In re Farmers' Co-operative Co. of Barlow, N.D.

• Decision Date: 08 February 1913
• Citation: 202 F. 1008
• Court: U.S. District Court — District of North Dakota
• Parties: In re FARMERS' CO-OPERATIVE CO. OF BARLOW, N.D.

202 F. 1008

In re FARMERS' CO-OPERATIVE CO. OF BARLOW, N.D.

United States District Court, D. North Dakota, Southeastern Division.

February 8, 1913

Todd &amp Kerr, of St. Paul, Minn., for trustee.

Lawrence & Murphy, of Fargo, N.D., for International Harvester Co. and another.

AMIDON District Judge.

The International Harvester Company supplied to the above bankrupt eight manure spreaders under a conditional sale contract, bearing date February 23, 1910, which articles were on hand at the time the petition in bankruptcy was filed, and passed into the custody of the trustee. It also furnished to the bankrupt, under a similar contract bearing date January 14, 1911, five Deering hayrakes and one Bettendorf wagon, which articles likewise passed into the custody of the trustee. The contracts reserved title to the seller until the purchase price was paid. The price of the articles being unpaid, the harvester company filed a petition with the referee, asking that the trustee be directed to deliver the property to it. As to the articles covered by the second contract, its petition was denied, and the International Harvester Company now seeks to review that order.

The action of the referee seems clearly right. The conditional sales contracts were never filed, and, by section 6181 of the Revised Codes of North Dakota, they were for that reason 'void as to subsequent creditors without notice, and purchasers and incumbrancers in good faith and for value ' Section 47a, subd. 2, of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 557 (U.S. Comp. St. 1901, p 3438)), as amended in 1910 (Act June 25, 1910, c. 412, Sec. 8, 36 Stat. 840 (U.S. Comp. St. Supp. 1911, p. 1500)), provides that trustees in bankruptcy, '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 thereon. ' If that were important, the files in this case show that there are creditors both prior and subsequent to the date of the conditional sale contract here involved. In my judgment, however, section 47 of the Bankruptcy Act, as amended, does not depend upon any such distinction. The trustee in bankruptcy derives his rights and powers from the statute, and not from the creditors of the estate. If any creditor under the local statute can obtain priority over an unfiled or unrecorded instrument by levy of attachment or execution, the trustee in bankruptcy, under section 47 as amended, has all the rights and remedies of such creditor. The distinction between prior and subsequent creditors is confined to the decisions of a few states. By the great weight of authority seizure of the property covered by an unfiled or unrecorded instrument gives to the creditor priority over such instrument, without regard to the time when the credit was given. Leonard Jones, in an article on Chattel Mortgages (6 Cyc. 1068), says:

'An unrecorded mortgage leaves the property as open to seizure by creditors upon a writ of attachment or execution against the mortgagor, as if no mortgage existed.'

He collects the authorities and shows that the rule confining the right to subsequent creditors is limited to a few states. See, also, First National Bank v. Ludvigsen, 8 Wyo. 230, 56 P. 995, 57 P. 934, 80 Am.St.Rep. 928; Pierson v. Hickey, 16 S.D. 46, 91 N.W. 338; Karst v. Gane, 136 N.Y. 316, 32 N.E. 1073.

To hold that the trustee derives his rights from the creditors of the particular estate, instead of the statute, would greatly embarrass the administration of estates in bankruptcy. It would require first an investigation to ascertain what credit was given subsequent to the unrecorded instrument. This in mercantile cases would be a difficult inquiry and would often require the splitting of current accounts. Again, under this interpretation, the fund arising from the property covered by the unrecorded instrument would have to be first apportioned among the subsequent creditors to the exclusion of all other creditors, then to the lienholder, and finally to the general creditors. In re Riehl (D.C.) 200 F. 455. I do not think that Congress, by the 1910 amendment of section 47, intended...