In re Beckhaus

• Decision Date: 04 January 1910
• Docket Number: 1,564.
• Citation: 177 F. 141
• Parties: In re BECKHAUS. v. McKEY. RASMUSSEN
• Court: U.S. Court of Appeals — Seventh Circuit

177 F. 141

In re BECKHAUS.

RASMUSSEN v. McKEY.

No. 1,564.

United States Court of Appeals, Seventh Circuit.

January 4, 1910

The rule that the creditor must first recover judgment before he may recover equitable assets affects the remedy only, and not the right, so that, where the recovery of a judgment becomes impracticable, it is not an indispensable requisite to enforcing the creditor's rights.

In October, 1907, Beckhaus was adjudged a bankrupt, and respondent came into possession of property consisting of a stock of merchandise, fixtures, book accounts, etc., as the property of the bankrupt. Rasmussen, petitioner here, filed a petition in the District Court, asking that respondent be ordered to surrender the property to the petitioner. The petition was based on a written agreement entered into on March 6, 1907, by Beckhaus, of the first part. Rasmussen, of the second part, and certain of the pre-existing creditors of Beckhaus, of the third part, whereby Beckhaus transferred the property to Rasmussen to hold, use, and ultimately dispose of for the benefit of the first and third parties. On issues joined the District Court found that on March 6, 1907, at and before the time the agreement was made, Beckhaus was insolvent, and so remained; that the agreement was never recorded; that Rasmussen never took notorious, exclusive, or continuous possession of the property, but Beckhaus was permitted to remain, and did remain, in possession until the petition in bankruptcy was filed and respondent came into possession, first as receiver, and then as trustee; that Beckhaus intended to prefer said third parties, and said third parties had reasonable cause to believe that Beckhaus intended by such transfer to give them a preference; and that the effect of the enforcement of such transfer would be to enable said third parties as creditors of Beckhaus to obtain a greater percentage of their debts than any other of Beckhaus's creditors of the same class. Being of the opinion that the agreement of transfer, within the meaning of section 60a of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3445)), as amended in 1903 (Act Feb. 5, 1903, c. 487, Sec. 13, 32 Stat. 799 (U.S Comp. St. Supp. 1909, p. 1314)), was 'required' to be recorded under the law of Illinois, the District Court adjudged that the petitioner take nothing.

Section 60a: 'A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.'

Section 60b: 'If a bankrupt shall have given a preference, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person.'

Section 3b: 'A petition may be filed against a person who is insolvent and who has committed an act of bankruptcy within four months after the commission of such act. Such time shall not expire until four months after (1) the date of the recording or registering of the transfer or assignment when the act consists in having made a transfer of any of his property with intent to hinder, delay, or defraud his creditors or for the purpose of giving a preference as hereinbefore provided, or a general assignment for the benefit of his creditors, if by law such recording or registering is required or permitted, or, if it is not, from the date when the beneficiary takes notorious, exclusive, or continuous possession of the property unless the petitioning creditors have received actual notice of such transfer or assignment.' Section 1, c. 95, 2 Starr & C. Ann. St. Ill.: 'Be it enacted by the people of the state of Illinois, represented in the General Assembly, that no mortgage, trust deed or other conveyance of personal property having the effect of a mortgage or lien upon such property, shall be valid as against the rights and interests of any third person, unless possession thereof shall be delivered to and remain with the grantee, or the instrument shall provide for the possession of the property to remain with the grantor, and the instrument is acknowledged and recorded as hereinbefore directed; and every such instrument shall, for the purposes of this act, be deemed a chattel mortgage.'

Harry G. Colson, for petitioner.

Julius Moses, for respondent.

Before GROSSCUP, BAKER and SEAMAN, Circuit Judges.

BAKER Circuit Judge (after stating the facts as above).

1. On the basis that the Illinois statute, as construed by the courts of the state, does not declare unrecorded chattel mortgages void except as against the rights and interests of innocent purchasers or mortgagees and attachment or execution creditors; that no such 'third person' is concerned in these proceedings; and that the respondent has no standing except as the representative of the bankrupt and his general creditors, against whom an unrecorded chattel mortgage is valid-- the petitioner contends that the contract here involved (considered as the equivalent of an unrecorded chattel mortgage), having been executed over four months before the petition in bankruptcy was filed, cannot be assailed by the respondent as a voidable preference, because it was not 'required by law' to be recorded within the meaning of amended section 60a.

The contention mainly rests on a comparison of original section 3b with the history of the amendment to section 60a. ^[1] Section 3b provided that the four months within which an act of bankruptcy was available as the basis of a petition against an insolvent should 'not expire until four months after the date of the recording, or registering of the transfer * * * when the act consists in having made a transfer * * * for the purpose of giving a preference * * * if by law such recording or registering is required or permitted, or, if it is not, from the date when the beneficiary takes notorious, exclusive or continuous possession of the property. ' The last sentence of section 60a, 'Where the preference,' etc., was added by the amendment of 1903. As passed by the House the sentence did not end with 'required.' The continuation was 'or permitted, or, if it is not, from the date when the beneficiary takes notorious, exclusive, or continuous possession of the property transferred.'

These last-quoted words were stricken out by the Senate. Inasmuch as the present case does not involve 'possession,' but turns wholly upon 'recording,' the inquiry is limited to the effect of the excision of the words 'or permitted' after 'required'; and the particular question concerns the soundness of the petitioner's proposition that such excision compels a construction of the amendment as adopted, whereby a chattel mortgage, which a trustee in bankruptcy is assailing as a voidable preference, is not required to be recorded unless an examination of the local law shows that the chattel mortgage, to be impregnable, must be recorded as notice to the persons presently represented by the trustee

If, as we are inclined to believe, the Court of Appeals for the Sixth Circuit, in In re Loeser, supra, was correct in concluding that 'the words 'required' and 'permitted' in the connection used are of synonymous legal meaning,' no effect could be attributed to the dropping of the redundant word.

If they are not synonymous, the omission of 'permitted' does not imply inevitably (on the basis that no other inference can fairly be drawn) that the lawmakers intended that 'required' should be qualified or limited to less than it would have meant if the clause in section 3b and in the original draft of the amendment to section 60a had ended with 'required'; for Congress may well have conceived that an insolvent debtor and a diligent creditor were not necessarily to be dealt with in the same way. That is, in the interest of fair and open dealing by those who do business on credit, it might have been thought that an insolvent debtor who does not cause a chattel mortgage given to some of his creditors, to the exclusion of others, to be recorded, whether recording be 'required' or only 'permitted' by the local law, should be liable to be thrown into bankruptcy; while the diligent creditor (diligence being usually favored in the law) should be permitted, after four months, to retain his security, if on taking it he did all the law 'required.' See Little v. Hardware Co., supra.

Whether the words be deemed synonymous or not, the dropping of 'permitted' only eliminated whatever idea pertained to that word-- it could not affect 'required,' for 'required' stands full and untouched, without adverb or clause to cut it down. The primal canon of statutory...