Sternberg v. City National Bank of Fort Smith

Hart, J., (after stating the facts). It may he stated at the. outset that, prior to the amendment of the bankruptcy act in 1910, the trustee in bankruptcy was vested with no better right or title to the property of the bankrupt than the latter had when the trustee’s title accrued. York Mfg. co. v. Cassell, 201 U. S. 344. Section 47a-2 of the bankruptcy act, as amended in 1910, gives to a trustee in 'bankruptcy “the rights, remedies and powers to a creditor holding- a lien by legal or equitable proceedings thereon.” See, also, Fairbanks Shovel Company v. Wills, 240 U. S. 642. In that case the court said: “Since the amendment of section 47a-2 of the bankruptcy act by the act of June 25, 1910 (ch. 412, § 8; 36 Stat. 838, 840), trustees have the rights and remedies of a lien creditor or a judgment creditor as against an unrecorded transfer. ’ ’ If the transaction between the bank and the sales company constituted a conditional sale, it is manifest that under our decisions the bank is entitled to the proceeds arising from the sale of the automobiles by the receiver. In Starnes v. Boyd, 101 Ark. 469, it was said that this court has uniformly adhered to the rule that the vendor of a chattel may deliver possession on condition that the title shall not pass to the vendee until the purchase price shall be paid in full, and that a subsequent purchaser without notice acquires no title as against the original vendor. In that case under a contract for the sale of timber whereby it was agreed that tbe seller’s brother “is to receive all tbe lumber and funds for tbe same” until tbe seller is. paid in full for all bis logs delivered at tbe price stipulated, it was beld that tbe contract constituted a- conditional sale with tbe reservation of title, and not an absolute sale with tbe reservation of a lien. In Bryant v. Swofford Bros., 214 U. S. 279, it was held that tbe validity of conditional sales depends upon tbe law of tbe State where made, and in bankruptcy proceedings tbe construction and validity of such a contract must be determined by the local law of the State. Following tbe decisions of tbe State of Arkansas, the court held that the sale of a stock of dry goods under a contract by which the articles sold were to remain tbe property of tbe seller until paid for, with provision for substitution of other goods and that tbe proceeds of the goods sold should also belong to tbe seller, constituted a conditional sale. It is true that the contracts of sale in those cases were written ones, but this court has beld that contracts for the conditional sale of personal property with tbe reservation of title in tbe seller are not required to be in writing. Jones v. Bank of Commerce, 131 Ark. 362, and Estes v. Lamb & Co., 149 Ark. 369. This brings us to a consideration of tbe question of whether under the facts as disclosed by. the re,cord, the transaction under investigation was a conditional sale or a contract for an equitable mortgage. It is often difficult to decide whether in a given case the contracting parties intended to make an absolute sale and to give the seller a lien on the property for tbe purchase money, or whether the transaction was intended as a conditional sale. It is certain that when the property arrived at Fort Smith the title and possession were in the bank. A draft for the purchase money with a bill of lading attached was sent by the manufacturer and seller of the automobiles to tbe bank. In each instance the bank took the note of the sales company for the price of the automobile before it was turned over to the sales company. The bank itself transmitted the purchase money directly to the manufacturer of the automobiles. It is true that the note given by the sales company to the bank recites that the automobile is deposited as collateral security, and that Nakdimen in his testimony speaks of having a lien on the automobiles for the purchase money, yet, when the whole substance of the transaction is considered, we think it was a conditional sale. We attach no importance to the recitation in the note of the automobile being deposited as collateral security. The record shows that the note was written on the printed form of the bank, and the form was the one generally used when notes were deposited with the note filled out as collateral security. It is plain that the automobile could not be deposited with the note as collateral security. There is much circumlocution in the testimony of Nakdimen due in part to the way he was examined and cross-examined. While he speaks in one place of having taken a lien on the automobiles for the purchase price thereof, in another portion of his testimony he speaks of retaining title in them until the purchase price was paid. This view of the transaction is borne out when we consider that a separate note was given for each automobile, and that it was considered a separate transaction. The bank became responsible to the manufacturer and seller of the automobiles at the time it permitted the sales company to take them from the possession of the railroad company. The acts and conduct of the parties indicate that it was. the intention of the bank to retain the control of each automobile until it was sold and the proceeds applied to the payment of the purchase price. The fact that the sales company was allowed to have the possession of the automobiles and dispose of them does not under the authorities cited above prevent the transaction from being a conditional sale. We think that when the testimony of Nakdimen, which is all the testimony there is on the question, is read and considered in connection with the note given by the sales company to the bank for the purchase money, the substance of the transaction is a conditional sale. It follows that the decree of the chancellor was correct and must he affirmed.