ceiptor), received the same from the carrier, and sent it abroad, since the rule applied that possession merely, without title, in one assuming to sell personal property, does not give title to the purchaser, but the latter must examine the bill of lading or other evidence of title; and that examination by the purchaser of the bill of lading in this instance, would have disclosed that the seller had no right or authority to dispose of the goods until he had paid the draft. The court said that all that the purchasers had upon which they had the right to rely was the fact of possession of the property by the seller and the purchase of it by them in accordance with the usual course of business on the produce exchange; that the law of market overt is not recognized in this state, but that the purchaser buys at his risk of title, and must make inquiry as to how possession was acquired.

The action in Century Throwing Co. v. Muller (1912) 116 C. C. A. 614, 197 Fed. 252, was in trover, brought against a company engaged in throwing raw silk (an operation for preparing the raw silk for manufacture), to which company the importer had delivered the silk for this purpose; and the court held that the bank which financed the importation, and surrendered the goods to the importer under the usual trust receipt, had the right to possession, and that the defendant did not have a right to retain the goods under the claim of a lien thereon for work done on other goods deposited by the importer, the defendant unsuccessfully claiming the right to such lien under statute. The court expressed the opinion that even the exhibition of the bill of lading by the importer to such third party, to whom the importer had delivered the goods for a specific purpose, to prepare for manufacture, would not have served as a muniment of more than possessory title, although the bill of lading was indorsed by the bank to the importer, who gave to the former a trust receipt expressly agreeing to hold the goods as the property of the bank, with liberty to sell the same and to pay over the proceeds to the bank, to

be applied against acceptances on account of the purchase price.

A bank to which the importer assigned the account represented by the sale of the goods by him, as security for advances, the bank having no notice of any defect in the title of the importer, was held in Perkins v. Lippincott Co. (1918) 260 Pa. 473, 103 Atl. 877, to succeed only to such rights as the importer possessed, and not entitled to recover the purchase price from the purchaser (the importer in this instance suing in assumpsit to the use of the bank, as its assignee), where the importer had neither title nor possession with right of disposal, but the title was in another bank which had financed the importation and was holder of a trust receipt, delivery having been made directly to the purchaser, to whom the title passed. See in this connection, Perkins v. Halpren (Pa.) under VI. c, infra, holding that the importer could maintain the action for the purchase price, for the use of his, the importer's, assignee.

As to the proper party to file proof of claim on the bankruptcy of a purchaser from the receiptor, see Re Dunlap Carpet Co. (Fed.) under III.

supra.

That a mortgage on the property executed by the receiptor is void, where he is regarded as a mere bailee, see General Motors Acceptance Corp. v. Hupfer (Neb.) supra, II. b, under heading, "Bailor and bailee."

As to the right of the holder of a trust receipt to recover the goods from the trustee in bankruptcy of a consignee to whom they have passed through intermediate tranfers, the consignee not having paid for the same, see Re Killian Mfg. Co. (Fed.) under III. supra.

b. Parties claiming commissions, brokerage, or other charges.

In T. D. Downing Co. v. Shawmut Corp. (1923) 245 Mass. 106, 27 A.L.R. 1522, 139 N. E. 525, it was held that the bank which financed the importation was not liable for moneys advanced by a customhouse broker to release the goods from the customhouse,

where the importer, who had given a trust receipt in exchange for the shipping documents, was permitted by the warehouseman, relying on the credit of the importer and his possession of the indicia of title, to remove a part of the goods without payment of duty. The court, it will be observed, avoids discussion of the question of the right of the broker to a lien. No other case seems to have passed on this particular question, but the question of the right to commissions and charges in trust receipt transactions has arisen in several other cases.

