#### Sanitary Carpet Cleaner, Respondent, *v.*Reed Manufacturing Company, Appellant.

Fourth Department,

December 23, 1913.

Conditional sale — retaining property as security with power of salé — compliance with section 65 of the Personal Property Law.

Plaintiff and defendant entered into a written agreement in settlement of a controversy which had arisen because of the breach of a prior contract between the parties under which the defendant was to manufacture vacuum cleaners for the plaintiff. The agreement provided that the defendant, in consideration of retaining as its own property all moneys deposited by the plaintiff under the original contract, should sell and deliver to the plaintiff by a bill of sale property in a deliverable state to be used in the manufacture of said cleaners, and also all completed cleaners and parts thereof. It was further provided that the property should be stored by the defendant, but at the risk of the plaintiff; that the defendant should retain in its possession all of the property so transferred as security for the payment of a note given by the plaintiff, and' that the plaintiff might sell the property so retained upon terms approved by the defendant. Upon the plaintiff’s failure to pay the note, the defendant advertised and sold the property at public auction pursuant to the terms of the agreement after giving notice to the plaintiff. Thereafter plaintiff brought this action to recover moneys claimed to have been paid to the defendant and sought to treat the agreement as a conditional sale, and claimed that the defendant’s sale of the property was in violation of section 65 of the Personal Property Law. Defendant contended that the agreement constituted an absolute sale of the property which it retained as security.

Reid, that the agreement constituted an unconditional sale of the cleaners and parts thereof, and that defendant’s sale thereof was not a violation of section 65 of the Personal Property Law.

Appeal by the defendant, Beed Manufacturing Company, from a judgment of the Supreme Court in favor of the plain*588tiff, entered in the office of the clerk of the county of Erie on the 11th day of August, 1913, upon the verdict of a jury rendered by direction of the court.

*Hubbell, Taylor, Goodwin & Moser [Joseph W. Taylor*of counsel], for the appellant.

*Eugene L. Falk*and *Gordon F. Matthews [E. C. Schlenker*with them on the brief], for the respondent.

Merrell, J.:

On October 3, 1906, the defendant, a manufacturing corporation organized under the laws of New York, having its factory and principal office at Newark, Wayne county, N. Y., entered into a contract in writing with the plaintiff, also a New York corporation, located and having its principal office at the city of Buffalo, whereby the defendant agreed to manufacture for and sell to the plaintiff 25,000 Yacuo Sanitary Carpet Cleaners of a style and in accordance with a sample furnished by plaintiff. For said cleaners plaintiff was to pay defendant two dollars and twenty:three cents each, to be paid within thirty days after delivery of the manufactured article. Work upon the manufacture of said sweepers was to be undertaken at once, and delivery was to be made as soon as practicable and in the exercise of due diligence as fast as ordered by plaintiff, and all of said carpet cleaners to be delivered within one year after such delivery should commence, with allowance for delays resulting from strikes or other unavoidable causes. All patterns, dies and directions necessary to manufacture said cleaners were to be furnished by plaintiff.

In further consideration of defendant’s undertaking said manufacture, plaintiff therein agreed to deposit with defendant the sum of $10,000 as a continuing guaranty and indemnity to defendant against losses or damages incurred by reason of any violation or infringement of any patent, and also as security for the performance of said contract by plaintiff. Said $10,000 was to be deposited as follows: $6,000 upon making of the contract, and the balance of $4,000 by payment of sixty-two cents extra upon the first 6,452 cleaners delivered, making the price for first 6,452 cleaners $2.85 each. Upon full performance of *589the contract by plaintiff said $10,000 so deposited was to be applied by defendant upon final settlement for machines manufactured and delivered under the contract.

Pursuant to said contract the defendant entered upon the manufacture of said cleaners, but for some reason not disclosed by the record before us, said contract was not completed within the time specified, and on February 18, 1908, the parties entered into a second contract, also in writing, extending performance of the original contract until April 1, 1909. By said second contract plaintiff agreed that on or before the 18th of June, 1908, it would make good its partial default by depositing with defendant the balance of the $10,000 provided by the original contract. Except as to curing said default and the extension of the time for performance said second contract reaffirmed the contract as originally made.

