DENISON, Circuit Judge.
This case again presents, under slightly new circumstances, the question whether an instrument is a chattel mortgage, which the Michigan laws require to be recorded to make it valid as against creditors, or is a conditional sale contract, which need not be so recorded, which question we have frequently considered, most recently in Smith v. Carukin, 259 Fed. 51, 170 C. C. A. 51, In re Nader, 283 Fed. 742, and Vander Lei v. Blakely, 284 Fed. 516. From our study and review of the Michigan decisions, we were led to the conclusion that prior to the Paul Case, 213 Mich. 609, 182 N. W. 44, 17 A. L. R. 1416, the existence of an unescapable obligation by the vendee to pay the full purchase price, whether such obligation was evidenced only by the contract, or also by separate negotiable notes, did not of itself transform into a chattel mortgage a formal contract of title reservation. We thought the true criterion was whether there was an intention that the vendor could both keep the title to the property and bring suit for the purchase price, and that, in ambiguous cases, other evidences of intent as well as this might serve to reveal the true character of the transaction. To say that a positive obligation on the part of the purchaser to pay the full price is inconsistent with a conditional sale is to say that conditional sales are confined to options to buy, and we do not think the Michigan Supreme Court has intended to make that statement.
It will be remembered, also, that the validity of unrecorded conditional sale contracts, even as against creditors, had been generally upheld in Michigan; that the policy of this rule, and particularly as to goods intended for resale, had been much doubted, and confusion had arisen; and that the Legislature then declared the policy of the state by requiring a record of conditional sale contracts when relating to property intended for resale, leaving it unnecessary as to other classes of property.
In March, 1920, and about a year before the decision of the Paul Case, the petitioner in this proceeding, as vendor, made a contract for the sale of store fixtures to one who later became a bankrupt. It is quoted in the margin.1 It seems to us to be, under what we have considered to be the Michigan rule then existing, quite clearly and unambiguously a contract of conditional sale and nothing else; indeed, it is difficult to see how such a contract could be drafted, preserving [210]*210the proper rights of the vendor, and keep further away than this one does from any idea of absolute sale and present vesting of title in the vendee, with only a lien reserved by way of security.
Observation of the several clauses of this contract confirms this conclusion. The language is not that of a present purchase and sale. It is “agrees to sell” and “agrees to buy,” and this is plainly language of futurity when it is read in connection with the express statement that the title shall remain in the seller until the full contract is ex[211]*211ecuted. The use of the words “buyer” and “seller” is wholly appropriate to a conditional sale. So are the provisions that the buyer shall pay the taxes and insurance. Both these burdens are proper to be assumed by the vendee in a true conditional sale of personalty, as they commonly are with real estate, and he may rightly be required to procure their discharge if necessary to prevent a destruction of the thing which he has agreed to buy. A .conditional vendee has an insurable interest, as the vendor has, and, if the interest duly appears, the policy may issue to either, with loss payable also to the other as his interest may appear. So, too, it is appropriate that, in case the vendor has to pay these items, they should be added to the- purchase price. They are naturally accretions thereto. Indeed, the absence of any provision creating an immediate personal liability by the vendee to the vendor for these items is of some significance. The provision that in case of default the whole sum also may become due at once merely evidences a reasonable agreement between the vendor and tire vendee. An agreement for the precipitation of an obligation does not change its character, nor does this clause indicate any intent inconsistent with the expressly declared relations of the parties. The provisions for reclamation in case of default are precisely and fully appropriate to a conditional sale contract, and they declare the normal rule of law applicable thereto rather than any rule pertaining to the relations of mortgagor and mortgagee. A mortgagee who takes possession to enforce his security must account to the mortgagor for the property taken, and for payments already made. He has no claim for liquidated damages and he can have no claim for rental; such a claim cannot accrue to a mortgagee out of possession. It is too clear for question that, if this power of reclamation is exercised, the vendee’s" personal liability for the purchase price, as such, is at an end.
The option to rescind or affirm we are unable to construe in accordance with the argument of the petitioner, who thinks that the contemplated rescission was to be a complete one, restoring both parties to their original position, and that to “affirm the same and sue as for a breach” means to stand upon the reclamation and sue for the difference between the contract price and the value of the property as reclaimed. We think that the “rescission” here contemplated means the same thing as the “reclamation” of the previous paragraph, which inserted the provisions as to liquidated damages and rental only for [212]*212the purpose of avoiding the otherwise possible consequences of a rescission. We think, too, that “affirm the same and sue as for a breach” means to affirm the sale and sue for the purchase price; but, as we have pointed out in prior opinions, since this course is' eventually inconsistent with a reservation of title, the bringing of such suit or at the latest the taking of judgment, will be a waiver of the title reservation and operate as a transfer of the .title.
