COWETA FERTILIZER CO. v. BROWN, 163 F. 162

BURTON, Circuit Judge (after stating the facts as above). 1. The concession of learned counsel for both parties is that the contract under which Brown received the goods' of the Coweta Company was one of sale, and not one of bailment. All of the rights and risks of ownership pertained to the buyer. There was an attempt to retain the title until the goods were paid for, but this, if valid under the public policy of Tennessee (see Star Manufacturing Co. v. Nordeman et al., 118 Tenn. 384, 100 S. W. 93), was only for the purpose of security. The goods were bought to be resold.

When a sale occurred, assuming the title effectually reserved, the title passed to the purchaser, and by agreement the proceeds, whether money or credits, stood charged with a trust in behalf of the Coweta Company for any part of the original price. No right to return goods unsold was reserved. On December 1, 1901, Brown was obligated to pay or settle by cash or bankable notes for goods sold or unsold, regardless of sale on credit by him, good or bad. Every risk of loss by blameless accident rested upon Brown.

We agree with the court below that under this contract the liability of Brown was that of a purchaser, and that a plain action of debt was a remedy open to the complainant upon his failure to pay for the goods received on or before December 1, 1901. Arbuckle v. Kirkpatrick, 98 Tenn. 221, 39 S. W. 3, 36 L. R. A. 285, 60 Am. St. Rep. 854; Manufacturing Co. v. Nordeman, 118 Tenn. 384, 100 S. W. 93; Herryford v. Davis, 102 U. S. 235, 26 L. Ed. 160.

But appellants say that an action of debt at law is inadequate as a remedy; that under the contract the title to unsold sacks of fertilizer is in them, as are the proceeds of sales, whether in the shape of money or notes, such proceeds being by the agreement substituted for the goods so sold; that they are entitled to an accounting as to sold and unsold goods and as to proceeds of goods sold; that, so far as such proceeds of sales consist of notes or obligations of purchasers, it is entitled to have them turned over to it for purposes of collection, and to have a decree appropriating such notes and all moneys in his hands arising from such sales appropriated upon the debt so due; that they are also entitled to have the unsold goods sold and proceeds appropriated in the same’ way.

The contract of sale and security by retention of title, whether it operated to retain or pass the title, in view of all the other circumstances and terms, is capable of being construed as an executory agreement manifesting an intention to constitute unsold goods and the proceeds of goods sold a security for the unpaid price of the goods.

Such an agreement, when the property appropriated to that purpose is designated in such a manner as to set it apart from the other property or funds of the purchaser, creates an equitable charge, lien, or mortgage which is enforceable against the debtor, his administrator, and those who take with notice or who are mere volunteers. 3 Pom. Eq. § 1,235; Walker v. Brown, 165 U. S. 654, 665, 17 Sup. Ct. 453, 41 L. Ed. 865; Bank v. Owens, 2 Pet. 527, 539, 7 L. Ed. 508; Miller v. Ammon, 145 U. S. 421, 426, 12 Sup. Ct. 884, 36 L. Ed. 759; Pullman’s Palace Car Co. v. Central Transportation Co., 171 U. S. 138, 151, 18 Sup.

Ct. 808, 43 L. Ed. 108; Singer Manufacturing Co. v. Looney, 103 Tenn. 262, 264, 265, 52 S. W. 879. In the Pullman Car Company Case, cited above, the Supreme Court said: “ * * * In no way and through no channels, directly or indirectly, will the courts allow an action to be maintained for the recovery of property delivered under an illegal contract where, in order to maintain such recovery, it is necessary to have recourse to that contract.

The right of recovery must rest upon a disaffirmance of the contract, and it is permitted only because of the desire of courts to do justice as far as possible to the party who has made payment or delivered property under a void agreement, and which in justice he ought to recover. But courts will not in such endeavor permit any recovery which will weaken the rule founded upon the principles of public policy already noticed.” This was a Tennessee contract. The seller agreed to deliver the goods to' the buyer in Tennessee for the purpose of retail sales in that state.

Contracts of sale of merchandise made on credit for purpose of resale in ordinary course of business, providing that the title shall not pass until payment of the purchase price, are in Tennessee illegal and void as contrary to the public policy of that state. Manufacturing Company v. Nordeman, 118 Tenn. 384, 100 S. W. 93. The case cited arose out of a contract for the sale of merchandise to a retail merchant for the purpose of reselling in the ordinary course of his business.

The contract provided: “As a condition to this contract, it is agreed that title to the goods does not pass until goods are paid for in full.” The purchaser became a bankrupt and the goods came to the possession of his trustee in bankruptcy, who sold them and held the proceeds. The suit was by the original vendor against the trustee to recover the value of the goods. The Tennessee court denied relief, although the title of the trustee was no better than that of the bankrupt.

Among other things that court said: “A conditional sale of personal property, as understood in this state, means one in which the title is retained by the vendor, with no right in the vendee to sell the property (Houston v. Dyche, Meigs, 76, 33 Am. Dec. 130; Price v. Jones, 3 Head, 84; Holmark v. Molin, 5 Cold. 482; Acts 1899, p. 19, e. 12, § 1; Shannon’s Code Supp. p. 638), and in which the property is not subject to the debts of the vendee (Gambling v. Read, Meigs, 281; Bradshaw v. Thomas, 7 Yerg. 497).

