Court Opinion

ID: 6926170
Source: CourtListenerOpinion
Date Created: 2022-07-23 23:21:57.593372+00
Date Added: 2024-06-11T16:06:55.350118
License: Public Domain

JOHN R. BROWN, Circuit Judge
(dissenting) .
I agree that ultimately “[t]he outcome of this litigation depends on a determination of who had title to these tires,” that is, whether the tires were the property of the bankrupt. I also agree that a different result obtains .depending on whether the legal relation between the bankrupt and the Pennsylvania Tire Company is that of buyer and seller or consignee and *533■consignor. I cannot agree, however, that in attempting to discover the nature of the relationship we are confined to the 4 corners of the instrument called “POC” Warehouse Agreement. Nor do I think that much is gained in discussing the case in terms of “title” or “consignment” versus “sale.” These are not a statement of the reasons why. They are, rather, a statement of the problem, or, once it is decided, a statement of the conclusion. Because the broader inquiry which I believe is required yields a conclusion different from that reached by the majority, I respectfully dissent.
As I see it, whether title passed to the bankrupt on delivery of the tires or remained in the Tire Company until the tires were sold to a third-party user-customer depends on the agreement between the bankrupt and the Tire Company as evidenced by both the written “POC” Warehouse Agreement and the long-continued course of dealing. Admittedly several provisions of the Warehouse Agreement are consistent with a relationship of consignee and consignor. But the hard facts are that the bankrupt and the Tire Company did not operate in the manner called for by the Agreement.
The Agreement called for the bankrupt to keep the “merchandise separate and apart from similar merchandise owned by persons other than the [Tire] Company;” to make sure that the merchandise covered by the Agreement was not “mingled with any other merchandise;” and “to at all times maintain appropriate signs, labels or other identification clearly designating same as [Tire] Company’s property.” These requirements simply were not met by the bankrupt. He kept one common stock of tires on display for sale. Various other brands of tires were mixed with the Pennsylvania tires whose title is here in dispute. No signs or labels were maintained either on the premises or on the Pennsylvania tires which indicated that they were the property of the Tire Company rather than property of the bankrupt.
The Agreement required the bankrupt to forward to the Tire Company “immediately after the end of each month an actual physical inventory indicating the quantity, size and type of such consigned stock at the beginning and end of the month and a list of transfers to and from such stock.” Acknowledgment receipts of all consigned stock received were required to “be furnished daily.” Finally, the bankrupt was required to “render detailed reports daily reflecting the total amount of merchandise * * * withdrawn from the consigned stock.” These reports were not made. The evidence is that the practice was for the bankrupt to fill out a statement of sale whenever, in his opinion, a sufficient number of tires had been sold to justify the making of a report.
Although it is apparent from the face of the Agreement that the Tire Company was attempting to set up an arrangement whereby the bankrupt would act as the agent of the Tire Company for the purposes of delivering merchandise to user-customers and collecting sales proceeds in trust for subsequent transmission to the Tire Company,1 2other provisions of the Agreement and certainly the course of dealing between the parties were inconsistent with an arrangement of this type. Under the Agreement, the bankrupt was responsible for any shortage in the stock whether caused by negligence, theft, fire 2 or otherwise. The bankrupt was likewise liable ultimately for all taxes on the stock.3 In return for assuming all the risk of loss and for performing the stor*534age and selling function for the Tire Company one would assume that the bankrupt would be allowed some compensation. He was, but it was measured— under the agreement — just as the compensation of retailers is universally measured. The bankrupt was allowed to retain an amount equal to the retail price of tires sold minus the wholesale price. Out of this amount the bankrupt was to pay the service charge of 1 and y% per cent per month on the wholesale value of the tires not yet sold. This obviously was a charge for the financing of inventory. I need not determine the legal consequences of such arrangements if put into actual operation. The fact is that the bankrupt and the Tire Company never operated in the manner outlined. The tires were invoiced as “Sold To Martin Tire & Appliance, 105 Commerce, Glade-water, Texas,” and the Tire Company charged Accounts Receivable when the tires were shipped. As noted above, the tires were not segregated, and the receipt and withdrawal reports were not made. The bankrupt dealt with the public as though the tires were his. He sold tires at prices and terms of his sole discretion. Rather than segregating the sales proceeds in trust in a bank account separate from his general bank account as apparently called for by the agreement4 he deposited the receipts in his general bank account. When he made remittances, either in payment of amounts billed on the tires or in payment of the “service charge,” he drew a check on his general account. Even the service charge was computed in a manner different from that provided in the agreement. Rather than being computed on the balance of inventory unsold and on hand, it was computed on the total value of tires shipped to the bankrupt during the month, whether sold or not. Finally, both under the contract and in actual practice, the bankrupt, could return tires only with the consent, of the Tire Company. In short, the relationship in actual practice had every earmark of that of buyer and seller, with inventory financing aid being supplied by the seller, Pennsylvania Tire Company.
I have not set forth this detail with the thought in mind that this alters or varies the terms of the written contract. We do not have that case before us.. Whatever the legal consequences of its terms might be if adhered to, the fact, is that neither party complied with them. Assuming it controlled absolutely the initial “consignment” of tires, the contract, if ignored as it was throughout all subsequent times, could not extinguish either the fact of actual conduct or the legal significance of it. Moreover, these actual operations in disregard or violation of the terms of the agreement were not concealed, unilateral, unknown actions. The Tire Company made regular inspections and frequent reports of these derelictions were made to the home office. Nevertheless the home office continued to ship and invoice tires to the bankrupt knowing that what the contract prescribed would never be complied with.
In that situation the legal relationship of the parties and to the merchandise should be determined by what was done, not by what they said they would do.
The consequences of this decision in terms of the Texas policy of protecting creditors is ominous. In the first place any contract couched in terms of a conditional sale or other reservation of title are expressly treated by Texas as a chattel mortgage requiring recordation to be valid against creditors. Tex.Civ.Stat. Ann. arts. 5489, 5490 (Vernon 1958). *535Next, in the various arrangements essential to the flow of credit for commercial •operations, such as advances by factors,5 assignment of accounts receivable,6 or the like, Texas prescribes elaborate and ■exacting provisions for notice and recordation. And where financing is to be •done through trust receipts, field warehousing or the like, it is essential that the dealer not have the legal possession •of the merchandise. Over 30 years ago in a Texas bankruptcy case, this Court held that under a typical tripartite trust agreement possession of the automobiles by the dealer made the arrangement essentially a chattel mortgage which under Arts. 5489, 5490 had to be recorded. Universal Credit Co. v. Fortinberry, 5 Cir., 1933, 63 F.2d 71. See also 4 Collier, Bankruptcy § 70.58 at 1471-76. Possession may be negatived by actual, good faith segregation of the goods, cf. Ribaudo v. Citizens Nat’l Bank, 5 Cir., 1958, 261 F.2d 929. But it is surely present when the dealer, as here, intermingles the “consigned” tires with his own stock and treats them indiscriminately as his own.
But all of these safeguards are swept away by this decision. Whether the dealer is a tire retailer, a dry goods store, general merchandise establishment or automobile dealer, the manufacturer-wholesaler can protect himself absolutely by a ■simple “warehouse” contract. All he need do to insure that he will always be able to reclaim from his bankrupt dealer goods sold but yet unpaid for is to execute with the dealer at the inception of their business dealings an instrument which on its face creates a consignor-consignee relationship. Then they can deal- with each other as sellers and buyers normally do, but with the assurance that should the dealer become bankrupt the supplier— rather than having to share the assets with all the general creditors — will be able to come into the Bankruptcy Court with his “POC”Warehouse Agreement in one hand and a petition for reclamation in the other and reclaim the merchandise.
I therefore dissent.

