U.S. Fid. G. Co. v. N.W. Eng. Co. , 146 Miss. 476 ( 1927 )

^* Corpus Juris-Cyc. References: Conflict of Laws, 12CJ, p. 451, n. 83 New; Sales, 35Cyc, p. 675, n. 78; p. 682, n. 16; p. 686, n. 33, 34, 35. On effect of taking collateral security upon conditional sale, see annotation in 20 L.R.A. (N.S.) 1065; 33 L.R.A. (N.S.) 492; 24 R.C.L. 506. These cases were consolidated and tried together by agreement of the parties. The appellants and appellee were creditors of A.V. Wills Sons. The latter had a dredging outfit in Coahoma county in this state. A.V. Wills Sons were adjudged bankrupts under the federal bankruptcy statute (U.S. Comp. St., sections 9585-9656). The appellants claimed liens by attachment and levy on the dredging machinery, while the appellee claimd title to the dredging machinery under a conditional sale contract between it and A.V. Wills Sons. The question was as to the priority of right as between appellants and appellee. A trial was had on agreed facts between the parties; the court sitting as judge and jury. The stipulated facts were embodied in writing and made a part of the record. The court rendered judgments for appellee, from which the appellants prosecuted appeals.

The following is deemed to be a sufficient statement of the case out of which the questions for decision arise. Appellants sued out foreign attachments against A.V. Wills Sons in the circuit court of Coahoma county to enforce payment of their indebtedness against the latter. Writs of attachment were issued and levied upon the dredging machinery involved. These attachment suits were prosecuted to final judgment which provided for a sale of the property attached. In the meantime A.V. Wills Sons were adjudicated bankrupts under the federal bankruptcy statute, and T.J. Canavan was appointed trustee in bankruptcy, and was substituted in the attachment suits in the place of A.V. Wills Sons, in order to protect the interest of the bankrupt estate. Writs of execution were issued on the judgments in attachment, directed to the sheriff of Coahoma county, commanding him to sell the property — the dredging machinery — to satisfy the judgments. Thereupon the appellee interposed a claimant's affidavit, setting up that it was the owner of the dredging machinery by virtue of a conditional sale contract entered into between appellee and A.V. Wills Sons for the sale and purchase of the machinery. The claimant's issue was thereupon tendered and joined between the parties.

The dredging machinery was sold by appellee to A.V. Wills Sons, in the state of Wisconsin, to be shipped to Coahoma county in this state. The contract of sale was in writing and was made a part of the agreed facts. The dredging machinery was delivered to the carrier in the state of Wisconsin for delivery to A.V. Wills Sons, at Clarksdale, in this state. A part of the purchase price was paid by A.V. Wills Sons, and the balance was evidenced by notes executed by them, which notes were payable in the state of Missouri. The pertinent part of the contract provided, in substance, that the title to the property sold was retained in appellee, the seller, until the purchase-money notes were paid, which notes were to be secured by a chattel mortgage on the dredging machinery; that the purchase-money notes should be regarded as evidences of indebtedness, and not as payments, "whether postponed to maturity of the original obligation or not;" that the property sold should retain its character as personal property; that the contract of sale should be treated as a Wisconsin contract, and the rights of the parties governed by the laws of Wisconsin existing at the time of making the contract. The contract was neither recorded in Wisconsin nor in Mississippi where the dredging machinery was located when appellants sued out and had their attachments levied thereon. At the time appellants acquired their attachment liens they had no notice of the existence of the conditional sale contract. Neither it nor the chattel mortgage executed in pursuance of the conditional sale contract had been recorded in this state, nor did appellants have any notice of the mortgage. The appellants contended that they were bona-fide lienors against the machinery without notice of the rights of the appellee, while the appellee contended that it was the owner of the property by virtue of its conditional sale contract.

Section 122.05, chapter 122, of the Wisconsin Uniform Conditional Sales Act (Wisconsin Statute 1925), provides, in substance, that a conditional sale of personal property, reserving title to the property in the seller, shall be void as to purchasers and creditors from the buyer, who, without notice of such contract, purchases the goods, or acquires, by attachment or levy, a lien thereon, unless the conditional sale contract shall be filed and recorded within ten days after the making thereof, as provided by the statute. Under our statute (section 4777, Code of 1906 [section 3121, Hemingway's Code]) such a sale is valid without recording, as against all persons dealing with the property sold, for a period of three years from the time possession is taken by the purchaser. Therefore it will be observed that, if the recording laws of Wisconsin applicable to such contracts are to govern the rights of the parties to this cause, the appellants' liens on the machinery by attachment will prevail over appellee's reservation of title thereto. The question, therefore, is which law applies, that of Wisconsin, or that of this state?

