BRYANT v. SWOFFORD BROS

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Docket Number

No. 172.

Judges

William Henry Moody

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BRYANT, TRUSTEE OF NEWTON CO., BANKRUPTS, v. SWOFFORD BROS. DRY GOODS CO.

Mr. William H. Arnold, with whom Mr. James K. Jones was on the brief, for appellant:

The receiver did not have authority to make the admission, so that it might not be questioned by the trustee, contained in the agreement of July 4, 1905, that the notes and accounts turned over to the intervener were proceeds of sales of goods purchased from Swofford Bros. Dry Goods Co.

While the receiver undoubtedly had the right and it was his duty to take charge of the bankrupt estate, he did not have authority, under the statute creating his office, to enter into any kind of an agreement which would in any manner affect, or give over to, a claimant the property of the bankrupt estate. The trustee is primarily the representative of the creditors and not the receiver. The receiver is non-partisan and he acts as an agent for the court in protecting the property against loss. Booth v. Clark, 17 How. 322.

By § 70 of the Bankrupt Act the title of the bankrupt's property is vested in the trustee. If the title of Newton Company to these notes, accounts and goods, to which the intervenor could not make claim, vested in the trustee, then it would seem that the receiver would be without power to make any contract whereby that title could be divested. In this case the stipulation, however, has been sustained by the Honorable Circuit Court of Appeals, and the direct effect of it was to divest the title of property from the trustee which it was intended by the Bankrupt Act should pass to him.

But the trustee has not in himself the right of unlimited disposition of the property of the bankrupt. He cannot compromise or arbitrate a controversy, except in a certain way prescribed by the statute and by the general orders in bankruptcy. Certainly the receiver, who has not as much power as the trustee, should not, therefore, be allowed to make contracts or deals without any restriction whatever, whereby the property which belongs to the creditors would be wasted or given away. Wallace v. Loomis, 97 U.S. 146; Ray v. Norsworthy, 23 Wall. 128; White v. Schloerb, 178 U.S. 542.

The contract of July 20, 1904, was a mortgage or secret lien which was fraudulent as to creditors of Newton Company. Herryford v. Davis, 102 U.S. 235.

There are a number of decisions of the Supreme Court of Arkansas sustaining contracts wherein it is stipulated that the title of the property is to remain in the vendor until the price is paid, but these decisions are with reference to such things as machinery, farming implements, live stock, and where it is not agreed that the property shall be resold. Gibson v. Martin, 38 Ark. 207; McIntosh Beam v. Hill, 47 Ark. 363; Carroll v. Wiggins, 30 Ark. 402; Simpson v. Shackerford, 49 Ark. 63; McRea v. Merrifield, 48 Ark. 160; Cincinnati Safe Co. v. Kelly, 54 Ark. 476; Edgewood Distilling Co. v. Shannon, 60 Ark. 133; Dedman v. Earle, 52 Ark. 164; Ferguson v. Hetherington, 39 Ark. 438; Ames Iron Works v. Rea, 56 Ark. 450; Morris v. Cohn, 55 Ark. 401; Bank of Little Rock v. Collins, 66 Ark. 240; Faisst v. Waldo, 57 Ark. 270.

The doctrine of these cases follow the decisions of the Supreme Court of the United States. Sturm v. Boker, 150 U.S. 312.

There is an obvious difference in reserving the title to implements, wagons, grist-mills, tools, etc., under such contracts, and gents' furnishing goods or general merchandise, where there can be no question of the identity of the wagons, machinery, etc., but there would always be a question with reference to the identity of general merchandise. The very nature of the goods themselves, added to the power of disposition as in the case at bar, without being required to keep them separate from other goods or the proceeds separate from the general stock, ought to bar a recovery in this case.

This difference is recognized by the Supreme Court of Arkansas. Lund v. Fletcher, 39 Ark. 334. See also Robinson v. Elliott, 2 Wall. 513; Means v. Dowd, 128 U.S. 273; Blennerhassett v. Sherman, 105 U.S. 100.

