## Facts

- Hargo Woolen Mills, Inc. (Hargo) sold and produced woolen cloth and used “card waste” fiber as an input in its manufacturing process.
- Sharby Trading Co. (Sharby) had been supplying Hargo with card waste.
- Sharby shipped 24 bales of card waste to Hargo along with an invoice stating a price for the shipment.
- Hargo did not want to buy the shipment at that time. Sharby and Hargo reached an oral agreement that Hargo would store the 24 bales on Hargo’s property until Hargo later decided it needed them.
- Under that agreement, Hargo would not be billed (and would not have to pay) unless and until Hargo decided to use particular bales.
- Consistent with the oral arrangement, the invoice for the 24 bales was treated as “pro forma” and returned, indicating the shipment was not being treated as an immediate purchase.
- Later, Hargo told Sharby it wanted to buy eight of the 24 bales. Sharby issued an invoice for those eight bales, and—at Hargo’s request—dated it to reflect the date Hargo gave notice of its decision to buy.
- Hargo paid for the eight bales it elected to purchase. Hargo never used or paid for the remaining 16 bales, which stayed on Hargo’s premises.
- Meinhard-Commercial Corporation (Meinhard) became Hargo’s factor and principal secured creditor and claimed a security interest in Hargo’s inventory.
- In an equity receivership proceeding involving Hargo, Meinhard took possession of the remaining 16 bales as though they were part of Hargo’s assets and later sold them.
- Sharby demanded the 16 bales back from Meinhard, asserting that Hargo never obtained title to those bales.
- Pursuant to a final decree in the equity proceeding, a master heard evidence and made findings on whether Hargo ever acquired title to the 16 bales.
- The master found that, based on the parties’ intent shown by the oral storage agreement and the “pro forma” invoice practice, title to the 16 bales never passed to Hargo.
- The superior court approved the master’s report. Meinhard appealed to the Supreme Court of New Hampshire.

## Issues

1. Whether, under the parties’ oral agreement and their invoicing and payment practices, title to the 16 bales of card waste ever passed from Sharby to Hargo.
2. If Hargo did not obtain title to the 16 bales, whether Meinhard—as Hargo’s secured creditor—could treat those bales as Hargo’s inventory collateral and dispose of them.

## Decision

- The Supreme Court of New Hampshire affirmed the superior court’s decree approving the master’s report.
- The court agreed that the transaction for the 16 bales was not treated by the parties as a present purchase; instead, the shipment was held for possible later purchase, with billing and payment only upon Hargo’s decision to take and use specific bales.
- The court accepted the master’s finding that the parties intended title to pass only when Hargo elected to purchase particular bales (as it did for the eight bales it paid for), not upon shipment or storage on Hargo’s property.
- Because Hargo never acquired title to the remaining 16 bales, Meinhard could not claim a greater interest than Hargo had and therefore could not treat the 16 bales as collateral belonging to Hargo.

## Legal Principles

- Title to goods turns on the parties’ agreement and intent, as shown by their words and conduct, including how they invoice, date invoices, and require (or postpone) payment.
- A shipment accompanied by a “pro forma” invoice and an agreement that the recipient will not be billed unless and until it chooses to take and use the goods may indicate that no present sale occurred as to goods not yet chosen, billed, and paid for.
- When goods are left with a recipient for storage pending a later decision to purchase, title may remain with the supplier until the recipient accepts the goods in the manner the parties contemplated (such as by requesting an invoice for specified goods and paying for them).
- A secured creditor’s rights in collateral are derivative of the debtor’s rights; if the debtor has no title or ownership interest in the goods, the creditor’s security interest cannot reach them.

## Conclusion

Meinhard-Commercial Corp. v. Hargo Woolen Mills holds that, where card waste was shipped to Hargo under an oral storage arrangement and a “pro forma” invoice—so Hargo would be billed only when it later chose to buy and use specific bales—title to the remaining 16 bales did not pass to Hargo, and Meinhard as Hargo’s secured creditor could not claim or sell those bales as Hargo’s inventory.


Meinhard-Commercial Corp. v. Hargo Woolen Mills, 300 A.2d 321 (1972)