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HOLLAND, District Judge. Harry A. Hark, one of the partners of the firm of Hark Bros., bankrupts, was subpænaed and appeared before the special referee. The referee, at a meeting held on November 14, 1904, made the following order:
"After hearing testimony on November 10 and November 14, 1904, and upon motion of Harry S. Mesirov, Esq., attorney for the receiver and petitioning creditor, the referee orders and directs Harry A. Hark, one of the bankrupts, to produce all of the books and records of the business of Hark Bros., bankrupts, referred to by him in his testimony of November 10 and November 14, 1904, at an adjourned meeting to be held before the referee at 2:30 p. m. on November 14, 1904."
Harry A. Hark appeared at this adjourned meeting, but refused to produce his books and papers, and subsequently filed an answer, and then a supplemental answer, in the latter of which he says:
"If I am obliged to turn the said books over to the receiver, I will thus be obliged to furnish evidence which will put me in jeopardy of my liberty, and might lead a jury to convict me of crime.”
The referee reports that there is no evidence before him to show that there is anything contained in the books tending to incriminate the bankrupts, and further calls attention to the fact that his order of November 14, 1904, was not an order to turn the books over to the receiver, but simply to produce them before the referee. This court decided (In re Hess, 134 Fed. 109) that:
"Where a bankrupt pleads his constitutional privilege against a production of books of accounts alleged to contain incriminating evidence, he should be required to bring such books and papers either before the court or referee in bankruptcy for determination of the question whether the plea is well founded in fact, and for the making of an order for the protection of the bankrupt from the discovery of such evidence, and, if possible, to enable the trustee to obtain other necessary information from such books."
There is nothing in the evidence produced before the referee to show that these books contain incriminating evidence, other than the allegation of the bankrupts in their answer. The order to produce them before him should have been complied with, and then the question as to whether this plea of the bankrupts is well founded could be determined by the referee.
As to the question of allowing the bankrupts to be represented by counsel, the referee reports that this privilege was not refused them at the hearing, and it is to be assumed that the referee will allow them to be represented by their counsel at any further hearing that may take place.
The bankrupts complain that they were not permitted to correct some erroneous statements made by them, although an examination of the record shows that corrections were allowed. A witness should always be permitted to make a correction in any statement theretofore made, and the reason for the correction, of course, can be taken into consideration by the referee in passing upon the credibiiity of the witness.
It is therefore ordered, adjudged, and decreed that the matter be referred back to the referee, David W. Amram, Esq., and that the said Harry A. Hark be, and is hereby, directed to comply with
the referee's order of November 14, 1904, to wit, to produce before him, the said David W. Amram, referee, all of the books and records of the business of Hark Bros., bankrupts, referred to by him, the said Harry A. Hark, in his testimony of November 10 and November 14, 1904; the said books and records to be produced at a meeting to be fixed by the said David W. Amram, referee, and notice to be served upon the said Harry A. Hark.
In re EDWARD HESS & CO.
BANKRUPTCY-CLAIM OF PRIVILEGE–PRODUCTION OF BookS OF ACCOUNT.
The finding of a referee that there was no foundation in fact for the claim of privilege set up by a bankrupt on the ground that his books and papers, if produced, would tend to incriminate him, affirmed, and an order made requiring him to produce his books and to answer certain questions propounded to him; the only witnesses called, aside from the bankrupt, having testified that an examination of the books disclosed nothing of an incriminating character, and that they were properly kept. In Bankruptcy. On certificate from referee.
Charles Biddle, Samuel P. Tull, and Edgar C. Van Dyke, for trustee.
Julius C. Levi, for bankrupt.
HOLLAND, District Judge. Some time ago a reference was made in this case "to take such testimony as the bankrupt might offer to show his answer that his books and papers contain evidence which may tend to incriminate him is made in good faith, to protect him against a criminal prosecution that has been instituted or which may be brought against him, and report such evidence and his conclusions thereon to this court, specifying which of the said documents, if any, did or did not contain such alleged incriminating evidence.” (D. C.) 134 Fed. 109. The bankrupt and two witnesses appeared before the referee. Certain questions were propounded to the witnesses, who were unable to answer without the books and papers belonging to the bankrupt from which the data could be obtained to enable them to correctly answer the questions. The bankrupt refused to produce his books or papers referred to by these witnesses, and refused to answer certain questions. The referee directed him to produce the books and papers and to answer the questions. Whereupon counsel for the bankrupt requested the referee to certify the question to this court as to whether the bankrupt should be compelled to answer the questions and to produce the books and papers.
