In re Draughn & Steele Motor Co.

• Decision Date: 28 February 1931
• Citation: 49 F.2d 636
• Parties: In re DRAUGHN & STEELE MOTOR CO.
• Court: U.S. District Court — Eastern District of Kentucky

49 F.2d 636 (1931)

In re DRAUGHN & STEELE MOTOR CO.

District Court, E. D. Kentucky, at Covington.

February 28, 1931.

Willis W. Reeves, of Hazard, Ky., and Grover C. Thompson, of Lexington, Ky., for trustee.

Napier & Eblen, of Hazard, Ky., for Commercial Inv. Trust Corporation.

ANDREW M. J. COCHRAN, District Judge.

This proceeding is before me on petition for review, filed by the trustee, complaining of an order of the referee adjudging that a certain Dodge roadster, in the possession of the bankrupt at the time of its institution, was the property of the Commercial Investment Corporation, and that it have immediate possession of same. The corporation filed an intervening petition asserting title to the auto under a trust receipt executed by the bankrupt to it to secure its time draft for the sum of $804.96 executed simultaneously with the trust receipt. Possibly its petition should be construed as only asserting a lien on the auto and seeking to have it enforced. I do not find it necessary to go into the question as to the validity of an unrecorded trust receipt given to secure a debt as against general creditors, for I feel sure that in this state it is not valid. It is to be taken that under the law thereof such a document is a mortgage, and that therefore, by virtue of section 496, Kentucky Statutes, it cannot prevail over general creditors. It is well settled in this state that a conditional sale is a mortgage. To change a conditional sale into a mortgage calls for no greater wrench than to so change a trust receipt.

In the case of In re James, Inc. (D. C.) 30 F.(2d) 551, in the lower court the trust receipt there involved was held to be a conditional sale. On the appeal in Re James, Inc. (C. C. A.) 30 F.(2d) 555, 557, it was said: "The practice of a conditional sale bears some resemblance to a trust receipt."

In the case of In re Bettman-Johnson Co. (C. C. A.) 250 F. 657, 663, in speaking of the trust receipt, there involved, it was said: "We do not deem it necessary to analyze and distinguish the reported cases, or attempt a precise definition of the banker's title acquired in such transactions, for the reason that, in view of the contractual relations of the parties, if the transaction under consideration does not disclose all of the elements of a conditional sale, it is at least so far in the nature of a conditional sale as to fall within the terms of the Ohio statute."

In this state there is no statute requiring the recordation of conditional sales. The statute only requires the recordation of mortgages. But, as a conditional sale is construed to be a mortgage, the statute applies to them as much so as if they had been expressly mentioned. To hold, therefore, that the trust receipt here involved is a conditional sale is to bring it within the statute. The ground upon which a conditional sale is held to be a mortgage is that it is an attempt to evade the recording statute.

In the case of Greer v. Church, 13 Bush (Ky.) 430, a document in the form of a renting contract was held to be a sale. The court said: "The well-defined policy of the law is to have as few secret liens and claims upon property as possible, that the title may be readily and safely transmitted from one to another. This is in the interest of trade as well as opposed to fraud and collusion. Registration laws have been provided which furnish ample and cheap facilities for securing liens, and at the same time enable the vigilant to protect themselves, especially in a case like this, from imposition and fraud. There is therefore no hardship in holding that all persons shall comply with those laws, or suffer the consequences of the failure to do...