In Re Master Knitting Corporation

7 F.2d 11, 1925 U.S. App. LEXIS 3468

• Court: Court of Appeals for the Second Circuit
• Decided: May 4, 1925
• Docket: 338
• Status: Published

Opinions

HOUGH, Circuit Judge

(after stating the facts as above). This transaction was a conditional sale, which never raises a question of lien, but one of title. In re Fitzhugh, etc., Co., 230 F. 811, 813, 145 C. C. A. 121. That title is defined by the Conditional Sales Act of New York in force when the transaction occurred (chapter 642, p. 1766, Laws N. Y. 1922), which declares that “conditional sale” means “any contract for the sale of goods under which possession is delivered to the buyer and the property in the goods is to vest in the buyer at a subsequent time upon the payment” of the purchase price.

This was the exact content of the formal Written agreement between bankrupt and its vendor, and the use of the phrase “on consignment” on a subsequent informal memorandum of delivery eannot vary the scheme of business upon which the minds of the parties met and adhered to in a manner totally inconsistent with a consignment, for some months after delivery.

The order made below was based upon a failure to observe the change in the New York act made by the above-cited statute of 1922. It is now the law (section 65) that “every provision in a conditional sale reserving property in the seller shall be void as to any * * * creditor of the buyer, who without notice of such provision * * * acquires by attachment or levy a lien upon them, before the contract * * * shall be filed.”

The corresponding section in the act of 1909 made unrecorded conditional sales void only “as against subsequent purchasers, pledgees or mortgagees in good faith,” and this court decided In re Remson Mfg. Co., 232 F. 594, 146 C. C. A. 552, when the state law so stood, and held that since'the trustee at most, under section 47a of the Bankruptcy Act (Comp. St. § 9631), merely stood “in the shoes of an attaching creditor,” his right could not prevail.

But the present Sales Act makes the sale absolute in favor of any creditor who “acquires by attachment or levy a lien” before contract filed. And since a trustee under the Bankruptcy Act may “as to all property in the custody [of the court] be deemed vested with all the rights, remedies and powers of a creditor holding a lien * * * thereon,” this trustee in bankruptcy falls exactly within, the language of the state statute. In re Seward Dredging Co., 242 F. 225, 228, 155 C. C. A. 65.

It remains, however, to inquire whether under the state act the trustee, although a creditor and having a lien as by attachment upon these chattels, is a creditor “without notice of such provision” for retention of title in the vendor. No evidence was offered below on this point.

It is to be observed that, since the goods were in the custody of the court below and of the trustee, the vendor was in the position of a plaintiff. The very existence of bankruptcy proceedings produced a presumption of the strongest nature that there were creditors, and by every principle of procedure the burden of proof lay upon the man seeking reclamation to show that he came within the statutory provision of notice. We perceive no difference between one who demands property at the hands of the trustee in the way Benerofe did and any other petitioner in reclamation; it is his duty to bear the burden of proof.

Let it be assumed that, If all the creditors of this bankrupt knew that this sale was conditional, the petition below should prevail, it remains true that the trustee has the right of any creditor, and the burden is on the conditional vendor to prove no creditor was without notice. No effort was made to make this proof.

The general rule, with copious citations, is given in Remington (3d Ed) vol. 4, § 1578, to the effect that, where filing of conditional sale contracts is required by statute to preserve rights as against creditors, unfiled agreements are void against the trustee in bankruptcy, and In re Bazemore (D. C.) 189 F. 237, 239, is express authority for holding, as we do, that the burden of proof was on petitioner below, to show notice.

Order reversed, with costs.