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Davis v. P. R. Sales Co.

June 22, 1962


Author: Smith

Before FRIENDLY, SMITH and MARSHALL, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge.

This is an appeal from an order entered in the United States District Court for the Southern District of New York, by Hon. Frederick v. P. Bryan, D.J., affirming an order of the referee in bankruptcy which denied conditional vendor the right to reclaim the proceeds of the sale of machinery in the possession of the Trustee which machinery had been sold to the bankrupt pursuant to two contracts of conditional sale on the grounds that such contracts were void as against creditors.

The reclaimant, a partnership doing business as P. R. Sales Company with its principal office in Passaic, New Jersey, is engaged in the sale of machinery to the textile industry. Amity Corp., engaged in finishing and dyeing textiles, was adjudicated a bankrupt on January 28, 1960 in the Southern District of New York on a voluntary petition.

On July 25, 1957 and February 6, 1958, P. R. Sales Co. sold, under a conditional bill of sale, to Amity, the machinery sought to be reclaimed in the instant proceeding. The earlier contract provided that the purchase price of $4,600 was to be paid in the following manner: $500 on the execution of the contract; $500 on delivery of the machine; and 18 promissory notes of $200, plus interest, payable monthly commencing one month after delivery. The second contract was for $14,000; $500 at the signing of the contract and 27 promissory notes of $500 each, plus interest, payable monthly commencing May 1, 1958. Both contracts provided that the machinery be kept by Amity at its Glendale, Queens plant unless permission of the vendor was obtained prior to any change in location. The certificate of incorporation of Amity at that time provided, and still does, that its principal place of business is in the County of Queens.

Sometime around June or July of 1959 Amity, with the permission of P. R. Sales Co. moved all of its property from Glendale to a new plant in Norwich, Connecticut, where it continued in business. On June 26, 1959 P. R. Sales Co. filed the original two conditional sales contracts with the Town Clerk of Norwich pursuant to the Connecticut conditional sales statute.*fn1

Shortly thereafter Amity found itself in financial difficulty and was able to reach an agreement with P.R. under which P.R. returned all unpaid notes it held pursuant to both contracts in consideration for a new series of monthly notes dated August 1, 1959 which covered the combined balance still unpaid. Each note was for one half the total due under the old notes, plus interest, and the final note was due July 1, 1961, whereas the final note under the original contract was due July 1960. This agreement was not filed either in Connecticut or New York and no writing other than the notes was made. At the time of the adjudication in bankruptcy $9,936.50 was still unpaid. Reclaimant has sold the machinery by leave of the court, for $7,000 which it paid into the estate and now seeks repayment of, upon the theory that it had good title to said machines under the conditional sales contracts which were valid as to the Trustee.

The referee held that the residence of Amity was in Queens County, New York, as per its certificate of incorporation; that the extension constituted a new agreement; and that since no new contract was filed as required by Sec. 66-a of the New York Personal Property Law, McKinney's Consol Laws, c. 41 the vendor did not have a reservation of title valid as to creditors of the bankrupt.

Reclaimant-appellant filed a petition to review the order of the referee claiming that Connecticut law which was fully complied with should govern, and that if New York law is held to be the proper law the new arrangements did not constitute an addition which included other transactions within the purview of Sec. 66-a.*fn2 The District Court held:

"In this posture of the case it makes no difference in result whether New York law applies, as the referee held, or Connecticut law applies, as the reclaimants contend. In either event, the new agreement was required to be in writing and to be filed in order to protect the vendors' title against one in the position of the trustee. The new agreement was only partially reduced to writing and neither the text of the agreement nor any notice of it were filed anywhere."

We conclude that the law of Connecticut is controlling and filing of the new agreement was necessary in order to render the reservation of title valid as to creditors.

The general rule with respect to a chattel sold pursuant to a valid conditional sale and subsequently removed to another state with the consent of the vendor is that the whole law, including the choice of law rules, of the second state determines the extent to which dealings in that state affect the interest of the conditional vendor. Restatement, Conflicts of Laws, ยงยง 269, 276. We think that Connecticut courts would follow the majority rule and apply their own law where the chattel is removed thereto with the consent of the conditional vendor (See Annotation, 13 A.L.R.2, 1312, 1333-36), particularly where after such removal the parties entered into a new agreement materially altering the terms of the original sale

Where goods are sold under a conditional bill of sale in New York to a Connecticut resident and it is contemplated at the time of sale that the situs of the property will be removed to Connecticut the substantive law of Connecticut determines the validity of the reservation with respect to third parties. The result reached by the Connecticut courts has been placed upon the principle that matters concerning performance of the contract are governed by the law of the place of performance "or beneficial operation." H. G. Craig & Co. Ltd. v. Uncas Paperboard Co., 104 Conn. 559, 133 A. 673 (1926); Beggs v. Bartels, 73 Conn. 132, 46 A. 874 (1900); Illustrated Postal Card & Novelty Co. v. Holt, 85 Conn. 140, 8 A. 1061 (1912); White v. Holly, 80 Conn. 438, 68 A. 997 (1908).

More significant, with respect to the instant case, is the fact that in one of the leading cases (Craig & Co. Ltd. v. Uncas Paperboard ...

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