Opinion
No. 9085.
February 5, 1931.
Poe, Falknor, Falknor Emory, of Seattle, Wash., for petitioners.
Eggerman Rosling, of Seattle, Wash., for trustee.
In Bankruptcy. In the matter of Renfro-Wadenstein, a corporation, and another, bankrupts. On petition of Robert Irwin Company and another to review a decision of the referee in bankruptcy denying their claim to certain property in bankrupt's possession, opposed by W.S. Osborn, trustee in bankruptcy.
Order modified and affirmed.
This case is before the court on petition for review. The parties are in substantial agreement on the referee's findings: That the bankrupt was engaged in the retail furniture business at Seattle; that Robert Irwin Co., and Ketcham Rothschild, Inc., were engaged in the manufacture of furniture at Grand Rapids, Mich., and Chicago, Ill., respectively; that in November, 1927, the bankrupt owed Irwin Co. approximately $20,000, of which $3,000 was for goods shipped during 1927, the balance prior to that time; that in November, 1927, bankrupt agreed to liquidate the account by paying $2,000 per month, beginning in November, 1927, and paid $2,000 in November, and $2,000 in December. In March, 1928, bankrupt placed an order for $15,000 with Irwin Company, who refused to ship until existing indebtedness was arranged for. During 1927 and until March, 1928, bankrupt had a so-called "frozen credit" with Ketcham Rothschild up to $15,000, bankrupt to pay interest at 7 per cent. per annum for the use thereof, and any merchandise bought in excess of that sum to be paid on the usual terms. In March, 1928, bankrupt owed Ketcham Rothschild approximately $16,000 or $17,000; all of which was evidenced by negotiable notes. In March, 1928, Irwin Company and Ketcham Rothschild had a conference about their respective accounts, and Rothschild came to Seattle, and on March 23, 1928, the bankrupt signed and delivered a so-called "consignment agreement," and a letter dated the same day; and Ketcham Rothschild signed the agreement in Chicago on March 30, following, and bankrupt signed a similar agreement for Irving Company on the same day in duplicate in blank, which were mailed to Irwin Company and received by them on March 27 or March 28, and on April 1 dated the contracts and signed them, but retained both in their possession until September 5, 1928, when one copy was sent to the bankrupt.
The so-called "consignment agreement" in substance provides that all merchandise shall be shipped f.o.b. factory, invoiced to the bankrupt, and shall be "charged provisionally to the consigned account" of bankrupt; the amount to be shipped to be determined by the manufacturer; the bankrupt agrees to accept all goods so shipped, pay all freight and carriage charges, insure the same in the name of the manufacturer, care for the goods pending sale at its expense; goods to be held for "resale for account of said party of the first part at prices not less than the net invoiced price"; bankrupts to retain by way of commission on sales all sums above invoiced price, keep an itemized record of sales distinct from its other sales, and on the 1st and 15th day of each month furnish a list of sales of consigned goods sold during the preceding half month, giving selling price, terms, names and addresses of purchasers, to remit all moneys collected until the invoiced price is fully paid on the 20th of each month for goods sold during the preceding month; if collection has not been made, the bankrupt to execute its demand note "collateralled" by the assignment of accounts receivable equal to the payment due, and guarantee the credit of customers on account of sale of goods, to pay a carrying charge equal to 7 per cent. after 90 days from date of shipment for merchandise unsold, carrying charge to be paid the first day of January and July of each year; in case goods shall be recalled, the bankrupt agrees to crate and place on car, Seattle; the contract to continue until terminated by written notice of either party to the other. On termination shipper "shall have the right, at its option, to require the party of the second part to keep and pay for the consigned goods then remaining on hand, at the invoiced price thereof," to be paid for 25 per cent. every thirty days until fully paid; the consigned goods, or the accounts representing the same and the proceeds thereof, to be the property of the shipper until remittance made and received.
Paragraph 9 of the so-called "consignment agreement" stated and provided that the bankrupt had in its possession certain goods as per "attached list," which had theretofore been sold and delivered to the bankrupt by the company on credit and had not been paid for; that the title to said goods is hereby transferred and conveyed back to the company, and should thereafter be treated as having been delivered to the bankrupt "on consignment and under and subject to all the terms and conditions of this contract"; that in consideration of said transfer and conveyance of the title of said goods back to the company, that company "does hereby cancel indebtedness of the bankrupt for said goods."
