(U. S. Dist. Court, Dist. of New Jersey, Jan. 18, 1922).
_Bankruptcy--Sale of Auto Truck--Conditional Agreement and Its
Transfer--Right to Possession of Property--Uniform Conditional Sales
Act_.
In the matter of B. & B. Motor Sales Corporation, bankrupt. On
exceptions to Master's report denying The First People's Trust petition
for certain property held by the Receiver.
Mr. Harry Green for Exceptants, The First People's Trust.
Mr. Barney Larkey for the Receiver.
RELLSTAB, District Judge: The First People's Trust excepts to the
Master's findings that it is not entitled to Apex truck No. 5365, found
in the possession of the B. & B. Motor Sales Corporation (hereinafter
called the bankrupt,) at the time the receiver took charge of the
bankrupt's estate.
The facts are: The bankrupt carried on the business of buying and
selling auto trucks. On July 12, 1920, it agreed in writing with Robert
Jones to sell him the truck in question for $1,955, payable in monthly
installments. In this writing (called a "conditional sale agreement"),
signed by both parties, it was declared, inter alia, that the bankrupt
had that day delivered the truck to the buyer; that the title to the
truck was not to pass to the buyer, but was to "remain vested in and be
the property of the seller or assigns until the purchase price has been
fully paid;" that if Jones failed to pay any of the installments when
due the bankrupt might without demand, notice, or process, take
possession of the truck, whereupon Jones' right therein should terminate
absolutely, and all payments made thereon be restrained by the bankrupt
as liquidated damages and rent. At the same time, Jones executed two
notes to the bankrupt, one for the sum of $1,427.15 (in the conditional
sale agreement recited to be the balance to be paid on the truck),
payable in twelve monthly installments, wherein it was declared that
"upon default in the payment of any installment when due, the whole
amount remaining unpaid shall immediately become due;" the other note
represented the remainder (or some part of it) of the purchase price.
Both the conditional sale agreement and the $1,427.15 note subsequently
were transferred by the bankrupt to the First People's Trust. The
transfer of the agreement is dated July 12, 1920, and recites that it is
simultaneous with the purchase of the note; in terms it sells, assigns
and transfers the bankrupt's right, title and interest in the automobile
in question and also in the conditional sale agreement, and asserts that
the automobile was sold and not consigned to the buyer. The transfer of
the note bears no date, is in the form of an endorsement, guarantees
payment of the note, principal and interest, waives demand and protest,
and is signed by the bankrupt by its President and Secretary, and by the
same persons individually.
Jones had possession of the truck for several months, and, after making
some of the stipulated payments, defaulted in further payments on both
notes. The bankrupt repossessed itself of the truck, and was in
possession thereof at the time the receiver took charge. Neither the
conditional sale agreement nor the assignment was recorded. No rights or
interests of any purchaser or creditor of Jones, the buyer, are involved
in these proceedings, the controversy being exclusively between the
assignee of the conditional sale agreement and the creditors of the
bankrupt (seller).
The Master held that the assignment of the conditional sale agreement
"was to act as a mortgage for the payment of the notes;" and that, as
neither the conditional sale agreement nor the assignment had "been
recorded in accordance with the laws of the State of New Jersey and ...
the B. & B. Motor Sales Corporation had repossessed the truck and had it
in its possession at the time of the appointment of the receiver," the
receiver, and not the First People's Trust, was entitled to it.
First, as to the conditional sale agreement. The New Jersey Uniform
Conditional Sales Act, approved April 15, 1919, effective from July 4,
1919 (N. J. P. L., p. 461), in section 1, defines a seller as "the
person who sells or leases the goods covered by the conditional sale, or
any legal successor in interest of such person." In section 4 it
declares that: "Every provision in a conditional sale reserving property
in the seller after possession of the goods is delivered to the buyer,
shall be valid as to all persons, except as hereinafter otherwise
provided."
