In re Aerocolor, Inc.

• Decision Date: 15 September 1964
• Docket Number: No. 166798.,166798.
• Court: U.S. District Court — Southern District of California
• Parties: In the Matter of AEROCOLOR, INC., dba Aero Press Co., a corporation, Bankrupt.

236 F. Supp. 84

In the Matter of AEROCOLOR, INC., dba Aero Press Co., a corporation, Bankrupt.

No. 166798.

United States District Court S. D. California, Central Division.

September 15, 1964.

Cosgrove, Cramer, Rindge & Barnum, Los Angeles, Cal., for petitioner.

Flaxman & Coleman, Los Angeles, Cal., for trustee.

CURTIS, District Judge.

This is a petition for review of a decision of the Referee in Bankruptcy declaring certain chattel mortgages executed by the bankrupt to be void as against creditors upon grounds which we shall presently consider.

The petitioner, Crocker-Citizens National Bank, first petitioned the Referee for leave to exercise a power of sale under two chattel mortgages executed by the bankrupt in its favor, referred to respectively as Aerocolor mortgage and the Web Offset mortgage, as security for a loan of $200,000 and as further security for advances thereafter to be made. The petitioner's claim against the bankrupt estate now approximates $500,000. The chattels were sold by the trustee pursuant to stipulation, and, after having paid from proceeds thereof claims of certain conditional vendors, there remains approximately $70,000, which it is conceded should be paid to the petitioner if the chattel mortgages are found to be valid.

According to the certificate of the Referee, the questions thus raised are:

1. Whether the chattel mortgages are void as against creditors because of lack of proper acknowledgment.

2. Whether the bankrupt was a manufacturer or a retail or wholesale merchant, or whether the bankrupt was engaged in a dual operation for purposes of the application of § 3440.1 of the California Civil Code.

3. Whether the validity of the chattel mortgages is affected by the recordation thereof 15 minutes prior to the time specified on the notice of intention to execute the chattel mortgages.

4. Are the descriptions of the mortgaged property, attached to the chattel mortgages, sufficient?

It is conceded that the chattel mortgages have attached thereto acknowledgments valid on their faces. But it is further conceded that the President and Secretary of the mortgagors, whose signatures were affixed, did not in fact personally appear before the notary public.

It is well settled in California that an acknowledgment not taken in substantial compliance with the applicable statute is fatally defective and the instrument is treated as if not acknowledged at all. 1 Cal.Jur.2d 482. Kelsey v. Dunlap, 7 Cal. 160; Bryan v. Ramirez, 8 Cal. 461; Barrett v. Tewksbury, 9 Cal. 13; Fogarty v. Finlay, 10 Cal. 239; Kennedy v. Gloster, 98 Cal. 143, 32 P. 941; Merced Bank v. Rosenthal, 99 Cal. 39, 31 P. 849, 33 P. 732; Le Mesnager v. Hamilton, 101 Cal. 532, 35 P. 1054; Lee v. Murphy, 119 Cal. 364, 51 P. 549; Murray v. Tulare Irr. Co., 120 Cal. 311, 49 P. 563, 52 P. 586; Rolando v. Everett, 72 Cal.App. 2d 629, 165 P.2d 33.

It is also well settled that for a valid acknowledgment, the person whose acknowledgment is to be taken must appear personally before the certifying officer for the purpose of acknowledging the instrument. Le Mesnager v. Hamilton (1894) 101 Cal. 532, 35 P. 1054; Montgomery v. Bank of America (1948) 85 Cal.App.2d 559, 193 P.2d 475; Burck v. Buchen (1941) 46 Cal.App.2d 741, 116 P.2d 958.

