353 F.2d 986 (9th Cir. 1965), 19778, Glessner v. Massey-Ferguson, Inc.

Docket Nº:19778.
Citation:353 F.2d 986
Party Name:H. W. GLESSNER, Trustee in Bankruptcy of Marvin K. Dunagan, Bankrupt, Appellant, v. MASSEY-FERGUSON, INC., a corporation, et al., Appellees.
Case Date:December 13, 1965
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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353 F.2d 986 (9th Cir. 1965)

H. W. GLESSNER, Trustee in Bankruptcy of Marvin K. Dunagan, Bankrupt, Appellant,


MASSEY-FERGUSON, INC., a corporation, et al., Appellees.

No. 19778.

United States Court of Appeals, Ninth Circuit.

December 13, 1965

Dec. 13, 1965. Rehearing Denied Jan. 19, 1966.

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Clague A. Van Slyke, Tucson, Ariz., for appellant.

Henry Jacobowitz, Phoenix, Ariz., for appellee.

Before HAMLEY and BROWNING, Circuit Judges, and MATHES, Senior district judge.

MATHES, Senior District Judge:

The trustee in bankruptcy of Marvin K. Dunagan, one-time farm implement dealer at Willcox, Arizona, appeals from the District Court's judgment denying the trustee's claim to certain equipment and parts, or the value thereof, which were repossessed from the bankrupt by appellee Massey-Ferguson under certain conditional sales contracts within the four-month period next preceding the filing of Dunagan's voluntary petition in bankruptcy.

The material facts, as found by the District Court, are not in dispute, and may be summarized as follows: The bankrupt came into possession of the equipment and parts in question pursuant to a 'Dealer Wholesale Note and Invoice', and certain 'Dealer Sales Agreements' between Massey-Ferguson and the bankrupt, which admittedly amounted to contracts of conditional sale under Arizona law. On April 12, 1963, some two months prior to bankruptcy, appellee repossessed the personal property in controversy 'under a claim of ownership' as seller, by virtue of the conditional sale contracts which had reserved title in the appellee until full payment of the purchase price.

The contracts of conditional sale were never filed for record in Arizona. The bankrupt had never sold or agreed to sell any of the property to any purchaser, and none of the bankrupt's creditors had placed any lien thereon, prior to appellee's repossession. Moreover, at the time the property was so repossessed by appellee, the bankrupt was insolvent and appellee had reasonable cause to believe that the bankrupt was insolvent.

The sole question presented upon this appeal is whether the District Court correctly decided that the trustee was not entitled to reclaim the repossessed property under §§ 70 sub. c, or 70 sub. e(1), or 60, sub. b, of the Bankrupt Act. (11 U.S.C. §§ 110, sub. c, 110, sub. e(1), 96, sub. b.)

Turning first to § 70, sub. c, we note that the oft-called 'strong-arm' clause of the section provides that:

'The trustee, as to all property, whether or not coming into possession or control of the court, upon which a creditor of the bankrupt could have obtained a lien by legal or equitable proceedings at the date of bankruptcy, shall be deemed vested as of such date with all the rights, remedies, and powers of a creditor then holding a lien thereon by such proceedings, whether or not such a creditor actually exists.'

We note also that the Bankruptcy Act leaves the § 70, sub. c question, whether 'a creditor of the bankrupt could have obtained a lien' on the property at the date of bankruptcy, to be determined by State law, here the law of Arizona. (See: Corn Exchange Nat. Bank & Tr. Co., Philadelphia v. Klauder, 318 U.S. 434, 63 S.Ct. 679, 87 L.Ed. 884 (1943); Bryant v. Swofford Bros. Dry Goods Co., 214 U.S. 279, 29 S.Ct. 614, 5o L.Ed. 997 (1909); In re Rosenberg Iron & Metal Co., 343 F.2d 527 (7th Cir. 1965); In re Kellett Aircraft Corp., 173 F.2d 689 (3rd Cir. 1949).)

Arizona law recognizes as valid contracts of conditional sale of personal property which reserve title to the goods in the seller. (Ariz.Rev.Stat. §§ 44-301, 44-304.) However, such contracts are made subject to § 44-305 which declares that:

'Every provision in a conditional sale reserving property in the seller,

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shall be void as to any purchaser from or creditor of the buyer, who, without notice of such provision, purchases the goods or acquires by attachment or levy a lien upon them, before the contract or a copy thereof shall be filed as hereinafter provided, and is void as all person except for the buyer unless such contract or copy is so filed within ten days after the making of the conditional sale.' (Ariz.Rev.Stat. § 44-305)

In Castaneda v. National Cash Register Co., 43 Ariz. 119, 29 P.2d 730 (1934), the Arizona Supreme Court considered the phraseology of § 2890 of the Revised Code of 1928, which is identical in relevant portions to the above-quoted provisions of § 44-305 of the Revised Statutes, and held that the phrase 'and is void as to all persons except for the buyer' could not be reconciled with the provisions immediately preceding it. In this connection, the Arizona Court said:

'Of course the Legislature did not intend to protect the seller's reserved property in one sentence and to invalidate such property under precisely the same facts in the next sentence. Effect cannot possibly be given to both these legislative expressions. One or the other, we must assume, expressed what the Legislature in fact and in truth intended. * * * We must conclude that it intended to preserve (§ 5 of the Uniform Conditional Sales Act) as originally passed.' (43 Ariz. at 125, 29 P.2d at 732.)

Section 5 of the Uniform Conditional Sales Act was originally enacted in Arizona as § 5, ch. 40 of the Laws of 1919, the language of which was identical to later § 2890; except that § 5 did not contain the phrase 'and is void as to all persons except for the buyer', but simply provided that the reservation of title in a conditional seller was void only as against purchasers and lien creditors who acquired their interests before the contract was filed for public record. And in the Castaneda case, the Arizona Court cited with approval the following comments of the Commissioners on Uniform State Laws:

'The purchasers and creditors have a right to demand that there shall be a record at the time they buy or acquire a lien, but they have no right to...

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