The foregoing characteristics of the sale do not preclude the idea, however, of a very distinct interest in the vendee. Meagher v. Hollenberg, 9 Lea, 392. The two characteristics above mentioned are inconsistent with a sale made to a retail merchant of goods to be resold by him in the ordinary course of his business. We are of the opinion, therefore, that the retention of title was nugatqry, and that the goods belonged to the S. Steinberg Dry Goods Company, and properly passed into the hands of its trustee in bankruptcy.

We are aware that a different' view of this question is entertained in some of the states, but we believe the foregoing to be the sounder view and most in accord with public policy.

It is certainly in line with our own previous decisions, and with the disinclination of this court to extend the law of conditional sales further than has already been done, since they are essentially out of harmony with the policy which underlies our registration laws.” Thus, under the public policy of Tennessee, the very provisions of the contract of sale upon which complainant relies are illegal and void as contrary to the public policy of that state. If unenforceable through a state court in consequence of such a policy, their provisions are equally unenforceable through a federal court.

But upon a still stronger ground this contract was illegal under the laws of Tennessee. By

chapter 123, p. 279, of the Acts of Tennessee for the year 1897, the sale of commercial fertilizers within the state is regulated. Sections 2, 3, 4, 10, and 11 read as follows: “Sec. 2.

Bo it further enacted, that all commercial fertilizers sold or offered for sale in this state shall, by stamp or otherwise, distinctly set forth on each package or parcel the chemical analysis of such fertilizers, the name of the manufacturer, the place of manufacture, and each of said packages or parcels shall he freely submitted to inspection, as hereinafter provided, and shall bear a certificate of inspection, or tag furnished by the commissioner of agriculture, and showing authority from the state to sell such fertilizers. “Sec. 3.

Be it further enacted, that none of said fertilizers shall be sold in this state, unless their analysis shall show a given per cent, to he prescribed by the commissioner of agriculture. “Sec. 4. Be it further enacted, that before selling or offering for sale any commercial fertilizer, its manufacturer, dealer or agent, shall file with the commissioner of agriculture a guaranteed analysis of each brand of commercial fertilizers, thus sold, or offered l'or sale, in this state.

On all such fertilizers sold, or offered for sale, in this state, an inspection fee of fifty (50) cents per ton, or fraction of a ton, shall be paid to the commissioner of agriculture by the manufacturer, dealer or agent thereof. The sum accruing from said fees shall be applied first to the expenses of inspection, including an amount of not more than eight hundred ($800.00) dollars per annum for analysis, the balance to become a part of the general fund annually provided by the state for the maintenance of the bureau of agriculture.

The said commissioner of agriculture shall keep a separate account for all fees received for the Inspection of fertilizers, and the expenses of said inspection. * * * “Sec. 10.

Be it further enacted, that any person, or persons, firm or corporation selling or offering for sale any commercial fertilizers in this state, without having complied with the provisions of this act, shall be guilty of a misdemeanor, and, upon conviction, shall be lined two hundred ($200.00) dollars for each offense; and it shall bo the duty of the commissioner or any inspector, to seize the fertilizers of said person or persons, firm or corporation thus failing to comply, and store the same at a point convenient to the place of seizure, and immediately give notice to its owner; or owners, or their agents, if known, of such action, and if such owner or owners, or their agents, fail or refuse to comply with this act within thirty (30) days after after said notification, the commissioner is empowered to sell or have sold said fertilizers, and to apply the proceeds first to the payment of the fees, fines and storage, and shall hold the residue, if any, subject to the order of the owner. “Sec. 11.

Be it further enacted, That all of said tags, purchased for the sale of said fertilizers, shall be attached to the package containing the fertilizer before the same enters the state. No railroad, express company, steamboat, or other common carrier, corporation or person shall deliver to the consignees any shipment or consignment of fertilizers, unless the same has attached to it the tags required by this act.

Any railroad, express company, steamboat, or other common carrier, corporation or person, receiving any shipment or consignment of fertilizers to be delivered in this state, that'has not these tags attached to it, shall at once notify the commissioner of agriculture of the reception of each shipment or consignment, and shall hold all such shipments or consignments until the requirements of the law have been complied with, and in the event said shipper or consignee shall fail or refuse to comply with said requirement of the law,'their said shipment shall be returned to him at his expense.

Any railroad, express company, steamboat, or other common carrier, corporation, or person violating this section, shall be guilty of a misdemeanor, and, on conviction thereof, shall pay a fine of not less than $100.00, and not more than $500.00.”.

With the exception of a small part of the fertilizers sold, for which this suit is brought, which small part was specifically paid for by the payment of $105 confessed by the bill, none of the bills rendered showed a compliance with the law,' and the evidence fully sustains the answer that this company had not complied with the requirements of the statute, either in respect to tags showing the analysis, or in fact as respects the ingredients demanded by the statute.

The other defense, that this company, as a foreign corporation, had not complied with the provisions of the Tennessee law requiring the registration of its charter as a- prerequisite to doing business in this state, we pass by, ás we are not satisfied that this corporation by this sale was doing business within the state within the meaning of the Tennessee statute. Considered only as a straight sale by a nonresident company to a merchant in Tennessee, the sale constituted an interstate transaction not subject to the statute referred to. Milan Milling Co. v. Gorten, 93 Tenn. 590, 27 S. W. 971, 26 L. R.

A. 135; Manufacturing Co. v. Ferguson, 113 U. S. 727, 5 Sup. Ct. 739, 28 L. Ed. 1137; Oakland Sugar Mill Co. v. Wolf, 118 Fed. 239, 55 C. C. A. 93. Remand,’ with direction to dismiss the bill with prejudice.