"When the purpose of an acknowledgement is merely to entitle the instrument to be recorded or registered, a defectively acknowledged instrument is not entitled to be recorded, and if actually recorded, it imparts no notice whatever, being as worthless for the purpose of notice as if never transcribed on the books of the recording officer." 1 Cal.Jur.2d 483. Hastings v. Vaughn, 5 Cal. 315; Wolf v. Fogarty, 6 Cal. 224; Kelsey v. Dunlap, 7 Cal. 160; Bryan v. Ramirez, 8 Cal. 461; Fogarty v. Finlay, 10 Cal. 239; Hurlbutt v. Butenop, 27 Cal. 50; McMinn v. O'Connor, 27 Cal. 238; Middlecoff v. Hemstreet, 135 Cal. 173, 67 P. 768.

To have such an effect, however, the defect must be apparent on the face of the certificate. 1 Cal.Jur.2d Merced Bank v. Rosenthal (1893) 99 Cal. 39, 31 P. 849; Lee v. Murphy (1897) 119 Cal. 364, 51 P. 549; Overton v. Harband (1935) 6 Cal. App.2d 455, 44 P.2d 484.

This exception to the general rule was first mentioned in the case of Merced Bank v. Rosenthal, supra, where the court said:

"Where the only effect of the acknowledgment is to impart notice by recording the deed, it would seem that to be void it defect must appear on the face of the instrument."

In Overton v. Harband, supra, the court said:

"There is no question as to the general rule that a party to the instrument is disqualified to take the acknowledgments. This rule is established by the authorities, such as the case of Lee v. Murphy, 119 Cal. 364, 368, 51 P. 549, 955, cited by respondents, but when the only effect of the acknowledgment is to impart notice, as in the instant case, the disqualification must appear on the face of the instrument. This exception to the general rule is recognized in Lee v. Murphy, supra, and in Merced Bank v. Rosenthal, 99 Cal. 39, 31 P. 849, 33 P. 732."

Admittedly, the authorities in California in support of the exception are few and weak, but the courts have never had occasion to rule with greater force upon it. These cases, I believe, are sufficient to indicate that if the courts of California were to rule upon the point, they would uphold, under such circumstances, an acknowledgment valid on its face, even though subject to a latent defect. This appears to be the majority rule.

A recent article in 59 A.L.R.2d 1299 summarizes the rule as follows:

"If a statute requires that an instrument, before it shall be recorded, shall be acknowledged, and there is either no acknowledgment or a purported acknowledgment is defective in such a way as to render the instrument ineligible for recordation, the general rule is that if it is nevertheless recorded the recordation does not impart constructive notice to anyone of its existence or contents. An exception to this, as developed by most courts, is that where such a defect is not apparent on the face of the record the recordation of an instrument so defectively acknowledged but bearing a certificate of acknowledgment in lawful form imparts constructive notice thereof to third persons not having actual notice of the defect."

"The general rule, as established by the numerical weight of authority, is that a defect in the acknowledgment of an instrument required for recordation, which is not apparent on the face of the instrument, as acknowledged, does not prevent the recordation from being constructive notice to persons who may be affected by the transaction recorded." 59 A.L.R.2d 1316.

The theory behind the exception to the general rule was expressed in the case of Boswell v. First National Bank of Laramie, 16 Wyo. 161, 92 P. 624.

"Where, however, the infirmity is not apparent upon the face of the deed or instrument or certificate of acknowledgment, but the acknowledgment appears to be fair and regular and to have been properly taken, and the instrument is one which would not be invalidated as between the parties to it by a defective acknowledgment, the recording of the instrument in the proper office will operate as constructive notice thereof, notwithstanding the latent defect. This rule is sustained by abundant authority and is founded upon public policy, to carry out the purpose of the recording acts and preserve the reliability of the public records of transfers and conveyances. It is readily to be seen that a contrary rule would render unsafe any reliance upon the record of deeds or instruments requiring acknowledgment to entitle them to be recorded. It is clearly not incumbent upon the recording officer to enter upon an extrinsic investigation, before receiving for record an instrument regular on its face, to discover whether the acknowledging officer was in fact disqualified because of interest. So far as the defect now being considered is concerned, if upon the face thereof the instrument is recordable, and it

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