Powers v. Fisher

The plaintiffs are owners of the vendors' interest in a contract for the sale of a milk route and equipment in the city of Charlotte and the defendants Smith are the present owners of the vendees' interest. The contract was entered into on October 28, 1929, the consideration of which was the sum of $6,007.62; and on November 8, 1935, at which time the last payment was made, the balance due on the contract was $974.24. The material parts of the contract entered into are as follows:

"Said second parties hereby agree to pay to first party the sum of $6,007.62 as follows:

"Fifteen hundred paid this day the receipt of which is hereby acknowledged, and the balance as follows: $50 December 1, 1929, and $50 on the first day of each and every month thereafter until paid with interest at the rate of seven per cent. per annum, payable monthly out of each monthly payment of $50, interest to be first deducted and the balance applied on the principal.

"Said second parties agree to pay all taxes that shall be assessed against said property until said purchase price is fully paid.

"Said second parties shall keep the said personal property insured against loss by fire and wind in amount approved by first parties and assign and transfer said policies to said second parties.

"Said first parties on receiving payment in full as above set forth shall make, execute and deliver to second parties a bill of sale of said property free and clear from any and all incumbrance except those that may have accrued through any acts or neglect of second parties heretofore subsequent to this date. * * *

"If the said parties of the second part shall fail to perform this contract for the covenants or agreements or the payments shall become three months in arrears, said first parties shall have the right to declare the full amount unpaid due and payable and shall have the right to retain what may have been paid on said contract, and may take immediate possession of said property."

In November, 1935, plaintiffs filed a bill of complaint to have the property sold under the direction of the court, the proceeds applied to the obligation, and a decree against the defendants for the deficiency if there should be any. The defendants filed a motion to have the action dismissed on the ground that plaintiff had an adequate remedy at law. The trial court held that the contract was a conditional sales contract and entered an order transferring the cause from the chancery to the law side of the court.

Plaintiffs appeal and contend that the contract entered into was a chattel mortgage; that if the instrument in question was a conditional sales contract, it could be foreclosed in a chancery court and equitable relief should be granted because of the general uncertainty and inadequacy of the legal remedy.

The test of the nature of the instrument was laid down inAtkinson v. Japink, 186 Mich. 335, and has been frequently followed and applied. (1) If the vendor has the right to reclaim the chattel without losing his action for the purchase price, the instrument is a chattel mortgage; (2) If the right to reclaim the chattel and the right to the purchase price are mutually exclusive, the instrument is a true conditional sales agreement.

A chattel mortgage must be recorded; unrecorded chattel mortgages are invalid as against subsequent creditors andbona fide purchasers of the mortgagor. The vendor may sue for the purchase price without losing his lien; or he may foreclose the mortgage and take a deficiency. In event of foreclosure the payments which have been made must be applied upon the purchase price to reduce the amount of the deficiency. A true conditional sales agreement need not be recorded, the vendor having an absolute title prevails against all subsequent parties. If the vendor repossesses the property, he thereby forfeits any claim to the balance of the purchase price and payments made may be retained if the contract provides that they are for rental, costs, etc.; or if the vendor sues for the balance due on the purchase price, title to the goods passes to the vendee.

In Mills Novelty Co. v. Morett, 266 Mich. 451, 457, we said:

"The determination of the nature of the transaction (at least where rights of third persons are not involved) depends upon the intention of the parties making the contract under consideration, as ascertained by the correct construction of its terms. If the intent is not clear, ambiguities will be solved against the party who was relied upon to, and who did, select the language of the contract."

The instrument in issue contains an acceleration clause, but as was said in Galion Iron Works Manfg. Co. v. Service CoalCo., 264 Mich. 298, such a clause is not a controlling feature one way or the other. The instrument in question has no affidavit attached as is required by statute upon a chattel mortgage, it provides for a bill of sale upon completion of all payments; it does not specifically provide that the vendor may declare the contract in default, recover the goods and sue for a deficiency. In our opinion the instrument is a conditional sales contract.

Upon default, in a conditional sales contract, the vendor may sue for the balance of the purchase price and convey the property, or he may repossess the property without accounting to the purchaser; if he adopts the first alternative he may sue in assumpsit, or if repossession seems desirable he may replevin the property. In either action the law side of the court provides an adequate remedy. The uncollectibility of any or all defendants does not change the rights or remedies of the parties.

The decree of the trial court should be affirmed. Defendants should recover costs.