24 Minn. 176; Hart v. Hart, 48 Mich. 175, 12 NW 33; Robinson v. Frost, 14 Barb., NY 536; Blakey v. Douglas, 3 Sadler, Pa., 495, 6 A. 398.

The contracts and delivery of the articles, according to the evidence, were carried out in the following manner: The Aberdeen Storage Battery Company ordered a carload of washing machines from the manufacturer. The company financed the purchase on what is commonly called the “floor plan” through the Commercial Credit Company. The company, through its president, would advance ten per cent of the purchase price and other charges to the Commercial Credit Company and sign trust receipts and promissory notes corresponding to the trust receipts running to the Commercial Credit Company. The Credit Company would then send these trust receipts into the manufacturer to enable it to fill in a description of the property. The Credit Company then paid the full purchase price to the manufacturer and received a bill of sale from it. The machines were then shipped to the Aberdeen Storage Battery Company and placed on display for sale by it.

The trial court in the present case held that the purported trust receipts were in fact chattel mortgages and under the chattel mortgage recording statute, Section 1583, R. C. 1919, now SDC 39.0408, they must be recorded and if they are not so recorded they are void as to all creditors. Hollenbeck v. Louden, 35 SD 320, 152 NW 116; Pierson v. Hickey, 16 SD 46, 91 NW 339.

We believe, however, such holding to be in error as not consonant with the facts of this case. In the case of a chattel mortgage the security holder must derive his security title from the one responsible for the satisfaction of the obligation which the property secures. In re James, Inc., 2 Cir., 30 F2d 555. The recording acts with respect to creditors under such circumstances are very strict and the reasons are apparent.

“... The appearance of continued unencumbered ownership of property formerly held free and clear and still in his possession tends to give a false basis for dealings and for credit if secret liens can be asserted against it. The mortgagor, as the historic borrower at the mercy of the lender, needs the protection against sacrifice of his interest in summary foreclosure. Reasons in favor of chattel mortgage recording acts as applied to the ordinary loan transaction are therefore strong reasons.” 15 Cornell L. Q. 543, 559.

Our court in General Motors Acceptance Corporation v. Whitfield, 62 SD 415, 420, 253 NW 450, 452, speaking of legal title in cases of conditional sales, said: “In the case of conditional sale ... Legal title never passes out of the vendor until performance of the contract. It is specifically retained by him for security purposes, and his right so to do was recognized by this state by the enactment of the Uniform Conditional Sales Act (chapter 137, Laws 1919), providing by section 4 that the reservation of property in the seller after possession of the goods is delivered to the buyer should be valid as to...