Harkness v. Russell
118 U.S. 663 (1886)

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U.S. Supreme Court

Harkness v. Russell, 118 U.S. 663 (1886)

Harkness v. Russell

Submitted November 17, 1885

Decided November 8, 1886

118 U.S. 663

APPEAL FROM THE SUPREME COURT

OF THE TERRITORY OF UTAH

Syllabus

In the absence of fraud, an agreement for a conditional sale of personal property accompanied by delivery is good and valid, as well against third persons as against the parties to the transaction.

A bailee of personal property who receives it under an agreement that he may purchase it on the performance of conditions on his part cannot convey title to it or subject it to execution for his own debts until performance of the conditions on which the agreement to sell is made.

A, having agreed to sell certain personal property to B on the performance of conditions on his part, delivered it to him and took from him a promissory note stating the following as the condition of the sale:

"The express condition of this transaction is such that the title, ownership, or possession of said property does not pass from the said A until this note and interest shall have been paid in full, and the said A has full power to declare this note due and take possession of said engine and saw mill when he may deem himself

Page 118 U. S. 664

insecure, even before the maturity of this note. In case said property shall be taken back, A may sell the same at public or private sale without notice, or he may without sale endorse the true value of the property on this note, and I agree to pay on the note any balance due thereon after such endorsement as damages and rental for said machinery."

B entered into possession and, without performing the conditions of sale, sold the property to C, who knew that it had not been paid for and that A claimed title to it. At the time of the sale to C, the value of the property was less than the amount due on the note. In an action against C to recover the value of the property, held that this transaction was not a mortgage, but was an executory conditional sale, and, being free from fraud, that it was valid.

This was an appeal from the Supreme Court of Utah. The action was brought in the District Court for Weber County to recover the value of two steam engines and boilers and a portable saw mill connected with each engine. A jury being waived, the court found the facts and rendered judgment for the plaintiff, Russell & Co. The plaintiff is an Ohio corporation, and by its agent in Idaho, on the 2d of October, 1882, agreed with a partnership firm by the name of Phelan & Ferguson, residents of Idaho, to sell to them the said engines, boilers, and saw mills for the price of $4,988, nearly all of which was secured by certain promissory notes which severally contained the terms of the agreement between the parties. One of the notes (the others being in the same form) was as follows, to wit:

"SALT LAKE CITY, Oct. 2, 1882"

"On or before the first day of May, 1883, for value received in one sixteen-horse portable engine, No. 1026, and one portable saw mill, No. 128, all complete, bought of L. B. Mattison, agent of Russell & Co., we or either of us promise to pay to the order of Russell & Co., Massillon, Ohio, $300, payable at Wells, Fargo & Co.'s bank, Salt Lake City, Utah Territory, with ten percent interest per annum from October 1, 1882, until paid, and reasonable attorney's fees, or any costs that may be paid or incurred in any action or proceeding instituted for the collection of this note or enforcement of this covenant. The express condition of this transaction is such that the title, ownership, or possession of said engine and saw mill does not

Page 118 U. S. 665

pass from the said Russell & Co. until this note and interest shall have been paid in full, and the said Russell & Co. or his agent has full power to declare this note due and take possession of said engine and saw mill when they may deem themselves insecure, even before the maturity of this note, and it is further agreed by the makers hereof that if said note is not paid at maturity, that the interest shall be two percent per month from maturity hereof till paid, both before and after judgment, if any should be rendered. In case said saw mill and engine shall be taken back, Russell & Co. may sell the same at public or private sale without notice, or they may, without sale, endorse the true value of the property on this note, and we agree to pay on the note any balance due thereon after such endorsement as damages and rental for said machinery. As to this debt, we waive the right to exempt, or claim as exempt, any property, real or personal, we now own or may hereafter acquire by virtue of any homestead or exemption law, state or federal, now in force or that hereafter may be enacted."

"P.O., Oxford, Oneida County, Idaho Territory."

"$300 PHELAN & FERGUSON"

Some of the notes were given for the price of one of the engines with its accompanying boiler and mill, and the others for the price of the other. Some of the notes were paid, and the present suit was brought on those that were not paid. The property was delivered to Phelan & Ferguson on the execution of the notes, and subsequently they sold it to the defendant Harkness in part payment of a debt due from them to him and one Langsdorf. The defendant, at the time of the sale to him, knew that the purchase price of the property had not been paid to the plaintiff, and that the plaintiff claimed title thereto until such payment was made. The unpaid notes given for each engine and mill exceeded in amount the value of such engine and mill when the action was commenced.

The Territory of Idaho has a law relating to chattel mortgages, requiring that every such mortgage shall set out certain particulars as to parties, time, amount, etc., with an affidavit attached that it is bona fide and

Page 118 U. S. 666

made without any design to defraud and delay creditors, and requiring the mortgage and affidavit to be recorded in the county where the mortgagor lives and in that where the property is located, and it is declared that no chattel mortgage shall be valid (except as between the parties thereto) without compliance with these requisites unless the mortgagee shall have actual possession of the property mortgaged. In the present case, no affidavit was attached to the notes, nor were they recorded.