We come then- to the affidavit attached to the paper; such affidavit of consideration is required only with a chattel mortgage. This affidavit of the vendee and the paper with this addition were accepted by the vendor, - if not, indeed, drafted by him. If the contract were ambiguous in its character, an affidavit appropriate only to a -mortgage might serve as evidence, and perhaps controlling evidence; but, where there is no ambiguity, such evidence of intent is unimportant. It cannot be supposed that the contract was really regarded by the vendor as a mortgage, -since he did not record it. A natural inference is that this affidavit was added as a matter of abundant caution to an instrument that was to continue in force 32 months, and as a safeguard against statutes or decisions which might from time to time develop on this subject. There seems to be no other reasonable explanation for adding this affidavit and then withholding the paper from record. Further, the language of this particular affidavit seems industriously chosen to repel any inference of intent to deal with a title which passed by the instrument. It refers to “the annexed contract for the sale of personal property and the retention of title thereto.”
We come now to the effect of the Paul Case, decided a year later. We have in Re Nader expressed the opinion that the provisions in that case as to the affidavit controlled the result. It is naturally to be inferred that the contract was an ambiguous one, and was interpreted by this evidence of intent.
Free access — add to your briefcase to read the full text and ask questions with AI
DENISON, Circuit Judge.
This case again presents, under slightly new circumstances, the question whether an instrument is a chattel mortgage, which the Michigan laws require to be recorded to make it valid as against creditors, or is a conditional sale contract, which need not be so recorded, which question we have frequently considered, most recently in Smith v. Carukin, 259 Fed. 51, 170 C. C. A. 51, In re Nader, 283 Fed. 742, and Vander Lei v. Blakely, 284 Fed. 516. From our study and review of the Michigan decisions, we were led to the conclusion that prior to the Paul Case, 213 Mich. 609, 182 N. W. 44, 17 A. L. R. 1416, the existence of an unescapable obligation by the vendee to pay the full purchase price, whether such obligation was evidenced only by the contract, or also by separate negotiable notes, did not of itself transform into a chattel mortgage a formal contract of title reservation. We thought the true criterion was whether there was an intention that the vendor could both keep the title to the property and bring suit for the purchase price, and that, in ambiguous cases, other evidences of intent as well as this might serve to reveal the true character of the transaction. To say that a positive obligation on the part of the purchaser to pay the full price is inconsistent with a conditional sale is to say that conditional sales are confined to options to buy, and we do not think the Michigan Supreme Court has intended to make that statement.
It will be remembered, also, that the validity of unrecorded conditional sale contracts, even as against creditors, had been generally upheld in Michigan; that the policy of this rule, and particularly as to goods intended for resale, had been much doubted, and confusion had arisen; and that the Legislature then declared the policy of the state by requiring a record of conditional sale contracts when relating to property intended for resale, leaving it unnecessary as to other classes of property.
In March, 1920, and about a year before the decision of the Paul Case, the petitioner in this proceeding, as vendor, made a contract for the sale of store fixtures to one who later became a bankrupt. It is quoted in the margin.1 It seems to us to be, under what we have considered to be the Michigan rule then existing, quite clearly and unambiguously a contract of conditional sale and nothing else; indeed, it is difficult to see how such a contract could be drafted, preserving [210]*210the proper rights of the vendor, and keep further away than this one does from any idea of absolute sale and present vesting of title in the vendee, with only a lien reserved by way of security.
Observation of the several clauses of this contract confirms this conclusion. The language is not that of a present purchase and sale. It is “agrees to sell” and “agrees to buy,” and this is plainly language of futurity when it is read in connection with the express statement that the title shall remain in the seller until the full contract is ex[211]*211ecuted. The use of the words “buyer” and “seller” is wholly appropriate to a conditional sale. So are the provisions that the buyer shall pay the taxes and insurance. Both these burdens are proper to be assumed by the vendee in a true conditional sale of personalty, as they commonly are with real estate, and he may rightly be required to procure their discharge if necessary to prevent a destruction of the thing which he has agreed to buy. A .conditional vendee has an insurable interest, as the vendor has, and, if the interest duly appears, the policy may issue to either, with loss payable also to the other as his interest may appear. So, too, it is appropriate that, in case the vendor has to pay these items, they should be added to the- purchase price. They are naturally accretions thereto. Indeed, the absence of any provision creating an immediate personal liability by the vendee to the vendor for these items is of some significance. The provision that in case of default the whole sum also may become due at once merely evidences a reasonable agreement between the vendor and tire vendee. An agreement for the precipitation of an obligation does not change its character, nor does this clause indicate any intent inconsistent with the expressly declared relations of the parties. The provisions for reclamation in case of default are precisely and fully appropriate to a conditional sale contract, and they declare the normal rule of law applicable thereto rather than any rule pertaining to the relations of mortgagor and mortgagee. A mortgagee who takes possession to enforce his security must account to the mortgagor for the property taken, and for payments already made. He has no claim for liquidated damages and he can have no claim for rental; such a claim cannot accrue to a mortgagee out of possession. It is too clear for question that, if this power of reclamation is exercised, the vendee’s" personal liability for the purchase price, as such, is at an end.
