Thomas Roberts & Co. v. Robinson

IIríter, J., delivered the opinion of the Court. In this action of replevin the plaintiffs are W. E. Robinson and Company, commission merchants of Belair, Maryland, and the defendants are William R. Keel, an operator of packing factories in Wicomico and Caroline Counties, for whom his trustees in bankruptcy were substituted; Thomas Roberts and Company, commission merchants, of Philadelphia, and the Terminal Warehouse Company of Baltimore, in whose warehouse the goods taken under the writ had been stored. The issue in the case is concerned with the right to the possession of three carloads of canned sweet potatoes and one carload of canned tomatoes which Keel shipped, on November 18th, 1919, from.the points of production to himself as consignee at the Terminal Warehouse in Baltimore, and upon which he received the same day an advance of $7,600 from Roberts and Company, to whom the bills of lading were duly transferred with a view to the sale of the goods by them on commission. The value of the canned goods, as appraised at the time of their seizure under the writ of replevin, was $11,491.15.

Under an agreement with Keel the plaintiffs had furnished him cans and money, for the purposes of his packing business, on account of which he owed them a balance of more than $50,000. After receiving the advance from Roberts and Company, on the bills of lading endorsed to their order, Keel absconded. The pending suit was brought on ⁴¹ December 5th, BUS), and three days later proceedings in bankruptcy against Keel were instituted. The claim of the plaintiff's to the possession of the goods in litigation is based upon a written agreement between themselves and Keel, dated February 1st, 1919, by wbicb they contracted to sell him all the cans he required for the 1919 packing season, at prices prevailing at time of shipment, as ordered, the title to all cans and supplies shipped by the plaintiffs to remain in them until the purchase price was paid.

It was provided in the agreement that, if Keel should suspend business or become embarrassed financially, any account or note which the plaintiffs held against him should become immediately due and payable, and they should then be entitled to have delivered to them “all supplies, and cans, filled or unfilled remaining on hand,” and in the event of a, replevin suit therefor, no previous demand would be requisite, the intention being expressed that, in any of the events, mentioned, the plaintiffs should “have the exclusive right to the possession of said goods.” It was further stipulated that the plaintiffs wore "to have the sale” of all goods packed under the contract, on a five per cent, commission, and should “guarantee payment of same when goods have been accepted by buyers and apply the proceeds, or so much as may he necessary, to the payment of cans, boxes or other materials furnished,” and to the repayment of any money advanced by or due the plaintiffs, for commissions or otherwise, under the terms of the agreement. It is a conceded fact that the agreement was never recorded. The suit, is resisted by Roberts and Company on the ground that their advance of money to Keel was made without notice on their part of the contract on which the plaintiffs rely, and that it is ineffective as to third persons without notice in view of the provisions of the Act of 1916, cli. 855. (Code, art. dl, sec. ó8A.) The defense of the Terminal Warehouse Company is that it was entitled to the possession of the* goods replevied until its unpaid storage charges were satisfied.

On ⁴² behalf of the creditors of Keel the trustees in bankruptcy-dispute the validity of the unrecorded contract upon which the suit is based, and contend that, even though the bankrupt may have been bound by its terms, they are authorized to contest it by virtue of the Amendment of 1910 to' the Bankruptcy Act. At the trial below the case was submitted to the jury under instructions requiring them to determine whether Roberts and Company had notice of the agreement referred to, whether the Terminal Warehouse Company had waived its lien for the unpaid storage charges, and whether the cans replevied with their contents were identified as having been furnished by the plaintiffs. The court refused a prayer of the trustees in bankruptcy requesting a directed verdict in their favor on the ground that as to them the contract on which the plaintiffs depend is void. The verdict and judgment were for the plaintiffs, and all of the defendants have appealed.

