Janney v. Bell

• Decision Date: 10 April 1940
• Docket Number: No. 4589.,4589.
• Citation: 111 F.2d 103
• Parties: JANNEY et al. v. BELL. In re BUCHANAN.
• Court: U.S. Court of Appeals — Fourth Circuit

111 F.2d 103 (1940)

JANNEY et al. v. BELL. In re BUCHANAN.

No. 4589.

Circuit Court of Appeals, Fourth Circuit.

April 10, 1940.

Alvin T. Embrey, of Fredericksburg, Va., for appellants.

T. Stokeley Coleman, of Spotsylvania, Va., for appellee.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

DOBIE, Circuit Judge.

This statement of the facts in this case is taken from the opinion of the Trial Judge:

"On April 8, 1937, Buchanan (sometimes hereinafter called the bankrupt) then of and doing business in Fredericksburg, Virginia, executed to Alvin T. Embrey, Trustee (sometimes hereinafter called the deed-trustee) a Deed of Trust on certain motor vehicles and personal property, which Trust was recorded on the same day in the Clerk's Office of the Corporation Court of Fredericksburg, Virginia, in Miscellaneous Lien Book, and which Trust secured the payment of a note of $1,500, now reduced by curtails to the sum of $832.50, and held by S. M. Janney, who acquired the same for its full value prior to maturity — said Deed of Trust was not recorded or registered in the office of the Division of Motor Vehicles of Virginia. In April, 1939, Buchanan being in default, said Janney directed Alvin T. Embrey, Trustee, to advertise said property for sale under the provisions of said Deed of Trust, and said Embrey took up the matter with Buchanan, who voluntarily surrendered possession and control of the property to said Embrey, Trustee, on April 22, 1939. Embrey, Trustee, on April 17, 1939, had advertised the property for sale under the terms of the Deed of Trust — the sale to be held on May 20, 1939.

"Following the delivery of the property to Embrey, Trustee, on April 22, 1939, said Trustee, pending sale, had the property stored in a garage in Fredericksburg subject alone to the order of said Trustee, and at the rental charge of the Trustee of $10.00 per month for storage.

"On May 2, 1939, Buchanan filed his Petition in Bankruptcy; was adjudged a bankrupt on the same day, and E. C. Bell, Jr. (sometimes hereinafter called the bankrupt trustee), was appointed Trustee for the Bankruptcy Estate. Following the filing of the Petition, Embrey, Trustee, in conference, agreed to postpone the Trust sale until questions could be decided, and which questions were afterwards raised by the Trustee in Bankruptcy, who filed his Petition on July 7, 1939, reciting the above facts with an allegation that said Deed of Trust was never properly recorded and that Embrey, Trustee, wrongfully held possession of said property from the Trustee in Bankruptcy. Appellants answered the petition; asserted the validity of the lien, and prayed that the property be abandoned by the Trustee in Bankruptcy since there was no equity therein for general creditors.

"The Referee directed the property to be appraised, and the Appraisers returned a value of $525.00. The Referee determined that the Deed of Trust had not been recorded in the office of the Motor Vehicle Department of Virginia, pursuant to Section 2154(74) of the Code of Virginia, and not being so recorded, held that it did not constitute a valid lien.

"On appeal to the District Court, the parties filed an agreed statement of facts, and after argument, the District Court affirmed the ruling of the Referee and on October 30, 1939, entered the order appealed from. Following the decision of the District Court, by agreement of parties, an order was entered by the Referee directing a sale of the property without prejudice to the rights of the parties, and transferring the controversy to the funds and on the sale of the property, it brought $552.00."

This case thus presents a single problem: whether the claim of the deed-trustee, who had taken over the motor vehicles in question preparatory to a sale of them, is prior to the claim of the bankrupt-trustee. This may be broken down into two questions: (1) Whether, under the Virginia law, a chattel mortgage of a motor vehicle is good as between the parties without such registration of the claim as is required by the Virginia Motor Vehicles Act; (2) whether, if this question be answered in the affirmative, the Federal Bankruptcy Act gives priority as to these motor vehicles to the bankrupt-trustee over the deed-trustee. Of course, if the chattel mortgage be void as between the parties because of lack of statutory registration, then all title to and interest in the motor vehicles would remain in the bankrupt and accordingly would pass to the trustee.

