In re ETC, Inc., 15630.

• Decision Date: 28 September 1961
• Docket Number: No. 15630.,15630.
• Citation: 198 F. Supp. 53
• Parties: In the Matter of ETC, INC., Bankrupt.
• Court: U.S. District Court — Western District of Michigan

198 F. Supp. 53

In the Matter of ETC, INC., Bankrupt.

No. 15630.

United States District Court W. D. Michigan, S. D.

September 28, 1961.

Hartwig & Crow, and Joseph D. Hartwig, Benton Harbor, Mich., for petitioner.

Miller, Canfield, Paddock & Stone, and Edgar H. Ailes, Detroit, Mich., for respondent.

White, Klute & White and Harold F. Klute, Niles, Mich., for bankrupt.

Wendell A. Miles, and Robert J. Danhof, Grand Rapids, Mich., for the United States.

STARR, Senior Judge.

Upon involuntary petition filed February 28, 1958, ETC, Inc., was adjudged a bankrupt on March 19, 1958, and George F. LaBour was appointed and qualified as receiver of the bankrupt's estate. Subsequently, on June 8, 1958, he was elected and qualified as trustee.

From the record of the proceedings before the referee in bankruptcy it appears that prior to May 1, 1954, Anaconda Wire and Cable Company, a Delaware corporation, had agreed to finance the bankrupt, ETC, Inc., an Illinois corporation doing business in the city of Niles, Berrien county, Michigan, and that as of May 10, 1954, ETC executed a promissory note whereby it agreed to pay Anaconda $150,000 "or whatever amount may be owing" to Anaconda as of May 31, 1955, in sixty equal monthly payments commencing June 1, 1955. The promissory note for $150,000 was to represent cash advanced and credit extended by Anaconda to ETC. To secure payment of its note, ETC executed a trust indenture as of May 10, 1954, covering its real estate, and also executed a "chattel mortgage" covering its manufacturing machinery, office equipment, and other personal property. It appears that the trust indenture and the chattel mortgage, as first drafted, both designated the Farmers and Merchants Bank of Benton Harbor, Michigan, as mortgagee and trustee, but when that bank declined to act, both instruments were redrafted to designate the Detroit Trust Company of Detroit, Michigan, as mortgagee and trustee. The redrafted trust indenture and chattel mortgage were both dated May 10, 1954, although it appears that they were actually executed by ETC on May 17th and by the Detroit Trust Company on May 18th. The trust indenture and chattel mortgage were forwarded by mail to the register of deeds for Berrien county, Michigan, and were filed May 19, 1954. It appears that subsequent to the execution by ETC of the promissory note, trust indenture, and chattel mortgage, Anaconda made advances to ETC to the extent of about $150,000, and that when the petition in bankruptcy was filed on February 28, 1958, ETC owed Anaconda a balance in excess of $80,000.

On April 23, 1957, one Daniel F. Kelly, a practicing attorney of Hammond, Indiana, filed an affidavit for renewal of the above-mentioned chattel mortgage, as required by Comp.Laws Mich.1948, § 566.143, and in his affidavit Kelly stated that he made it "as attorney and for and on behalf of The Detroit Bank and Trust Company, trustee (formerly known as Detroit Trust Company)." However, the trustee in bankruptcy contends that this affidavit of renewal was invalid and did not effect a legal renewal of the chattel mortgage as to creditors of ETC, because the signature of the notary public on the affidavit and the fact that she was a notary public were not authenticated by the certificate of the clerk of a court of record in the Indiana county in which she acted, under the seal of the court, as required by Comp.Laws Mich.1948, § 617.14.

From undisputed testimony before the referee it appears that subsequent to the Bank's attempted renewal of the chattel mortgage on April 23, 1957, the Grover-Hendricks Company on and after September 17, 1957, extended credit to ETC without notice or knowledge of the existence of the chattel mortgage and that the indebtedness arising from that credit was not paid by ETC.

It appears that in 1957 ETC defaulted in the payments on its promissory note of May 10, 1954, to Anaconda, and upon being advised in February, 1958, that ETC was closing its factory, Anaconda arranged to have a former employee of ETC act as custodian to preserve and protect the property of ETC until further action. However, as later determined by the referee in bankruptcy, Anaconda did not take possession of the property prior to the bankruptcy proceedings.

