Summary
stating that " receiver takes possession of property . . . subject to all the liens and equities which existed at the time it was taken over by the receiver [and h]e does not take over any more title than the person, firm or corporation had"
Summary of this case from In re SkorichOpinion
No. 3057.
Decided May 2, 1939.
A receiver takes possession of the debtor's property subject to all liens which existed at the time of taking such possession and neither he nor his transferee has any better title than that of the debtor.
An unrecorded conditional sale contract is everywhere recognized as valid between the original parties.
If by the terms of a conditional sale agreement, the chattel is to be delivered by the vendor to the vendee in another state before the transaction is complete, the law of the state where the transaction is completed by such delivery and not that of the state where the transaction was initiated by the contract determines whether or not the vendor retains title to the chattel.
If by the law of the state of delivery, a lien on chattels conditionally sold must be recorded to be valid against attaching creditors or subsequent purchasers without notice, the receiver of the vendee, though the lien is unrecorded, acquires title subject to the lien.
Machines for meat packing, so cemented into the building that their removal would necessarily spoil two floors of the plant, are a part of the realty and not subject to removal. And so as to machines so affixed by cement that their removal would necessitate taking down the walls of the plant.
INTERVENING PETITION, in receivership proceedings by which the Cincinnati Butchers' Supply Company, hereinafter called the claimant, seeks to enforce a lien upon certain machinery sold by it to the Vermont Packing Company, Inc., hereinafter called the defendant, under a conditional sale agreement. Upon an agreed statement of facts the Superior Court (Burque, C. J.) transferred without ruling the following questions: "1. Is the document purporting to be a conditional sale mortgage valid? 2. Have the machines cemented into the floor become a part of the real estate?"
From the agreed statement the following facts appear. By a written contract bearing date of December 1, 1926, the defendant agreed to purchase from the claimant certain meat packing machinery for the sum of $11,919.91, "freight allowed to Bellows Falls, Vermont." The contract further provided as follows: "It is also agreed that the title of all the material covered by this agreement shall remain in the name of the company until fully paid for in cash." There is nothing in the language of this contract which differentiates it from the usual conditional sale agreement, and the court's use of the unfamiliar term "conditional sale mortgage" does not indicate that the document is in any essential respect unique or unusual. From photostatic copies of the contract it appears to have been executed by the defendant in Vermont and by the claimant in Ohio. It was not recorded in either the state of Ohio or the state of Vermont but was recorded in the town of Walpole, New Hampshire, where the defendant's plant was located, on February 11, 1927.
The machinery in question was shipped by the claimant to itself at Bellows Falls, Vermont, and there released to the defendant upon payment of the freight, the amount of which was credited by the claimant upon its bill. It is specifically agreed "that delivery of the goods was made to the said Vermont Packing Company, Inc., at said Bellows Falls, Vermont." It is further agreed that a number of the machines included in the conditional sale agreement, which are listed in Defendant's Exhibit 5, were "cemented into the building of the said Vermont Packing Company, Inc." and that "the removal of any of the above machinery would necessitate spoiling the first and second floors of the plant of the said Vermont Packing Company, Inc.," and as to two of said machines that such "removal would necessitate taking down the walls of the plant of the said Vermont Packing Company, Inc."
Receivers of the packing company were appointed in these proceedings upon February 27, 1928, and the defendant, Eugene P. Cray, claims title to the property in question by virtue of a deed of both real and personal property from the sole remaining receiver, dated April 12, 1933. The interest of the defendant, Charles S. Cray, was acquired through the foreclosure of a mortgage upon the defendant's plant executed September 30, 1926, to one Stephen J. Cray. Judgment of foreclosure having been entered upon April 13, 1933, the said Stephen J. Cray was put in possession of the premises by the sheriff upon September 5, 1933. Thereafter, upon February 28, 1934, Stephen J. Cray died, devising the packing company plant to the defendant Charles S. Cray.
Other facts are stated in the opinion.
William H. Watson and A. Luke J. Crispe (Mr. Crispe orally), for the claimant.
Murchie, Murchie Blandin (Mr. Alexander Murchie orally), for the defendants Charles S. and Eugene P. Cray.
We assume that by the first question transferred, the Superior Court seeks a decision upon the issue which appears to be decisive of the rights of the parties with reference to at least a portion of the property here involved, namely, whether the conditional sale agreement is "valid" so as to be binding upon the above named defendants, and that the general question of its "validity" in respect to other possible claimants is not of present importance.
It is the contention of the claimant that, as between the original parties thereto, the conditional sale contract was a binding agreement subject to no legal infirmity; that the receivers stood in no better position than the packing company, and hence that the conveyance of the remaining receiver to Eugene P. Cray was subject to the claimant's lien. On behalf of the above named defendant it is asserted that the receivers stood in the position of attaching creditors and that as against them the conditional sale agreement was not effective because of the failure to record it in Vermont.
