In re Rosenberg Iron & Metal Co.

• Decision Date: 30 April 1965
• Docket Number: No. 14715.,14715.
• Citation: 343 F.2d 527
• Parties: In The Matter of ROSENBERG IRON & METAL CO., Inc., Bankrupt. DEMPSTER BROTHERS, INC., Petitioner-Appellant, v. Milton M. COHN, Trustee in Bankruptcy, Respondent-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

343 F.2d 527 (1965)

In The Matter of ROSENBERG IRON & METAL CO., Inc., Bankrupt.

DEMPSTER BROTHERS, INC., Petitioner-Appellant, v. Milton M. COHN, Trustee in Bankruptcy, Respondent-Appellee.

No. 14715.

United States Court of Appeals Seventh Circuit.

February 5, 1965.

As Amended on Denial of Rehearing April 30, 1965.

John H. Wessel, Bernstein, Wessel, Weitzen & Lewis, Milwaukee, Wis., for appellant.

Irvin B. Charne, Donald S. Taitelman, Charne & Tehan, Milwaukee, Wis., for appellee.

Before CASTLE, KILEY, and SWYGERT, Circuit Judges.

SWYGERT, Circuit Judge.

This appeal presents a question of interpretation of section 70, sub. c of the Bankruptcy Act, 11 U.S.C. § 110, sub. c.¹ Rosenberg Iron & Metal Co., Inc., a Wisconsin corporation located in Milwaukee, is the bankrupt; Milton M. Cohn is the trustee; and Dempster Brothers, Inc. is a creditor who filed a reclamation petition for property sold under a conditional sales contract. A statement of facts, with emphasis on relevant dates, follows.

May 20, 1958. Dempster Brothers sold Rosenberg a baling press for $94,018.75. The sum of $23,504.95 of the purchase price was paid on delivery; the balance of $70,513.80 was secured by a conditional sales contract. June 19, 1958. The sales contract was filed with the Register of Deeds of Milwaukee. June 27, 1961. Rosenberg made an assignment for benefit of its creditors under applicable provisions of Wisconsin law. June 28, 1961. The circuit court of Milwaukee County issued an order against Rosenberg's creditors enjoining them from further proceedings against the company. October 18, 1961. An involuntary petition in bankruptcy was filed against Rosenberg. November 3, 1961. The company was adjudicated a bankrupt and Cohn appointed trustee. During the ten-day period, June 18, 1961 (the three-year expiration date of the filing of the conditional sales contract), and June 28, 1961 (the date of the injunction), certain firms and individuals extended credit to Rosenberg for the purchase of goods. These debts remained unpaid on the date of bankruptcy. Some of these creditors also had extended credit to Rosenberg prior to June 18, 1961; others had not. After filing proof of claim for the balance owing on the conditional sales contract, Dempster filed a petition to reclaim its baling press. The referee denied the petition. On review, the district court affirmed. This appeal followed.

The question is whether the trustee had rights to the baling press superior to Dempster's rights by virtue of section 70, sub. c of the Bankruptcy Act. Petitioner contends that though it failed to refile the conditional sales contract with the Recorder of Deeds on or before June 18, 1961, the original filing was constructive notice to the world beyond the three-year filing period. Petitioner further contends that by reason of the state court injunction there were no creditors who could have obtained a lien on the baling press by legal or equitable proceedings at the date of bankruptcy and that therefore the trustee had no rights under section 70, sub. c.

Rights of the trustee as a lien creditor under section 70, sub. c of the Bankruptcy Act are determined by state law. Porter v. Searle, 228 F.2d 748 (10th Cir. 1955); In re Kellett Aircraft Corp., 173 F.2d 689 (3d Cir. 1949). The State of Wisconsin has adopted the Uniform Conditional Sales Act. Under the Wisconsin statute a conditional sales contract must be refiled periodically after the initial filing in order to be valid against creditors who, without notice of the contract, have attached or levied on the property.² The Wisconsin supreme court has interpreted this statutory provision as follows: "A failure to refile a conditional sales contract destroys its validity only as to subsequent purchasers and creditors. It does not operate to invalidate the contract as to those whose rights during the three years following the filing were subordinate to the conditional sales contract." American Laundry Mach. Co. v. Larson, 217 Wis. 208, 257 N.W. 608 (1934).

It is conceded that Dempster did not refile its conditional sales contract and that the three-year filing period expired June 18, 1961. Unquestionably, then, the initial filing could not operate against those who extended credit to Rosenberg after that date. We agree with the referee that the trustee under the provisions of section 70, sub. c, acquired as of October 18, 1961,³ the status of a creditor who without notice of the conditional sales contract extended credit to Rosenberg after June 18, 1961, and then obtained by levy or attachment a lien upon the baling press, and that this is so regardless of whether such a creditor actually existed.

It is true, as petitioner says, that under Wisconsin law the filing of a conditional sales contract is equivalent to actual notice and is constructive notice to the world. Commercial Credit Corp. v. Schneider, 265 Wis. 264, 61 N.W.2d 499 (1953), it is clear from the American Laundry case, however, that constructive notice ends with the three-year period unless there is a valid refiling with the Register of Deeds.

Petitioner argues that because of the injunction in the state court proceeding no creditor, actual or hypothetical, existed at the date of bankruptcy, October 18, 1961; further, that under the doctrine of Lewis v. Mfrs. Nat'l Bank of Detroit, 364 U.S. 603, 81 S.Ct. 347 (1961), the trustee could not "reach back" to the period between June 18 and June 28, 1961 (from the end of the three-year filing period to the date...