The general law is pretty well settled that, apart from statutory restrictions, an unrecorded chattel mortgage is good as between the parties. See 11 C.J. 511 and cases cited. Under the Virginia law, which we must apply, it seems that apart from recordation statutes, the trustee in the deed of trust of personalty acquires a defeasible legal title. Sulphur Mines Co. v. Thompson, 93 Va. 293, 25 S.E. 232. It seems further that a trustee in a deed of trust given to secure a debt and the creditors secured occupy the high position of purchasers for value within the general meaning of registration laws, Rhea et al. v. Preston, 75 Va. 757, and see also Lawyer v. Bark, 45 W. Va. 468, 470, 31 S.E. 964. It does not seem necessary here to discuss, as to the Virginia situation, the title theory and the lien theory of chattel mortgages. See Glenn, Fraudulent Conveyances and Preferences, Rev.Ed., Sections 497-499.

It might be remarked in this connection that, since under the general law an unrecorded chattel mortgage is good as between the parties and registration statutes under their general philosophy are enacted for the benefit of third parties, the chattel mortgage should be good as between the parties unless the recordation statute either expressly declares the mortgage void as between the parties or indicates such invalidity of the chattel mortgage by necessary intendment or very clear implication.

The Virginia Motor Vehicle Act (Sec. 2154(48) et seq.) is quite long, very complicated and leaves much to be desired from the standpoint of clearness in legislative draftsmanship. In some of its provisions as to the recordation of claims to motor vehicles, it does use language which would indicate that its recordation provisions are mandatory and therefore must be complied with in order that title or any other claim may have validity even as between the parties; but, on the other hand, there are many other provisions in which the draftsman of the recordation portions of the Act used the language of other recordation statutes, so that this language, if taken by itself, would indicate even more clearly that such provisions applied only to third persons and that an unrecorded claim would be quite valid between the parties. Neither the investigations of counsel nor my own independent searches have revealed any Virginia case which is directly in point. The question is close and is of no small practical importance.

If an unregistered chattel mortgage of motor vehicles in Virginia be void as between the parties, some rather strange results would seem to follow. Then, it would seem, the owner of a motor vehicle, after mortgaging it to secure a loan, could blandly repudiate the mortgage and re-claim the motor vehicle without paying the debt secured by the mortgage, even though no rights of creditors are involved. It would seem, too, that he could pledge the car for a loan (and a chattel mortgage becomes an effective pledge when, as here, the mortgagee takes possession of the mortgaged property) and, again without paying the debt, even though no rights of creditors are involved, could take the car back from the pledgee. Such results would seem to militate in favor of the view which we take, that in Virginia an unrecorded chattel mortgage of a motor vehicle is good as between the parties.

Various states of the United States have adopted Motor Vehicle Codes containing registration provisions. A majority of the courts in these states have adopted the view that these statutes did not completely over-ride the common law, and that transactions in such vehicles, which were hitherto valid under the general law, still remain valid as between the parties. Commercial Credit Co. v. McNelly, 1934, 36 W.W.Harr., Del., 88, 171 A. 446; Commercial Credit Co. v. Schreyer, 120 Ohio St. 568, 166 N.E. 808, 63 A.L.R. 674; Moore v. Wilson, 230 Ky. 49, 18 S. W.2d 873; Williams v. Stringfield, 76 Colo. 343, 231 P. 658; Bond Lumber Co. v. Timmons, 82 Mont. 497, 267 P. 802; Carolina Discount Corp. v. Motor Co., 190 N.C. 157, 129 S.E. 414; Hartford Ins. Co. v. Knight, 146 Miss. 862, 111 So. 748; Cerex Co. v. Peterson, 203 Iowa 355, 212 N.W. 890; Chucovich v. Securities Corp., 60 Cal.App. 700, 214 P. 263; Hennessy v. Ins. Ass'n, Tex.Com.App., 282 S.W. 791, 46 A.L.R. 521; Jackson v. James, Utah, 89 P.2d 235. Some of the state courts, however, appear to have taken an opposite view. Endres v. Mara-Rickenbacker Co., 243 Mich. 5, 219 N.W. 719; Muzenick v. McCain, 220 Mo.App. 502, 274 S.W. 888; Merchants' Securities Corp. v. Lane, 106 N.J.L. 576, 150 A. 559. See, also, Fairbanks Steam Shovel Co. v. Wills, 240 U. S. 642, 36 S.Ct. 466, 60 L.Ed. 841. These cases have value, though it is believed that in no single instance was the state statute in question even approximately identical with the Virginia statute.

Now as to the Virginia cases which were relied on and discussed at length by counsel in the argument of this case. In Thomas v. Mullins, 153 Va. 383, 149 S.E. 494, 496, the Supreme Court of Appeals of Virginia did use very strong language in insisting on strict compliance with the registration provisions of the Virginia Motor Vehicle Act:

"The statute under consideration Registration Act, while providing incidentally for the payment of certain fees, is not primarily a revenue raising measure. As interpreted and construed by the Legislature its general purpose is to make uniform the law of this state in so far as it affects the regulation of motor vehicles; the...