Zehner v. Southern Surety Co.

• Decision Date: 09 May 1921
• Docket Number: 2685.
• Citation: 272 F. 954
• Court: U.S. Court of Appeals — Third Circuit
• Parties: ZEHNER v. SOUTHERN SURETY CO. In re FABER ENGINEERING & CONSTRUCTION CO.

272 F. 954

ZEHNER v. SOUTHERN SURETY CO.

In re FABER ENGINEERING & CONSTRUCTION CO.

No. 2685.

United States Court of Appeals, Third Circuit.

May 9, 1921

George C. Bradshaw, of Pittsburgh, Pa., for appellant.

Gifford K. Wright, and Alter, Wright & Barron, all of Pittsburgh Pa., for appellee.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

BUFFINGTON Circuit Judge.

This case grows out of the bankruptcy of the Faber Engineering &amp Construction Company, and concerns a claim made by its trustee in bankruptcy to certain personal property in the possession, at the time the petition was filed, of a surety company and claimed by it under a bill of sale from the bankrupt company. The facts of the case are fully set forth in the opinion of the court below printed in the margin. ^[1] They show that the bill of sale was made more than four months before the petition in bankruptcy was filed; that the goods were left in possession of the vendor company, but that some two months before bankruptcy, the vendee took, and has since kept, possession of them. It will be noted, therefore, that we have before us the question of the validity of a sale and not the case of a preference violative of the Bankrupt Law Now the title of the trustee in bankruptcy to this property is fixed by the bankrupt amendment of June 25, 1910 (Come. St. Sec. 9631), which provides that such trustee 'as to all property not in custody of the bankruptcy court shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied. ' And the Supreme Court of the United States, in Bailey v. Baker, 239 U.S. 268, 36 Sup.Ct. 50, 60 L.Ed. 275, has held 'that the trustee takes the status of such a creditor as of the time when the petition in bankruptcy is filed.'

The case, therefore, in substance resolves itself into narrow limits, namely, what, under the law of Pennsylvania, would have been the rights of a levying execution creditor of the Faber Engineering Company? No question of fraud or bad faith is involved. For a present and sufficient consideration, the Faber Company sold the personal property to the claimant, and while the latter did not take possession, this fact in no way affected the validity of the sale as between the two parties, and the buyer could therefore take possession thereof at any time. But by leaving the property in the hands of the seller, the buyer subjected them to levy and sale by an execution creditor of the seller. In that regard this court, in Re Komara, 251 F. 47, 163 C.C.A. 297, said:

'Undoubtedly the Pennsylvania decisions, from Clow v. Woods, 5 Serg. & R., 275, 9 Am.Dec. 346, with the intervening cases, to Barlow v. Fox, 203 Pa. 114, 52 A. 57, hold that retention of possession when actual delivery is practical is a fraud in law, and will not avail against creditors.'

On the other hand, the Pennsylvania law is equally clear that, if in the interim of possession by the buyer no execution creditor of the seller levies and the buyer thereafter takes possession, the sale takes effect as of its date, Christ v. Zehner, 212 Pa. 192, 61 A. 822, and consequently the potential right of an execution creditor to levy necessarily ends.

We are of opinion the court below rightly adjudged the trustee in bankruptcy showed no title to these goods. Its decree is therefore affirmed.

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Notes:

^[1] The receiver has procured a rule upon the Southern Surety Company to show cause why certain property consisting of tools and equipment used in constructing highways, which had been in the possession of the bankrupt should not be delivered to the receiver. The bankrupt had a contract with the state of Pennsylvania for the construction of a state highway in the county of Mercer, under date of June 10, 1919, and for the performance of said contract by the bankrupt the Southern Surety Company became the surety to the commonwealth. At the time of entering into the contract of suretyship, the bankrupt assigned said property to the surety as collateral, for the faithful performance of the contract. The form of that contract was in praesenti, and not in futuro. In other words, it was not an agreement to transfer the property at a future date. The bankrupt proceeded with the construction of the highway until perhaps some time in January, 1920, and received from time to time the moneys earned for the work as it progressed. In January 1920, the surety took possession of all of the said equipment and retained possession thereof, subject of course to such right as the commonwealth of Pennsylvania had under its contract. The contract with the commonwealth provided that the compensation to be paid thereunder should be not alone for the performance of the work, but 'for furnishing all materials, labor, tools and equipment. ' The contract with the commonwealth also provided that upon failure of performance of certain terms, the engineer for the highway department should give notice to the contractor and its surety of such default, and that upon the contractor's failure to comply with such notice the highway commissioner could take the work out of the contractor's hands and appropriate or use any or all materials and equipment on the ground, and complete the work, and should the cost of completion exceed the amount to be paid under the...