Opinion
No. 18196
Decided April 29, 1924.
Conditional sales — Foreclosure of lien by vendor — Right of vendor to foreclose lien — Section 8570, General Code — Repayment of purchase price — Waiver.
The right to maintain a suit in equity to foreclose a lien created by a conditional contract of sale has not been precluded by Section 8570, General Code, providing against the vendor of a chattel retaking possession without repaying a certain part of the purchase price. The fact that such conditional contract of sale contains a waiver of Section 8570, General Code, is immaterial.
ERROR to the Court of Appeals of Cuyahoga county.
In this case the Co-Operative Machinery Company, in the year 1920, sold to the Parker Appliance Company certain machinery, reserving title under five conditional sales contracts; certain other machinery was sold to the Parker Appliance Company, but a chattel mortgage thereon was taken as security; the total price of such machinery amounted to $19,539.93; various payments were made upon these conditional sales contracts and chattel mortgage and were so applied by the Co-Operative Machinery Company; the several amounts set forth in the original petition in the court of common pleas due upon each cause of action amounted to $4000; payments upon the several contracts and chattel mortgage being overdue, the Co-Operative Machinery Company, without tendering back any part of the purchase price so paid, filed a petition in the court of common pleas of Cuyahoga county seeking through the equitable jurisdiction of the court to foreclose its chattel mortgage and the equitable liens arising by reason of the conditional sales contracts. The conditional sales contracts reserved title in the vendor, with a waiver by the vendee of the provisions of Section 8570, General Code, providing for a refund to the purchaser of a percentage of the amount paid on the purchase price upon a retaking by the seller, said waiver being in the following language:
"It being understood that in consideration of acceptance by you of this offer we waive the benefits accruing to us under and by virtue of Section 8570 of the General Code of Ohio."
In the court of common pleas the Co-Operative Machinery Company attempted to introduce evidence as to the amount due from the Parker Appliance Company under the conditional bills of sale. An objection was made to this testimony, which objection was sustained, and a judgment was rendered for the Parker Appliance Company upon five causes of action founded upon said contracts. The objection made to the introduction of this testimony was based upon the ground that the conditional bills of sale contained provisions contrary to Section 8570, General Code.
The Co-Operative Machinery Company appealed the cause to the Court of Appeals, which court, upon hearing, reached a different conclusion than the common pleas and entered a decree in favor of the Co-Operative Machinery Company, finding that there was due it the sum of $4000, with interest at 6 per cent. from the 1st of January, 1922; that the Co-Operative Machinery Company had a valid and subsisting lien upon the machinery and chattels described in the petition and that it was entitled to a foreclosure and to subject the property to a sale for the payment of its claim. It was, therefore, ordered that unless the costs of the suit and the above-indicated amount, with interest, be paid within five days, an order of sale should issue to the sheriff of Cuyahoga county, directing him to sell the property as upon execution, and from the proceeds to pay the costs of the action, and to pay the Co-Operative Machinery Company the sum of $4000, with interest at 6 per cent. from the 1st of January, 1922, and to pay the balance to the Parker Appliance Company. To reverse this judgment and decree error is prosecuted to this court.
Messrs. Lamb, Vaughan Lamb, for plaintiff in error.
Messrs. Landfear, Baskin Fleharty, for defendant in error.
The original action in this case was an equitable one to foreclose a lien arising by reason of a contract of conditional sale, among the provisions of which was contained a waiver of Section 8570, General Code.
The paramount question for determination is whether the vendor of chattel property claiming to have a lien, by reason of a conditional contract of sale, may maintain a suit in foreclosure in a court of equity without complying with the terms of Section 8570, General Code.
It is to be noted that this is not an action at law for judgment on notes given at the time of the execution of the conditional contract, nor is it an attempt by replevin or otherwise to seize the property or chattels transferred by the contract of sale. The action seeks to set up a lien in a court of equity, and the record discloses that possession of the property has been taken by and is in the vendee, that over three-fourths of the purchase price has been paid, and that no attempt is made to retake or repossess the property. The issue, therefore, depends upon the right of the plaintiff in a court of equity to foreclose his equitable lien.
Is he barred of that right by the provisions of Section 8570, General Code? That section provides in substance:
"When such property * * * is so sold * * * the person who sold * * * shall not take possession of such property, without tendering or refunding to the purchaser, * * * the money so paid after deducting therefrom a reasonable compensation for the use of such property, which in no case shall exceed fifty per cent. of the amount so paid, anything in the contract to the contrary notwithstanding."
The parties by their contract expressly waived this provision of the statute.
The contention of the plaintiff in error is that the case of Croneis Brothers v. Toledo Computing Scale Co., 89 Ohio St. 168, 106 N.E. 5, is decisive of the matter in issue. The syllabus thereof reads:
"Where notes are executed and delivered contemporaneously with the execution and pursuant to the terms of a contract for the conditional sale of personal property, which contains provisions in contravention of Section 4155-1 et seq., Revised Statutes, the payee of the notes cannot maintain an action thereon in the absence of conduct on the part of the maker amounting to a waiver of his right to defend against them."