The primary question in the case is whether the plaintiffs were entitled to the possession of the property in dispute as against the rights of the creditors represented by the trustees in bankruptcy. There are creditors so represented whose claims accrued after the date of the contract between the plaintiffs and Keel, and while he was the ostensible owner of all the assets of the canning business in which he was engaged. The Maryland statute already cited provides: “Every note, sale or contract for the sale of goods and chattels, wherein the title thereto, or a lien thereon, is reserved until the same be paid in whole or in part, or the transfer of title is made to depend upon any condition therein expressed, and possession is to be delivered to the vendee, shall, in respect to such reservation and condition, be void as to third persons without notice until such note, sale or contract be in writing, signed by the vendee, and be recorded in the clerk’s office of Baltimore City, or the counties, as ⁴³ the case may be, where bills of sale are now recorded; and such recording shall be sufficient to give actual or constructive notice to third persons when a memorandum of the paper writing, setting forth the date thereof, the amount due thereon, when and how payable and a brief description of the goods and chattels therein mentioned shall have been recorded, but it shall not be necessary that said paper writing be acknowledged or an affidavit made to the consideration therein expressed as in the case of bills of sale.” Tlie contract we are considering reserved title in the plaintiffs to the supplies furnished by them to Keel until the payment of the purchase price. It also secured to the plaintiffs the right to sell “all goods packed” under the contract, and to apply so much of the proceeds as might be needed to tbe payment of the amount due them for cans and other supplies and for any money advanced.

There was tlie dual purpose, • as disclosed by the express terms, of the agreement, to retain title in the plaintiffs to the cans and material purchased from them, and to give them a lien on the cans and their contents, when filled with produce obtained from other sources, as security for any balance due them on their sales account or for advances of money. In regard to either of these purposes, and to both combined, tbe agreement is within the effect of the statute we have quoted. As between tbe immediate parties the contract, is valid, but “as to third persons without notice” it is declared to be void until placed upon the public records in tlie manner prescribed. The creditors who trusted Keel, in ignorance of the plaintiffs’ secret reservations of interest in the property which they committed to his apparent ownership; were undoubtedly included among the “third persons without notice” for whose protection the act was. passed.

If it had been intended to protect only purchasers and lienors, that purpose would have been expressed. The general terms employed indicate that the statute was designed to safeguard the interests of all persons, acting without notice of tlie un ⁴⁴ recorded, contract, who would be injuriously affected if it were permitted to be enforced. Formerly trustees in bankruptcy occupied the position of the bankrupt in regard to such rights as those asserted by the plaintiffs in this case, and hence were not entitled to contest the validity of secret reservations of title or liens which the bankrupt himself could not dispute. But, by the amendment of 1910 to the Bankruptcy Act, .the trustees’ rights in that respect have been enlarged.

The amended act provides, by section 4-7A, that the “trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies and powers of a creditor holding a. lien by legal or equitable proceedings thereon; and also; as to all property not in the custody of the bankruptcy court, shall bo deemed vested with all the rights, remedies and powers of a judgment creditor holding an execution duly returned unsatisfied * * 'x'.” By virtue of that provision the defendant trustees, if the goods in suit had coin© into the custody of the bankruptcy court, would have had the right of a lien creditor to oppose the plaintiffs’ unrecorded reservation of title. As the property is not in the custody of that court, the trustees’ right to controvert the plaintiffs’ claim is that, which “a judgment creditor holding, an execution duly returned unsatisfied” would possess. A judgment creditor in that situation would have the right to resist by suitable proceedings a void claim against the debtor’s property by -which the satisfaction of the judgment would be impeded. If such a right could not be exercised, the provision that unrecorded contracts reserving title or liens should be void as to third persons without notice would have no value Avhatever, so far as judgment creditors with executions returned unsatisfied are concerned.

Even with respect to valid liens on the personal property of the debtor, a judgment creditor, who has issued a fruitless execution, has recognized privileges which may be exercised for his protection. Shryock v. Morris, 75 Md. 72 ; Martin v. ⁴⁵ Jewell, 37 Md. 535 ; Myers v. Amey, 21 Md. 305 ; Rose v. Bevan, 10 Md. 470 ; Harris v. Alcock, 10 G. & J. 226 . The right of such a creditor to defend his interests against a claim declared by law to he void is too clear for controversy. It is not necessary to determine generally in this case the rights and remedies of judgment creditors holding executions returned unsatisfied, hut it is sufficient to state our conclusion that they are entitled, in view of our statute, to challenge a lieu or title dependent upon an unrecorded agreement of which they were unaware when their claims were contracted.

As defendants in this suit, the trustees in bankruptcy are representing creditors who had no previous notice of the secret agreement under which the plaintiffs have taken possession of property of the bankrupt. The action to that end was begun by the plaintiffs within a few days before the petition in bankruptcy was filed, and when they knew that the debtor had absconded and was insolvent. By the contract they were permitted to take the gpods by replevin if Keel should become “embarrassed financially.” This suit was evidently brought in pursuance of that provision. The practical effect of the suit, if successful, would be to secure a preference for tbe plaintiff’s by the appropriation to their claim of a part of the bankrupt’s assets.