Thus, it was held in Moors v. Wyman (1888) 146 Mass. 60, 15 N. E. 104, that the party making the advances for the purchase price of goods, who on the purchaser's failure took possession of the goods and sold them, was entitled to payment out of the proceeds of a reasonable compensation as commission for his services in making the sale, where bills of lading were taken in his name and indorsed to the purchasers under a contract by which they received the property as his agent, and agreed to redeliver the manufactured product to him on demand, the party making the advances not to be chargeable with any expense thereon and having the right to take possession and dispose of the goods at his discretion for his security or reimbursement. It was held, however, that there was no right to a charge for commission for sales made by a voluntary assignee for creditors of the purchaser, as he stood in no better position than his assignor, and a debtor selling his own property to pay his debts could not charge his creditors for doing so. The property in this instance consisted of hides, and it was held, also, that the assignee was not entitled to allowance of a claim for tanning the hides, which were on hand at the time of filing the bill, and which were mostly in the process of tanning and could not be removed without serious injury.

In Barry v. Boninger (1877) 46 Md. 59, the question was as to the right of brokers, who had sold the cargo on its arrival in this country, to a lien on the goods or the proceeds for the

amount of brokerage due them by the importer for selling other cargoes imported, as against the claim of a firm which had made advancements to finance the importation and taken the bill of lading in its own name in accordance with the agreement between it and the importer. On arrival of the goods in this country, the importer gave a receipt to the firm making the advances, for the goods specified in the bill of lading, in which receipt it was stated that the importer agreed to hold the goods in storage, as the property of the firm, with liberty to sell the same and account to the firm for the proceeds, until the amount of the advances was provided for. The cargo was sold to a third party through the brokers, but, before it was all delivered, the importer failed. The brokers were then authorized to deliver the balance of the cargo and to draw for the proceeds. On receipt of the money from the purchasers, they claimed the right to retain out of it the amount due them by the importer for brokerage in selling other cargoes imported, and not belonging to the firm making the advances in this particular case. It was held that the only claim which the brokers could legally assert against the cargo or its proceeds was for the amount of brokerage due them for effecting a sale of the particular cargo.

The question of the right of the assignee for creditors of the importer to the payment of a commission as assignee, out of the proceeds of the goods, and for an allowance for counsel fees in defense of the action brought by the bank which financed the importation, arose in English Bank v. Barr (1888) 31 Abb. N. C. (N. Y.) 7, and Dennistown v. Barr (1893) 31 Abb. N. C. 21, 28 N. Y. Supp. 255, in which opposite conclusions were reached on the question. In both of these cases it appeared that the transaction was in the usual form, the bank indorsing the bills of lading to the importer, and receiving the common form of trust receipt; the importer subsequently made an assignment for creditors, but in the meantime had effected a sale of the goods, and the

assignee in good faith, and without intention to obstruct or prejudice the rights of the bank, had required it to establish its claims to the proceeds by judicial proceedings. In the former case it was held that, as the bank had come into a court of equity, it should be required to do equity, and that compensation should be allowed to the assignee for his own services and that of his counsel; also, that the assignee should be reimbursed for expenditures which he had made in and about the property in question. But in the Dennistown Case, the court declined to follow the decision in the first case, holding that the rights of the assignee, if any, to reimbursement, were against the assignor; in other words, that these expenses should be borne by the assigned estate, rather than by the bank which, it had been decided, had had from the beginning, the lawful and superior title to the proceeds.

an

It has been held that, where goods are imported under bills of lading taken in the name of bankers who finance the importations and indorse the same to the importer, taking in exchange trust receipts in the ordinary form, and payments for the goods are made to the bankers by a customer who has a contract with the importer to pay the actual cost of the goods, plus expenses of the importer and a fixed sum per ton, the customer can recover from the bankers amount paid in excess of the actual freight on the goods, which the importer secretly arranged with the seller in a foreign country to add to the invoice. Moors v. Bird (1906) 190 Mass. 400, 77 N. E. 643. The court held that the importer could recover this excess as a payment under mistake of fact, although the bankers had paid over to the importer, or allowed the latter on account, the amount thereof, since the actual state of accounts between the person so receiving money under mistake of fact and the person to whom he has paid it is of no consequence, but the test of recovery is the right to keep the money if the state of accounts between the parties requires it. The court inti

mates that the customer could not hold the bankers liable on the ground that the fraud of the importer was in legal effect the fraud of the bankers, since the customer, in receiving thegoods under its contract with the importer, did so knowing the relations of the several parties. In other words, all of the parties were familiar with the course of dealings in question, except that the bankers had no knowledge of the agreement between the customer and the importer as to the price to be paid by the former for the merchandise.

