In re Beede

• Decision Date: 05 June 1905
• Citation: 138 F. 441
• Parties: In re BEEDE.
• Court: U.S. District Court — Northern District of New York

138 F. 441

In re BEEDE.

United States District Court, N.D. New York.

June 5, 1905

S. L Wheeler, for John M. Wever, assignee of mortgagee.

Pyrke &amp Dudley, for creditors.

Stokes & Owen, for trustee.

This is a controversy between the assignee of a mortgagee of Orlando Beede, the bankrupt, his trustee in bankruptcy, and certain creditors of said bankrupt who have obtained judgments against him since the filing by him of the petition in bankruptcy, as to the rights of the parties to the proceeds of the sale of the personal property of said bankrupt. The amount in controversy is over $12,000. See 126 F. 853.

RAY District Judge.

The facts in this case, so far as the legal questions now involved are concerned, are easily understood. Orlando Beede the bankrupt, was extensively engaged in the lumber business and in running two stores. Prior to March, 1901, he became badly involved financially, but his condition was known to himself only, if to himself. In fact, he was insolvent. He was borrowing money on notes and giving notes, and his brother Fletcher S. Beede became his indorser to an amount in excess of $30,000. As security for such indorsements, Orlando gave to his brother, March 23, 1901, a chattel mortgage covering substantially all of his personal property. The giving of this mortgage was not known, except to the parties thereto, and it was not filed or recorded until October 10 1901, about seven months subsequent to its date, execution, and delivery. It is evident that Fletcher S. knew of the purpose of Orlando to file a petition in bankruptcy when he filed the mortgage. In August and September, 1901, and within four months of the adjudication, Orlando Beede gave to Fletcher S. Beede bills of sale of this personal property for the same consideration named in the mortgage, but no claim is made under them. Two days after the filing of the mortgage, and October 12, 1901, on his own petition, said Orlando Beede was adjudicated a bankrupt. Prior to the filing of the petition and the adjudication in bankruptcy several judgments were duly obtained and duly docketed against said Orlando Beede, in favor of certain creditors, to the amount of about $5,943.85, and these are unpaid. Executions thereon were duly issued prior to such adjudication. The same day of the adjudication one Payne obtained and docketed a judgment against Orlando Beede for the sum of $5,494.26, and soon thereafter, in actions commenced before the petition in bankruptcy was filed, other judgments to the amount of $7,648.31 were perfected, filed, and duly docketed against said Orlando Beede. All of these judgments were upon debts of the said Orlando Beede existing prior to the giving of the mortgage, and during the nonfiling thereof, or which were incurred after it was given and before it was filed. John M. Wever held a mortgage on certain of the real estate of said Fletcher S. Beede, and on or about the 11th day of April, 1902, several months after the adjudication in bankruptcy, Fletcher S. Beede-- he having paid certain notes of Orlando--assigned the said chattel mortgage to said Wever as collateral security to his said real estate mortgage, to the amount of $7,500. The chattel mortgage was not given to hinder, delay, or defraud creditors, and there was no agreement to keep it from the files or to keep it secret. The mortgaged property was not taken possession of by the mortgagee, but remained in the possession of the mortgagor at the time of the adjudication, and passed to the hands of the trustee when he was appointed. It was thereafter sold for the sum of $12,806.34, under an agreement that such sale should in no way affect the lien of the mortgage, if a lien, but that such proceeds should stand in place of the mortgaged property. Such agreement also submitted to this court the decision of the rights of the parties, the same as if an action had been brought for the purpose.