It is to be noted that this was an action upon notes containing provisions in contravention of the section in question, with no waiver of the right to defend against them. It might well be questioned at the outset whether that case would be controlling in the present instance in the face of the express waiver of the parties, but, be that as it may, the instant case is one in equity, not one at law upon promissory notes; it is an effort to enforce in equity a lien created by a conditional contract of sale. In the Croneis Case there had been a breach practically at the inception of the contractual relations. But in the case at bar the parties have retained the benefits of the contract and have paid over three-fourths of the purchase price.
This section of the General Code has been before the federal courts in several cases, and in the case of Burroughs Adding Machine Co. v. Dial, 257 Fed. 547, 168 C.C.A. 531, the action was one to foreclose a lien existing under a conditional sales contract, containing a waiver of this very section of the General Code (8570), and the decision, a well-considered one, is, therefore, strongly in point in the case at bar.
In that case it was the contention that under the laws of Ohio the contract was illegal, and that, therefore, the Burroughs Adding Machine Company was not entitled to any relief, for the reason that it could not make out its case without the enforcement of an illegal agreement. The district court held that the contract was in contravention of Section 8570, General Code, and denied relief, relying upon Croneis Brothers v. Toledo Scale Co., supra. This judgment was reversed by the Circuit Court of Appeals, and the reasoning of the court is so applicable to the issues in the case at bar that we quote the same at some length:
"(1) Speaking generally, the only prohibition in the statute is that the vendor shall not repossess himself of property conditionally sold without tendering or refunding to the purchaser the money theretofore paid on the property, although the contract may provide otherwise; but the vendor shall not be required to tender or refund any part of the amount paid unless it exceeds 25 per cent. of the contract price of the property. It imposes a limitation only on the right of the vendor to retake the property. It was not intended to vitiate the contract, but it does protect the purchaser.
"(2) The agreed statement of facts shows that a true copy of the contract was duly filed in the office of the recorder of Clark county, as required by Section 8568 of the Ohio General Code. It not appearing that, on attempting to retake possession of the property or otherwise, the vendor had violated Section 8570, supra, nor any law of Ohio, Section 12464, which provides that a vendor who violates any of the provisions of law in taking possession or repossession of such property, shall be fined not more than $100, is not applicable.
"(3) Conditional sale contracts are valid at common law, and in the absence of a statute of Ohio declaring conditional sale contracts made in that state illegal, or declaring it an offense, either to make or attempt to enforce conditional contracts, except under circumstances not here existing, we are unable to agree with the court below in its conclusion.
"The appellee cites and relies on Croneis Bros. v. Toledo Scale Co., supra, as determinative of this case. We find nothing in the syllabus of that case (which in Ohio is considered the ruling law of the case) contra to the views herein expressed, nor to the conclusion we reach that, under the laws of Ohio as applied to the case before us, the contract in question was neither illegal nor void. In the Croneis Case the vendor had never parted with the possession of the machine; the vendee having refused to carry out his contract to purchase. It was held that the contract was so far void as to forbid recovery by the vendor of the purchase price agreed to be paid. That case is clearly distinguishable from the present case. On the other hand, in In re National Cash Register Co., 174 Fed. 579, 98 C.C.A. 425, this court held that the statutory provisions in question were not applicable to the case of a vendor who was seeking to enforce a lien existing at common law, which has not been changed by statute. And see In re Bettman-Johnson Co. (C.C.A. 6), 250 Fed. 657, 666, 163 C. C. A. 3."
The case In re National Cash Register Co., 174 ton, Severens, and Warrington, of the Sixth Appellate Circuit, is also in point, the third syllabus being as follows:
"Rev. St. Ohio, Section 4155-3 [now Section 8570, General Code], which provides that it shall be unlawful for the vendor of property sold on condition 'to take possession of said property' without tendering or refunding to the purchaser, if he has paid 25 per cent. of the purchase price, the amount so paid, less a reasonable compensation for the use of the property, not exceeding 50 per cent. of such amount, does not apply where the seller, instead of taking possession and asserting his legal ownership, proceeds in equity, or by application to a court of bankruptcy having possession, to subject the property to sale for the payment of the remainder due thereon, in which case the purchaser's equity, which it was the purpose of the statute to preserve, is protected by the court by awarding him, or his estate, all of the proceeds of the property above his debt."
In addition to above federal authorities, we think this court, in an action in replevin, has recognized this right of foreclosure in the case of Albright v. Meredith, 58 Ohio St. 194, 50 N.E. 719, in which the construction of this section of the General Code was under consideration. Chief Justice Spear, in discussing the rights of the vendor, uses this language:
"If, therefore, the company desired to avail itself of its right to subject the register to the payment of the balance due from Morrow, a tender in compliance with the terms of the statute was necessary, or perhaps it could have resorted to a foreclosure in a court of competent jurisdiction."
In view of the fact that there is no attempt to retake or repossess the chattels sold under this contract, but that the rights of the parties are to be measured in a court of equity upon the foreclosure of a lien, created by a contract already more than three-fourths discharged by the parties thereto, we find no such violation of the terms of Section 8570, General Code, as would invade the rights of the plaintiff in error as protected by that section.
We are of opinion, therefore, that the conclusion reached by the Court of Appeals was right. Its decree should be, and hereby is, affirmed.
Judgment affirmed.
MARSHALL, C.J., ROBINSON, JONES, MATTHIAS and ALLEN, JJ., concur.
WANAMAKER, J., not participating.