Sucb a result, accomplished under the conditions we have described, would be contrary to the evident spirit and purpose of the Bankruptcy Act. The fact that possession of the property was obtained by the plaintiffs before the filing of the petition in bankruptcy-docs not strengthen their position. They acquired possession with knowledge of the debtor’s insolvency and within the period during which the creation of preferences is forbidden by the federal statute. The right of the other creditors, fhrough the trustees in bankruptcy, to dispute the plaintiffs’ claim of title, could not he thus defeated.

In Bank of North America, v. Penn Motor Car Co., 235 Pa. St. 194, the suit was in replevin to recover some motorcars which had been pledged to the plaintiff hank as security ⁴⁶ for money loaned to the defendant corporation for the purchase of the cars from the manufacturers. Shortly after the writ of replevin was issued, bankruptcy proceedings were instituted against the defendant, and the motor cars were claimed by the trustee in bankruptcy, who intervened in the replevin suit for the purpose of asserting title and right of possession. The decision was in favor of the trustee.

It was not disputed that the agreement pledging the cars to the bank, while the pledgor was left in possession and nothing was done to indicate a change of ownership, was invalid as to subsequent bona fide purchasers or levying creditors, although as against the pledgor it was effective, • and the bank could have taken possession of the cars with or without the aid of a writ of replevin. But it was contended that a different rule should. apply in view of the fact that the bank had secured possession of the cars by replevin before the institution of the bankruptcy proceedings. In disposing of this question the Supreme Court of Pennsylvania said: “Primarily, this is a controversy between the trustee in bankruptcy, representing the creditors of the bankrupt estate, and the bank claiming title to the automobiles as pledgee. The rights of creditors, the question of preferential liens, and the rules of procedure, under the bankruptcy laws, must necessarily prevail.” It was found not to be essential to decide whether a transfer of property, or the creation of a lien, was involved, within the meaning of the provisions of the Bankruptcy Act prohibiting preferences by such means within four months prior to the filing of the bankruptcy petition.

But the purpose of those provisions to secure equality in the distribution of bankrupt estates was held to “have an important bearing upon the effect to be given the amendment of 1910.” After quoting that amendment, the court said: “The manifest purpose of the amendment was to enlarge the rights, remedies and powers of a trustee in bankruptcy, and it had the effect of vesting in the trustee the rights, remedies and powers of a judgment or other creditor having a lien, and of an un ⁴⁷ satisfied execution creditor without a lien at the time of instituting bankruptcy proceedings. In other words the trustee ■was given the power to assert every right which such creditors could have asserted during the period of four months immediately preceding the filing of the petition in bankruptcy. * * * As to the motor ears in dispute here, the rights of the parties must be determined as they existed during the entire four months period.. * * The purpose of the original bankruptcy act, as well as the amendment of 1910, was to enforce equality of distribution among all the creditors, to strike down secret liens, and to avoid preferential transfers of property, and as we read the decisions of the federal courts the conclusion is irresistible that they so understand and construe the law. This general purpose of the acts would be defeated if the contention of the appellant should Ire sustained in the present case.” In Stewart v. Asbury, 199 Mo. App. 123 , a trustee in bankruptcy sued for the value of an automobile which the defendant took from the bankrupt’s possession and sold under a claim of title reserved in an unrecorded contract of conditional sale.

The car was taken by the defendant while the bankruptcy petition was being prepared. Under the Missouri law it was required that instruments evidencing conditional sales should he recorded in order to be valid as against creditors. The judgment in favor of the trustee in bankruptcy was sustained, and the opinion of the Court of Appeals stated the following conclusions: “There is no question that the federal Bankruptcy Act empowers a trustee to enforce the rights of creditors of the bankrupt to set aside liens which are void under the state law for want of recording or for other reasons. Studebaker Bros.

Mfg. Co. v. Elsey-Hemphill Carriage Go., 152 Mo. App. 401 , 133 S. W. 412 ; In re Bothe, 173 Fed. 597 , 97 C. C. A. 547 ; Landis v. McDonald, 88 Mo. App. 335 ; Blake v. Meadows, 225 Mo. 1 , 123 S. W. 868 , 30 L. R. A.

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