Wever concedes the prior right of the execution creditors who had obtained judgments and issued execution prior to the adjudication in bankruptcy. Of such prior judgments, the owner thereof, to the amount of $3,284.46, also the owner of the Payne judgment, has filed the following waiver in open court: 'I waive all claim, as owner of the assignments of three judgments which I have offered in evidence, to the chattel mortgage put in evidence being void for want of filing. ' Wever claims $7,500 of the proceeds. If such waiver is valid as to the trustee and creditors, there is enough money, after paying the other prior judgments, to give Wever the $7,500 in full. The trustee and the creditors with judgments obtained subsequent to the adjudication assert that such waiver is inoperative and void, and that the liens of all the prior judgments attach to the proceeds, and inure to the benefit of the estate, and not to the benefit of such creditors solely. They assert that such chattel mortgage being void as to such execution creditors, and the judgments having been obtained within four months of the bankruptcy, the lien is a preference, which may be enforces by the trustee for the benefit of the estate, or at least the trustee may recover the amount of such judgments for the benefit of the estate. The creditors with judgments obtained and docketed after the adjudication (actions commenced before) assert that, having judgments and executions, the liens thereof, in equity, attached to the property, and now attach to the proceeds thereof, as against Fletcher S. Beede, mortgagee, and John M. Wever, his assignee, the same as the judgments obtained prior to the adjudication, all taking precedence to the mortgage. They assert that, as to the mortgagee and his assignee, they are creditors armed with judgments and executions, and that the bankruptcy of Orlando Beede, the mortgagor, did not operate to suspend, impair or extinguish their rights or remedies as against the mortgagee; that is, to proceed to judgment against Orlando Beede, and issue execution, and assert the invalidity of the chattel mortgage as to them for the reason it was not filed. They assert that Orlando Beede could not in effect validate as against them a mortgage which was always void as to them, for nonfiling, by filing a petition in bankruptcy, or, by so doing, suspend, extinguish, or defeat their rights to proceed against the property and mortgagee and his assignee. They assert that the filing of such mortgage two days before the filing of the petition in bankruptcy did not change the rights of the parties. They most strenuously protest that their rights as against Fletcher S. Beede and his assignee, and their right to proceed and have the asserted lien of such assignee, claimed by him to be prior to their rights and equities, declared and adjudged null and void as to them and all creditors in a like situation, were not and are not suspended, destroyed, or extinguished by the mere act of the mortgagor in filing a petition in bankruptcy. They assert that such act is not equivalent to the act of the mortgagor and mortgagee named in a chattel mortgage, and void for want of filing, when they elect to treat the mortgage as void for that reason, and turn over the property in payment of the debt, and it is so turned over and accepted. The validity of the mortgage as to all the parties is a local question, and must be determined by the decision of the courts of the state of New York. Dooley v. Pease, 180 U.S. 126, 21 Sup.Ct. 329, 45 L.Ed. 457. As to the creditors of said Orlando Beede, the mortgage was void for nonfiling; was always void; the filing thereof two days before the bankruptcy did not validate it as to them or affect their rights; and no act or acts of Orlando and Fletcher S. Beede could validate it as against them. Stephens v. Perrine et al., 143 N.Y. 476-- 480, 39 N.E. 11; Brunnemer, as Receiver, etc., v. Cook & Bernheimer Co. et al., 180 N.Y. 188, 73 N.E. 19; Thompson v. Van Vechten, 27 N.Y. 568; Karst v. Gane, 136 N.Y. 316, 32 N.E. 1073; Stephens v. Meriden Britannia C., 160 N.Y. 178, 54 N.E. 781, 73 Am.St.Rep. 678; Southard v. Benner, 72 N.Y. 424;

Mandeville v. Avery, 124 N.Y. 376, 26 N.E. 951, 21 Am.St.Rep. 678; Sheldon v. Wickham, 161 N.Y. 500, 55 N.E. 1045; Castleman v. Mayer, 168 N.Y. 354, 61 N.E. 282.

These decisions establish that the law of New York is: (1) That a chattel mortgage, there being no possession taken of the mortgaged property by the mortgagee, is absolutely void as to all creditors of the mortgagor then existing, or who may exist while such mortgage remains unfiled, except as between such creditors and purchasers in good faith for value, unless same is filed in the proper office within a reasonable time. (2) That, while such mortgage is void as to all such creditors, those creditors only who obtain a lien on the property by reducing their respective debts to a judgment and issuing execution are in a position to assert and enforce such invalidity. It is not necessary that a general creditor to avail himself of such invalidity, have his judgment and execution before a transfer of the property is made by the mortgagor, unless made to a purchaser in good faith. (3) No act of the mortgagor or of the mortgagee, or of both together, can give validity to such an unfiled mortgage as against such creditors, including both general and judgment creditors. As between them and the mortgagor and mortgagee, it is void ab initio. (4) Even if the mortgagee takes possession of the property or takes and sells the mortgaged property under such mortgage, still such of the general creditors above specified as thereafter obtain judgment and execution may recover the property or its value, because as to them the mortgage was always void. (5) The mortgagor and mortgagee, however, may recognize the invalidity of such mortgage,...