The decisions of the Supreme Court of Arkansas, under practically the same conditions as in the case at bar, show that the intervenors' contract is fraudulent in law and cannot be sustained. Lund v. Fletcher, 39 Ark. 335; Martin v. Ogden, 41 Ark. 192; Fink v. Ehrman Bros., 44 Ark. 310.

The case of Triplett v. Mansur Tebbetts Implement Co., 68 Ark. 230, cited in opinion of Circuit Court of Appeals, has no application to this controversy.

Mr. Ernest S. Ellis, with whom Mr. Edgar C. Ellis was on the brief, for appellee:

The stipulation entered into between the Swoffords and the receiver, under the supervision and with the approval of the referee, by virtue of which the Swoffords surrendered possession of the property in controversy to the court, and under which it was later sold by the trustee who now holds the proceeds, is valid and binding on the parties to this action, and cannot be repudiated nor ignored by the trustee. The acceptance and retention of benefits thereunder by the trustee operates as a ratification of same on his part, and as a waiver of any lack of authority or irregularities in its execution. Bryan v. Bernheimer, 181 U.S. 188.

Under said stipulation the facts as to whether all of the goods returned by the Newtons to the Swoffords were actually bought from them, and as to whether the notes and accounts assigned by the Newtons to the Swoffords represented exclusively proceeds derived from a sale of their goods, has been settled and agreed upon, and are not questions to be litigated in this action. Judgment in relation thereto must, therefore, be made upon the basis of said stipulation.

The written instrument of July 20, 1904, executed by the Swoffords and the Newtons, and under which the property in controversy was sold by the Swoffords and later returned to it by the Newtons, is a contract of conditional sale; and there is no law in Arkansas which either requires or permits it to be filed or recorded. It is valid between the parties, and valid, also, against the trustee in bankruptcy, who stands merely in the shoes of the bankrupts, and is in no sense a creditor armed with process, a subsequent mortgagee or a purchaser in good faith. Triplett v. Mansur Tebbetts Impt. Co., 68 Ark. 230 ( 57 S.W.Rep. 261), and cases cited.

In this case, held, that the sale of a stock of dry goods under a contract by which the articles sold remained the property of the vendor until paid for, with provision for substitution of other goods and that proceeds of goods sold also belonged to the vendor, was a conditional sale. The validity of conditional sales depends upon the law of the State where made, and in bankruptcy the construction and validity of such a contract must be determined by the local law of the State, York Manufacturing Co. v. Cassell, 201 U.S. 344, and the contract in this case as tested by the law of Arkansas is a conditional sale and is valid without record. The trustee has no higher rights in regard to property sold to the bankrupt under conditional sale than the bankrupt had, and in this case held that the vendor was entitled to the goods unsold and the identified proceeds of those which had been sold. Where the vendor of goods, sold to the bankrupt under conditional sale, has taken possession, before the receiver is appointed, of the unsold goods and proceeds of those sold, but surrenders the same to the receiver under an arrangement approved by the referee, providing for the administration of the estate by the receiver, and that the ultimate disposition of the goods and proceeds surrendered shall be determined by the court, the trustee subsequently appointed is bound by the agreement and cannot question whether any of the property surrendered thereunder passed under the conditional sale.

MR. JUSTICE MOODY, after making the foregoing statement, delivered the opinion of the court.

