Volume III NOVEMBER, 1917 Number 1 The Proposed Uniform Conditional BY GEORGE GLEASON BOGERT1 History of the Act In August, 1915, the National Conference of Commissioners on Uniform State Laws referred to its Committee on Commercial Law the drafting of a uniform act on the subject of conditional sales. In February, 1916, this committee employed the writer to draft such an act. In May, 1916, a tentative draft of the statute was submitted to the committee at Philadelphia and in August, 1916, this first draft was submitted to the conference at Chicago and was debated section by section. Numerous changes were then made and the act was recommitted to the Committee on Commercial Law for redrafting. During the Winter of 1916-17 and the Spring of 1917 the statute was revised by the committee and draftsman after consultations with a number of business men who have had much experience with conditional sales. A second tentative draft was then printed and it was submitted to the conference at Saratoga Springs in August, 1917. The statute was debated again, section by section, and various alterations were directed to be made. The act was again recommitted to the Committee on Commercial Law with instructions to redraft it. This committee has not as yet met for that purpose. The larger number of the sections were tentatively approved by the conference in August, but a few sections await remolding by the committee. The form in which they are here presented is the form in which the draftsman will recommend to the committee that they be approved. Need of the Act The large volume of business done on the conditional sale plan and the great conflict with respect to state laws on that subject 'Professor of Law in the Cornell University College of Law; absent on leave during 1917-1918 and Captain and Adjutant, 308th Field Artillery. This article was written at a military camp where there were no library facilities. The citation of authorities is, therefore limited. make highly desirable the enactment of some uniform statute. In twenty-nine states the conditional sale contract is required to be filed in order to be valid as against certain purchasers and creditors. other states the contract is valid as against these purchasers and creditors irrespective of the question of filing. In still other states, such as Pennsylvania and Illinois, the validity of the conditional sale contract is not recognized. In some states no difference is recognized between conditional sale contracts and chattel mortgages. In other states the courts recognize that, while the practical effect of these two transactions is the same, their legal theories are different. There is wide dissimilarity between the statutes of those states now requiring the filing of conditional sale contracts. In some states the place of record is a county office; in others a town office. In some states the place of record is determined by the residence of the buyer; in others by the place of the delivery of the goods or their location at the time of sale. In some states the contract is required to be acknowledged or attested. In others no such formality is required. In some states the original contract must be filed, while in others the original or a copy may be filed. There is also great variety in the provisions in the various statutes with respect to the persons against whom the contract is invalid if it is not filed. Various descriptions of the purchasers, mortgagees and creditors protected exist. In one state (New York) creditors are not protected by the filing act. Further reason for the adoption of a uniform statute is found in the existence of peculiar statutes relating to fixtures in four states (Massachusetts, New York, Oregon and Pennsylvania) and other special statutes applying to conditional sales of railroad equipment and rolling stock. The states recognizing the validity of conditional sale contracts have also widely differed upon such questions as whether the buyer is entitled to remove the goods or sell his interest therein before full payment, and, if he may remove or sell, upon what conditions he may do so; whether the buyer is entitled to redeem the goods after they have been retaken by the seller because of default; whether the buyer forfeits his part payments where the goods are retaken; whether the retaking of the goods constitutes an election to rescind the contract and prevents a later action for the price; and whether the buyer may waive the provisions of a conditional sale statute which are intended for his benefit. Proposed Act and Comments Thereon SECTION 1. (Definitions.) The term "conditional sale", as used in this act, means (1) any contract for the sale of goods under which possession is delivered to the buyer and the property in the goods is to vest in the buyer at a subsequent time upon the payment of part or all of the price, or upon the performance of any other condition or the happening of any contingency; or (2) any contract for the bailment or leasing of goods by which the bailee or lessee contracts to pay as compensation a sum substantially equivalent to the value of the goods, and by which it is agreed that the bailee or lessee shall become, or shall have the option of becoming, or is obligated to become, the owner of such goods upon full compliance with the terms of the contract. The term "seller" as used in this act means the person who sells or leases the goods covered by the conditional sale, or any legal successor in interest of such person. The term "buyer" as used in this act means the person who buys or hires the goods covered by the conditional sale, or any legal successor in interest of such person. The term "goods" as used in this act means all chattels personal other than things in action and money, and includes emblements, industrial growing crops, and things attached to or forming a part of land which are agreed to be severed before sale or under the conditional sale. The term "filing district" as used in this act means the subdivision of the state in which conditional sale contracts, or copies thereof, are by this act required to be filed. The phrase "performance of the condition" as used in this act means the occurrence of the event upon which the property in the goods is to vest in the buyer, whether such event is the performance of an act by the buyer or the happening of a contingency. The proposed definition of "conditional sale" has two objects which may properly be the