C. I. T. Corporation v. Haynie

• Decision Date: 10 November 1939
• Docket Number: No. 1945.,1945.
• Parties: C. I. T. CORPORATION v. HAYNIE.
• Court: Texas Court of Appeals

135 S.W.2d 618

C. I. T. CORPORATION v. HAYNIE.

No. 1945.

Court of Civil Appeals of Texas. Eastland.

November 10, 1939.

Rehearing Denied January 12, 1940.

COPYRIGHT MATERIAL OMITTED

Appeal from District Court, Taylor County; M. S. Long, Judge.

Action for debt and possession of merchandise by the C. I. T. Corporation against William A. Turnidge, wherein a receiver was appointed and wherein R. W. Haynie, trustee in bankruptcy of William A. Turnidge, trading under the name of Army Store or Turnidge Appliance Store, intervened, and the plaintiff asserted a cross-action against intervener claiming ownership of the property and in the alternative a lien thereon. From a judgment for the intervener, the plaintiff appeals.

Reversed and rendered.

Smith & Eplen, of Abilene, for appellant.

Hudson Smart, of Abilene, for appellee.

FUNDERBURK, Justice.

As incident to a suit by C. I. T. Corporation against Wm. A. Turnidge, seeking judgment for debt and possession of particular merchandise, the State District Court, through a receiver, took possession of such property, on April 18, 1938. Subsequently on the same day, Wm. A. Turnidge, under the trade name of "Army Store" and/or "Turnidge Appliance Store," filed a petition in voluntary bankruptcy. R. W. Haynie, the trustee in bankruptcy, on June 4, 1938, filed a petition of intervention in said State Court claiming said property as assets of the bankrupt's estate and seeking recovery of the possession thereof. C. I. T. Corporation, in the attitude of a defendant as to the intervener, in addition to defensive pleadings, asserted a cross-action against the intervener claiming ownership of the property, and in the alternative a lien thereon. By agreement the property was sold and the proceeds, in the sum of $1,600, is held in lieu of the property.

In a nonjury trial judgment was rendered for said intervener and against C. I. T. Corporation, reciting, in part, that it was the "opinion of the court that this court has no jurisdiction over the property involved and that the proceeds of the same should be delivered to the said trustee in bankruptcy." It was, "therefore, ordered, adjudged and decreed that the district clerk deliver to R. W. Haynie, Trustee in Bankruptcy, the proceeds of the sale of said chattels, being the sum of $1600, and it is further ordered, adjudged and decreed that this action be and is hereby dismissed" etc. The plaintiff C. I. T. Corporation has appealed.

There was no question involved regarding the trial court's jurisdiction. The judgment disposed of the controversy on its merits, and we shall treat the purported dismissal of the action as surplusage, or at any rate as not affecting the real nature of the action and judgment as stated.

We regard the pleadings as presenting no issue relating to the custody of the property in controversy at the particular time of filing the petition in bankruptcy. The receiver of the State Court had taken possession of the property from Turnidge and the fact is of no importance, we think, that all of the property may not have been removed from the premises before the petition in bankruptcy was filed. The appearance of appellee in the State Court as an intervener in the light of the allegations of his petition, was conclusive, we think, that the recovery of possession sought by him related to property of which he had not acquired the custody for the bankruptcy court.

Two questions are presented for decision. The first is whether or not a "reservation of the title to or property in chattels [effective by means of trust receipts, executed in compliance with previous contract], as security for the purchase money thereof" which R.S.1925, Art. 5489, declares "shall be held to be chattel mortgages", are such mortgages or liens as R.S.1925, Art. 4000, Vernon's Ann.Civ.St. art. 4000, under the circumstances therein stated, declares to be "fraudulent and void". The other is whether or not in Texas the "rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied" which sec. 47, sub. a, of the Bankruptcy Law, 11 U.S.C.A. § 75, sub. a, confers upon a trustee in bankruptcy, include the right, remedy or power of such trustee to recover the possession of chattels from a mortgagee or lienee in holding possession under a valid but unregistered mortgage or lien.

The first question was answered by the Supreme Court in Bowen v. Lansing Wagon Works, 91 Tex. 385, 43 S.W. 872, 874. According to that decision, although a "reservation of the title to, or property in chattels as security for the purchase money thereof" be held to be a chattel mortgage and subject to all the provisions of R.S. 1925, Arts. 5489 and 5490, it is not subject to the provisions of R.S.1925, Art. 4000. That is to say, such a mortgage or lien, even though thereafter the chattels constitute a "stock of goods, wares or merchandise daily exposed to sale, in parcels, in the regular course of business" etc., is not by said Art. 4000 declared to be fraudulent or void. In terms of the reasons supporting it, the proposition may be otherwise stated thus: A lien consisting of a bona fide "reservation of the title to or property in chattels, as security for the purchase money thereof" which Art. 5489 declares to be a chattel mortgage, is not a chattel mortgage given by an "owner of any stock of goods, wares or merchandise daily exposed to sale" etc. within the meaning of said Art. 4000.