The two witnesses called testified that an examination of the books shows nothing in them tending to incriminate the bankrupt and that the books were properly and correctly kept. The referee, in an opinion filed, concludes that there is nothing in the answer to
the question referred to which will tend to incriminate him, nor is there anything in the books and papers which will have that effect, and therefore he should be compelled to produce his books and papers and to answer the questions. In these conclusions we think the referee is right, for the reasons stated in his opinion.
It is therefore ordered, adjudged, and decreed that the bankrupt produce the books and papers referred to in the opinion of the referee, in accordance with his order, and do answer the questions stated in his report.
In re SHEETS PRINTING & MFG. CO.
(District Court, N. D. Ohio, E. D. April 27, 1905.)
No. 1,612. 1. CONTRACTS-CONSTRUCTION-CONDITIONAL SALES-LEASES-RECORD-VALID
A contract leasing a machine for a term' of three years, requiring the lessee to pay a rental of $1,260 in monthly installments of $35 each, secured by notes providing for termination on failure to pay such installments, and that the lessee shall have the option to purchase at any time within the three years on payment of $1,700, less the amount of rentals then paid, was a conditional contract of sale, as defined by Bates' Ann. St. Ohio, p. 2306, § 1, and not a lease.
[Ed. Note.—For cases in point, see vol. 43, Cent. Dig. Sales, 88 1327,
1328.] 2. SAME--BANKRUPTCY-FOLLOWING STATE LAWS.
On an issue as to whether a contract for the sale of a machine was a lease or contract of conditional sale, a court of bankruptcy. will follow the state law.
[Ed. Note.-State laws as rules of decision in federal courts, see notes to Wilson v. Perrin, 11 C. C. A. 71; Hill v. Hite, 29 C. C. A. 553.] In Bankruptcy. Kerr & La Dow, for claimant. Brucker & Cummins, for trustee.
TAYLER, District Judge. This matter comes up on a bill of review to the finding of the referee on the claim of the Unitype Company. The referee allowed the claim. The Unitype Company, on April 1, 1901, entered into a contract with the bankrupt, the Sheets Printing & Manufacturing Company, by an instrument called "Simplex Type-Setting Machine Lease, by which the Unitype Conipany agreed to furnish and lease to the lessee one Simplex Typesetting Machine, "to hold for the term of three years, beginning as soon as the machine is erected on the premises of the lessee; and the said lessee hereby covenants to and with the lessor that he will pay for the same a rental of twelve hundred and sixty dollars ($1,260.00) for the entire term of three years, in installments of thirty-five dollars ($35.00) each, payable on the first day of each month until the $1,260.00 has been paid, and will further secure such payments by giving at the beginning of said rental term his promissory notes in form acceptable to the lessor for the same; but.
the giving of said notes shall not be regarded as payment of the rent aforesaid.” The lessee agreed to maintain the machine and appurtenances in good operating condition and repair, and to cause them to be cared for by competent persons, and at the end of the term of the lease, or earlier if it should be earlier reclaimed by the lessor, to cause the machine to be properly boxed and delivered, freight prepaid, at the freight station in Shelby, Ohio, addressed to the lessor. Further covenants appear as follows:
“The lessee further covenants and agrees that in case he, or any party holding under him, shall violate any of the provisions, conditions or agreements herein contained, the lessor may, at his option, terminate this lease, and retain and keep all rentals hereinbefore stipulated to be paid by the Jessee in consideration and payment for the use theretofore had of said machine and its appurtenances.”
"It is further covenanted and agreed by both parties hereto that this lease shall extend to and cover a further period of two years upon the same terms and conditions; provided, however, that the lessee may, if he shall so elect, and give notice in writing of said election to the lessor at least thirty days before the end of the first term of three years, abandon, discontinue and terminate this lease at the end of said first rental term and return said machine as heretofore provided, immediately upon the ending of the first term aforesaid.”
“The lessee shall have the option of purchasing said machine and appurtenances in his possession for the sum of seventeen hundred dollars (provided all his covenants then matured shall have been fulfilled), at any time within three years after its erection by payment to the lessor of such cash as with the amount of rental theretofore paid shall equal seventeen hundred dollars."
