In re Dagwell

• Decision Date: 21 February 1920
• Docket Number: 952.
• Citation: 263 F. 406
• Parties: In re DAGWELL.
• Court: U.S. District Court — Eastern District of Michigan

263 F. 406

In re DAGWELL.

No. 952.

United States District Court, E.D. Michigan, Northern Division.

February 21, 1920

C. S Reilley, of Cheyboygan, Mich., for claimant.

Hall &amp Gillard, of Grand Rapids, Mich., for trustee.

TUTTLE District Judge.

This matter is before the court on petitions for review of an order of one of the referees in bankruptcy for this district. Briefly, the material facts are as follows:

On June 27, 1916, the claimant executed and delivered to the bankrupt a chattel mortgage, securing an indebtedness in the sum of $1,900, representing the purchase price of the property covered by said mortgage consisting mainly of a certain stock of merchandise and store fixtures. It was recited in the instrument that the mortgagor--

'is given the right to conduct a grocery business in the ordinary manner and all increase of said stock made and purchased by said second party is to be included under the terms of this contract of purchase.'

This mortgage was filed, pursuant to the Michigan statute, on June 29, 1916. By another Michigan statute, hereinafter quoted provision is made for the filing of an affidavit of renewal of such a mortgage within one year from he date of the filing thereof. No such affidavit of renewal, however, was filed until November 2, 1917, at which time the amount still due and secured by such mortgage was $1,200. Between the date of the filing and the date of the renewal of the mortgage, debts to other creditors of the mortgagor were incurred amounting to more than the sum just mentioned. None of such creditors, however, had obtained any lien or process against said mortgagor or any of his property prior to the filing of the petition in bankruptcy herein. On February 22, 1918, the mortgagee, through hr attorney, borrowed this mortgage from the township clerk, in whose office it was filed, and removed it, for the purpose of making a copy thereof and checking over the items of the inventory and description attached thereto, and returned the instrument to said clerk on February 27th. Immediately thereafter the mortgagor filed his petition in bankruptcy herein, and was adjudicated a bankrupt on February 28, 1918, and shortly afterwards the present trustee was duly elected.

Thereupon the said mortgagee, as a secured creditor, filed proof of claim for approximately $1,100 (which is conceded to be the balance due on the debt secured by the mortgage in question). Objections to the allowance of said claim, as secured, were filed by the trustee, and testimony was taken before the referee, transcript of which has been filed by the referee with his return and certificate thereon.

Three questions were raised and argued before the referee, as follows:

First. Did the temporary removal of the chattel mortgage from the office of the township clerk invalidate it as against the trustee?

Second. Does the mortgage, if valid, cover, as against the trustee, additions to the stock of merchandise in question acquired after the execution and filing of said mortgage?

Third. Did the delay in the renewal of the mortgage render it invalid as against creditors who became such during the period after the expiration of one year from the filing thereof and before the renewal on November 2, 1917, under the circumstances disclosed by the record?

The referee decided the first two questions in favor of the claimant, and the third in favor of the trustee. Both parties have filed petitions for review. The same questions have been presented and argued before the court. They will be considered in the order named.

It is, of course, well settled that questions concerning the construction and validity of a chattel mortgage and the interpretation and effect of state statutes in regard thereto are questions of local law, as to which the settled rules adopted by the courts of such state will be followed by the federal court. Thompson v. Fairbanks, 196 U.S. 516, 25 Sup.Ct. 306, 49 L.Ed. 577; Bryant v. Swofford Bros. Dry Goods Co., 214 U.S. 279, 29 Sup.Ct. 614, 53 L.Ed. 997; In re Doran, 154 F. 467, 83 C.C.A. 265 (C.C.A. 6); In re Huxoll, 193 F. 851, 113 C.C.A. 637 (C.C.A. 6); Detroit Trust Co. v. Pontiac Savings Bank, 196 F. 29, 115 C.C.A. 663 (C.C.A. 6). The proper disposition, therefore, of the questions involved herein, will be controlled by the decisions of the Michigan Supreme Court applicable.

1. It is not claimed that there was any fraudulent or wrongful motive in the temporary removal of this chattel mortgage; nor does it appear that any rights or equities accrued to any one as a result of such removal, or that any person has been prejudiced thereby. Under these circumstances it is settled in Michigan that the mere fact that such a mortgage has been temporarily removed from the office where it has been filed does not affect the validity or effect thereof. Woodruff v. Phillips, 10 Mich. 500. Indeed, in view of the statutory requirement that the clerk in whose office such a mortgage has been filed shall alphabetically record the name of each mortgagor and the time of the filing of each mortgage, the rule thus announced seems reasonable and just. The opinion of the referee is affirmed in this respect, and the contention of the trustee to he contrary must be overruled.

2. It is the settled law in Michigan that a chattel mortgage covering after-acquired property of the...