Friedman v. Sterling Refrigerator Co.

• Decision Date: 12 June 1939
• Docket Number: No. 4431.,4431.
• Citation: 104 F.2d 837
• Parties: FRIEDMAN v. STERLING REFRIGERATOR CO.
• Court: U.S. Court of Appeals — Fourth Circuit

104 F.2d 837 (1939)

FRIEDMAN v. STERLING REFRIGERATOR CO.

No. 4431.

Circuit Court of Appeals, Fourth Circuit.

June 12, 1939.

COPYRIGHT MATERIAL OMITTED

Irving B. Grandberg, of Baltimore, Md., for appellant.

Samuel J. Aaron and Jesse Jay Rubin, both of Baltimore, Md. (Howard L. Aaron, of Baltimore, Md., on the brief), for appellee.

Before PARKER and NORTHCOTT, Circuit Judges, and WAY, District Judge.

PARKER, Circuit Judge.

This is an appeal by the Trustee in Bankruptcy in a controversy arising in the bankruptcy proceeding of Darwin E. Wilhelm. The Sterling Refrigerator Company claims a refrigerator show case sold by it to the bankrupt under a conditional sale contract. The trustee in bankruptcy opposes its claim on the ground that a portion of the claim of one of the creditors arose after the delivery of the show case to bankrupt and prior to the recording of the conditional sale contract as required by the statute of Maryland. The referee in bankruptcy decided the issue so raised in favor of the trustee; but the District Judge reversed the referee, and the trustee has appealed to this court. The determinative facts were well stated by the District Judge as follows:

"The facts affecting the claim of the Sterling Refrigerator Company are these. The bankrupt was engaged in the retail confectionery business, and for that purpose contracted to buy a `refrigerator case' under conventional form of conditional sale contract. The case was delivered to the bankrupt on February 11, 1938, and promptly put into temporary use although certain incidental attachments were not delivered and installed until February 26, 1938. The total purchase price was $786.25, of which $534.25 remained due at the time of filing the petition in bankruptcy on September 27, 1938. The contract was recorded February 17, 1938. The only possible subsequently intervening creditor is Frey & Son, a wholesale grocer, who, as an unsecured creditor, filed a claim in the bankruptcy estate in the total amount of $164.73 for balance due on deliveries of merchandise between December 16, 1937, and February 22, 1938, of which, however, there was only one delivery (February 12, 1938, in the amount of $14.23) between February 11th and February 17th. The additional testimony at the hearing showed that in December of 1937 the bankrupt established a line of credit and began a running account with Frey & Son. Pursuant thereto from time to time orders for merchandise were given and currently filled by Frey & Son. The order for the delivery made on February 12, 1938, was given a day or two prior to February 11th, which was the date on which the refrigerator case was delivered to the bankrupt."

The provisions of the Bankruptcy Act here applicable are sections 67a and 70e of the Bankruptcy Act of 1898, as amended, 11 U.S.C.A. §§ 107(a) and 110 (e). The first of these provides that claims which for want of record would not have been valid liens as against claims of creditors of the bankrupt shall not be liens against his estate. The second provides that the trustee may avoid any transfer by the bankrupt of his property which any creditor might have avoided. Under these sections, it is held that a claim which for want of record is void as against some but not all of the creditors of the bankrupt may be avoided in toto by the trustee in bankruptcy, even though creditors generally benefit by the avoidance. Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133, 76 A.L.R. 1198; In re Sachs, 4 Cir., 30 F. 2d 510; In re Moore, 4 Cir., 11 F.2d 62.

The statute of Maryland applicable is section 55 of Art. 21 of the 1935 Supplement to the Annotated Code of Maryland. It provides that a conditional sale contract with respect to the reservation of title shall be void "as to third parties without notice" until recorded.¹ The term "third parties without notice" includes subsequent creditors, whether lien creditors or not. Enterprise Fuel Co. v. Jones, 4 Cir., 99 F.2d 928; Roberts & Co. v. Robinson, 141 Md. 37, 118 A. 198; In re Sachs, supra. Since one of the creditors here furnished goods to bankrupt subsequent to the execution of the conditional sale contract and prior to its recording, we think it clear that the reservation of title therein contained was void as against such creditor, under the Maryland statute, and consequently void as against the trustee in bankruptcy under the provisions of the Bankruptcy Act to which we have referred.

The learned judge below held to the contrary, on the theory that the crucial date in determining the status of the creditor was that on which the credit was agreed upon rather than that upon which the goods were delivered; but we find no authority for such distinction and we do not think it sound. The creditor's claim for goods sold and delivered, which is the claim upon which he relies, does not arise until the delivery of the goods; and, in making the delivery upon which such claim arises and parting with title to the goods delivered, he is a "third person without notice", whom it was the purpose of the statute to protect. The fact that delivery may have been made in accordance with a pre-existing contract is immaterial; for, notwithstanding such contract the seller could...