On March 28, 1958, subsequent to the adjudication of ETC as bankrupt, an order was entered, which provided that all of the bankrupt's property should be surrendered to its receiver for appraisal. On May 26th the Detroit Bank and Trust Company, successor to the Detroit Trust Company, (hereinafter referred to as the Bank) filed a petition for an order directing the receiver to surrender and abandon to it possession of all the real and personal property of the bankrupt covered by the trust indenture and chattel mortgage. In pursuance of an order of the referee in bankruptcy all property in the bankrupt's estate was offered for sale at public auction on June 4, 1958, and at that sale the Bank purchased the property for $80,000, which was paid to LaBour as receiver. This sale was subsequently confirmed by order of the referee on June 5th. On July 15th the Bank filed an amended petition for an order directing the trustee of the bankrupt's estate to surrender and deliver to it all the proceeds from the sale of the real and personal property, less such portion thereof as might be allocable to property of the bankrupt not covered by the trust indenture and chattel mortgage, and less such portion of the costs and expenses of the sale as the referee should determine to be properly allocable to the Bank.

Following a hearing and the taking of testimony, the referee in bankruptcy on December 8, 1958, filed an opinion and entered an order granting the petition of the Bank for reclamation of the proceeds of the sale and directing the trustee to pay to the Bank the sum of $73,199.11 less a proportionate share of the expenses of the sale. The referee based his opinion and order granting reclamation on the theory that the instrument entitled "chattel mortgage" covering the personal property of ETC was not a chattel mortgage but was a trust mortgage, for which an affidavit of renewal was not required under the State chattel-mortgage-recording law.

On December 12, 1958, the trustee in bankruptcy filed a petition for review of the referee's order of December 8th. No question is raised by the trustee as to the validity of the trust indenture covering the real estate of ETC, and the referee's holding that that indenture was valid should be affirmed. However, the trustee contends that the instrument entitled, "chattel mortgage" covering the personal property of ETC was in fact and law a chattel mortgage and is void as against him and the general creditors of the bankrupt, because it was not renewed by proper affidavit of renewal within 90 days preceding the expiration of three years from the date of filing on May 19, 1954, as required by the chattel-mortgage-recording statute, Comp.Laws Mich.1948, § 566.143. On the other hand, the petitioner Bank now contends that the instrument was not a chattel mortgage but was a trust mortgage and that under the provisions of the recording statute it was not necessary to file an affidavit of renewal of the instrument as a trust mortgage. Therefore, the first question presented is whether this instrument entitled "chattel mortgage" was a chattel mortgage requiring affidavit of renewal, or a trust mortgage not requiring renewal.

Comp.Laws Mich.1948, § 566.140 as amended by Act No. 153, Pub.Acts 1956, provides in part:

"Every mortgage or conveyance intended to operate as a mortgage of goods and chattels which shall hereafter be made which shall not be accompanied by an immediate delivery and followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, and as against subsequent purchasers or mortgagees in good faith, unless the mortgage or a true copy thereof shall be filed in the office of the register of deeds of the county where the goods or chattels are located, and also where the mortgagor resides, * * * Provided, however, That any such mortgage shall not be void in the case of insolvency proceedings as against the creditors of the mortgagor if filed within 14 days from the date thereof; and unless the mortgagor or mortgagee named in such mortgage or conveyance intended to operate as a mortgage, or some person having knowledge of the facts shall, before the filing of the same, make and annex thereto an affidavit setting forth that the consideration of said instrument was actual and adequate, and that the same was given in good faith for the purposes in such instrument set forth. No officer shall receive such instrument or file the same in his office until such affidavit is made and annexed thereto."

Comp.Laws Mich.1948, § 566.143, provides in part:

"Every such mortgage shall cease to be valid as against the creditors of the person making the same, or subsequent purchasers or mortgagees in good faith, after the expiration of 3 years from the filing of the same, or a copy thereof, unless within 90 days next preceding the expiration of the 3 year period, the mortgagee, his agent or attorney shall make and annex to the instrument or copy on file as aforesaid, an affidavit setting forth the names of the parties to the mortgage, the then owner of the mortgage, the time and place where filed, and the interest which the mortgagee has by virtue of said mortgage in the property therein mentioned, upon which affidavit the register of deeds shall endorse the time when the same was filed: Provided, That it shall not be necessary to file an affidavit of renewal in case of a trust mortgage, deed of trust or any similar or like indenture to secure bonds or obligations issued, or to be issued thereunder."

The acts of the parties are important in determining whether the instrument covering the personal property of ETC was a...