The word "proceeds" in a trust receipt under which the purchaser agrees to hold the goods in trust for bankers who advance money for the purchaser, as the property of the bankers, with liberty to sell the same for the latters' account, or to manufacture the same without cost or expense to the bankers, and to hand the proceeds to them to apply against their acceptances, has been held to mean gross proceeds, without reduction on account of expenses of manufacture or sale, or of other expenses. Brown v. Green & H. Leather Co. (1923) 244 Mass. 168, 138 N. E. 714. So that it was held in this case that the manufacturer was not entitled to be allowed for expenses incurred by it for legal services in the prosecution of a claim against the government, and to deduct such expenses from the amount due the bankers, where the goods in question were being used for the manufacture of war materials under a contract with the government, and a claim was made by the manufacturer against the government for nonfulfilment of this contract, and an allowance made by the government on this claim; but it was held that, so far as necessary to settle the bankers' claims, they were entitled to have applied thereto the entire sum received from the government. The court observed that it was unable to see any sound reason for holding that expenses incurred for legal services stood on any different footing from expenses of manufacture, and called attention to the fact that the trust receipts expressly provided that the au

thority of the manufacturer in connection with the goods was to be exercised "without cost or expense" to the bankers.

V. Effect of recording acts.

a. In general.

Recording acts have in some instances expressly dealt with the subject of trust receipts. See, for example, the Ohio General Code, § 8568 (as amended by Laws 1925, p. 116), in which it is provided that the statute shall not apply to trust receipts or similar instruments, under certain circumstances.

It was held in General Motors Acceptance Corp. v. Hupfer (1925) 113 Neb. 228, 202 N. W. 627, that the party giving the trust receipt (in a transaction involving the financing of sales. of automobiles) was a bailee, and that, therefore, the case did not come within the recording statutes. See this case supra, II. b, under heading, "Bailor and bailee."

b. Trust receipt as chattel mortgage.

The annotation at this point is supplemental to that in 25 A.L.R. 332, on the subject of trust receipts, or instruments purporting to be such, as chattel mortgages within filing statutes.

In a number of cases cited in the above annotation, the courts have taken the position that trust receipts were not chattel mortgages within the meaning of the recording acts. There is some authority therein cited to the contrary, however. It seems difficult to understand how a true trust receipt can be regarded as a chattel mortgage, for it will be observed that in such transactions the party giving the receipt does not have title, but the title is in the party to whom the receipt is given, and to hold that it is a chattel mortgage under these conditions would seem in effect to hold that one might give a chattel mortgage on goods belonging to the mortgagee. It seems that the confusion has arisen from failure to keep clearly in mind the nature of the true trust receipt transaction, and to distinguish it from those transactions

where the receiptor is a link in the chain of title direct from the seller or shipper of the goods. In several cases in which the so-called trust receipts have been held ineffectual unless recorded as a chattel mortgage, the courts have distinguished the transaction in question from the ordinary trust receipt contract, on the ground that, in the latter, the lender's title is derived from a third person, and not from the borrower. See Re Fountain (1922; C. C. A, 2d) 25 A.L.R. 319, 282 Fed. 816.

It will be observed that the recent cases which have held the trust receipts to be in the nature of chattel mortgages within the meaning of recording acts are cases generally involving the marketing of automobiles, and that the transaction is somewhat different from that in the ordinary

trust receipt transaction. It is pos

sible that in these cases the circumstances were such that the title should be regarded as passing directly from the seller to the purchaser, the automobile dealer, and in this view of the transaction the position taken would seem justifiable.

