VI.-continued. e. Commingling of goods by receiptor, 315. f. Waiver, 315. I. Introduction. Trust receipts, which are now in common use, appear to be of comparatively recent origin; at least, the term itself seems to have come into common use only within recent years. The earliest use of the term "trust receipt" found in any of the cases is in Barry V. Boninger (1876) 46 Md. 59 (see this case under IV. b, infra). So far as appears, the first New York case which uses the term "trust receipt" is English Bank v. Barr (1888) 31 Abb. N. C. (N. Y.) 7, although there are several earlier cases in which the transactions were substantially of this kind. Trust receipts apparently arose as convenient method of financing importations, and cases involving importations constitute to-day the most numerous class in which questions as to trust receipts have arisen. In recent years, however, such receipts have been introduced in transactions involving the financing of the sales of automobiles. There seems no good reason why the trust receipt might not be equally as convenient in domestic transactions as in importations, and the same principles would obviously apply in either case. However, in the cases relating to automobile transactions, the term "trust receipt" is sometimes applied to a contract where the rights of the parties are materially different from those in the cases involving importations, and the former have on that ground sometimes been distinguished. See V. b, infra. While the annotation includes all decisions which have been found where the term "trust receipt" was expressly applied to the transaction, yet, where this was not the case, it has been confined somewhat strictly to those transactions which were clearly in the nature of a true trust receipt. This is essential for the reason that otherwise the field would be an unlimited one, which might easily include cases clearly distinguishable from the ordinary trust receipt transaction. The distinguishing feature, it seems, of such a transaction, is that the party financing the operation takes title directly from a third person, usually the seller of the goods, and not from the person giving the trust receipt. If title is, previous to the giving of the trust receipt, in the receiptor, then this distinguishing feature is lost, and there seems much more ground for the position that the transaction is in the nature of a chattel mortgage, pledge, or bailment. The rights of the parties may obviously be different in such a case. And, strictly speaking, it is a misnomer to apply the term "trust receipt" to this kind of a contract. In this connection, see Re Fountain (1922; C. C. A. 2d) 25 A.L.R. 319, 282 Fed. 816 (the question being as to whether trust receipts must be filed as chattel mortgages), in which the court makes a distinction, as to the rights of the bank or lender with respect to the title, between cases where it derives title from someone other than the borrower, and cases where the latter merely executes a trust receipt on property of which he then has possession and ownership. And see V. b, infra. In a typical trust receipt transaction involving importations, a bank finances the importation, taking the bill of lading directly to itself, and indorses it to the importer (or, at least, delivers the same to him) to enable him to obtain possession of the goods, at the same time receiving a trust receipt in exchange for the shipping documents, which trust receipt commonly specifies that the goods are held in trust for the banker as his property, with liberty on the part of the importer to sell the same for the banker's account, to account to the latter for the proceeds, to keep the goods and proceeds separate and capable of identification, with a further provision to the effect that the banker may at any time cancel the trust and repossess himself of the property. The transaction is described in Re Cattus (1910) 106 C. C. A. 171, 183 Fed. 733, as follows: "The course of dealing between the bank and the bankrupt is according to commercial usage of long standing, under which by a loan of credit a vast amount of business is rapidly and safely done. The particular steps of the method. followed are not always the same, but the substantial feature which makes the banker the owner of the goods until the purchase price of them advanced by him is paid is always present. One common method, which seems to have been adopted in this case, is as follows: A merchant who wishes to import goods for which he has not funds to pay obtains credit from a bank to a fixed amount, against which he draws for the price of the goods to the order of the vendor, or the vendor draws for the price to his own order. The draft with bill of lading indorsed in blank, or to the order of the bank, is forwarded by the vendor to the banker for acceptance. The banker accepts the draft payable in one, two, three, or four months, as the case