Bryant v. Swofford Brothers Dry Goods Company/Opinion of the Court

The merchandise which was delivered by Swofford Bros. Dry Goods Company to E. M. Newton & Company was delivered under the terms of a written contract. That contract provided that the title to the goods until their sale, and to the proceeds derived from their sale, whether in the form of cash, notes, or book accounts, should be and remain in the dry goods company. The contract gave the Newtons the right to sell the goods in the ordinary course of business, but, as has been said, provided that the proceeds of the sale, in whatever form they existed, should be the property of the dry goods company. When the Newtons became insolvent and ceased business, they, in recognition of the obligations due from them under this contract, returned to the dry goods company that part of their goods which remained unsold. The character and marks of the goods rendered them capable of being identified and separated. They turned over at the same time, as and for the notes and accounts respresenting the proceeds of sales of the company's goods, certain notes and customers' accounts. It was found as a fact that one half in amount of these notes and accounts represented the proceeds of sales of other goods than those delivered under the contract. It, therefore, now appears, if it is competent to show it, that this one half or the notes and accounts did not belong to the dry goods company, and ought not to have been turned over to it, and that, on the contrary, they should have gone into the estate of the Newtons, who subsequently became bankrupt. Three days after the surrender of this property the Newtons, on their voluntary petition, were adjudged bankrupts, and the appellant was appointed receiver. He demanded of the dry goods company the possession of the goods, notes, and accounts mentioned, but the demand was refused. Subsequently a written contract was entered into between the dry goods company and the receiver, with the approval of the referee. No fraud or deceit induced the making of this contract. By its terms the dry goods company, on its part, surrendered the goods, notes, and accounts to the receiver, and agreed that he might dispose of them in connection with the assets of the estate, and that the proceeds of the property thus disposed of should be held in lieu of it to abide the determination of a court of competent jurisdiction. The receiver, on the other hand, agreed that the goods, notes, and accounts were in the actual and adverse possession of the dry goods company, and that the goods were part of those delivered to the Newtons under the contract between them and the dry goods company, before referred to, and that the notes and accounts were the proceeds of other goods delivered under that contract. Subsequently, the receiver was appointed trustee, and sold the goods, and collected a part of the notes and accounts. The proceeds of the goods and of the collections are held to await the result of this litigation, which is in the form of an intervening petition of the dry goods company.

We think it clear that the contract under which the goods were delivered to the Newtons was one of conditional sale. Harkness v. Russell, 118 U.S. 663, 30 L. ed. 285, 7 Sup. Ct. Rep. 51; William W. Bierce v. Hutchins, 205 U.S. 340, 51 L. ed. 828, 27 Sup. Ct. Rep. 524. There is nothing in the nature of this contract which would forbid the parties from entering into it if it is valid by the laws of the state where made, but in bankruptcy the construction and validity of such a contract must be determined by the local laws of the state. Thompson v. Fairbanks, 196 U.S. 516, 49 L. ed. 577, 25 Sup. Ct. Rep. 306: Humphrey v. Tatman, 198 U.S. 91, 49 L. ed. 956, 25 Sup. Ct. Rep. 567; York Mfg. Co. v. Cassell, 201 U.S. 344, 50 L. ed. 782, 26 Sup. Ct. Rep. 481. That such a contract is a conditional sale and is valid without record is the law of Arkansas. Triplett v. Mansur & T. Implement Co. 68 Ark. 230, 82 Am. St. Rep. 284, 57 S. W. 261. The trustee has no higher rights in this regard than the bankrupt. York Mfg. Co. v. Cassell, supra.

It follows that, so far as the identified goods and notes and accounts are concerned, the intervener, the dry goods company, must prevail.

It has turned out, according to the finding of facts, that some small fraction of the goods and about one half of the notes and accounts which were delivered by the Newtons to the dry goods company, as and for the goods, notes, and accounts which were the property of that company, were not in fact such, and the question therefore arises whether, under the circumstances disclosed in the findings, the trustee is entitled to avail himself of these facts. We think it was rightly held by the court below that he was not. There seems to be no reason for a nice consideration of the powers of receivers and trustees. When the receiver was appointed he found all the property in dispute in the hands of the dry goods company, to which it had been delivered by the Newtons, as and for the property of the company, and by which it had been received as its own property. When the receiver made his demand for it the return was at first refused. The parties in the controversy, then being at arms' length, agreed that if the dry goods company would give up the advantages of possession, and, instead of converting the goods, notes, and accounts into cash in its own way and on its own account, permit the receiver to do so, then those goods should be deemed part of those delivered under the contract, and the notes and accounts the proceeds of other goods delivered under the contract. This arrangement was approved by the referee. The trustee has taken the property under it and has never offered to return the property, or any part of it. The property has in large part been sold or otherwise disposed of in the course of the bankruptcy administration. Under these circumstances we are of opinion that the trustee, the appellant in this case, was bound by the agreement of the receiver, that all the property in dispute should be conclusively deemed that which passed under the original conditional contract, or the proceeds thereof.

Judgment affirmed.