The merchandise which was delivered by Swofford Bros. Dry Goods Co. to E.M. Newton Co. was delivered under the terms of a written contract. That contract provided that the title to the goods until their sale, and to the proceeds derived from their sale, whether in the form of cash, notes or book accounts, should be and remain in the Dry Goods Company. The contract gave the Newtons the right to sell the goods in the ordinary course of business, but, as has been said, provided that the proceeds of the sale, in whatever form they existed, should be the property of the Dry Goods Company. When the Newtons became insolvent and ceased business they, in recognition of the obligations due from them under this contract, returned to the Dry Goods Company that part of their goods which remained unsold. The character and marks of the goods rendered them capable of being identified and separated. They turned over at the same time, as and for the notes and accounts representing the proceeds of sales of the company's goods, certain notes and customers' accounts. It was found as a fact that one-half in amount of these notes and accounts represented the proceeds of sales of other goods than those delivered under the contract. It, therefore, now appears, if it is competent to show it, that this one-half of the notes and accounts did not belong to the Dry Goods Company, and ought not to have been turned over to it, and that, on the contrary, they should have gone into the estate of the Newtons, who subsequently became bankrupt. Three days after the surrender of this property the Newtons, on their voluntary petition, were adjudged bankrupts and the appellant was appointed receiver. He demanded of the Dry Goods Company the possession of the goods, notes and accounts mentioned, but the demand was refused. Subsequently a written contract was entered into between the Dry Goods Company and the receiver, with the approval of the referee. No fraud or deceit induced the making of this contract. By its terms the Dry Goods Company, on its part, surrendered the goods, notes and accounts to the receiver, and agreed that he might dispose of them in connection with the assets of the estate, and that the proceeds of the property thus disposed of should be held in lieu of it to abide the determination of a court of competent jurisdiction. The receiver, on the other hand, agreed that the goods, notes and accounts were in the actual and adverse possession of the Dry Goods Company, and that the goods were part of those delivered to the Newtons under the contract between them and the Dry Goods Company before referred to, and that the notes and accounts were the proceeds of other goods delivered under that contract. Subsequently, the receiver was appointed trustee and sold the goods and collected a part of the notes and accounts. The proceeds of the goods, and of the collections are held to await the result of this litigation, which is in the form of an intervening petition of the Dry Goods Company.

We think it clear that the contract under which the goods were delivered to the Newtons was one of conditional sale. Harkness v. Russell, 118 U.S. 663; Wm. W. Bierce, Ltd., v. Hutchins, 205 U.S. 340. There is nothing in the nature of this contract which would forbid the parties from entering into it if it is valid by the laws of the State where made, but in bankruptcy the construction and validity of such a contract must be determined by the local laws of the State. Thompson v. Fairbanks, 196 U.S. 516; Humphrey v. Tatman, 198 U.S. 91; York Manufacturing Company v. Cassell, 201 U.S. 344. That such a contract is a conditional sale and is valid without record is the law of Arkansas. Triplett v. Mansur Tebbetts Implement Co., 68 Ark. 230. The trustee has no higher rights in this regard than the bankrupt. York Manufacturing Co. v. Cassell, supra.

It follows that, so far as the identified goods and notes and accounts are concerned, the intervener, the Dry Goods Company, must prevail.

It has turned out, according to the finding of facts, that some small fraction of the goods and about one-half of the notes and accounts which were delivered by the Newtons to the Dry Goods Company, as and for the goods, notes and accounts which were the property of that company, were not in fact such, and the question therefore arises whether, under the circumstances disclosed in the findings, the trustee is entitled to avail himself of these facts. We think it was rightly held by the court below that he was not. There seems to be no reason for a nice consideration of the powers of receivers and trustees. When the receiver was appointed he found all the property in dispute in the hands of the Dry Goods Company, to which it had been delivered by the Newtons, as and for the property of the company, and by which it had been received as its own property. When the receiver made his demand for it the return was at first refused. The parties in the controversy, then being at arm's length, agreed that if the Dry Goods Company would give up the advantages of possession and instead of converting the goods, notes and accounts into cash in its own way and on its own account, permit the receiver to do so, then those goods should be deemed part of those delivered under the contract and the notes and accounts the proceeds of other goods delivered under the contract. This arrangement was approved by the referee. The trustee has taken the property under it and has never offered to return the property, or any part of it. The property has in large part been sold or otherwise disposed of in the course of the bankruptcy administration. Under these circumstances we are of opinion that the trustee, the appellant in this case, was bound by the agreement of the receiver, that all the property in dispute should be conclusively deemed that which passed under the original conditional contract or the proceeds thereof.

Judgment affirmed.

BRYANT, TRUSTEE OF NEWTON CO., BANKRUPTS, v. SWOFFORD BROS. DRY GOODS CO.

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