Plaintiff failed to keep its part of the contract as so modified, by neglecting to make good the deficiency in the $10,000 deposit, and matters appear to have drifted along until December 24, 1908, when the parties entered into a final agreement in writing apparently settling and adjusting all matters between them.

After reciting the making of the original contract between the parties of October 3, 1906, the default of plaintiff in making the full deposit of $10,000 as required by the contract, and that the defendant then had on hand goods, wares and merchandise purchased by it in anticipation of the completion of said contract, in a sum not exceeding $12,000, and the desirability of terminating the contract and adjusting the differences between the parties arising out of a partial performance of the contract, and to that end to adjust and satisfy all differences and claims between the parties and to release each other from all liability arising from said contract, the said parties contracted and agreed as follows: The plaintiff agreed to execute and deliver to defendant its promissory note for $1,000, dated January 11, 1909, payable in four months from its date, and that said plaintiff would assume and pay any indebtedness of defendant to the D. H. Stoll Manufacturing Company under the latter’s contract with said Stoll Manufacturing Company, not exceeding the sum of $1,200. By said agreement of settle*590ment the defendant was to retain as its own property all moneys deposited by plaintiff under the terms of the original contract, and in consideration of said benefits to defendant the latter agreed to sell and deliver to the plaintiff all such goods, wares and merchandise (except uncut tin) then in defendant’s possession, purchased by it as material to be used in performance of the aforesaid contract for the manufacture of said cleaners, and also all sweepers complete and incomplete and all parts thereof, to be evidenced by a bill of sale to be executed by defendant, particularly describing said articles and merchandise, the title of the same to pass to plaintiff on delivery of the bill of sale, and defendant was to place same on cars at Newark, N. Y., on demand of plaintiff made within sixty days from the date of said contract. Said contract further provided that said goods so sold were to be stored by defendant free of charge where they then were at the risk of the plaintiff for said sixty days, and thereafter at reasonable rates, but always entirely at plaintiff’s risk. Said agreement then continues in the following language: “It is understood and agreed nevertheless that the party of the second part *shall retain in its possession all of said property so transferred by said bill of sale as security for the payment*of said note of One Thousand .Dollars, and as security for and against any loss, costs or damages under or by reason of said D. H. Stoll Manufacturing Co. contract and as security for the performance by party of the first part of its covenants and agreements herein contained relating to said last mentioned contract, until said note is paid, and until said D. H. Stoll Mfg. Co. contract is fully performed or cancelled and all liabilities of party of the second part under or by reason of said contract ended, and it is further understood and agreed *that party of the first part may sell such goods or any part of them while they are so retained by party of the second part as security of aforesaid at prices and*upon ■ terms approved by party of the second part, provided that the goods so sold shall be billed out in the name of the party of the second part and the purchase price thereof received by party of the second part and applied first on the said note, until the same is paid and after that is paid, held for the faithful performance of the terms of this contract as the said D. H. Stoll *591Co. contract, and until said contract is performed or cancelled and all liabilities of the party of the second part under the same ended.”

The instrument then closes with an agreement on the part of each party to release the other from any and all liability arising out of the original contract and its modifications.

The record does not show whether or not the bill of sale which was to evidence the transfer of title to the merchandise was ever executed, but it is apparent that the parties treated the transaction as a completed sale so far as the articles and personal property which it was agreed should go to the plaintiff was concerned, as a portion thereof was shipped to plaintiff from Newark as stipulated. The $1,000 note was executed and delivered by plaintiff to defendant. Plaintiff failed to pay and discharge the claims of the D. H. Stoll Manufacturing Company as it had agreed, and same were paid by defendant, and plaintiff subsequently gave to defendant its promissory note for $1,010 to cover the amount of the Stoll Company’s claim as finally paid by defendant. Plaintiff’s two notes were not paid when due and one thereof was renewed. Finally, on September 21, 1909, defendant, evidently tiring of plaintiff’s tardiness in paying its said notes, notified plaintiff that it would on October 1, 1909, sell at public sale the merchandise which it claimed to hold as security for the payment of plaintiff’s said note for $1,000, which had finally matured September 11,1909. Plaintiff received this notice, but apparently ignored the same, and on October 1, 1909, the balance of the merchandise mentioned in the agreement cf December 24, 1908, remaining in defendant’s possession, was sold at public auction, the sum of $477.20 being realized from the sale. This amount was applied by defendant upon its $1,000 note, leaving a balance due thereon of $522.80, besides interest and protest fees.