The court found that it was the intention of Phelan & Ferguson and of Russell & Co. that the title to the said property should not pass from Russell & Co. until all the notes were paid. Upon these facts, the court found as conclusions of law that the transaction between Phelan & Ferguson and Russell & Co. was a conditional executory sale, and not an absolute sale with a lien reserved, and that the title did not pass to Phelan & Ferguson or from them to the defendant, and gave judgment for the plaintiff. The supreme court of the territory affirmed this judgment.

MR. JUSTICE BRADLEY, after stating the case as above reported, delivered the opinion of the Court.

The first question to be considered is whether the transaction in question was a conditional sale or a mortgage -- that is, whether it was a mere agreement to sell upon a condition to be performed or an absolute sale with a reservation of a lien or mortgage to secure the purchase money. If it was the latter, it is conceded that the lien or mortgage was void as against third persons because not verified by affidavit and not recorded as required by the law of Idaho. But so far as words and the express intent of the parties can go, it is perfectly

Page 118 U. S. 667

evident that it was not an absolute sale, but only an agreement to sell upon condition that the purchasers should pay their notes at maturity. The language is: "The express condition of this transaction is such that the title . . . does not pass . . . until this note and interest shall have been paid in full." If the vendees should fail in this, or if the vendors should deem themselves insecure before the maturity of the notes, the latter were authorized to repossess themselves of the machinery and credit the then value of it, or the proceeds of it if they should sell it, upon the unpaid notes. If this did not pay the notes, the balance was still to be paid by the makers by way of "damages and rental for said machinery." This stipulation was strictly in accordance with the rule of damages in such cases. Upon an agreement to sell, if the purchaser fails to execute his contract, the true measure of damages for its breach is the difference between the price of the goods agreed on and their value at the time of the breach or trial, which may fairly be stipulated to be the price they bring on a resale. It cannot be said, therefore, that the stipulations of the contract were inconsistent with or repugnant to what the parties declared their intention to be -- namely to make an executory and conditional contract of sale. Such contracts are well known in the law and often recognized, and, when free from any fraudulent intent, are not repugnant to any principle of justice or equity, even though possession of the property be given to the proposed purchaser. The rule is formulated in the textbooks and in many adjudged cases. In Lord Blackburn's Treatise on the Contract of Sale, published forty years ago, two rules are laid down as established: (1) that where, by the agreement, the vendor is to do anything to the goods before delivery, it is a condition precedent to the vesting of the property; (2) that where anything remains to be done to the goods for ascertaining the price, such as weighing, testing, etc., this is a condition precedent to the transfer of the property. Blackburn on Sales 152. And it is subsequently added that

"The parties may indicate an intention by their agreement to make any condition precedent to the vesting of the property, and if they do so, their intention is fulfilled."

Blackburn on

Page 118 U. S. 668

Sales 167.

Mr. Benjamin, in his Treatise on Sales of Personal Property, adds to the two formulated rules of Lord Blackburn a third rule which is supported by many authorities, to-wit:

"(3) Where the buyer is by the contract bound to do anything as a condition, either precedent or concurrent, on which the passing of the property depends, the property will not pass until the condition be fulfilled, even though the goods may have been actually delivered into the possession of the buyer."

Benjamin on Sales, 2d ed., 236; 3d ed., § 320. The author cites for this proposition Bishop v. Stillito, 2 Barn. & Aldolph. 329, note (a); Brandt v. Bowlby, 2 Barn. & Adolph. 932; Barrow v. Coles (Lord Ellenborough), 3 Campbell 92; Swain v. Shepherd (Baron Parke), 1 Mood. & Rob. 223; Mires v. Solebay, 2 Mod. 243. In the last case, decided in the time of Charles II, one Alston took sheep to pasture for a certain time with an agreement that if at the end of that time he should pay the owner a certain sum, he should have the sheep. Before the time expired, the owner sold them to another person, and it was held that the sale was valid and that the agreement to sell the sheep to Alston if he would pay for them at a certain day did not amount to a sale, but only to an agreement. The other cases were instances of sales of goods to be paid for in cash or securities on delivery. It was held that the sales were conditional only, and that the vendors were entitled to retake the goods, even after delivery, if the condition was not performed, the delivery being considered as conditional. This often happens in cases of sales by auction, when certain terms of payment are prescribed, with a condition that if they are not complied with, the goods may be resold for account of the buyer, who is to account for any deficiency between the second sale and the first. Such was the case of Lamond v. Davall, 9 Q.B. 1030, and many more cases could be cited. In Crawcour v. Robertson, 9 Ch.Div. 419, certain furniture dealers let Robertson have a lot of furniture upon his paying

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