David Straus Co. v. Commercial Delivery Co.

LANE, V. C.

Suit by the David Straus Company against the Commercial Delivery Company, in which defendant's receiver filed a cross-petition to the petition of the Morris Plan Company of New York and others claiming assets held by the receiver. Order advised (affirmed 112 Atl. 417).

Theodore J. Harrington, of Elizabeth, and Harold H. Kissam, of New York City, for drivers and Morris Plan Co.

Furst & Furst, of Newark (George Furst, of Newark, of counsel), for receiver.

LANE, V. C. The controversy is with respect to certain automobile trucks. The legal title to the trucks was originally in the Commercial Delivery Company. That company entered into agreements called "leases" with individual truck drivers. The lessor referred to in the agreements is the Commercial Delivery Company, and the lessees the truck drivers. I will take one of the agreements as a sample. It recites that the Commercial Delivery Company, lessor, has delivered a certain truck to the lessee at a certain valuation, for the use of which truck, during the period of the lease, the lessee is to pay a certain sum of money and has given a promissory note, payable to the order of the Morris Plan Company and maturing 12 months from date. The period of the lease is stated to be until date of maturity of the note. It is provided upon default of any of the terms of the note the entire principal sum should become due at the option of the legal holder. The lessee is forbidden to sell, let, assign, incumber, use for hire, or dispose of the car without written consent of the lessor. Upon default in payment, or breach of condition, or if the lessor should deem the security for payment of the note insufficient or unsafe, the lessee agrees to deliver the car to the lessor in as good condition as received by the lessee. It is provided that, if the lessor takes possession of the car by reason of any default, the lessee agrees that all payments made should be retained as liquidated damages and for rental value. It is provided upon the lessor taking possession of the car it may be sold at public or private sale at any time without notice to the lessee, and if upon such sale the proceeds thereof are insufficient to pay the sum remaining unpaid with respect to the note and the expenses, the deficiency shall be paid by the lessee. It is provided that the lessor agrees that at the termination of the lease the lessee, if he has complied with all the terms and has paid in full the note, may become the purchaser of the car, in which event the payments made in accordance with the terms of the lease, together with the payment of the note by the lessee, will be accepted as and for payment of the purchase price of the car. Upon the back of each one of these so-called leases there is a written assignment made by the Commercial Delivery Company selling and assigning to "the Morris Plan Company all right, title, and interest in and to the fore-going agreement of lease, dated," etc., "between," etc., "and in and to the property and rights therein described." The assignment further provided that

"The undersigned further agrees, in the event of any resale, release, or repossession of said property, to pay to said the Morris Plan Company of New York, or its assigns, any deficiency between the net proceeds of such resale and the amount necessary to pay the amount of the installments remaining unpaid and the reasonable expense of such resale and attorney's fees connected therewith."

Preceding the lease, application for lease and purchase was signed by each driver reciting substantially the terms of the lease. Coincident with the making of the lease a service contract was entered into, under the terms of which the Commercial Delivery Company contracted with the driver that he would work the motortruck for a term of 2 years under the direction of the Commercial Delivery Company, on an average of at least 10 hours per working day, in such a manner as that the gross earnings of the truck will amount to at least the fixed monthly charges arising from the operating of said truck; that he would not permit the truck to be used in any other manner than as directed by the Commercial Delivery Company; that the entire gross monthly earnings of the truck was to be delivered to the Commercial Delivery Company, out of which it was authorized to retain 20 per cent. for its services, and out of the remaining80 per cent. authorized to pay drivers wages at the rate of $5 per day of 10 hours, monthly bills for oil, gasoline, repairs, etc., and storage charges of $15 per month, and any balance to be credited to the driver; that the truck should at all times be stored in a garage to be furnished by the Commercial Delivery Company; that the Commercial Delivery Company would, in addition to the other services to be performed by it, furnish at least a sufficient amount of work for the truck to meet all its fixed charges arising from the operation of said truck. At the time the contracts of leases were entered into payments were made by the drivers to the Commercial Delivery Company of the amounts stipulated to be paid in cash and partly in notes to the Commercial Delivery Company. The difference between the amount of cash and notes paid or made directly by the drivers to the Commercial Delivery Company and the purchase price of the car was made up by moneys received by the Commercial Delivery Company from the Morris Plan Company, for which moneys the Morris Plan Company took a note made jointly by the driver and the Commercial Delivery Company and the assignment of the so-called lease hereinbefore referred to. When the receiver of the Commercial Delivery Company went into possession of its assets, he found these trucks. Default had been made in the payment by the drivers of the monthly installments provided for by the contract of lease, which monthly installments went to the Morris Plan Company; it having advanced the money to the Commercial Delivery Company.