may be, forwards the bill of lading indorsed in blank to his agent in New York, who delivers the same to the importer against a receipt called a trust receipt, whereby he agrees to sell the goods for account of the banker, to pay him the proceeds, and so put him in funds to take up the acceptance at maturity." In Jordan v. Federal Trust Co. (1924; D. C.) 296 Fed. 738, the court pointed out that the true function of a trust receipt is to enable a banker to finance a loan for the importation of merchandise by a merchant, or the domestic purchase of such merchandise; that credit is given by the banker to the foreign or domestic seller of the merchandise, by means usually of a letter of credit; that the bill of lading for the goods is sent to the banker, who then delivers it to the buyer under a trust receipt, for the purpose of obtaining merchandise entered at the customhouse or placed in a warehouse, or sometimes for the purpose of its sale in bulk, or even of its being manufactured into salable articles; that in every case the banker retains der III. infra, distinguishing between The cases generally in the annotation may be regarded as sustaining the validity of trust receipt transactions and the power and duty of the courts to uphold them according to the intention of the parties, in the absence of failure to comply with statutory provisions. Attention may, however, be called to several decisions specifically making the point that the validity of trust receipts should be upheld by the courts. The importance of sustaining trust receipt arrangements has been recognized in a number of cases, as Re Dunlap Carpet Co. (1913; D. C.) 206 Fed. 726, affirmed in (1914) 126 C. C. A. 662, 210 Fed. 156, in which the court said: "By this arrangement a banker advances money to an intending importer, and thereby lends the aid of capital, of credit, and of business facilities and agencies abroad, to the enterprise of foreign commerce. Much of this trade could hardly be carried on by any other means, and therefore it is of the first importance that the fundamental factor in the transaction, the banker's advance of money and credit, should receive the amplest protection." Contracts under which the financing of importation is carried on under trust receipts reserving title to the bank making the advances, being in aid of commerce and facilitating business through enabling bankers to lend to importers the aid of capital, credit, business facilities, and foreign agencies, are entitled to, and have received from the courts, a support as liberal as the local statutes will permit; they are entirely legitimate, and are to be upheld as against general creditors, unless there is some material noncompliance with the local law. Re Bett man-Johnson Co. (1918) 163 C. C. A. 3, 250 Fed. 657. And it has been said that the use of trust receipts has become so common in recent years as to lead the courts, which always follow an established business usage sooner or later, to modify in some particulars the stringency of the old rule concerning the effect of divorcing the title and possession of personal property. Re Killian Mfg. Co. (1913; D. C.) 209 Fed. 498, affirmed in (1914) 131 C. C. A. 390, 215 Fed. 82. Richheimer It was said in Re (1915) 136 C. C. A. 542, 221 Fed. 16 (a case involving the usual form of trust receipt), that the authorities, Federal and state, substantially concur in upholding the validity of transactions of this kind in the financing of importations, wherein the advances are made by a banker in reliance on the security afforded by title to the goods until the liability has been discharged. The validity of trust receipts of the ordinary form cannot be questioned. Brown v. Green & H. Leather Co. (1923) 244 Mass. 168, 138 N. E. 714. holland (1917) 228 Mass. 152, 117 N. E. 46, the court said that the validity of trust receipts by which a banker advancing money on an importation takes title directly to himself, and as owner delivers the goods to the dealer in whose behalf he is acting secondarily, and to whom the title ultimately is to go when the primary right of the banker has been satisfied, has been upheld in numerous decisions-citing cases from that state and from the Federal courts in which the title of the bank was sustained. See III. infra. To refuse to recognize the title of the banker under the trust receipt, as security for advance of the purchase price, would be to strike down a bona fide and honest transaction of great commercial benefit and advantage, founded upon a well-recognized custom, by which banking credit is officially mobilized for manufacturers and importers of small means. Century Throwing Co. v. Muller (1912) 116 C. C. A. 614, 197 Fed. 252; Re Killian Mfg. Co. (1914) 131 C. C. A. 390, 215 Fed. 82, affirming (1913; D. C.) 209 Fed. 498. Provisions of trust receipts have sometimes been added to meet new conditions, as in other commercial documents, where