The letter further provided, in substance, that bankrupt would furnish, shortly after the 1st of the month, an inventory of the company's merchandise on hand and would furnish a "bill of sale" which will act as a transfer back to your company of this merchandise, and that any difference in the amount of the account would be taken care of in three equal payments, 30, 60, and 90 days.
The bankrupt on August 6, 1928, executed a bill of sale transferring certain items of furniture to Irwin Company. On September 5, Irwin Company accepted the bill of sale, and sent to the bankrupt one of the executed copies of the so-called "consignment agreement." Between March and September 5, the bankrupt and Irwin Company were having correspondence with relation to the so-called "consignment agreement." This bill of sale was never filed for record. No list of goods referred to in paragraph 9 of the consignment agreement was attached to the contract at any time. At the time the contract was signed by the bankrupt, it furnished to Rothschild a memorandum of its stock and records upon which the approximate figures of the amount of goods of Ketcham Rothschild were predicated.
April 16, 1928, bankrupt executed and delivered to Ketcham Rothschild a bill of sale for the goods on hand at the time of the execution of the so-called "consignment agreement." This bill of sale was filed for record April 24, 1928, in the auditor's office of King county, Wash., the county of the bankrupt's place of business.
The bankrupt made some reports of sales, but not as required by the contract of March 30, 1928. The bankrupt paid Ketcham Rothschild for all goods which the bankrupt reported sold. All these payments were made in cash with the exception of one payment, which was by note.
After the execution of the so-called "consignment agreements," and bills of sale, Irwin Company and Ketcham Rothschild, respectively, credited the account with the value of goods set forth in the respective bills of sale. Irwin Company on August 20, 1928, made its last shipment of goods to the bankrupt. At the time the bankrupt signed a so-called "consignment agreement," and thereafter all the furniture of Irwin Company and Ketcham Rothschild in the possession of bankrupt was intermingled with other furniture. There was no physical change of possession, or segregation. The bankrupt was unable to pay its obligations in due course of business prior to November, 1927, and was insolvent under the state laws, which facts were known to both petitioners. The evidence does not fairly disclose the liabilities and reasonable value of the assets at the time of the so-called "consignment." All shipments made after March 30, 1928, were made directly on bills of lading to the bankrupt in substantially the same manner that shipments had been made prior to the execution of the so-called "consignment agreement." All invoices were marked, "terms special." The same phrase had been used on some invoices of goods prior to March 30, 1928.
The furniture received by the bankrupt under this consignment agreement was not segregated at any time and was intermingled with the bankrupt's furniture on display. This furniture bore tags or marks showing by what factory it was made, but bore no mark that it was consigned furniture, or that it was not the property of the bankrupt. The bankrupt kept a separate folder, designated a "consignment folder," in which were invoices for furniture on hand or shipped to the bankrupt under the so-called "consignment agreements" with each of the petitioners. No disclosures on the books of the bankrupt were made showing that he held any goods under consignment, except that the matter was in a separate folder. Each petitioner carried a consignment account with the bankrupt on its books, and upon receiving a report from the bankrupt of a sale would make a direct charge against the bankrupt therefor.
The bankrupt did not make reports to the petitioners as required in the so-called "consignment agreement." On August 4, 1928, the bankrupt wrote to the Irwin Company inclosing a report of sales, with two notes in payment of the goods sold. No other report or payment was made. The notes were not paid and were held by the Irwin Company after adjudication in bankruptcy.
All goods were sold by the bankrupt, irrespective of consignment, billed under a common bill. The money was deposited by the bankrupt to its general commercial account, from which it paid its operating expenses and other needs, advertising, or changing its location of business.
After the alleged consignment arrangement and at the time of removal to and opening at its new place of business, advertising announcing the opening was made in the newspapers of bankrupt's furniture, stock, among others, of the manufacture of both petitioners was published, with the financial assistance of both petitioners and other concerns with whom bankrupt dealt. No statement or intimation was made that the furniture was on consignment, and of the text of the advertisement petitioners had knowledge.