Thereafter plaintiff brought this action to recover of defendant the sum of $8,250, which it claimed it had paid to defendant, seeking to treat the transaction of December 24, 1908, as a conditional sale by defendant to plaintiff of the chattels and merchandise which defendant had on hand as the residuum of its contract for the manufacture of said cleaners. Plaintiff’s *592position is that when defendant sold the property on October 1, 1909, it violated the provisions of section 65 of the Personal Property Law (Consol. Laws, chap. 41; Laws of 1909, chap. 45) which provides that whenever articles are sold upon condition that the title thereto shall remain in the vendor until the payment of the purchase price or the occurrence of a future event or contingency, and such goods are retaken by the vendor, they shall be retained for the period of thirty days from such retaking, during which period the vendee may comply with the terms of such contract and thereupon receive such property, and that after the expiration of such period, if such terms are not complied with, the vendor may cause such property to be sold at public auction as provided by the statute. (See § 65 *et seq.)*

Defendant answered in the action denying plaintiff’s said contention as to the interpretation to be placed upon their agreement, and insists that the transaction was not a conditional but an absolute sale so far as the merchandise on hand was concerned, and that such sale was then and there completed and that the title to said goods passed to plaintiff, the possession thereof being retained merely as security for the payment of the $1,000 note concurrently executed and delivered by plaintiff to defendant and to secure and indemnify defendant for the amount of the D. H. Stoll Company claim. Defendant’s contention is that it held said chattels as security, and plaintiff having defaulted it had the right to dispose thereof, applying the proceeds upon the indebtedness secured. In its answer defendant counterclaimed upon the balance unpaid upon its said $1,000 note and upon the $1,010 note given to adjust the Stoll Company’s claim. No reply to defendant’s counterclaim was ever served by plaintiff. The trial took a strange and, I think, unprecedented course. The action was brought to trial at the Erie Trial Term on November 21, 1912. The evidence was largely documentary and was presented to the court and a jury. At the close of plaintiff’s evidence the defendant moved for a dismissal of the plaintiff’s complaint and for judgment in defendant’s favor upon the counterclaims contained in defendant’s answer and to which plaintiff had not replied. No ruling appears to have been made thereupon. The defendant offered *593no evidence, and upon the evidence being declared closed the defendant renewed its motion made at the close of the plaintiff’s case. Again no ruling appears to have been made by the court thereon, but the court then stated that it would “ discharge the jury, reserving the right in the court at some future time after an examination has been had and a result reached to direct a verdict in the absence of the jury, with the same force and effect as though a verdict were directed here do-day.”

The record contains the following additional memorandum: “August, 1913. Judgment directed in favor of the plaintiff and against the defendant for Bight Thousand six hundred ten dollars ($8,610), and dismissing the defendant’s counterclaims.’’

Upon such proceedings was the judgment appealed from entered.

The conduct of the trial justice thus outlined was entirely unauthorized and extra judicial. But counsel for defendant, it would appear from the record, made no objection and took no exception to the course adopted by the justice who presided at the trial, apparently acquiescing in the discharge of the jury and the court’s proposal to hold his motions for future consideration, and no attempt has been made to correct the irregularities attending the entry of judgment.

Moreover, I can discover no evidence in the record of the trial in support of plaintiff’s allegation that under the contract of December 24, 1908, it paid defendant the sum of $8,250, or any other sum, and said allegation of plaintiff’s complaint is denied by defendant’s answer. The record appears barren of any evidence to support the verdict attempted to be directed by the trial justice.

