Digital Commons at St. Mary's University Faculty Articles School of Law Faculty Scholarship 2013 Secured Transaction History: Protecting Holmes’ Notes Through the Conditional Sales Acts George Lee Flint Jr St. Mary's University School of Law, [email protected] Follow this and additional works at: https://commons.stmarytx.edu/facarticles Part of the Law Commons Recommended Citation George Lee Flint, Jr., Secured Transaction History: Protecting Holmes’ Notes Through the Conditional Sales Acts, 44 St. Mary’s L. J. 317 (2013). This Article is brought to you for free and open access by the School of Law Faculty Scholarship at Digital Commons at St. Mary's University. It has been accepted for inclusion in Faculty Articles by an authorized administrator of Digital Commons at St. Mary's University. For more information, please contact [email protected]. ARTICLE SECURED TRANSACTION HISTORY: PROTECTING HOLMES' NOTES THROUGH THE CONDITIONAL SALES ACTS GEORGE LEE FLINT, JR. * Prelude..............................................318 I. Introduction..........................................321 II. The Gilmorian M odel..................................328 A. Theoretical Underpinnings........................... 328 B. Illegitimate Functions...............................331 C. Coming of Age As a Financing Device ................. 335 D. Redundant Conditional Sales Acts..................... 339 III. The Pre-Act American Decisions ......................... 340 A . The Parties.......................................342 B. The Collateral..................................... 346 C. TypeofAction .................................... 351 D. Bailment-Lease Opinions............................358 E. Origin of the Conditional Sale ........................ 360 IV. The Conditional Sales Acts..............................361 A. The First Wave New England Statutes ................. 362 B. The First Wave: Upper Mississippi Valley Statutes ........ 365 H. Andy Professor of Commercial Law, St. Mary's University School of Law, San Antonio, Texas; B.A., 1966, B.S., 1966, M.A., 1968, University of Texas at Austin; Nuc. E. 1969, Massachusetts Institute of Technology; Ph.D. (Physics), 1973,J.D. 1975, University of Texas at Austin. 317 318 ST MARY'SLA WJOURNAL [Vol. 44:317 C. The Second Wave Statutes........................ 366 D. The Third and Fourth Wave Statutes .................. 367 E. Legislative H istory ................................. 370 1. M aine ........................................ 371 2. Vermont ... ............................... 374 3. Iowa ..................................... 376 4. Minnesota . ................................ 382 5. Wisconsin ... .............................. 384 6. Nebraska... ............................... 385 7. Missouri .................................. 388 V. Judicial and Historical Explanations for the Passage of the Conditional Sales Acts...... ........................ 390 A. Jurists' Refusal to Treat Conditional Sales As Chattel Mortgages . ................................... 390 B. Protection of the Good Faith Purchaser ............... 395 C. Prevention of Vendee Fraud ....................... 400 VI. Passage of the Conditional Sales Acts................... 403 A. Maine ....................................... 404 B. Vermont............................ ......... 408 C. Iowa . ....................................... 411 D. Minnesota. ................................... 413 E. Wisconsin . ................................... 415 VII. Conclusion. ...................................... 419 PRELUDE On May 31, 1860, Thomas E. Billington, a wagon maker from Antwerp, New York, purchased a horse from Mrs. Catherine Comins, from Le Ray, taking the horse and giving Mrs. Comins his $100 note, payable to her or bearer in five months with interest.' At the bottom of the note was a memorandum signed by Thomas Billington saying, "Given for one bay horse. The said Mrs. Comins holds the said horse as her property until the 1. These facts come from Wait v. Green (Wait 1), 35 Barb. 585 (N.Y. Gen. Term 1862), afd, 36 N.Y. 556, 556 (1867). See U.S. NAT'L ARCHIVES & RECORDS ADMIN., Census of Antwerp, Jefferson Cnty., N.Y., at 394 (1860), available at http://www.heritagequestonline.com (providing the name, age, and occupation of Thomas E. Billington); see also id., Census of Le Ray, Jefferson Cnty., N.Y., at 344 (providing the names, ages, and occupations of Guy Comins and Catherine Comins). 