First Nat. Bank of Pittsburgh, PA. v. Guarantee Title & Trust Co.

• Decision Date: 15 February 1910
• Docket Number: 30 (1,276).,29
• Citation: 178 F. 187
• Parties: FIRST NAT. BANK OF PITTSBURGH, PA., v. GUARANTEE TITLE & TRUST CO. GUARANTEE TITLE & TRUST CO. v. FIRST NAT. BANK OF PITTSBURGH, PA.
• Court: U.S. Court of Appeals — Third Circuit

178 F. 187

FIRST NAT. BANK OF PITTSBURGH, PA., v. GUARANTEE TITLE & TRUST CO.

GUARANTEE TITLE & TRUST CO. v. FIRST NAT. BANK OF PITTSBURGH, PA.

Nos. 29, 30 (1,276).

United States Court of Appeals, Third Circuit.

February 15, 1910

William M. Hall, for First National Bank of Pittsburgh, Pa.

W. A Way and John M. Ralston, for Guarantee Title & Trust Co.

Before GRAY, BUFFINGTON, and LANNING, Circuit Judges.

LANNING Circuit Judge.

The essential facts of this case are these: On June 18, 1904 Jonathan A. Perley and Maurice B. Perley, copartners in business trading under the name of Perley & Bro., executed and delivered to the Industrial National Bank of Pittsburgh an instrument in writing, by which they assigned to the bank all their book accounts and accounts receivable contracted in and about their business as paper dealers in Pittsburgh, together with all their future book accounts and accounts receivable, as collateral security for all notes and obligations upon which they or either of them might at any time thereafter be liable to the bank.

On September 22, 1904, they also executed and delivered to the bank a bill of sale, absolute in form, for certain specifically described machinery, which the bill of sale declared was then situated and contained in their warehouse and place of business at 111 Second avenue, Pittsburgh. Maurice B. Perley died December 15, 1905. At the date of his death the firm owed the bank $88,335.42. Jonathan A. Perley who continued the paper business after the death of Maurice under the name of Perley & Bro., increased the indebtedness to the bank until January 17, 1906, when it amounted to $91,835.22. On the last-mentioned date the Industrial National Bank assigned the notes and obligations representing this indebtedness and the bills of sale of the book accounts and machinery above mentioned to the First National Bank of Pittsburgh, which last-mentioned bank, one of the parties to this proceeding, from time to time renewed the Perley & Bro. paper, and took other paper of the same kind, until September 12, 1906, when the total indebtedness amounted to $94,319.17, and when, on a creditors' bill in a state court alleging insolvency, a receiver was appointed 'for Jonathan A. Perley, surviving and liquidating partner of the firm of Perley & Bro.' On September 29, 1906, a petition was filed in the bankruptcy court on which on November 16, 1906, 'Jonathan A. Perley, surviving partner of the firm composed of Jonathan A. Perley and Maurice B. Perley, trading as Perley & Bro., was adjudged bankrupt,' and thereupon the Guarantee Title & Trust Company was appointed receiver in bankruptcy, and subsequently trustee of the bankrupt's estate. The trustee sold the machinery described in the bill of sale of it for the sum of $8,800, and now holds that sum subject to such disposition thereof as the court shall direct. The trustee also has in hand the sum of $17,329.40 of moneys collected by it from the book accounts. It should be added that, after the death of Maurice B. Perley, Jonathan removed the machinery to a new place of business, and that on September 5, 1906, one week before the creditors' bill was filed in the state court, but after the whole of the indebtedness of $94,319.17 had been created, the bank served on Jonathan A. Perley a notice that it then took possession of the machinery and book accounts assigned to it as collateral, but that no attempt was made by the bank to identify, set apart, remove, or take actual possession of the machinery or of the books of account. On these facts and the law of the state of Pennsylvania as applied to them the referee decided that the proceeds of the sale of the machinery, $8,800, belonged to the trustee in bankruptcy, and that the proceeds of the book accounts, $17,329.40, belonged to the bank. The district court affirmed this decision. Each of the parties now appeals.

Whether a conditional contract of sale, chattel mortgage, or pledge of personal property is valid as against the general creditors of the vendor, mortgagor, or pledgor, or his trustee in bankruptcy, must be determined by the local laws of the state in which the transaction is had.

Bryant v. Swofford Bros., 214 U.S. 279, 29 Sup.Ct. 614, 53 L.Ed. 997; Thompson v. Fairbanks, 196 U.S. 516, 25 Sup.Ct. 306, 49 L.Ed. 577; York Manufacturing Co. v. Cassell, 201 U.S. 344, 26 Sup.Ct. 481, 50 L.Ed. 782. In the case at bar, the pledge of the machinery as security for the indebtedness to the bank was executed two years before the commencement of the bankruptcy proceedings, but the bank had never taken possession of the machinery. By the appointment of a receiver by the state court on September 12, 1906, upon a creditors' bill, on the ground of insolvency, the receiver became vested with the rights of a levying creditor. Duplex Printing Press Co. v. Clipper Pub. Co., 213 Pa. 207, 62 A. 841. By the law of the same state, delivery of possession of personal property capable of physical possession is indispensable to transfer a title which shall be good against creditors of the vendor who have acquired liens on such property while in the vendor's possession. White v. Gunn, 205 Pa. 229, 54 A. 901. In Clow v. Woods, 5 Serg. & R. (Pa.) 278, 9 Am.Dec. 346, Justice Gibson said:

'I take it, where the motive of the sale is merely security to the vendee, and the owner is permitted to retain all the visible marks of ownership for no other reason than the convenience of the parties, the contract will be void, although the reasons for the arrangement be inserted and the possession be consistent with the deed. The law will not and ought not to permit the owner of personal property to create an interest in another, either by mortgage or absolute sale, and still continue to be the ostensible owner.'

This rule was confirmed in Barlow v. Fox, 203 Pa. 114, 52 A. 57. The principle on which it was founded was recognized and enforced by this court in Fourth St. Nat. Bank v. Millbourne Mills Co.'s. Trustee, 172 F. 177, 96 C.C.A. 629. In the case at bar it should be remembered, too, that the bill of sale for the machinery was absolute in form, and did not by its terms in any wise indicate that it was intended as a mortgage or pledge of the machinery to secure a debt.

It must be conceded then, we think, that between September 12, 1906, when the receiver was appointed by the state court, and September 29, 1906, when the bankruptcy proceedings were commenced, the claim of the bank was subordinate to that of the receiver appointed by the state court. The question is whether the lien which that receiver had passed to the trustee in bankruptcy. That question is to be determined by the bankruptcy act.

Section 67c of the bankruptcy act is as follows:

'A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person within four months before the filing of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this act; or if the dissolution of such lien would militate against the best interests of the estate of such person the same shall not be dissolved, but the trustee of the estate of such person, for the benefit of the estate, shall be subrogated to the rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened. ' Act July 1, 1898, c. 541, 30 Stat. 564 (U.S. Comp. St. 1901, p. 3449).

The lien obtained by the receiver appointed by the state court was in a proceeding in equity begun against Jonathan A Perley within...