apparently inconsistent provisions are sometimes found, as in charter parties and riders on insurance policies; but the intention of the parties should be upheld, even if their exact relation is not always susceptible of exact definition. Re Cattus (1920) 106 C. C. A. 171, 183 Fed. 733. See also Century Throwing Co. v. Muller (Fed.) under II. b, infra. In the former case the court said that it would be most inequitable that the bankrupt or his trustee should escape from the performance of the obligation (contained in the trust receipt given by him) for the benefit of anyone except a bona fide purchaser for value, or creditors protected by statutes. b. Relation of parties in general. There has been some uncertainty and difference of opinion among the courts as to the exact nature of the ordinary trust receipt transaction. And it should be observed in this connection that the terms applied are often of little importance and sometimes misleading, because, while the ultimate question to be determined may be the same in different jurisdictions, yet if a certain designation is attached to the transaction in one The contract of the parties to the trust receipt will be recognized and enforced. Charavay v. York Silk Mfg. Co. (1909; C. C.) 179 Fed. 819; Ohio Sav. Bank & T. Co. v. Schneider (1926) - Iowa, Expressly sustaining the validity of jurisdiction, in arriving at a specific 211 N. W. 248. trust receipts in the ordinary form, see also T. D. Downing Co. v. Shawmut Corp. (1923) 245 Mass. 106, 27 A.L.R. 1522, 139 N. E. 525. And in People's Nat. Bank v. Mull conclusion, it may be that a strict adherence to the view that this was the correct relationship would lead to a different result in another jurisdiction, whereas the courts might agree on the ultimate question involved. In other words, the theory or designation of the relationship is not to be depended upon, but rather the precise question involved should be considered. Attention may properly, however, be called to the statements and holdings as to the nature of the relationship. In Re Cullen (1922; D. C.) 282 Fed. 902, it was said that the courts have been puzzled in determining whether the commercial instruments called "trust receipts," and which have nothing to do with technical trusts, are chattel mortgages, contracts of conditional sale, or something different from either; that they have been held to be conditional sale contracts in some jurisdictions, in which such agreements are not required to be recorded; while, under reverse conditions, they have been classed as chattel mortgages, and sometimes, when it would have been impossible to uphold them had they been either one or the other, they have been said to be a peculiar kind of security, unlike either. And it was said in Re Ford-Rennie Leather Co. (1924; D. C.) 2 F. (2d) 750, that, in many of the cases in which a trust receipt has been held by a banker in a tripartite transaction, the courts, where possible, have avoided a denomination in commonlaw terms of the precise relation existing between the banker and the importer. In some cases, it was pointed out, the courts have inclined to the view that the relationship was in the nature of bailor and bailee, while in other cases the transaction has been treated as one of conditional sale. In Charavay v. York Silk Mfg. Co. (1909; C. C.) 170 Fed. 819, the court said it was not necessary to find in the nomenclature of security relations a category in which to place the one in question; that it was governed by the contract of the parties, and the contract would only be disturbed by the courts for illegality. So, in Century Throwing Co. v. Muller (1912) 116 C. C. A. 614, 197 Fed. 252, it was said that the courts have not attempted to define exactly what the relation between the credit-lending banker and the merchant is as to the goods; but that the plenary protection afforded by the customary banker's title, where the goods have been delivered to one on whose account they have been purchased, under circumstances like those in question (involving the return of the goods under a trust receipt), had often been sustained by courts of the highest authority. Principal and agent. In Moors v. Bird (1906) 190 Mass. 400, 77 N. E. 643, it is intimated that the importer holding the goods of a banker under a trust receipt cannot be regarded as acting as the agent of the banker in delivering the goods which have been purchased on credit furnished by the bank, and which are delivered to the importer to enable him to carry out a previous contract with a customer, where the latter knew the relations of the several parties. And that an importer who has given a bank which has financed the importation a trust receipt to enable it to realize its advances, when the warehouse receipts are turned over to the importer, is not the agent of the bank, with power to bind it to repay money advanced by a broker in settlement