In re Chadwick

• Decision Date: 11 November 1905
• Docket Number: 1,893.
• Citation: 140 F. 674
• Parties: In re CHADWICK.
• Court: U.S. District Court — Northern District of Ohio

140 F. 674

In re CHADWICK.

No. 1,893.

United States District Court, N.D. Ohio, Eastern Division.

November 11, 1905

W. W Boynton, for petitioner.

Smith Taft & Arter and L. J. Grossman, for trustee.

TAYLER District Judge.

On the 27th day of April, 1904, Cassie L. Chadwick was indebted to the Savings Deposit Bank & Trust Company, of Elyria, Ohio, in the sum of $37,000, with a large amount of accrued interest. This indebtedness was secured by a mortgage on real estate in the city of Cleveland, but which was not thought to be sufficient to cover the amount that was then due. Thereupon on the 27th day of April, 1904, Mrs. Chadwick gave to the bank her promissory note for $10,000, payable May 10, 1904 and, to secure the same, gave a mortgage on the furniture, bric-a-brac, paintings, and books situated in the dwelling house of the mortgagor, and on other articles of personal property, including automobile, carriages, horses, etc. This note was not for a new indebtedness, but represented a part of the antecedent debt, and a separate agreement was entered into, providing for the disposition of the money to be derived from its payment, and how it was to be credited. It was agreed between the parties that the chattel mortgage should not be filed for 10 days; that is, not before the 7th day of May, 1904. It is stipulated in the testimony that at the time the mortgage was given Mrs. Chadwick was insolvent, that the bank had reasonable cause to believe she was insolvent, and that such condition of insolvency existed on the 22d day of November, 1904, when possession of the mortgaged property was taken by the mortgagee. The mortgage was not filed in the office of the recorder of Cuyahoga county, where the property was situated, until November 22, 1904; and thereupon, the same day, the mortgagee took possession of the property described in the chattel mortgage. Proceedings in bankruptcy were commenced against Mrs. Chadwick on the 1st day of December, 1904, and she was later duly adjudged a bankrupt. On December 20, 1904, the property covered by the chattel mortgage was delivered by the mortgagee to the receiver in bankruptcy, under an agreement approved by the referee whereby the rights of both parties to the property were to be protected. The proceeds of the sale of the same are now in the hands of the trustee to be disposed of. On the question as to who was entitled to these proceeds the referee held against the mortgagee, and in favor of the trustee; and the case is now before the court on petition for review of the finding of the referee.

It is contended, on behalf of the trustee, that the chattel mortgage is insufficient to give any right to the mortgagee in the fund derived from the sale of the mortgaged property (1) because the mortgage is void under section 6343 of the Revised Statutes of Ohio; (2) that the mortgage is void because it covered and conveyed articles of household furniture and wearing apparel of the bankrupt, and, for that reason, the possession taken on November 22, 1904, is of no effect, the necessary action under section 4155-1 of the Revised Statutes of Ohio not having been taken in order to obtain possession; (3) that the giving of the mortgage was kept a secret for the purpose of allowing the four months to run, and thereby defeat the bankruptcy act, and was therefore a fraud on such act and void; (4) that the chattel mortgage is void, and the possession taken under it ineffectual, for the reason that it was filed within four months preceding the bankruptcy, and that all the elements that make a voidable preference have been proved and existed at the time of the making and delivery of the mortgage, and also at the time of filing the same.

1. As to the effect of section 6343: Without entering into a discussion as to whether or not the facts existing in this case are such as would justify a court in declaring the mortgage void if the statute had been resorted to, it is sufficient to say that the statute has no application to a case where bankruptcy proceedings were instituted before an action was commenced under the provisions of section 6344. Such a mortgage as is defined by section 6343 is not void, but can only be 'declared void as to creditors of such debtor or debtors at the suit of any creditor or creditors as hereinafter provided.'

2. Section 4155-1 provides for the manner of foreclosing a mortgage on household goods, wearing apparel, or mechanics' tools. It is there recited that a chattel mortgage on the necessary household goods, wearing apparel, or mechanics' tools of any person or family shall not be foreclosed except in a court of record, and that no such household goods, wearing apparel, or mechanics' tools covered by a chattel mortgage shall be seized or taken out of the possession of the mortgagor before foreclosure until an order permitting the same has been obtained from a judge or justice of the peace to whom application for such order has been made. I think that this objection is properly disposed of by the referee, in declaring that the necessary household goods involved in this chattel mortgage are so insignificant in amount, as compared with the quantity and value of the property taken, as to make the statute inapplicable; to which can be added the further reason that the right intended to be given by the statute is a mere personal right, and not for the benefit of the creditors, and no such right of claim has been asserted by the bankrupt.

3. There is no evidence that the mortgage was...