Cobb v. Hills-Corbet Co.

GILBERT, Circuit Judge (after stating the facts as above). The appellants contend that it was error to hold that the contract was am agreement for a conditional sale, and they argue that at the time when it was made the appellees had nothing to sell, that the lumber company was merely employing them to build and equip their mill according to plans and specifications at a cost not to exceed a specified sum, that in buying the machinery and fulfilling the contract the appellees were merely agents or employees, and that in paying for the same out of their own funds they but advanced the purchase money as agents for their principal. It has been held that conditional contracts of sale are not favored in the law, and where it is doubtful upon the face of the instrument whether the contract is a conditional sale or a mortgage, it should generally be treated as a mortgage. But here the terms of the instrument leave no room to doubt that a conditional sale was provided for. The appellees were to buy and pay for the machinery and to take title thereto in the first instance in their own name. The purchase price therefor was to be paid by them, not with funds advanced by the lumber company, but with their own money. There is nothing in the instrument to give color to the suggestion that they were agents for the lumber company. On the contrary, it appears that they were contractors, who bound themselves to furnish machinery which the contract provided was thereafter to be sold to the lumber company. There is nothing in the instrument to rebut the intention, expressed in clear terms, that th'e sale is conditional and that — “Title to the apparatus and material herein agreed to be sold shall not pass from the company until all payments hereinunder shall have been fully paid in cash. Upon default in any such payments, the company may retake the property agreed to be sold/’ [8] It is not rebutted by the fact that the contract provided v that the title should not pass until the payment of, not only the cost of the machinery and material, but also the expense of erecting buildings and installing the machinery. All of these sums were reckoned together as constituting the cost of that which was agreed to be conditionally sold. But whether or not the appellees could retain title to the machinery until all these sums were paid is immaterial here. Under the appropriation of payments which the court below made, the unpaid balance is solely for the purchase price of the machinery and apparatus. In Harkness v. Russell, 118 U.S. 663, 7 S.Ct. 51, 30 L.Ed. 285, Mr. Justice Bradley said: “Such contracts are well known in the law and often recognized, and when free from any fraudulent intent are not repugnant to any principle of justice or equity, even though possession of the property be given to the proposed purchaser.” See, also, Bailey v. Baker Ice Machine Co., 239 U.S. 268, 36 S.Ct. 50, 60 L.Ed. 275. A similar contract was sustained by this court as a conditional sale in Meyer v. Pacific Machinery Co., 244 F. 730, 157 C.C.A. 178. The appellant cites Heryford v. Davis, 102 U.S. 235, 26 L.Ed. 160, Chicago Ry. Co. v. Merchants Bank, 136 U.S. 268, 10 S.Ct. 999, 34 L.Ed. 349, Forsman v. Mace, 111 La. 28, 35 So. 372, and Tompkins Co. v. Monticello Cotton Oil Co. (C.C.) 137 F. 625; but they are all cases in which the terms of the contract indicated that title was to pass subject to a lien for the purchase price. It is contended that the court below erred in applying the payments made by the lumber company first to the extinction of that company’s debt for extras, whereas they should have been applied to the payment of the purchase price of the machinery and apparatus.' The parties to the contract had no agreement-as to the application of payments, and at no time did either exercise the power to make application. In Field v. Holland, 6 Cranch, 8, 3 L.Ed. 136, Chief Justice Marshall said: But “if neither party avails himself of his power, in consequence of which it devolves on the court, it would seem reasonable that an equitable application should be made. It being equitable that [9] the whole debt should be paid, it cannot be inequitable to extinguish first those debts for which the security is most precarious.” That rule has been followed in the federal courts and should apply here. Schuelenburg v. Martin (C.C.) 2 F. 747; Coons v. Tome (C.C.) 9 F. 532; Kortlander v. Elston, 52 F. 180, 2 C.C.A. 657; In re American Paper Co. (D.C.) 225 F. 121. Such is also the rule in Oregon, the laws of which state form the basis of the Alaskan Code. Trullinger v. Kofoed, 7 Or. 228, 33 Am.Rep. 708; Union Credit Ass’n v. Corson, 77 Or. 361, 149 P. 318. We find no merit in the contention that the trustee is, as to the mill and the machinery, in the position of an attaching creditor with rights superior to those of the appellees. Under the amendment of 1910 (section 47a of the Bankruptcy Act, 11 U.S.C.A. § 75 (a), the trustee may attack the validity of any lien or other claims against the bankrupt’s property which a creditor holding a lien by legal or equitable proceedings might have attacked. Pacific State Bank v. Coats, 205 F. 618, 123 C.C.A. 634, Ann.Cas.1913E, 846; Potter Mfg. Co. v. Arthur, 220 F. 843, 136 C.C.A. 589, Ann.Cas.1916A, 1268; National Bank of Bakersfield v. Moore, 247 F. 913, 160 C.C.A. 103. But it does not appear that creditors holding such liens could have successfully attacked the appellees’ title. The appellants cite Washburn v. Inter-Mountain Min. Co., 56 Or. 578, 109 P. 382, Ann.Cas.1912C, 357, a case in which a stamp mill, title to which was reserved by the seller, was with his consent permanently affixed to the freehold; the conditional agreement not being recorded. The court affirmed the rule that an agreement for the conditional sale of a chattel is valid, as well against third parties as against parties to the transaction, but held that the rule relates to parties dealing for the property as a chattel, and does not apply to third parties without notice of the condition, where the character of the property has been changed to realty by being affixed to the soil. In the present case there is no realty and no freehold estate, and the machinery never became a fixture. 11 R.C.L. 1058; Dudley v. Hurst, 67 Md. 44, 8 A. 901, 1 Am.St.Rep. 368. “If a person owns a building, and has no property in the land, and may re [10] move the structure when and where he pleases, it is a chattel.” 11 R.C.L. 1081; Curry v. Commonwealth Ins. Co., 10 Pick.(Mass.) 535, 20 Am.Dec. 547. The sawmill was constructed on piles on the tideland, within a forest reservation, to which no one had any title, except the government of the United States. The decree is affirmed.