In re Dancy Hardware & Furniture Co.

• Decision Date: 14 August 1912
• Docket Number: 222.
• Citation: 198 F. 336
• Court: U.S. District Court — Northern District of Alabama
• Parties: In re DANCY HARDWARE & FURNITURE CO. In re STOUGHTON WAGON CO.

198 F. 336

In re DANCY HARDWARE & FURNITURE CO. In re STOUGHTON WAGON CO.

No. 222.

United States District Court, N.D. Alabama, Western Division.

August 14, 1912

Harsh Beddow & Fitts, of Birmingham, Ala., for petitioner.

Brown &amp Murphy and J. E. Robinson, all of Birmingham, Ala., for trustee in bankruptcy.

GRUBB District Judge.

Petitioner sold wagons to the bankrupt under a contract by which title was retained by it until the purchase money was paid, and which, under the Alabama law, would be construed to be a conditional sale. The wagons came into Alabama from without the state, and were delivered to the bankrupt on or about October 9, 1911, and remained in its possession until after the filing of the petition in bankruptcy, which occurred on December 19, 1911, and were then taken possession of by the receiver in bankruptcy. The instrument containing the condition reserving title was never recorded as required by section 3394 of the Civil Code of Alabama of 1907, and at the time of the hearing before the referee three months or more had expired since the property came into the state subject to the condition.

The petitioner upon that hearing contended that it was entitled to the wagons because it had exercised its right to stop them in transit before the petition was filed. The evidence however, shows that the wagons were delivered to the bankrupt after their arrival by the carrier with the consent of the petitioner's agent, and that a check was given the carrier by the bankrupt for the freight charges, and that, the check having been dishonored, the carrier attempted to retake possession to protect its lien for unpaid freight. There was no exercise of the right to stop in transit by the petitioner. The carrier, by surrendering possession to the bankrupt, waived its lien for freight, and, when it repossessed itself of the property, held it as bailee of the bankrupt.

The petitioner also contended that the original contract for sale had been modified or rescinded subsequent to the delivery of the wagons; but the evidence clearly showed that negotiations to that end never resulted in any new agreement between the parties, and that the original sale agreement was the one in force at the time the petition in bankruptcy was filed.

The other question presented by the review is whether, under the Alabama law, a failure to record a conditional sale contract until after the expiration of three months from the time the property subject to the condition came into the state avoids the condition in favor of the trustee in bankruptcy of the buyer, though at the time bankruptcy intervened the property had not been within the state for the full period of three months allowed by the statute for that purpose. Section 3394, Civil Code of Alabama 1907, is as follows:

'All other contracts for the conditional sale of personal property, by the terms of which the vendor retains the title until the payment of the purchase money and the purchaser obtains possession of the property, and all contracts for the lease, rent or hire of personal property, by the terms of which the property is delivered to another on condition that it shall belong to him whenever the amount paid shall be a certain sum, or the value of the property, the title to remain in the other party until such sum or value shall have been paid, are, as to such condition, void against purchasers for a valuable consideration, mortgagees and judgment creditors without notice thereof, unless such contracts are in writing and recorded in the office of the judge of probate of the county in which the party so obtaining possession of the property resides, and also in the county in which said property is delivered and remains; and if, before the payment of the purchase money or sum or value stipulated, the property is removed to another county, the contract must be again recorded, within three months from the time of such removal, in the county to which it is removed; and if any such property is brought into this state while subject to such condition, the contract of sale, lease, hire or rent must within three months thereafter, be recorded in the county into which the property is brought and remains, and all local or special laws in conflict herewith are expressly repealed.' The questions are: (1) What class of creditors are entitled to complain of the want of record under the section of the Code quoted? (2) Under the amendment of June 25, 1910, to section 47 of the Bankruptcy Act, does the trustee acquire the rights of the class of creditors entitled to so complain? And (3) is the requirement of record within three months after the property subject to the condition comes into the state dispensed with when bankruptcy intervenes pending the three months?

The Supreme Court of Alabama has construed the words 'judgment creditors without notice' of the statute to include creditors who have obtained a judgment but have not secured a lien by the issuance or levy of an execution. Wood v. Lake, 62 Ala. 489. Judgment creditors, therefore, include both creditors having and those without an execution lien. The Supreme Court of Alabama has also held that the judgment creditors of the statute are subsequent creditors (Chadwick v. Carson, 78 Ala. 116); that is, either those whose debts were contracted or whose judgments were obtained after the making of the incumbrance or conveyance, of the want of record of which complaint is made. No other creditors than those who extended credit after the property had been delivered to the vendee and the conveyance or incumbrance executed could have been misled into giving credit upon the apparent ownership of the conditional vendee. The evidence showed that in this case there were creditors whose claims were incurred by the bankrupt after the property conditionally sold to the bankrupt came into the state and was delivered to the bankrupt, and after the conditional sale had been made to it, and who may have extended credit on the faith of the bankrupt's ownership of the wagons.

Reservation to the bankrupt of the right to resell the property conditionally purchased and placed in his possession (the retention of title in the vendor being to secure the balance of purchase money) would not under the Alabama decisions render the conditional retention of title void. Adkins v. Bynum, 109 Ala. 281, 19 So. 400; Cox v. Birmingham Dry Goods Co., 125 Ala. 320, 28 So. 456, 82 Am.St.Rep. 238. It could be avoided by creditors only upon the idea that the instrument creating the condition should have been and was not recorded within three months after the property came into the state, subject to the condition; and on that ground only by judgment creditors without notice, with or without an execution lien, whose claims were contracted or judgments obtained after the conditional sale was made and the property came into the state and into the possession of the bankrupt subject to the condition.

2. Does the trustee in bankruptcy, under the Amendment of June 25, 1910, acquire the right of such creditors to complain of the want of record? It is clear that he could not have done so prior to the amendment. York Mfg. Co. v. Cassell, 201 U.S. 344, 26 Sup.Ct. 481, 50 L.Ed. 782; Crucible Steel Co. v. Holt, 174 F. 127, 98 C.C.A. 101, affirmed 224 U.S. 262, 32 Sup.Ct. 414, 56 L.Ed. 756. The language of the amendment is: 'And such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies and powers of a creditor holding a lien by legal or equitable proceedings t thereon.'

One of the purposes of the amendment was to confer on trustees in bankruptcy the same right to avoid secret unrecorded liens as the creditors would have had under the state laws, had not the bankruptcy intervened and the exercise of which they are deprived of by the bankruptcy proceeding. The rights of creditors to...