Clark v. Huckaby

• Decision Date: 14 August 1928
• Docket Number: No. 7995.,7995.
• Citation: 28 F.2d 154,67 ALR 1456
• Parties: CLARK v. HUCKABY et al.
• Court: U.S. Court of Appeals — Eighth Circuit

67 ALR 1456, 28 F.2d 154 (1928)

CLARK v. HUCKABY et al.^*

No. 7995.

Circuit Court of Appeals, Eighth Circuit.

August 14, 1928.

W. C. Hughes, of Montgomery City, Mo., and Henry L. Fist, of Tulsa, Okl. (Charles L. Yancey, of Tulsa, Okl., on the brief), for appellant.

G. C. Spillers, of Tulsa, Okl. (Turk & Mauldin, of Tulsa, Okl., on the brief), for appellees.

Before LEWIS, Circuit Judge, and SCOTT and DAVIS, District Judges.

DAVIS, District Judge.

The referee in bankruptcy for the Northern district of Oklahoma sustained the lien of a chattel mortgage as to certain store fixtures and denied the lien as to a certain stock of merchandise. The District Court on a petition to review sustained the lien as to both the store fixtures and the stock of goods. The case is brought here on appeal allowed by the court below.

I. The facts were stipulated by the parties. They are in brief, as follows: H. C. Huckaby, appellee, was the owner of a stock of merchandise and fixtures located at Jenks, Okl., on which there was no indebtedness. He sold this stock of goods on January 17, 1925, to George J. and Bess E. Kramer, for a total consideration of $9,036.35. This consideration was paid, $1,500 in cash, and the balance by the execution of two notes, one in the sum of $1,500, and the other in the sum of $6,036.35. These two notes were secured by a chattel mortgage on the stock of goods. The mortgage contained the following provisions:

"(1) That the $1,500 note above referred to was to be paid by the application thereto of one-half of the first $3,000 received by the Kramers from the sale of merchandise;

"(2) That the $6,036.35 note was to be paid at the rate of $100 per month."

This mortgage was recorded in Tulsa county on January 20, 1925. The $1,500 note was paid from the proceeds of the sales out of the stock of merchandise as provided in the mortgage. On the other note there were payments made aggregating $2,136.35, leaving a balance of $3,900. The purchasers of the stock of goods, entered into possession on the date of the purchase and remained in possession until they filed a voluntary petition in bankruptcy, on December 22, 1926. A very short time after this petition was filed, "probably not more than one hour," the appellee, Huckaby, appeared at the premises of the Kramers, and, in their absence, took possession of what remained of the stock of goods and the store fixtures. On the same day the petition in bankruptcy was filed, W. H. Clark, appellant, was appointed receiver in bankruptcy, and, upon demand, the appellee surrendered to him, as such receiver, the stock of merchandise and the fixtures.

Thereafter the appellee was granted leave, and filed his petition of intervention in the bankruptcy case, wherein he set up the above facts, and prayed that it be ordered and decreed that he had a first and prior lien on the stock of merchandise, and the store fixtures, and that it be determined that he was the owner thereof and entitled to the immediate possession, and that the receiver be ordered to deliver the said property to the intervener.

During the pendency of the case in the bankruptcy court, in accordance with a stipulation of the parties, the receiver sold the stock of merchandise and fixtures and retained the proceeds, $2,725, in his hands awaiting the final determination of the litigation.

At the time the mortgage was executed, the Kramers had no outstanding debts and all of the indebtedness at bankruptcy was created subsequent to the execution and the recording of the chattel mortgage.

II. During the argument of this case, appellee filed a motion to dismiss the appeal on the ground that it was allowed by the District Court, and not by this court.

An appeal under section 24b of the Bankruptcy Act (USCA tit. 11, § 47b), as amended May 27, 1926, must be allowed by the appellate court. An appeal under sections 24a and 25a of the Bankruptcy Act as amended (USCA tit. 11, §§ 47a and 48a), is properly allowed by the District Court. The nature of the proceeding determines the question as to the manner of seeking a review. The "proceeding in bankruptcy," reviewable under section 24b as amended, are the ordinary administrative orders entered of necessity in the course of every bankruptcy case. The statute contemplates that the administration of estates should not be interrupted by a proceeding to review such orders of the court of bankruptcy, except in the cases for which provision is made in section 25a, as amended, unless the appellate tribunal in its discretion authorizes the appeal. In the Matter of Loving, 224 U. S. 183, 32 S. Ct. 446, 56 L. Ed. 725; Rutherford v. Elliott (C. C. A.) 18 F.(2d) 956, 10 A. B. R. (N. S.) 102; Broders v. Lage, Bankrupt (C. C. A. 8) 25 F.(2d) 288; Stanley's Incorporated Store v. Earl, Bankrupt (C. C. A. 8) 25 F.(2d) 458, filed March 30, 1928.