Questions arising under the conflict of laws are often fraught with much difficulty. However, as we view this case, there appears to be little, if any, difficulty in solving the rights of the parties. For the present we shall leave out of view the effect of the stipulation in the conditional sale contract that the rights of the parties shall be governed by the laws of Wisconsin, where the contract was made. In discussing this question, we do not think we could do better than adopt what Minor in his Conflict of Laws (section 130, pp. 301 and 302) says:

"At common law, a reservation of title in the vendor of a chattel until the purchase price is paid is sustained even as against a purchaser from the vendee for value and without notice of such reservation. But in many states, by statute, the reservation is void as against third persons unless it is recorded. If, therefore, we suppose a chattel sold with such reservation in one state, while the chattel is actually situated in another state subject to a different law, or is subsequently removed thither by the vendee, where it is afterwards sold by the vendee to a purchaser for value and without notice of the reservation, which law is to govern the title of the vendee's purchaser? The policy of the laws which set at naught the contract for the reservation of the title in favor of creditors of and purchasers from the vendee must be kept in mind in the solution of this question. Some avoid the reservation of title absolutely as against such creditors and purchasers (Marvin Safe Co. v. Norton, 48 N.J. Law, 412, 7 A. 418, 57 Am. Rep. 566), while others avoid it as to such third persons, unless the reservation is in writing and recorded.Public Parks Amusement Co. v. Embree-McLean Co., 64 Ark. 29, 40 S.W. 582. The purpose of these laws is to protect personswithin the state where they are in force in advancing money to the vendee on the faith of an apparently complete title which is in reality defective, or in their purchasing the chattel from the vendee upon the faith of his title. It is not the purpose of such a law to protect third persons dealing with the property beyond the limits of the state, for, with respect to such dealings, that state has no authority to legislate. On the other hand, it would seem to be the policy of these laws to embrace all dealings by third persons with the property situated within the limits of their authority, regardless of the law of the place where the vendee obtained the property and regardless of the question whether or not by that law the reservation of title in the vendor is valid as against third persons. Thus it will be seen that the real scope of these laws when they exist in a particular state is to embrace all personalty within that state, whether the vendor's reservation of title was created there or elsewhere; and they do not apply to personalty elsewhere, or to dealings therewith elsewhere by third parties, even though the original sale and reservation of title took place in the former state.

"It follows from what has been said and from the policy of these laws invalidating reservations of title in the vendor as against creditors of and purchasers from the vendee that it is usually the law of the state where the purchaser buys from the vendee, or where his creditors seek to subject his interest that will determine the validity of the vendor's reservation of title; the law of the place of the vendor's contract of sale being immaterial. And this is true whether the chattel sold is situated at the time of the transfer in, or is subsequently removed by the vendee into, the state where the subsequent dealings occur. Ordinarily, therefore, in such cases, it is safe to follow the rule that the law of the place where the subsequent dealingsoccur will govern. Thus, in Hervey v. Locomotive Works,93 U.S. 664, 23 L.Ed. 1003 (citing in connection therewith MarvinSafe Co. v. Norton, supra; Weinstein v. Freyer, 93 Ala. 257, 9 So. 285, 12 L.R.A. 700; Public Parks Amusement Co. v.Carriage Co., 64 Ark. 29, 40 S.W. 582; The Marina [D.C.], 19 F. 760), a Rhode Island company delivered a locomotive in Rhode Island to a contractor on a railroad in Illinois, reserving the title until the payment of the price. By the law of Rhode Island, the reservation of title was valid as against subsequent creditors of the vendee. By the law of Illinois, it was invalid as against them until recorded. The engine was attached in Illinois by subsequent creditors of the vendee, and sold to Hervey. In a contest between Hervey and the vendor, it was held that the law of Illinois must govern. Here the reservation of title was valid by the lex loci contractus, but invalid by the law of the place where the subsequent dealings therewith were had. On the other hand, in Weinstein v. Freyer, supra, the circumstances were just reversed, but the same law was held to govern. In that case, the vendor sold the vendee a piano in Georgia, reserving title. By the law of Georgia, such a reservation was invalid as to purchasers from the vendee, unless recorded. In this case there was no recordation. Then the vendee removed the chattel to Alabama, and there sold it to a bona-fide purchaser. The common law prevailing in Alabama held such reservation valid without recordation. It was held that the rights of the vendee's purchaser were to be determined by the law of Alabama."

It will be observed from the author's discussion of the question, and the authorities cited in support of his position, that the recording laws of a state only embrace personal property within that state; that they affect only the rights of persons dealing with property situated in that state, and have no extra-territorial effect when property is taken into another state. There seems to be no cases to the contrary.