Beginning prior to March 30, 1928, and continuing until after the assignment for the benefit of creditors, the bankrupt discounted and assigned its contracts and accounts receivable to discount companies, and this practice continued after the so-called consignment agreements, all of which was known to the petitioners. The discount companies had no knowledge that the contracts were supposed to represent goods held on consignment.
An assignment was made October 3, 1928, for the benefit of creditors. The assignee sold some of the furniture, acting in the dual capacity as assignee and as agent of the discount companies. The proceeds of the collections on the contracts and the accounts which had been assigned were kept separate, with minor exceptions. After the assignment both petitioners made demand for the return of the furniture claimed by them to be on consignment. This being denied, petition was filed in bankruptcy October 19, 1928. Adjudication was made November 9, following, and W.S. Osborn was elected as trustee and qualified November 21, 1928.
Robert W. Irwin Company.
The amount of furniture in the bankrupt's bill of sale to the Irwin Company was $14,490.45; the amount of furniture shipped by the Irwin Company to bankrupt subsequent to April 1, 1928, was $15,409, — a total of $29,899.45. The Irwin consignment furniture delivered to the trustee was $18,739.50 (including furniture in the bill of sale, $8,391, and shipped by the Irwin Company subsequent to April 1, 1928, $10,348.50). The trustee in bankruptcy received the contract and accounts receivable representing Irwin's "consignment" goods (including both goods described in the bill of sale and goods shipped subsequent to the so-called "consignment agreement"), $1,725. These were not collected prior to bankruptcy. The assignee received payments on the Irwin "consignment" furniture (including furniture described in the bill of sale and that shipped subsequent to the purported consignment agreement), sold prior to the assignment, $425.67, and sold "consignment furniture" (including furniture described in the bill of sale and furniture shipped subsequent to the purported consignment agreement), for which there was collected by the assignee, receiver, and trustee, the sum of $2,062.
Kecham Rothschild.
The first shipments under the consignment agreement were made on April 2 and 7. The amount of furniture included in the bill of sale to this firm was $11,585.25. The amount shipped by it to bankrupt subsequent to March 30, 1928, was $7,047.06; total, $18,632.31. The amount of furniture delivered to the trustee in bankruptcy was $9,984.31 (made up of furniture described in the bill of sale, $5,751.75; furniture shipped after March 30, 1928, $4,232.56). The trustee received contracts and accounts on consignment goods (including those in the bill of sale and consignment) theretofore sold and not collected prior to bankruptcy, $2,021. The assignee received consignment furniture (including those described in the bill of sale and subsequently shipped) sold prior to the assignment, $568.75; sold furniture (included in the bill of sale and for which there was collected by the assignee, receiver, and trustee), $1,593.50. The assignee turned over to the trustee in cash, $2,935.85. The trustee in bankruptcy, under order of the bankruptcy court, sold practically all of the furniture and receivables in his hands for $150,000 cash. It was agreed on stipulation, December 5, 1928, between the petitioners and trustee: (a) That the sum of $21,783.55 should stand in lieu of the merchandise claimed by the petitioners; (b) that the sum of $9,874.05 shall stand in lieu of the unpaid accounts receivable and proceeds collected by the assignee and claimed by the petitioner at the date of bankruptcy.
At no time subsequent to March 30, 1928, were any of the receivables assigned to either of the petitioners or any collateral or any notes given to the petitioners for any assigned goods.
The referee concluded, in substance, that the petitioners knew bankrupts were insolvent, and that it was the intention of all the parties to make the fraudulent concealment of actual sales; that the bills of sale did not transfer the title to the property, nor the "consignment agreements" constitute the merchandise as consigned; and that neither petitioner has any right against any of the funds, except as a general creditor, and not entitled to reclaim any of its so-called "consigned" furniture or the proceeds thereof.
The legal issue involved is: Was the merchandise, cash, or accounts in bankrupt's possession after adjudication held as on consignment as to either or both petitioners?
The state insolvency laws are not controlling, in view of subdivision (15), § 1, Bankruptcy Act (11 USCA § 1(15):
"A person shall be deemed insolvent within the provisions of this title whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts."
No actual fraud is shown within the state insolvency laws.