As between the claimant and the packing company, it cannot be doubted that the conditional sale contract was a binding and enforceable agreement. "An unrecorded contract is everywhere recognized as valid between the original parties, . . . and it necessarily follows that it is binding upon the assignee who holds by equal right with the vendee." Jones, Chattel Mortgages and Conditional Sales, § 1131.
The answer to the question whether the receivers took any greater rights than the original vendee had, involves the solution of a subsidiary problem, i.e. by what law is the effect of the conditional sale agreement to be determined?
It should be observed that the question is essentially one of property law rather than of contract — not whether the parties made a. binding agreement, but whether title was effectively retained by the seller. 2 Beale, Conflict of Laws 1001-2. The fact upon which the parties agree that "delivery of the goods was made to said Vermont Packing Company, Inc., at said Bellows Falls, Vermont" is decisive of this question.
The decisions of this court clearly recognize the soundness of the principle stated by Professor Beale as follows: "Title to a chattel passes according to the law of the place where the chattel was at the time of the transaction by which it is claimed that the title was passed." 2 Beale, Conflict of Laws, 981. Baribault v. Robertson, 82 N.H. 297; Davis v. Osgood, 69 N.H. 427; Dorntee Casket Co. v. Gunnison, 69 N.H. 297; Cleveland Machine Works v. Lang, 67 N.H. 348.
As a corollary of this proposition it follows that "If, by the terms of the agreement of a conditional sale, the chattel is to be delivered by the vendor to the vendee in another state before the transaction is complete, the law of the state where the transaction is completed by delivery to the vendee and not that of the state where the transaction is initiated by the contract determines whether or not the vendor retains title to the chattel." Restatement of Conflict of Laws, s. 272, Comment c. With reference to the facts of another case the rule was concisely stated in Columbus Merchandise Co. v. Kline, 248 Fed. 296, as follows: "As the property was delivered in Ohio, for sale in that state, the Ohio statute as to conditional sales controls."
It therefore follows that the effect of the conditional sale agreement in the present case was governed by the statute of Vermont which provided as follows: "A lien reserved on personal property sold conditionally and passing into the hands of the conditional purchaser shall not be valid against attaching creditors or subsequent purchasers without notice, unless the vendor of such property takes a written memorandum, signed by the purchaser, witnessing such lien, and the sum due thereon, and causes it to be recorded in the office of the clerk of the town where the purchaser of such property resides, if he resides in the state, otherwise in the office of the clerk of the town where the vendor resides, within thirty days after such property is delivered . . ." Vermont Laws 1925, No. 48.
From the foregoing provision it is plain that the receivers could not successfully contest the validity of the contract here involved unless they occupied the position either of "attaching creditors" or "subsequent purchasers without notice." Upon this point there is a serious split of authority in other jurisdictions (see Jones; Chattel Mortgages and Conditional Sales, § 1128) but by the prior decisions of this court we are committed to the view, which seems to be supported by the weight of authority, that "A receiver takes possession of the property . . . subject to all the liens and equities which existed at the time it was taken over by the receiver. He does not take over any more title than the person, firm or corporation had." 1 Clark, Receivers, § 496; Goudie v. Company, 81 N.H. 88, 94; Bellows Falls Co. v. Company, 89 N.H. 551.
From the foregoing conclusions it follows that the conditional sale contract was binding upon the receivers, and is equally binding upon the defendant Eugene P. Cray, who claims under them. The first question transferred by the Superior Court is, therefore, answered in the affirmative.
In view of the agreed facts the answer to the second question cannot be regarded as doubtful. It is evident that the machines listed in Defendant's Exhibit 5 cannot be removed without substantial physical damage to the freehold, and under these circumstances by the prevailing common-law rule they are to be regarded as part of the realty and not subject to removal. Langdon v. Buchanan, 62 N.H. 657, 660; Detroit Steel Co. v. Company, 233 U.S. 712; 48 Harv. L. Rev. 858; 88 A.L.R. 1324. The decision in Cochran v. Flint, 57 N.H. 514 proceeded upon the assumption that the machines there involved could be removed "without destruction or material injury to the building." Ib. 542.
Section 66 of the Uniform Conditional Sales Act also makes "material injury to the freehold" the test of removability. Central Lithograph Co. v. Company, 316 Pa. St. 312; Harvard Financial Co. v. Company, 261 N.Y. 169; 83 U. of Penna. L. R. 916.
The second question transferred by the Superior Court is therefore answered in the affirmative.
Case discharged.
All concurred.