Does the fact that in the conditional sale contract it was stipulated that the rights of the parties thereto were to be governed by the laws of the state of Wisconsin take this case out of the general rule that the recording laws of a state can have no extra-territorial effect? We think not. The dredging machinery was bought in Wisconsin with the understanding between the appellee, the seller, and the purchasers, A.V. Wills Sons, that it be immediately shipped into and located and used in this state. The conditional sale contract was not recorded in Wisconsin because it would have been useless so to do. The property was leaving that state at once for another state, where it would be located and used. Under the Uniform Conditional Sales Act (section 122.05, chapter 122, Wisconsin Statutes 1925), the conditional sale contract involved was valid as between the appellee, the seller, and the purchasers of the dredging machinery, A.V. Wills Sons. The recording laws of Wisconsin had nothing to do with the validity of the contract as between the seller and the purchasers. They only undertake to protect the rights of bona-fide purchasers and incumbrancers of the property without notice by requiring such contracts to be recorded.

Under the laws of this state, it has been held, in numerous decisions by this court, that such contracts are not only valid as between the seller and purchaser, but as against all other persons dealing with the property sold for a period of three years from the time possession of the property is taken. Therefore, under the laws of both Wisconsin and this state, the conditional sale contract was valid between the appellee and the purchaser of the machinery. The effect of appellants' position is that the stipulation in the conditional sale contract that the rights of the parties thereto should be governed by the laws of Wisconsin would be to transplant the applicable recording laws of the state of Wisconsin into the state of Mississippi along with the dredging machinery brought into this state. Recording laws are not intended for the benefit of the parties to the recordable contract as between each other. Such laws are enacted for the protection of the rights of the parties to the contract on the one hand and of third persons on the other dealing with the subject-matter of the contract as between each other. This is not a contest between appellee, the seller of the machinery, and A.V. Wills Sons, the purchasers of the machinery. As shown above, under the laws of both Wisconsin and this state, the reservation of title to the machinery was good as between the parties. It is a contest between appellee, the seller of the machinery, and appellants, third persons dealing with the machinery after it reached this state. The stipulation in the conditional sale contract in question has no application to that state of case. The parties to the contract were powerless to provide for the application to the contract of the recording laws of Wisconsin in this state, so as to affect the rights of third persons dealing with the machinery after it reached this state. Neither by contract nor comity could the recording laws of Wisconsin be brought into and enforced in this state in this case.

Appellants contend that, by the taking of a mortgage on the dredging machinery to secure the purchase-money notes, appellee waived its right under the retained title provision of the contract of sale. Among other provisions, the contract of sale contained the following:

"Any notes which may be executed and delivered by the buyers to the seller shall be regarded as evidence of indebtedness only, and not as payments, whether postponing maturity of the original obligation or not. The property herein described, until fully paid for, shall retain its character as personal or chattel property, under all circumstances wherever placed, and whether attached to real estate or not. Any parts, equipment, repairs, or replacements of any kind placed upon or made to said property by the buyers or others should be deemed to be a part of said property, and become the property of the seller."

Appellants also contend that this question is governed by the laws of Wisconsin, although the mortgage was taken in Missouri, and the purchase-money notes were payable in a bank in St. Louis in that state. There is some diversity of opinion among the courts on this question, but we think the better reasoned authorities hold that, where the seller of personal property with reservation of title takes additional security for the price, such as a mortgage, either on the property sold or on that and other property, he does not render the reservation of title until the price is paid inoperative as a conditional sale. Champenois v. Tinsley, 90 Miss. 38, 42 So. 89; Bierce v. Hutchins,205 U.S. 340, 27 S.Ct. 524, 51 L.Ed. 828; Monitor Dredging Co. v.Mercer, 163 F. 943; 90 C.C.A. 303, 20 L.R.A. (N.S.) 1065, 16 Ann. Cas. 214; Baily v. Baker Ice Machine Co., 239 U.S. 271, 36 S.Ct. 50, 60 L.Ed. 275; First Nat. Bank v. Reid, 122 Iowa, 280, 98 N.W. 107; Goodkind v. Gilliam, 19 Mont. 385, 48 P. 548; McDonald Auto Co. v. Bicknell, 129 Tenn. 494, 167 S.W. 108, Ann. Cas. 1916A, 265; Kimball v. Costa, 76 Vt. 289, 56 A. 1009, 104 Am. St. Rep. 937, 1 Ann. Cas. 610; notes to 20 L.R.A. (N.S.) 1065. Neither the courts of Wisconsin nor Missouri have held to the contrary. Aultman Co. v. Silha, 85 Wis. 359, 55 N.W. 771, does not hold to the contrary. It is true the court held, under the particular facts of that case, that the taking of a mortgage by the seller of personal property with retention of title constituted a waiver by the seller of his rights, under the retention of title provisions of the contract, but the court was careful to say, in that case, that, although the courts of Wisconsin did not favor conditional sales, it was always a question whether the parties, under the particular facts of the case, intended the mortgage as a substitute for the conditional sale.

Affirmed.