of tariff duties, see T. D. Downing Co. v. Shawmut Corp. (1923) 245 Mass. 106, 27 A.L.R. 1522, 139 N. E. 525. The court distinguished Moors v. Wyman (1888) 146 Mass. 60, 15 N. E. 104, on the ground that in that case the trust receipt expressly created the relation of agency. See this case under IV. b, infra. But see Foreign Trade Bkg. Corp. v. Gerseta Corp. (1923) 237 N. Y. 265, 31 A.L.R. 932, 142 N. E. 607, in which the relation between the importer and the bank financing the importation was regarded as that of agent and undisclosed principal, so that a purchaser of the goods from the importer was in the position of an innocent party dealing with the agent of an undisclosed principal. Bailor and bailee. In Hamilton v. Billington (1894) 163 Pa. 76, 43 Am. St. Rep. 780, 29 Atl. 904, it was held that the contract was a bailment for sale, without any title or ownership in the importer, and not a conditional sale to the latter, where the bills of lading and invoices. were taken in the name of the bank which financed the importation, and delivered by it to the importer in exchange for a trust receipt in the ordinary form, in which the importer agreed to hold the goods in trust for the bank as its property, with liberty to sell the same for the bank's account and to hand the proceeds to it to apply against its acceptances. The court said that if the transaction was a conditional sale, whether in form or in substance, the title was in the vendee, and therefore subject to the claims of his creditors, but that, if it was a bailment, title was in the bailor and not so subject. To the same effect, holding that the transaction was a bailment for sale, and not a conditional sale, and that, therefore, the goods in question could not be levied upon as the property of the importer, is Monjo v. French (1894) 163 Pa. 107, 29 Atl. 907. V. The legal effect of the trust receipt was held to establish the relation of bailor and bailee, in General Motors Acceptance Corp. v. Hupfer (1925) 113 Neb. 228, 202 N. W. 627, where a retail dealer in automobiles, prior to the unloading of cars which the manufacturer had consigned to itself, and prior to the delivery to the retailer of the bill of lading therefor, executed a trust receipt in which he acknowledged that the automobiles were the property of an acceptance corporation, and agreed to hold the same in storage, without use, and to return them to the corporation for its order on demand, sales or other disposition to be made only on written order from the corporation, on payment of the amount required by the order. It was said: "What is the legal effect of the trust receipt? Under it, Trotter had but one use he could make of these automobiles, and that was to display them; and he had but one trust, and that was to care for and protect them. He might become the owner by complying with the terms of the receipt, but until such compliance was had he is a bailee, and no more. Thus, this trust receipt was not an absolute sale, mortgage, conditional sale, or lease, and it was not necessary that it be recorded." And it was held in General Motors Acceptance Corp. v. Hupfer (Neb.) supra, that, as the dealer was without ownership in the automobile, a mortgage given by him thereon was void, the court saying, however, that, even if it were a valid mortgage, the rights of the acceptance corporation would nevertheless be prior. And an automobile dealer who held possession of automobiles by virtue of trust receipts executed by him to an acceptance trust company, which trust receipts provided that the automobiles were the property of the latter company and were held in trust for it, was regarded in Commercial Credit Co. v. Peak (1924) 195 Cal. 27, 231 Pac. 340, as substantially a bailee of the trust company. The questions generally in this case do not appear to be distinctive to the subject under consideration, as the question whether there could be recovery on an assigned claim (the assignment being by the original holder of the trust receipts) without pleading the assignment; and whether the trust receipts were admissible in evidence after they had been canceled and surrendered to the defendant, on the latter's agreement to redeliver possession, which agreement he refused to perform. And see Industrial Finance Co. v. Cappleman (Fed.), under V. c, infra (also involving sales of automobiles), in which the transaction was held to be in the nature of a conditional sale or bailment within the South Carolina recording statutes. The trust receipt sometimes, as in Re Coe (1910) 106 C. C. A. 181, 183 Fed. 745, expressly provides that the party giving the receipt acknowledges himself to be bailee of the property for the bank. But that the importer is not a mere factor, agent, or bailee of the bank which finances the importation, for sale of the goods delivered to him under a trust receipt agreement, is held in Re Richheimer (1915) 136 C. C. A. |