The exceptions here referred to are contained in section 5, which
declares that:
"Every provision in a conditional sale reserving property in the seller
shall be void as to any purchaser from or creditor of the buyer, who,
without notice of such provision, purchases the goods or acquires by
attachment or levy a lien upon them, before the contract or a copy
thereof shall be filed as hereinafter provided, unless such contract or
copy is so filed within ten days after the making of the conditional
sale."
From this recital it will be seen that as no purchaser from or creditor
of Jones is questioning the validity of such reservation, as between the
bankrupt and Jones, the reservation to the bankrupt of title and
property in the truck, was valid, notwithstanding the failure to record
the agreement.
Second, as to the assignment of the conditional sale agreement: The New
Jersey Chattel Mortgage Act (Revision of 1892; 1 Comp. Stat. N. J., p.
463) in section 4, declares:
"Every mortgage or conveyance intended to operate as a mortgage of goods
and chattels hereafter made, which shall not be accompanied by an
immediate delivery, and followed by an actual and continued change of
possession of things mortgaged, shall be absolutely void as against the
creditors of the mortgagor, and as against subsequent purchasers and
mortgagees in good faith, unless the mortgage, having annexed thereto an
affidavit or affirmation made and subscribed by the holder of said
mortgage, his agent, or attorney, stating the consideration of said
mortgage and as nearly as possible the amount due and to grow due
thereon, be recorded as directed in the succeeding section of this Act."
To constitute a mortgage the right of redemption must exist, and where
such right is established the form of the conveyance is not controlling.
Wilmerding, Heguet & Co. v. Mitchell, 42 N. J. L. (12 Vr.) 476; Hastings
v. Fithian (E. & A.), 71 N. J. L. (42 Vr.) 311. An assignment of a chose
in action, even if it be a security for the payment of a debt, is not a
chattel mortgage within the meaning of the New Jersey Chattel Mortgage
Act. Bleakley v. Nelson, 56 N. J. E. (11 Dick. Ch.) 674. This Act
applies only "when the goods mortgaged are capable of such open and
visible possession that their holding by a mortgagor, who had given a
secret mortgage, might tempt someone to deal with him as the absolute
owner." Cumberland National Bank v. Baker, 57 N. J. E. (12 Dick. Ch.)
231, 242.
The assignment now under consideration was not given as a security. It
was an absolute transfer of the seller's property and interest in the
conditional sale agreement and the automobile mentioned therein, without
right of redemption. By this assignment The People's Trust became the
"legal successor in interest" referred to in section one of the Uniform
Conditional Sales Act, supra; and the reservation of property contained
in the conditional sale agreement was transferred to it by the
assignment. The assigned agreement recited that the automobile had been
delivered to the buyer, and the assignment expressly recited that it had
been sold to Jones (the buyer); and the assignor at the time of the
assignment was not in a position to retain the automobile, or to deliver
it to the assignee. What the assignor could deliver to The People's
Trust was the conditional sale agreement, and that was done. Had the
transfer been to secure a debt, the delivery of the conditional sale
agreement would savor more of a pledge than a chattel mortgage, but, as
the assignment was absolute and not conditional, it was neither.
Such a transaction is not contemplated by the Chattel Mortgage Act,
which covers transactions where the title, but not possession, is
transferred; but by the Uniform Conditional Sales Act, supra, which
operates upon transactions where the possession, but not the title, is
transferred. The right of The People's Trust to the automobile is fixed
by the assigned conditional sale agreement, and is superior to the
rights of the bankrupt or its creditors--here represented by the
receiver.