The present application is on behalf of the truck drivers and the Morris Plan Company to compel the receiver to release possession of the cars either to the truck drivers or the Morris Plan Company. The proof is that the Commercial Delivery Company did not furnish sufficient work to the drivers to meet the fixed charges. The receiver insists that he has the right to possession of the trucks and to dispose of them because of garage liens and also because the legal title remains in the Commercial Delivery Company. The only creditors whose rights are to be considered are the creditors of the Commercial Delivery Company. The intent of the contract between the Commercial Delivery Company and the truck driver was to retain title in the Commercial Delivery Company. Whether the intent of the assignment from the Commercial Delivery Company to Morris Plan Company was to transfer the legal title to Morris Plan Company may be a subject of controversy. The instrument assigns all right, title, and interest in and to the agreement of lease, and this, of course, would carry with it the right to receive payments from the lessee, the truck driver. It then proceeds "and in and to the property and rights therein described." It may be that from this language there may be spelled out an intent to transfer the legal title to the truck. The Commercial Delivery Company then agrees in case of a resale, etc., to pay any deficiency between the net proceeds of the resale and the amount necessary to pay the amount of the installments remaining unpaid and the reasonable expense of such resale and attorney's fees connected therewith. There is nothing said with respect to what happens to any surplus. Assuming that the intent was to transfer the legal title to the Morris Plan Company, the question arises as to whether that transfer of the legal title is valid as against creditors of the Commercial Delivery Company, and that depends upon whether it was an absolute transfer of the legal title or transfer as security. In determining this question, it must be kept in mind that the Commercial Delivery Company was a joint maker upon the note of the truck driver. It was a debtor of the Morris Plan Company. In the instrument of assignment it guaranteed the payment of the note and made itself responsible in case of a resale for any deficiency. It was contemplated by the instrument of assignment that the rights of the parties should be settled by a resale. While the instrument is not in form a chattel mortgage, it is in substance. It is defective as a pledge. There was no delivery of the trucks. The physical possession of the trucks has always been in the Commercial Delivery Company. While the right of possession apparently went to the drivers, yet, by virtue of the service contract executed simultaneously with the lease, the actual possession went to the drivers only during the day time when in use by them, practically as drivers for the Commercial Delivery Company.

Assuming that the possession went to the drivers, it seems to me that, so far as the Morris Plan Company is concerned, the possession of the drivers must be considered the possession of the Commercial Delivery Company. The real purpose of the transfer of the interests under this lease and of the property, if such was intended to be its effect, was to secure payment of the debt due to the Morris Plan Company from the Commercial Delivery Company and the truck drivers. There was no change of possession of the title, so that it seems to me that, the transaction being in the nature of a chattel mortgage, it is void as against creditors of the Commercial Delivery Company. The result is that as against the receiver representing creditors the Morris Plan Company is not entitled to the possession of these cars. Nor are the truck drivers. No argument has been made that because of the breach on the part of the Commercial Delivery Company of its contract to furnish sufficientwork for the cars to meet fixed charges the truck drivers are entitled to take the cars without payment of the purchase price. The Commercial Delivery Company being insolvent, in the hands of a receiver, there can he no specific performance. The relative rights of the driver and the Commercial Delivery Company can only be worked out by a sale of the cars. It may be that out of the proceeds of such sale the drivers will be entitled to such damages as they may show accrued to them by reason of the failure of the Commercial Delivery Company to fulfill its contract. In this connection it must also he kept in mind that most, if not all, of the truck drivers are in default upon their personal notes to the Commercial Delivery Company, and by no stretch of the imagination can it be contended that the Commercial Delivery Company agreed that sufficient work should be given to the trucks to meet these, and, indeed, it may be claimed that under clause 6 of the service contract it was not contemplated that the installments due upon the notes of the Morris Plan Company should be considered as included within the term "all fixed charges arising from the operation of said truck." In any event, it seems to me that the drivers are not entitled to the immediate possession of the trucks, and that the trucks must be sold.

An order, therefore, will be advised adjudging that the receiver is entitled to the possession of these trucks and is entitled to sell them free, clear, and discharged of any lien, or claim of title, of the Morris Plan Company, or of the truck drivers, and further that the instrument securing the Morris Plan Company upon its notes is void as against the creditors of the Commercial Delivery Company. What the rights of the truck drivers may be, if any, in the proceeds of sale, I do not determine. It may be claimed that, if they have suffered any loss or damage by breach of contract, they are but general creditors. If after the sale of the trucks, or before, counsel desire to reargue the question as to whether the Morris Plan Company is entitled to a prior lien upon the proceeds of sale, they may do so upon notice.