In re Stein , 17 F. Supp. 587 ( 1936 )

MARIS, District Judge.

This matter comes before us on a certificate to review an order of the referee dismissing a petition of the National Cash Register Company filed to reclaim a cash register which was in the possession of the bankrupt at the time of the bankruptcy. The petitioner based its claim upon the proposition that the cash register was delivered to and held by the bankrupt under a bailment lease contract upon which the bailee was in default.

From the testimony it appears that the bankrupt desired to purchase a cash register, the cash selling price of which was $403.75, but he was unable to pay for it in cash. The representative of the National Cash Register Company thereupon presented to him a bailment lease, which he signed. This document valued the register at $425, and by it the lessor agreed to lease the register to the lessee for 24 months at a rental of $365 payable in 23 monthly payments of $15 each and one of $20. The lessee agreed to give a promissory note to the lessor for $365 payable in similar monthly payments as collateral security for payment of the rental and he further agreed to pay the lessee $60 forthwith as a deposit to partially secure fulfillment of the agreement. At the same time he turned in to the lessor an old cash register and by the agreement was given a credit for it of $50 against the $60 deposit above mentioned. The contract further provided that at the expiration of the rental term the lessee would surrender it to lessor, whereupon the lessor was to return the amount paid as a deposit if all the terms of the lease had been complied with, and the lessee was given the option, after surrendering the register, to purchase it upon payment to the lessor of the said amount deposited as partial security.

After the signing of the bailment lease the cash register was delivered to the bankrupt and remained in his possession until bankruptcy. He paid the deposit of $60 (including the return of the old cash register), and a total of $150 on account of the rental, but defaulted in the payment of the balance. The bankrupt testified that a little over a month after he had signed the lease and received the register he called up the representative of the company and said that he did not think he could keep a register like that and asked whether they had anything else. We quote from his further testimony on this point: “The credit man says, ‘What do you mean ? Didn’t you buy that register ? ’ I says, ‘No. I only took it with the understanding after Christmas if you have something for less in, I will get it. If not, I am not going to keep this register. I will take my own back.’ He says, ‘I will see about it then I will let you know.’ Then I didn’t hear anything for about ten, 15 days. Then I wrote a letter to the president of the firm, begged him to take the register back and he says, T am sorry, we cannot take it back. We sold it. You will have to keep it’; or else they threatened to levy on me.” On these facts the referee determined that the contract in question was in reality a conditional sale, and since it was not recorded, the title as between the claimant and the trustee was in the trustee. He, therefore, dismissed the reclamation • petition.

Whatever may have been the prior view, it may now be accepted as settled that this court will follow the decisions of the Pennsylvania courts in construing bailment leases and conditional sales contracts. This was clearly and definitely decided by our Circuit Court of Appeals in General Motors Acceptaqce Corporation v. Horton, 85 F.(2d) 452. It was pointed out in that case that a contract, such as was there involved, which was in fact, though not in form, a conditional sale, has long been construed by the Pennsylvania courts as a bailment lease and sustained as such in accordance with its form.

As we read the Pennsylvania decisions, they uniformly hold that if at the time a bailment lease is entered into the parties have not already made and completed a conditional sale of the chattel which is the subject of the bailment, the contract will Be sustained as a bailment lease, if such in form. This is so even though the original intention of the parties was to make a sale and their present intention is that a sale shall take place on compliance with the conditions of the lease. The use of a bailment lease under such circumstances rebuts any presumption that the owner was willing to sell the chattel purely on credit which might arise from his original intention to make a sale. In the absence of evidence showing such a willingness the form into which the parties have cast their transaction will be sustained. Leitch v. Sanford Motor Truck Co., 279 Pa. 160, 123 A. 658; Brown Bros, v. Billington, 163 Pa. 76, 29 A. 904, 43 Am. St.Rep. 780; General M. A. Corp. v. Hartman, 114 Pa.Super. 544, 174 A. 795; National Cash Register Co. v. Shurber, 41 Pa. Super. 187.

Applying these principles to the present case, we may admit, as the Circuit Court of Appeals did in General Motors Acceptance Corporation v. Horton, supra, and as the referee found, that the transaction between the parties amounted in fact to a conditional sale. We may also admit that it was their intention by adopting the form of a bailment lease to secure the payment of the purchase price. It does appear, however, that the parties themselves cast the transaction into bailment lease form, and we find no evidence in the record that a conditional sale had been made or completed prior to the execution of the lease. Nor do we find any evidence indicating that the petitioner was willing to make sale to the bankrupt purely on credit. On the contrary, its insistence upon'the use of a bailment lease clearly indicates its unwillingness to do so.

The trustee in bankruptcy, however, calls our attention to the testimony that after the transaction was entered into it was described by representatives of the petitioner as a sale, the bankrupt’s testimony being that they said: “Didn’t you buy that register? * * * We sold it. You will have to keep it.” He argued that by these statements the petitioner defined the -contract as a sale. That statements of this character made after the transaction was completed are not sufficient to change the bailment into a conditional sale is ruled by National Cash Register Company v. Shurber, supra. In that case a bailment lease, substantially the same as the one here involved, was entered into under very similar circumstances. About a month afterward the bailees left the cash register with one Liberakis to be delivered to the bailor. Thereupon the bailor forwarded to Liberakis a box in which to ship the register back to them and at the same time one of its agents wrote him a letter in which it was stated: “Vergos & Kyramis, who were in business in your town, and to whom we sold one of our cash registers. * * * ”

Although it does not appear in the opinion of the superior court, an examination of the printed record in that case discloses that about a month later a representative of the bailor wrote another letter to Liberakis stating: “Some time ago we wrote you with reference to register which we sold to Vergos & Kyramis. * * * ” The record in the Shurber Case also discloses that the defendant in that case strongly urged that these two statements by representatives of the bailor that they had sold the register to the defendant constituted evidence that the transaction was a conditional sale of sufficient weight to require that question to be submitted to the jury. The court below ruled, however, that the contract was one of bailment lease and so instructed the jury, which found for the plaintiff. The superior court affirmed the judgment, holding that the court was right in its construction of the writing which contained all the essentials of a contract of bailment.

It will thus be seen that the statements alleged to have been made by the officers of the petitioner in the present case were essentially similar to those relied on in the Shurber Case and the written instrument in each case was also essentially the same. Upon the authority of that case and the other Pennsylvania decisions to which we have referred, as well as General Motors Acceptance Corporation v. Horton, supra, the order of the referee must be overruled.

The order of the referee is overruled and the trustee in bankruptcy is ordered to turn over and deliver to the .National Cash Register Company the cash register described in its reclamation petition.