The option to rescind or affirm we are unable to construe in accordance with the argument of the petitioner, who thinks that the contemplated rescission was to be a complete one, restoring both parties to their original position, and that to “affirm the same and sue as for a breach” means to stand upon the reclamation and sue for the difference between the contract price and the value of the property as reclaimed. We think that the “rescission” here contemplated means the same thing as the “reclamation” of the previous paragraph, which inserted the provisions as to liquidated damages and rental only for [212]*212the purpose of avoiding the otherwise possible consequences of a rescission. We think, too, that “affirm the same and sue as for a breach” means to affirm the sale and sue for the purchase price; but, as we have pointed out in prior opinions, since this course is' eventually inconsistent with a reservation of title, the bringing of such suit or at the latest the taking of judgment, will be a waiver of the title reservation and operate as a transfer of the .title.
We come then- to the affidavit attached to the paper; such affidavit of consideration is required only with a chattel mortgage. This affidavit of the vendee and the paper with this addition were accepted by the vendor, - if not, indeed, drafted by him. If the contract were ambiguous in its character, an affidavit appropriate only to a -mortgage might serve as evidence, and perhaps controlling evidence; but, where there is no ambiguity, such evidence of intent is unimportant. It cannot be supposed that the contract was really regarded by the vendor as a mortgage, -since he did not record it. A natural inference is that this affidavit was added as a matter of abundant caution to an instrument that was to continue in force 32 months, and as a safeguard against statutes or decisions which might from time to time develop on this subject. There seems to be no other reasonable explanation for adding this affidavit and then withholding the paper from record. Further, the language of this particular affidavit seems industriously chosen to repel any inference of intent to deal with a title which passed by the instrument. It refers to “the annexed contract for the sale of personal property and the retention of title thereto.”
We come now to the effect of the Paul Case, decided a year later. We have in Re Nader expressed the opinion that the provisions in that case as to the affidavit controlled the result. It is naturally to be inferred that the contract was an ambiguous one, and was interpreted by this evidence of intent. It used the language of present purchase and • sale; it expressly provided for a separate promissory note for the purchase price; it did not contain the elaborate provisions here found, expressly fixing the rights of the parties in the case of reclamation as those of conditional vendor and vendee; it contained an express call for the mortgage affidavit; and it did not carefully preserve, as this one does, until default, the vendor’s election to take back the property and end the matter, or to pass the title and collect the debt. It is thus substantially distinguishable.
Still further, it is clear that, as to the items in list No. 2, the conditional character of the sale is demonstrated by the option to cancel. The character of part naturally attaches to the whole. Vander Lei v. Blakely, supra.
We are satisfied, as a matter of exercising our independent judgment, that upon the general legal principles involved and the Michigan decisions up to that time, this contract when given was a valid conditional sale, and we are not at all convinced that the Michigan Supreme Court, upon this contract and these circumstances, would have decided otherwise. In such a situation it is our duty to apply the test as we think it existed when the contract was made. This is [213]*213but an application of the familiar rule of Burgess v. Seligman, 107 U. S. 20, 2 Sup. Ct. 10, 27 L. Ed. 359, often since declared and applied by the Supreme Court and by this court. See, for example, the Great Southern Hotel Co. Cases, 86 Fed. 370, 30 C. C. A. 108; Id., 193 U. S. 532, 24 Sup. Ct. 576, 48 L. Ed. 778. Suit was brought to enforce claims under the Ohio building lien law. After the claim arose, the Ohio Supreme Court held the law unconstitutional. This court was unable to accept this view, but thought the law was valid, and, because the rights of the parties had arisen before the Ohio decision, refused to follow it. The Supreme Court, in a careful review, confirmed this result, and approved the opinion of Judge Eurton, speaking for this court.
If the Supreme Court of Michigan in the Paul Case had decided, directly or by necessary implication,' that the present contract would be invalid without record, we would be| strongly inclined to adopt and follow that opinion, regardless of its later date, because, if a question of state law is open and doubtful, a later decision of its Supreme Court carries thq assumption that the same rule of law existed before; but where the rule of law at the earlier date is as clear as this seems to us, and where the later decision is of such doubtful applicability as we find here, we cannot accept uncertain inferences from it in place of the otherwise clear result. John Deere Co. v. Mowry (C. C. A. 6) 222 Fed. 1, 6, 7, 137 C. C. A. 539.
The order must be reversed, and the case remanded, for further proceedings in accordance with this opinion.