The judgment sought to be reviewed in this case was one entered on an issue presented by an intervening petition. The intervener did not assert a claim for the balance due on the mortgage notes. He asked to be declared the owner of the property in the hands of the receiver. The purpose of the action was to establish a lien upon certain property, independent of, and not incidental to, the allowance of a demand. The court sustained the intervener's contention and as the property had, by the stipulation of the parties, been sold and converted into cash, the intervener was given judgment in the sum of $2,725, less costs. This sum did not represent the amount due on the notes, but was the amount of cash derived from the sale of the property. This judgment was not an ordinary administrative determination of a question arising in a bankruptcy proceeding, and consequently was not appealable under section 24b.

The issue here presented is properly reviewable as a controversy arising in a bankruptcy proceeding under section 24a, as amended, of the Bankruptcy Act. The Supreme Court in the case of Taylor, Trustee, v. Voss, Trustee, 271 U. S. 176, 46 S. Ct. 461, 70 L. Ed. 889, 7 A. B. R. (N. S.) 706, said:

"It is now settled by the decisions of this court, that the `controversies arising in bankruptcy proceedings' referred to in section 24a, include those matters arising in the course of a bankruptcy proceeding, which are not mere steps in the ordinary administration of the bankrupt estate, but present, by intervention or otherwise, distinct and separable issues between the trustee and adverse claimants concerning the right and title to the bankrupt's estate. * * * In such `controversies' the decrees of the court of bankruptcy may be reviewed by appeals which bring up the whole matter and open both the facts and the law for consideration." Knapp, Trustee, v. Milwaukee Trust Co., 216 U. S. 545, 30 S. Ct. 412, 54 L. Ed. 610, 24 A. B. R. 761; Houghton v. Burden, 228 U. S. 161, 33 S. Ct. 491, 57 L. Ed. 780, 30 A. B. R. 16; Foster v. McMasters (C. C. A. 8) 15 F.(2d) 751; In re Hartzell (C. C. A. 8) 209 F. 775.

The motion to dismiss is without merit, as the appeal was properly allowed by the District Court.

III. The appellant asserts that the chattel mortgage was void as to creditors and does not constitute a lien on the property of the bankrupt estate, because the mortgagors were allowed to remain in possession of the mortgaged property, and to sell the same in the regular course of business, and to apply the proceeds to their own use.

This issue must be determined by the application of the law of the state where the property was located, the mortgage executed and recorded. In Etheridge v. Sperry et al., 139 U. S. 266, 11 S. Ct. 565, 35 L. Ed. 171, the court held:

"While chattel mortgages are instruments of general use, each state has a right to determine for itself under what circumstances they may be executed, the extent of the rights conferred thereby, and the conditions of their validity. They are instruments for the transfer of property, and the rules concerning the transfer of property are primarily, at least, a matter of state regulation. We are aware that there is great diversity in the rulings on this question by the courts of the several states; but whatever may be our individual views as to what the law ought to be in respect thereto, there is so much of a local nature entering into chattel mortgages that this court will accept the settled law of each state as decisive in respect to any case arising therein."

See, also, Holt v. Crucible Steel Co., 224 U. S. 262, 32 S. Ct. 414, 56 L. Ed. 756, 27 A. B. R. 856; Thompson v. Fairbanks, 196 U. S. 516, 25 S. Ct. 306, 49 L. Ed. 577, 13 A. B. R. 437.

By the terms of the chattel mortgage the mortgagors were permitted to remain in possession of the stock of goods, and to make sales from said stock. One-half of the first $3,000 received from such sales was to be applied in payment of the $1,500 mortgage note, and the balance the mortgagors were permitted to retain. After the payment of this note no accounting, whatsoever, was required of the mortgagors in the making of sales, but they were obligated to pay $100 per month on the other mortgage note. The receiver contends that these provisions of the mortgage render it a nullity.

The validity of such a mortgage was before the Oklahoma Territory court in the case of Bank of Perry v. Cooke et al., 3 Okl. 534, 41 P. 628, where it was said:

"It seems that this case comes clearly within the rule as laid down by the authorities cited, and that it cannot meet the test. The mortgagor undoubtedly was allowed to retain possession of the stock of goods, carry on his business in the usual course of trade and apply the proceeds to his own use. We believe that the better rule is that such a...