. Presumably this duty would require the bankrupt to segregate the sales proceeds in a trust account in the bank separate from his general bank account.

. The agreement provided that the Tire Company would purchase fire insurance on the stock.' The premium was to be paid ultimately by the bankrupt, however, and in actual practice the bankrupt carried its own fire insurance payable to its order.

. Under the terms of the agreement, all taxes whether initially paid by the Tire Company or by the bankrupt were to be paid ultimately by the bankrupt. Although the agreement provided for seg*534regation of the Pennsylvania tires for taxing purposes and detailed reporting in the form of tax returns and receipts concerning the Pennsylvania tires, the practice was for the bankrupt to render and pay taxes on all the stock as though it were all his. No renditions, assessments, or returns or receipts indicating taxes paid on Pennsylvania tires were sent to the Tire Company because such, tires were simply not rendered or assessed for taxation, and the taxes were not paid in a manner that would make this possible.

. See note 1, supra and accompanying text.

. Tex.Civ.Stat. art. 5506c (Vernon 1958).

. Tex.Civ.Stat.Ann. art. 260-1 (Vernon 1959) and see also the similar Florida Statute, Fla.Stat.Ann. ch. 524.04, F.S.A. construed by our Court in Ribaudo v. Citizens Nat’l Bank, 5 Cir., 1958, 261 F. 2d 929 (citing many Texas cases); Miami Nat’l Bank v. Knudsen, 5 Cir., 1962, 300 F.2d 289; James Talcott, Inc. v. Wilcox, 5 Cir., 1962, 308 F.2d 546; cf. Blackford v. Commercial Credit Corp., 5 Cir., 1959, 263 F.2d 97.