As opposed to this view, and in support of the Master's finding, the
case of David Straus Co. v. Commercial Delivery Co. (N. J. Ct. Ch.), 113
Atl. 604, affirmed by the Court of Errors and Appeals, 112 Atl. 417, is
cited by the receiver. That case, made up of facts which existed before
the Uniform Conditional Sales Act went into effect, presents many
features similar to the instant case. However, the differences, and not
the similarities, are controlling. The pertinent facts were: Coincident
with the agreement (called a lease) relating to the delivery and use of
the automobile truck, the lessee (driver) entered into a service
contract with the lessor (Commercial Delivery Company). In that contract
the driver agreed to work the truck under the direction of the lessor
for two years, and in no other way than as directed by it, and to
deliver to the lessor the entire gross monthly earnings. The contract
also provided that out of these moneys the latter was to retain a
certain percentage for its services, pay the wages of the drivers,
storage charges, repairs, etc., and credit the balance to the driver;
and that the truck should at all times be stored in a garage furnished
by the lessor. The lessor assigned to the Morris Plan Company all its
right, title and interest in the lease and the property therein
described, and agreed, "in the event of any resale, release, or
repossession of said property," to pay to the assignee any deficiency
between the net proceeds of such resale and the amount necessary to pay
the unpaid installments. At the time of this assignment the assignee
took a note made jointly by the assignor and the driver for the sum
advanced by the assignee as consideration for the assignment.
Subsequently an equity receiver in insolvency proceedings was appointed
for the lessor, and the receiver found it in possession of the truck.
The Morris Plan Company petitioned that the truck be delivered to it as
the legal owner thereof. The Vice-Chancellor held that the assignor was
a debtor of the assignee; that the assignment was not an absolute sale
of the truck, but collateral security for the payment of the debt; that
while the lease apparently gave the right of possession to the driver
(lessee), the actual possession, by reason of the service contract, was
always in the lessor; that the assignment of the lease was in legal
effect a chattel mortgage; and that not having been recorded it was void
as against the receiver and creditors of the assignor. As already stated
this finding was affirmed by the Court of Errors and Appeals.
In the cited case, as noted, it was held that the possession, as well as
the title, of the truck was in the lessor at the time of the assignment
of the lease or sale agreement; and that the assignment was not an
absolute sale of the agreement, but a security for the payment of the
advances made by the assignee for which payment the assignor was jointly
liable with the driver. In the instant case, the actual, as well as the
right of possession of the truck, was not in the bankrupt, but in a
third person--the buyer--and the assignment was an absolute transfer of
the bankrupt's property in the conditional sale agreement, without right
of redemption. These differences are essential, and distinguish the
cases.
The fact that the truck was taken from the buyer by the bankrupt
subsequent to the latter's assignment of the conditional sale agreement,
gave it not property or right in the truck as against its assignee, The
First People's Trust. Whatever rights such possession gave it as against
the buyer, they were subordinate to the assignee's right of possession
on the buyer's default in the terms of the conditional sale agreement
then held by the assignee. Such default having taken place, the assignee
is entitled to the possession of the truck.
The Master's findings are disapproved, and an order will be made giving
The First People's Trust the possession of the truck in question.
OSBORNE & MARSELLIS CO. v. ESSEX CO.
(Essex Co. Circuit Court, Feb. 3, 1922).
_Compensation for Road Labor Performed Under County Contract--Ultra
Vires Resolution_.
Case of The Osborne & Marsellis Company against County of Essex.
Messrs. Edwin B. and Philip Goodell for Plaintiff.
Mr. Arthur T. Vanderbilt for Defendant.
DUNGAN, J.: This is a suit brought by Osborne & Marsellis Company
against the County of Essex to recover compensation for labor performed
and materials furnished in the improvement of a part of Franklin avenue,
a county road in the county of Essex, prior to the allowance of a writ
of certiorari to review the legality of the contract under which the
work was done, which contract was set aside by the Supreme Court, and
the decision of that Court was affirmed by the Court of Errors and
Appeals. Chamber of Commerce v. County of Essex, 114 Atl. 426.
The case is submitted upon a statement of the case and stipulation of
facts for judgment, without pleadings; the parties agreeing that the
issues be submitted to this Court for decision, without trial by jury,
and that "No appeal will be taken from the judgment entered on his
findings."