However, disregarding the unprecedented procedure leading up to the judgment rendered and the absence of evidence to support it, it seems to me that upon the merits the judgment appealed from should be reversed. The rights of the parties are dependent upon the interpretation which we are to place upon the agreement entered into by the parties on December 24, 1908. The instrument as a whole was intended as a settlement of a long standing deal between the parties. It adjusted *594controversies existing between them, and so far as the chattels sold to the plaintiff and to be delivered under its terms was a completed sale. While the sale, it was stated, was to be evidenced by a bill of sale executed by defendant, title to pass on delivery of bill of sale, and while the record does not disclose whether or not the bill of sale was in fact executed, the transaction was plainly treated by the parties as a completed sale. Some of the goods were delivered and shipped to plaintiff and thereafter sold by plaintiff. The property was all in a deliverable state, and under the provisions of section 100 of the Personal Property Law, as added by chapter 571 of the Laws of 1911, where there is an unconditional sale of goods in a deliverable state, “the property in the goods passes to the buyer when the contract is made and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.” While this statute did not take effect until September 1, 1911, and does not apply to existing sales or contracts to sell (Laws of 1911, chap. 571, §. 3; Pers. Prop. Law, § 157, as added by Laws of 1911, chap. 571), so far as the provisions quoted from section 100 are concerned, it re-enacted the rule of the common law. (See Williston Sales, 359; 35 Cyc. 279, 280; *Hayden*v. *Demets,*53 N. Y. 426, 431.)

That it was the clear intention of the parties that the title to and ownership of the merchandise in question should at once pass from defendant to plaintiff was clearly evidenced by the following provisions of the contract:

1. Defendant’s agreement to place the goods on board cars at ¡Newark on plaintiff’s demand within sixty days from date of contract (afterwards performed as to a part of the goods).

2. The provisions that said goods in the meantime should be stored by defendant, *“but always entirely*at the *risk of the party of the first part*” (plaintiff).

3. The understanding “that the party of the second part [defendant] shall retain in its possession all of said property so transferred by said bill of sale *as security for the payment*of said note of One Thousand Dollars, and as security for and against any loss,” etc., by reason of said D. H. Stoll Manufacturing Company’s contract.

4. The provisions permitting plaintiff to sell said goods or *595any part thereof, under such restrictions as were provided as to price and application of proceeds to discharge said note and claim and the fact that plaintiff did in fact thereafter sell some of said goods.

These provisions seem to me to clearly show, an intention on the part of both plaintiff and defendant that the title and ownership of the goods should pass to plaintiff, and that defendant’s possession thereof was merely to secure it for the unpaid indebtedness of plaintiff. The giving of the note, the assumption of the Stoll Company claim by plaintiff, the surrender of all claim to the moneys deposited and the sale of the goods were all acts to be and become contemporaneously effectual. From a careful perusal of the contract I find no provision showing any intent of the parties that the *ownership*of the chattels should remain in defendant. Unless there was such an intent the sale was unconditional. Ordinarily in cases of conditional sale the property sold is delivered to the conditional vendee. Section 65 *et seq.*of the Personal Property Law prescribes the procedure to be adopted by a conditional vendor on *retaining*the property conditionally sold. Here there was no retaking, as the property never passed from defendant’s possession, but was retained as a pledge and security for the payment of plaintiff’s obligations. Plaintiff having defaulted it was clearly within defendant’s power under the terms of the contract to sell and dispose of the personal property which it held as security.

I am of the opinion that the trial justice erred in awarding plaintiff judgment herein, and that defendant’s motion to dismiss plaintiff’s complaint and for judgment on the counterclaims pleaded in defendant’s answer should have been granted.

I think the contract of December 24, 1908, operated as an unconditional contract of sale from defendant to plaintiff of the merchandise and personal property therein mentioned, title thereto at once passing to plaintiff; that defendant retained possession thereof solely as security for the payment by plaintiff of its $1,000 note and for its agreement to pay the D. H. Stoll Company claim, and that plaintiff having defaulted in meeting its said obligations, the defendant acted within its rights in advertising and selling the property and in applying *596the proceeds upon its note; that the defendant is entitled to a dismissal of plaintiff’s complaint and judgment absolute against plaintiff to the amount of its counterclaims, with costs in trial court and upon this appeal.

All concurred.

Judgment reversed and new trial granted, with costs to appellant to abide event.