In re Alikasovich, 14019.

• Decision Date: 07 March 1960
• Docket Number: No. 14019.,14019.
• Parties: In the Matter of Todor R. ALIKASOVICH d/b/a Miami Cleaners & Tailors, Bankrupt. Wm. G. LEWIS, Trustee in Bankruptcy, Appellant, v. MANUFACTURERS NATIONAL BANK OF DETROIT, a National Banking Association, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

275 F.2d 454 (1960)

In the Matter of Todor R. ALIKASOVICH d/b/a Miami Cleaners & Tailors, Bankrupt.

Wm. G. LEWIS, Trustee in Bankruptcy, Appellant, v. MANUFACTURERS NATIONAL BANK OF DETROIT, a National Banking Association, Appellee.

No. 14019.

United States Court of Appeals Sixth Circuit.

March 7, 1960.

Stuart E. Hertzberg, Detroit, Mich., (Herbert N. Weingarten, Detroit, Mich., on the brief), for appellant.

Richard D. Rohr, Detroit, Mich., (Carson C. Grunewald, Bodman, Longley, Bogle, Armstrong & Dahling, Detroit, Mich., on the brief), for appellee.

Before CECIL, POPE and WEICK, Circuit Judges.

WEICK, Circuit Judge.

This case involves the validity of a chattel mortgage on an automobile as against the claims of the trustee in bankruptcy of the mortgagor.

Prior to bankruptcy, the bankrupt had borrowed money from Manufacturers National Bank of Detroit, Michigan. To evidence the loan and secure its payment on November 4, 1957 he executed and delivered to the bank a promissory note and chattel mortgage on his 1953 Pontiac automobile. The proceeds of the loan were disbursed on the following day. The papers were then forwarded from the bank's branch office, where the loan had been made, to its downtown office for processing and recording of the mortgage. The chattel mortgage was filed by the bank with the Wayne County Register of Deeds on November 8, 1957.

About five months later, namely, April 18, 1958 the borrower filed a voluntary petition in bankruptcy in the District Court upon which an adjudication in Bankruptcy was duly entered.

The referee in bankruptcy held that the mortgage was void as against the trustee in bankruptcy. The District Judge reversed the order of the referee and the trustee in bankruptcy has appealed to this Court.

The pertinent provision of Michigan Statutes Annotated, 26.929, Comp.Laws 1948, § 566.140, as amended by Public Act 233, September 27, 1957 relating to the recording of chattel mortgages is as follows:

"Every mortgage or conveyance intended to operate as a mortgage of goods and chattels which shall hereafter be made which shall not be accompanied by an immediate delivery and followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, and as against subsequent purchasers or mortgagees in good faith, unless the mortgage or a true copy thereof shall be filed in the office of the register of deeds of the county where the goods or chattels are located, and also where the mortgagor resides. * * Provided, however, that no purchase money mortgage shall be void as against the creditors of the mortgagor if filed within 14 days from the date of the execution of such mortgage. * * *"

The last proviso in the statute is the amendment of September 27, 1957. Obviously, it has no application to the present case since the chattel mortgage was not a purchase money mortgage.

The Michigan statute has been construed to require the chattel mortgage to be filed immediately with the Register of Deeds. General Motors Acceptance Corp. v. Coller, 6 Cir., 1939, 106 F.2d 584. Unless so filed, the chattel mortgage is void as against creditors who extended credit in the interim between the date of the instrument and its filing for record. Trailmobile, Inc. v. Wiseman, 6 Cir., 1957, 244 F.2d 76; Klingensmith v. James B. Clow & Sons, 1935, 270 Mich. 460, 259 N.W. 312; Ransom & Randolph Co. v. Moore, 1935, 272 Mich. 31, 261 N.W. 128; Burroughs Adding Machine Co. v. Wieselberg, 1925, 230 Mich. 15, 203 N.W. 160; O'Neil v. Brooks, 1914, 180 Mich. 540, 147 N.W. 537; Fearey v. Cummings, 1879, 41 Mich. 376, 1 N.W. 946; Cf. Moore v. Bay, 1931, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133.

There was no evidence that any creditor had extended credit to the bankrupt between the date of the mortgage and its recording four days later. Since no creditors had intervened in the present case, the chattel mortgage of the bank was valid and unassailable under Michigan law. If any imperfection had existed in the mortgage it had become perfected long before bankruptcy.

The trustee in bankruptcy contends that although unassailable under state law, the chattel mortgage was void by reason of the provisions of Section 70, subsection c of the Bankruptcy Act¹ which gave to the trustee the status of a perfect hypothetical creditor and, therefore, the case must be considered as if a creditor did exist in the interim period.

The trustee relies on Constance v. Harvey, 2 Cir., 1954, 215 F.2d 571, 575, certiorari denied 348 U.S. 913, 75 S.Ct. 294, 99 L.Ed. 716, which involved the validity of a chattel mortgage under New York law. As judicially construed, the New York statute granted a reasonable time to file the mortgage after its execution. In that case over 10 months had elapsed between the date of the mortgage and its filing for record which the court said was not within a reasonable time. No creditor, however, had intervened in the interim. The court held the mortgage void under Section 70, subsection c of the Bankruptcy Act.² The court said:

"Since an existing creditor without notice of the chattel mortgage, could have obtained a lien at the time of the filing of the petition in bankruptcy, and since under § 70, sub. (c) of the Bankruptcy Act the Trustee was entitled to be put in the position of an `ideal\' hypothetical creditor — Hoffman v. Cream-O-Products, 2 Cir., 1950, 180 F.2d 649, certiorari denied 1950, 340 U.S. 815, 71 S.Ct. 44, 95 L.Ed. 599, we think his position must prevail over that of the mortgagee-appellant."

The trouble with Constance v Harvey, in our judgment, was in the retroactive extension of the rights of the trustee in bankruptcy to include those of a creditor which did not in fact exist as of a period almost one year prior to bankruptcy. The critical time for the accrual of the trustee's rights under Section 70, sub. c is "at the date of bankruptcy" not prior thereto. The trustee can only be "vested as of such date" with the rights of a creditor "then holding a lien whether or not such a creditor actually exists." This means a creditor at that time and not prior thereto. Before Constance v. Harvey, it had always been understood that the trustee's rights under Section 70, sub. c accrued as of the date of bankruptcy and not earlier. There is nothing in the section giving to either the trustee or a creditor rights antecedent to bankruptcy.

The rights and remedies of the trustee under Section 70, subsection e of the Bankruptcy Act to reach fraudulent or otherwise invalid transfers or encumbrances must not be confused with his rights under Section 70, subsection c. While Section 70, subsection e would permit a trustee to reach invalid transfers or encumbrances whenever they arose, it would afford no remedy here where the lien of the chattel mortgage had been perfected and was valid against creditors long before bankruptcy.

Section 70, subsection c gives the trustee the status of a lien...