In Re Schuttig (1924; D. C.) 1 F. (2d) 443 (a case arising in New Jersey), the court recognizes a distinction between the true trust receipt situation where the purchaser never has title to the property, and therefore third persons are not deceived by "retention of possession," and cases of the kind in question where the purchaser is a link in the chain of title, the transaction, in the latter instance, being in effect a chattel mortgage. It was held in this instance that the transaction constituted the giving of a chattel mortgage, which, not being recorded, was invalid as against the trustee in bankruptcy of the party giving it, where the latter, who was a dealer in automobiles, purchased cars from the manufacturer, which shipped them under negotiable bills of lading to the dealer's order, with sight drafts upon him attached, and, to procure funds to meet the drafts, the dealer obtained a loan of 80 per cent thereof from a security corporation to which he gave

trust receipts, stating that cars specified therein had been received from the corporation and were held as its property, with liberty to sell the same and to account to it for the proceeds. The court pointed out that the security corporation never took title from the manufacturer, that the bills of lading did not read to it, and that all that it did was to lend to the bankrupt (the dealer) money to take up the shipping documents covering the cars in question.

So, in Re Cullen (1922; D. C.) 282 Fed. 902 (a case arising in Maryland), where the instrument designated as a trust receipt was given in a domestic transaction involving the sale of automobiles to a dealer, under arrangement by a credit company for financing such transactions, the acceptances on the part of the credit company to be secured by trust receipts covering automobiles sold on credit, acknowledging that the automobiles covered by it were the property of the credit company and were held in trust, it appeared that the trust receipt was taken, instead of a chattel mortgage or a recorded conditional sales contract, for the purpose of avoiding the publicity arising from the necessity of recording such instruments. The court, in holding that the so-called trust receipt was ineffectual as against the trustee in bankruptcy of the dealer, pointed out that this transaction differed in essential elements from one in which a trust receipt might properly be used; that in this instance the effect of the transaction was that the manufacturer sold the automobiles to the dealer, retaining a lien upon them for the balance of the purchase price, and assigned this lien to the credit company as collateral security for the advance made by the latter to it; that in most, if not all, of the best considered cases in which trust receipts had been sustained, they had been employed in the exportation or importation of merchandise under conditions under which it would have been more or less inconvenient to have given either contracts of conditional sale or chattel mortgages, and in connection with which it was not likely that there

would arise the evils against which the recording statutes were intended to guard. See also Industrial Finance Corp. v. Capplemann (Fed.) under V. c, infra.

And in Commerce-Guardian Trust & Sav. Bank v. Devlin (1925; C. C. A. 6th) 6 F. (2d) 518, the court held that the bank's lien, by way of bills of sale, trust receipts, or otherwise, not being recorded or filed as provided by the Ohio statutes, was void as against creditors of the mortgagor, both by the statutes of Ohio and under the bankruptcy act, where the bank loaned money to an automobile dealer, secured by bills of lading conveying to the bank the title to automobiles purchased by the dealer, the bankrupt, these automobiles never being in fact delivered to the bank, but being retained in the possession of the dealer at its place of business, under trust receipts given by him to the bank whereby the automobiles were to be held "as the purchase of the bank," sales or other disposition to be only on the written order of the bank "for release from trust," on payment to the bank of the required amount. And after the pledged automobiles were wrongfully sold, it was held that the bank was merely an unsecured creditor as respects the debts which it was attempted to secure by the trust receipts.

So, in Mohr v. First Nat. Bank (1924) 69 Cal. App. 756, 232 Pac. 748, the court took the position that if title to automobiles passed from the manufacturer to the purchaser, and the latter retained possession under a trust receipt arrangement by which trust receipts were given to a bank which advanced the purchase price, the transaction between the dealer and the bank would constitute a chattel mortgage which would be invalid as against the rights of creditors of the dealers, because not executed or recorded as required by statute.

In General Motors Acceptance Corp. v. Boddeker (1925) Tex. Civ. App.

274 S. W. 1016, where a retail dealer of automobiles purchased on credit executed a trust receipt to an acceptance corporation, which had