2013]1 SECURED TRANSACTIONS HISTORY 319 above note is paid."2 By adding this memorandum to the note, it became a Holmes' note.' In 1860 New York, this conditional sales transaction, which reserved title in the vendor until full payment, was a method of selling goods on the installment plan and retaining a security interest in the seller to guarantee payment by the vendee.4 Early in June 1860, Thomas Billington, claiming to be the owner of the horse, sold the horse to Charles S. Green, a farmer from Antwerp, in exchange for another horse and $65.s Mr. Billington did not disclose anything to Mr. Green about how he had acquired the bay horse.6 During that same June of 1860, Mrs. Comins, desiring to convert the Billington debt to her into present value, delivered the Billington note to Isaac Wait, a joiner from Pamelia.' Mr. Wait paid less than the face value of the Billington note, which reflected the time value of his money and the possibility that Mr. Billington might default.' Mrs. Comins also received some personal property in this transaction.' In September 1860, one month before the note's due date, Mr. Wait learned of the sale of the horse by Mr. Billington to Mr. Green.10 Mr. Wait approached Mr. Green, showed Mr. Green the note with the memorandum, and demanded either the horse or payment for the horse." Mr. Green refused.1 2 Mr. Wait hired Levi H. Brown, a lawyer from Watertown, who commenced a replevin action to recover his horse along with damages for its detention.1 Mr. Green's response, filed by his lawyer, James F. Starbuck of Watertown, argued that, having purchased the bay horse in good faith and paid valuable consideration to Mr. Billington, he was now 2. Wait 1, 35 Barb. at 586. 3. See infra notes 316-321 and accompanying text (detailing origin of the term "Holmes' note"). 4. See Wait 1, 35 Barb. at 588 (explaining the time when title passes between parties to a transaction). 5. Id. at 586. See U.S. NAT'L ARCHIVES & RECORDS ADMIN., CENSUS OF ANTWERP, JEFFERSON CNTY., N.Y., at 378 (1860), available at http://www.heritagequestonline.com/ (providing the name, age, and occupation of Charles S. Green). 6. Waitl, 35 Barb. at 586. 7. Id., see U.S. NAT'L ARCHIVES & RECORDS ADMIN., CENSUS OF PAMELIA, JEFFERSON CNTY. N.Y., at 799 (1860), available at http://www.heritagequestonline.com/ (providing age and record of Isaac Wait). 8. Wait I, 35 Barb. at 586. 9. Id. 10. Id. 11. Id 12. Id. 13. See id. at 585-86 (listing the attorneys representing the plaintiff and defendant); see also U.S. NAT'L ARCHIVES & RECORDS ADMIN., CENSUS OF WATERTOWN, JEFFERSON CNTY., N.Y., at 567 (1860), available at http://www.heritagequestonline.com/ (providing age, occupation, and city of residence of Levi Brown). 320 ST. MARY'S LA WJOURNAL [Vol. 44:317 the owner of the horse." The well-settled law of New York was that a vendor under a conditional sales agreement held title to the item sold, even against a good faith purchaser.1s Accordingly, as the successor to that vendor, Mr. Wait should be entitled to recover.1" So, under the direction of the circuit justice, the jury gave a verdict for Mr. Wait and determined $75 in damages for the detention of the horse.1 7 Upon these findings, Mr. Wait moved for judgment.1 However, in 1862, the Supreme Court for the Fifth Judicial District of New York, which is the appellate court encompassing Jefferson County, composed of Justices William F. Allen, Le Roy Morgan, Joseph Mullin, and William Johnson Bacon, decided otherwise." The citizenry of New York at that time included numerous retailers and middlepersons engaged in the distribution of goods.2 0 Consequently, the politicians of New York generally despised security interests that might upset that distribution.21 A security interest in a retailer's inventory items would hinder purchaser sales if the secured party attempted to enforce its security interest against the purchaser.2 Between 1812 and 1833, these politicians declared several 14. Wait I, 35 Barb. at 586-88; see also U.S. NAT'L ARCHIVES & RECORDS ADMIN., CENSUS OF WATERTOWN, JEFFERSON CNTY., N.Y., at 573 (1860), available at http:// www. heritagequestonline.com/ (providing age, occupation, and city of residence of James F. Starbuck). 15. See, e.g., Brewster v. Baker, 20 Barb. 364, 369-70 (N.Y. Gen. Term 1855) (finding in an action for value case, for the vendee's good faith buyer against vendor's buyer because the vendee had no title to transfer). 16. Wait , 35 Barb. at 586. 17. Id. 18. Id. 19. See id. (listing the justices of the court and rendering a decision); U.S. NAT'L ARCHIVES & RECORDS ADMIN., CENSUS OF THE 4TH WARD OF UTICA, ONEIDA CNTY., N.Y., at 563 (1860), available at http://www.heritagequestonline.com (providing the city of residence, occupation, and age of Justice Bacon); id. at Census of the 5th Ward of Syracuse, Onadaga Cnty., N.Y., at 460 (1860) (providing the city of residence, occupation, and age ofJustice Morgan); id. at Census of Watertown, Jefferson Cnty., N.Y., at 733 (1860) (providing the city of residence, occupation, and age of justice Mullin); id at Census of the 1st Ward of Oswego, Oswego