The trustee is vested by operation of law with the title of the bankrupt and the rights of its execution creditors. Section 70, Bankruptcy Act ( 11 USCA § 110). In re Thorp (D.C.) 130 F. 371. And such rights are determined by the local law. Hewit v. Berlin Mach. Works, 194 U.S. 296, 24 S. Ct. 690, 48 L. Ed. 986.
"No bill of sale for the transfer of personal property shall be valid, as against existing creditors or innocent purchasers, where the property is left in the possession of the vendor, unless the said bill of sale be recorded in the auditor's office of the county in which the property is situated, within ten days after such sale shall be made." (Italics supplied.) Section 5827, Rem. Comp. Stat. of Washington.
A delivered, unrecorded bill of sale is ineffectual as against creditors under section 5827, supra. Schloss v. Stringer, 113 Wn. 529, 194 P. 577. And a bill of sale, to be effectual as against creditors, must be filed within ten days after the sale is made. Section 5827, supra. "It does not say within 10 days after the bill of sale is delivered." Schloss v. Stringer, supra, at 532 of 113 Wn., 194 P. 577, 579.
The so-called "consignment agreement" (Petitioners' Exhibit No. 1) was signed by the bankrupts on March 23, 1928, and delivered to Ketcham Rothschild, who signed it in Chicago, March 30, and the Irwin Company agreement mailed to the Irwin Company, received March 27, or 28, signed and dated by them April 1, but retained until September 5, when one copy was sent to the bankrupt.
Paragraph 9 of this agreement provides:
"* * * It is hereby agreed that the title to such goods, and the same is, hereby transferred and conveyed to said party of the first part (petitioners), and that from and after this date the same shall be delivered as having been delivered to said parties of the second part on consignment and under and subject to all of the terms and conditions of this contract. In consideration of the transfer and conveyance of the title to said goods back to the said party of the first part, that company does hereby cancel the indebtedness of the said party of the second part" (bankrupt).
The sale or transfer was made on the 23d of March and delivered to and executed by the petitioners March 30 and April 1st, respectively. The bill of sale made on August 6, 1928, to Irwin Company is but evidence of the sale made on the 23d of March, and the bill of sale, not having been filed for record, cannot in any event have validity as against creditors, and, by the same token, the bill of sale executed by the bankrupts on the 16th day of April, 1928, and filed for record April 24 following, is evidence only of the transfer made in March, supra, and the filing on the 24th of April is ineffective. The fact that an inventory was furnished at a later date is immaterial, since the contract was complete as to the essentials, and the formalities after inventory are immaterial. Grainger Co. v. Louisville Cornice, Roofing Heating Co., 132 Ky. 563, 116 S.W. 753; Sellers v. Greer, 172 Ill. 549, 50 N.E. 246, 40 L.R.A. 589; McPherson v. Fargo, 10 S.D. 611, 74 N.W. 1057, 66 Am. St. Rep. 723; Harlan v. Logansport, 133 Ind. 323, 32 N.E. 930; Johnston v. Trippe (C.C.A.) 33 F. 530.
That the contract was completed is emphasized by the invoices from Ketcham Rothschild dated April 2 and 7, 1928, which show a combined shipment of over $8,000. See Phillips v. Moor, 71 Me. 78; Hosner v. McDonnell, 114 Wn. 489, 195 P. 231. After the execution of the agreement the relation of the parties and merchandise was established, and neither had the right to change or give to the agreement its own interpretation. Mooney v. Daily News Co., 116 Minn. 212, 133 N.W. 573, 37 L.R.A. (N.S.) 183; Sturtevant Co. v. Cumberland, D. Co., 106 Md. 587, 68 A. 351, 14 Ann. Cas. 675; Newhall Land Farming Co. v. Hogue-Kellogg Co., 56 Cal.App. 90, 204 P. 562.
As to the merchandise sold on open account and retransfer attempted, the proof does not show resale.
Is the agreement one of sale or consignment?
As tending to show consignment, bankrupt agreed to insure the merchandise in the name of the manufacturer and sell it at not less than invoiced price, retain commissions on sales above invoiced price, keep itemized records of sales distinct from other sales, and make report as stated times of the consigned goods, giving the selling price, names and addresses of purchasers; if any goods were recalled, bankrupt agreed to crate and place on cars at Seattle.