The bankrupt continued to pay the monthly installments until a short time before it went into bankruptcy, in January, 1904. The Unitype Company claims that it is the owner of the machine described in the contract; that the amount paid was paid by way of rent; and that the Ohio statute on the subject of conditional sales is not operative to prevent the assertion of its claim of title. This claim the referee sustained.
The conditional sale statute of Ohio (Bates' Ann. St. p. 2306) is as follows:
"(4155–2) Section 1. In all cases where any personal property shall be sold to any person, to be paid for in whole or in part in installments, or shall be leased, rented, hired or delivered to another on condition that the same shall belong to the person purchasing, leasing, renting, hiring, or receiving the same whenever the amount paid shall be a certain sum, or the value of such property, the title to the same to remain in the vendor, lessor, renter, hirer or deliverer of the same, until such sum or the value of such property or any part thereof shall have been paid, such condition, in regard to the title so remaining until such payment, shall be void as to all subsequent purchasers and mortgagees in good faith, and creditors, unless such condition shall be evidenced by writing, signed by the purchasers, lessor, renter, hirer or receiver of the same, and also a statement thereon, under oath, made by the person so selling, leasing or delivering any property as herein provided, his agent or attorney of the amount of the claim, or a true copy thereof, with an affidavit that the same is a copy, deposited with the clerk of the township where the person signing the instrument resides at the time of the execution thereof, if a resident of the state, and if not such resident, then with the clerk of the township in which such property is sold, leased, rented, hired or delivered is situated at the time of the execution of the instrument; but when the person executing the instrument is a resident of a township in
which the office of county recorder is kept, or when he is a non-resident of ihe state, and the property is within such township, the instrument shall be . filed with the county recorder; and the officer receiving any such instrument shall proceed with the same in all respects as he is required to do by section 4152 of the Revised Statutes of Ohio, and shall receive the same fees as are allowed by law for similar services in other cases."
Three questions arise: First. Is the conditional sale in this case the kind of a sale covered by the statute just quoted ? Second. If it is such a sale, is it void as to general creditors under the law of Ohio? Third. Does the law of Ohio control as to the assertion of such rights in a court of bankruptcy?
I am of the opinion that all of these questions ought to be answered in the affirmative.
1. This contract is a mere conditional sale. True, it is skillfully drawn with a view of avoiding that construction, but it does not successfully do so. Authorities might be multiplied on the question, but it will be sufficient to quote the language of the Supreme Court of the United States in order to obtain a standard of construction. In Hervey et al. v. Rhode Island Locomotive Works, 93 U. S. 664, 23 L. Ed. 1003, in the fourth proposition of the syllabus, the court, referring to this kind of a transaction, says:
"Nor is the transaction changed by the agreement assuming the form of a lease. The courts look to the purpose of the parties; and, if that purpose be to give the vendor a lien on the property until payment in full of the purchase money, it is liable to be defeated by creditors of the vendee who is in possession of it."
On page 673 of 93 U. S. (23 L. Ed. 1003) Mr. Justice Davis quotes with approval the holding of the Supreme Court of Illinois; the statement of that court in that case being, "It was a mere subterfuge to call this transaction a lease;" and states that the case which the Supreme Court was then considering was like the case referred to in all essential particulars. It seems clear to me that this transaction was a conditional sale, and that the phraseology by which it is sought to avoid that appearance is a mere subterfuge.
2. Now, what have the Ohio courts said on this subject? They have spoken in unmistakable terms. The law is construed in the case of Jones v. Molster, 11 Ohio Cir. Ct. R. 432. That is the well-known piano case, in which the contract was held to be a conditional sale, and that it was void as to creditors. That case states the law of the state of Ohio as it stands to-day. Our Supreme Court has also declared that the assignee does not always stand in the shoes of the assignor; that he represents the creditors, and may assert some rights which the debtor himself could not have asserted before the intervention of creditors, or, as in this case, before the bankruptcy proceedings were instituted. No principle of law in Ohio is better settled than this.
3. The only question left is whether the bankruptcy courts of the United States will follow the law of the state of Ohio as respects the character of the contract, and the nature of the rights which it gives over the property which was the subject of the contract. I am unable to discern any reason why, where the bankruptcy act has