subject of comment. It is intended to cover cases where the delivery of the goods to the buyer occurs either before the contract is made or at the time the contract is made or after the contract is made. The essential feature is that the property in the goods is to vest in the buyer at a time subsequent to delivery. It should be noticed also that the definition is broad enough to cover cases where the condition to be performed by the buyer is some other act than the payment of money or the payment of the price in other property than money. The performance of the condition on which the property is to vest may be the cancellation of a mortgage, the building of a house, or some act without the control of the buyer, such as, for example, the failure of a competitor in business. The definition also aims to cover the leasing contracts which are so frequently used by conditional sellers in an attempt to evade the conditional sale statutes. Wherever these bailment contracts or leases have as their practical effect a conditional sale, they should be treated by the law as such, no matter what heading or title they are given by the parties. The definition of "goods" in Section 1 follows closely that of the draftsman of the English Sale of Goods Act and the draftsman of the American Sales Act. Considerable objection was raised in the conference to the use of the word "property" in this section as defining the rights which are to vest in the buyer as a result of the performance of the contract. Several commissioners preferred the use of the word "title". It seemed best, however, to retain the word "property" in view of the use of that word with this meaning in the English Sale of Goods Act and the American Sales Act, and the conference so voted after some discussion. SECTION 2. (Contract to be Filed.) Except as provided in Section II, no provision reserving property in the seller, while the possession of the goods is in the buyer, shall be valid as against subsequent purchasers, mortgagees, or pledges from the buyer, for value and without notice of the seller's title; or as against any creditors of the buyer who levy upon or attach the goods without notice of such title; unless such contract is in writing and the original or a copy thereof shall have been filed as hereinafter prescribed, previous to such sale mortgage, pledge, levy or attachment. Nor shall such reservation be valid, while the possession of the goods is in the buyer, as against any creditors of the buyer whose rights accrue subsequent to the conditional sale and who have extended credit to the buyer without notice thereof, even though the conditional sale contract or a copy thereof shall have been filed prior to the levy or attachment by such creditor. Except as provided in Section 5, it shall not be necessary to the validity of such conditional sale contract, or in order to entitle it to be filed, that such contract be acknowledged or at ested. A provision requiring the filing of conditional sale contracts is an essential part of the modern statute law on that subject. The possession of the goods by the conditional buyer deceives the public into thinking that the buyer is the owner of the goods, unless some notice of the conditional seller's retained ownership is made public. The statutes of twenty-nine states now require these contracts to be filed and in four other states conditional sale contracts of certain classes of goods are required to be filed. Considerable debate occurred in the committee and the conference with respect to the question whether immediate filing should be required or whether the seller should be allowed a short period, either ten, twenty or thirty days, within which to file his contract. At the conference in August it was voted to require immediate filing. The majority of the commissioners believed that it would be exceedingly dangerous to the commercial public to allow secret reservations of title to personal property to be effective, even for short periods of time. The argument on behalf of the sellers that these contracts frequently have to be mailed to points considerably distant from the seller's place of business for filing, did not seem to be of much weight, since the seller can protect himself by refusing to deliver the goods until he is in a position to file the contract. Some difficulty has been experienced in wording the section with respect to the question as to what purchasers, mortgagees, pledgees and creditors shall be protected if no filing occurs. This section, as stated above, has been reworded by the draftsman in accordance with what seemed to be the prevailing opinion at the conference at Saratoga Springs in August. The new wording will necessarily be submitted to the committee and the conference for approval. It seems desirable to protect purchasers, mortgagees, pledgees and creditors, who innocently and for value acquire rights in the goods prior to filing. The question is, When do they acquire rights? Purchasers, mortgagees, and pledgees from the buyer obviously acquire rights when they contract with the buyer and pass valuable consideration to him. Creditors of the buyer, on the other hand, are necessarily divided into two classes, namely, (1) those who levy upon the goods or attach them before the filing, and (2) those who levy or attach after the filing. Obviously those who levy or attach after the filing should not be protected unless they extended credit to the buyer after the conditional sale, upon the faith of the buyer's appearance of ownership and without knowledge, either actual or constructive, of the conditional sale. It is believed that it is necessary to reword section 2 in the manner indicated above, in order clearly to define the various classes of purchasers and creditors involved. A further problem not yet decided, but to be submitted to the committee at its next meeting, is whether section 2 should not positively declare that conditional sale contracts are valid as between the parties in all cases and as against others if the required filing is made. The wording of the section, as it now stands, is negative in form, and assumes that such contracts are valid at common law. However, the peculiar situation in Pennsylvania and Illinois is that conditional sale contracts are not recognized as valid at common law. It is questionable whether the adoption of the act, as here printed, would not result in an anomalous situation in Pennsylvania and |