On the sale side, the merchandise was shipped f.o.b. factory, invoiced to the bankrupt, and charged provisionally to the consigned account, the bankrupt to pay all freight and carrying charges, insurance premium, and expense of caring for the goods pending sale; if collection is not made, bankrupt to execute a demand note, collateralized by the assignment of account equal to the amount due, and guarantee the credit of customers, and pay "carrying charge" equal to 7 per cent. after 90 days of shipment date for unsold merchandise; on termination of contract agreed to buy and keep merchandise at the option of manufacturer and pay 25 per cent. every 30 days until paid. It is provided the consigned goods or the accounts to be the property of the shipper or manufacturer.
A bailment is differentiated from a sale, in that it contemplates no transfer of ownership. Sturm v. Boker, 150 U.S. 312, 14 S. Ct. 99, 37 L. Ed. 1093. An agreed price, a vendor, a vendee, an agreement to sell for the agreed price, and agreement of vendee to buy for and pay the agreed price are essential elements of a contract of sale. These elements are not in the agreement. The power to repossess the specific merchandise is an incident of bailment. In re Columbus Buggy Co. (C.C.A.) 143 F. 859. This right is in the contract. The mere fact that the contract provides that the bankrupt may fix the selling price at not less than invoice and to keep commissions, covering insurance, storage, and expenses of keeping, does not constitute sale if there is no obligation of the bankrupt to buy. In re Columbus Buggy Co., supra; Franklin v. Stoughton Wagon Co. (C.C.A.) 168 F. 857; Ludvigh v. Am. Woolen Co., 231 U.S. 522, 34 S. Ct. 161, 58 L. Ed. 345; see, also, In re Eichengreen (D.C.) 18 F.2d 101. Nor does the agreement of the bankrupt to guarantee the accounts of purchasers change the relation of consignment to sale. Ludvigh v. Am. Woolen Co., supra. The agreement of the bankrupt to buy the merchandise at the option of the manufacturer at the termination of the contract does not create a sale, as the parties may make a valid consignment agreement making provision for change, and until the change is effected, the agreement is one of consignment. Mitchell Wagon Co. v. Poole (C.C.A.) 235 F. 817. I have no doubt that the intent of the parties was in good faith to ship future merchandise on consignment, no present liability by the bankrupt was made, or right created to petitioner. In re Aronson (D.C.) 245 F. 207. The relation was principal and factor, with the rights of each defined, rather than debtor and creditor. The superadded agreement as to purchase was a condition which had not matured. The petitioners, as the testimony discloses, had confidence in the bankrupts and "felt justified in backing them with merchandise to the extent of their new enterprise." There was no basis for credit, but did have a basis for payment. The contingency not having matured into a fixed status, the merchandise shipped on consignment and delivered to the trustee, should be accounted for by him.
As to Accounts and Cash.
There is no evidence to show that the money held by the trustee was received for sale of merchandise held on consignment. The money claimed must be traced to the trust fund. See In re John Deere Plow Co. (C.C.A.) 137 F. 802. There is no evidence that the money in issue was received for the consigned merchandise, and upon report of sale the merchandise was billed to bankrupt as on sale; and to recover, petitioner must prove his merchandise or money received for it, or trace the merchandise to the account. This has not been done. Zenor v. McFarlin (In re Lockwood Grain Co.) 238 F. 721, 725 (C.C.A.).
The inevitable conclusion is that the merchandise of petitioners' manufacture in bankrupt's possession on April 1, 1928, vested in the bankrupt, and that the attempted retransfer to the petitioners was ineffective; that the merchandise shipped subsequent to this date was held on consignment; and that the petitioners are entitled to the proceeds of the sale of such consigned merchandise as passed to the trustee in bankruptcy. No trust relation has been traced to accounts which came into the possession of the trustee in bankruptcy, or merchandise sold under consignment. These funds were so commingled with the general funds of the bankrupt that no identity is established.
It would unduly extend this memorandum to apply or distinguish the numerous cases cited by both parties and no good purpose would be served.
The order of the referee is affirmed, except as herein stated.