The decision in Bowen v. Lansing Wagon Works, supra, so far as we have found, has never been overruled or modified by any subsequent decision of the Supreme Court. The holding upon the point stated has been followed in a number of decisions of the Courts of Civil Appeals, at least one decision by the Commission of Appeals and one or more decisions of Federal courts. Commercial Credit Co. v. Schlegel-Storseth Motor Co., Tex.Com.App., 23 S.W.2d 702; Universal Credit Co. v. Vance, Tex.Civ. App., 117 S.W.2d 508, 511; International Harvester Co. v. Smith, Tex.Civ.App., 91 S.W.2d 827, 830; Grimes v. Huntsville State Bank, Tex.Civ.App., 12 S.W.2d 1087; Park v. South Bend, etc., Co., Tex.Civ. App., 199 S.W. 843, 844; Mayfield Co. v. Harlan & Harlan, Tex.Civ.App., 184 S.W. 313; Hall v. Keating Implement, etc., Co., 33 Tex.Civ.App. 526, 77 S.W. 1054, 1056; B. F. Avery & Sons v. Waples, 19 Tex.Civ. App. 672, 49 S.W. 151; In re Varner, D. C., 297 F. 337.

The pleadings presented no issue that the purported reservation of title in C. I. T. Corporation as security for the purchase price of the radios and other merchandise involved was merely simulated, or only colorable. The action brought by appellee challenged the validity of the reservation of title and the taking possession of the property by appellant under the terms of its contract with Turnidge, solely on the ground that such reservation and act of taking possession were void.

Upon the authorities above cited, it is our conclusion that the reservation of title was not void but valid, unless appellee showed that he occupied the position of a (lien) creditor, a bona fide purchaser, or the right to recover possession by virtue of authority conferred under the provisions of 11 U.S.C.A. § 75, sub. a, hereafter to be noticed.

Upon the second question, it may be well to consider, preliminarily, the applicable provisions of law as existing prior to the amendment of June 25, 1910 of section 47 of the United States bankruptcy statutes, 11 U.S.C.A. § 75, sub. a, in order to determine the change, if any, and the nature thereof effected by said amendment.

In this State, chattel mortgages though unregistered, were valid as between the parties thereto and all others, except "subsequent purchasers and mortgagees or other lien holders in good faith." Article 5490. The law in that respect has not been changed. The proposition is still sound that one who has not acquired a lien by process of law on chattels, claimed (by another) under a prior, unrecorded, mortgage is not a creditor within the meaning of the statute regarding chattel mortgages, and is not entitled to protection as such. Overstreet v. Manning, 67 Tex. 657, 4 S.W. 248; Grace v. Wade & Mains, 45 Tex. 522, 527; Biccochi v. Casey-Swasey Co., 91 Tex. 259, 270, 42 S.W. 963, 66 Am.St.Rep. 875; Bowen v. Lansing Wagon Works, supra; Commercial Credit Co. v. Schlegel-Storseth Motor Co., Tex.Com.App., 23 S.W.2d 702. Before said amendment of 1910, presently to be noticed, it was settled that an adjudication in bankruptcy (operative as of the time of filing the petition in bankruptcy) would not have the effect to give a trustee in bankruptcy the status of a lien creditor as to valid, although unregistered, mortgages or other liens. York Mfg. Co. v. Cassell, 201 U.S. 344, 26 S.Ct. 481, 50 L.Ed. 782.

Said amendment provides that "trustees, as to all property in custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also as to all property not in the 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." The first part of the provision conferring upon the trustee the "rights, remedies, and powers of a creditor holding a lien" etc. is by its own terms applicable only in cases wherein the property is in the custody, or comes into the custody, of the bankruptcy court. In such case the rights, remedies and powers accrue as of the time of filing the petition in bankruptcy. Bailey v. Baker Ice Machine Co., 239 U.S. 268, 36 S.Ct. 50 60 L.Ed. 275; Carey v. Donohue, 240 U. S. 430, 36 S.Ct. 386, 60 L.Ed. 726, L.R.A. 1917A, 295; Martin v. Commercial Nat. Bank, 245 U.S. 513, 38 S.Ct. 176, 62 L. Ed. 441.

However, the property involved in the instant suit as already indicated has never been in the custody of the bankruptcy court....