From the agreed statement of fact it appears that there was no
irregularity on the part of Osborne & Marsellis in the bid, in the
awarding of the contract, or in the execution of the contract, which was
approved as to form by the county counsel, and a bond was furnished
which was also approved, both in accordance with the resolution of the
Board awarding the contract. It also appears that, after the adoption of
the resolution awarding the contract, the plaintiff commenced the work
and performed work and furnished materials, the value of which, at the
unit prices fixed by the contract, amounted to $18,562.80, all of which
labor and materials were performed and furnished prior to the allowance
of the writ and prior to notice that application would be made for the
writ, "except such work as was necessary to leave the unfinished road in
condition as required by law."
The grounds upon which the contract was set aside appear fully in the
case of Chamber of Commerce v. County of Essex, 114 Atl. 426.
Two defenses to the plaintiff's claim are urged: First, that the
contract was not signed by the director of the Board of Freeholders;
and, second, that the resolution constituted an ultra vires act of the
Board of Freeholders and that there can be no recovery upon quantum
meruit where the act is ultra vires.
1. The resolution of the Board of Freeholders relating to the awarding
of the contract, which included other contracts, is as follows:
"Resolved that the contracts ... be and the same are _hereby awarded_;"
and that "the director and clerk be and they are hereby authorized and
directed to execute contracts with said companies pursuant to this
resolution," the only conditions being that a proper bond be furnished
and that the contract and bond be approved by the county counsel, and
both contract and bond were so approved. The contract, therefore, was
awarded by the resolution itself, and the formal document, approved by
the county counsel, was actually signed by the clerk and the seal of the
county affixed thereto by him, and the failure of the director to sign
was a failure to perform a purely ministerial act, the performance of
which could have been required by proper legal proceedings. Therefore, I
hold that the plaintiff is not prevented from recovering on account of
the failure of the director to sign the contract.
2. The subject of the contract is one which was entirely within the
powers of the Board, and hence it cannot be said that the action of the
Board in awarding the contract to the plaintiff was ultra vires in that
respect. After the adoption of the resolution awarding the contract, and
after the approval of the plaintiff's bond and the form of the contract
by the county counsel, and the affixing thereto of the signature of the
clerk and the seal of the county, the plaintiff commenced the work
contemplated by the contract. Grade stakes were furnished by the County
Engineer's department, and the work which was performed was under the
supervision and direction of an inspector furnished by that department,
and the portion of the road upon which the work was done was completed
and left ready for use and is now actually in use by the public.
This situation, it seems to me, brings this case within the decision of
the Supreme Court in Wentink v. Freeholders of Passaic, 37 Vroom, p. 65,
in which it appeared that a contract to do the mason work of a bridge
was let to Wentink, which contract the Court subsequently declared void
because the firm to whom a contract for the same work had been
originally awarded, but which had failed to furnish a bond, had no
notice that their bid had been rejected. Wentink expended $600 in
attempting to secure materials and in the execution of the contract. The
Court held, that even though the county had derived no benefit from such
expenditure, Wentink might recover the amount expended. The Court said:
"There was no lack of power to make the contract with the plaintiff. The
fatal defect was in an irregular exercise of such power. It would be too
much to hold every contractor for a public body to a scrutiny at his
peril of the corporate proceedings. All that he need look to is the
power to make the ostensible contract."
On the question of damages the Court said: "In the case in hand the
performance of the contract was not prevented by the fault of the
defendant, but by _vis major_. The making of the contract was, however,
induced by such fault, and on its annulment the defendant should answer,
as on a quantum meruit for the work done thereunder," and that, "As to
the measure of the quantum meruit for the work done the contract rate
should govern."
It is admitted that at the contract rate the work which was performed by
the plaintiff would have amounted to $18,562.80. Since this case is
submitted for judgment without pleadings, and since the statement of the
case and the stipulation of facts make no provision for interest, the
judgment of the Court will be in favor of the plaintiff and against the
defendant for that sum.