In re Farmers' Supply Co.

• Decision Date: 13 May 1912
• Docket Number: 256.
• Parties: In re FARMERS' SUPPLY CO. v. HOUSE. FEDERAL CHEMICAL CO.
• Court: U.S. District Court — Northern District of Georgia

196 F. 990

In re FARMERS' SUPPLY CO.

FEDERAL CHEMICAL CO. v. HOUSE.

No. 256.

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

May 13, 1912

F. C Shackelford, of Athens, Ga., for trustee.

Cobb &amp Erwin, of Athens, Ga., and Slaton & Phillips, of Atlanta Ga., for objecting creditors.

NEWMAN District Judge.

The question for determination here on petition for review of the action of the referee is shown by the certificate of the referee, as follows:

'I, N. L. Hutchins, Jr., the referee in bankruptcy, in charge of this proceeding, do hereby certify: That in the course of such proceeding, an order, a copy of which accompanies this certificate, was made and entered on the 30th day of March, 1912. That on the 18th day of April, 1912, Federal Chemical Company, feeling aggrieved thereat, filed a petition for review, which was granted.

'A summary of the evidence on which said order was based is as follows: It was admitted on the hearing by counsel for the respective parties that the order and contract attached to claimant's petition, signed by Farmers' Supply Company, to Federal Chemical Company, for fertilizer, dated 17th day of January, 1911, was, by its terms and conditions, a 'conditional bill of sale,' unrecorded, as provided for by appropriate Georgia statute. It was further admitted that the claim of the Federal Chemical Company rested purely in open account (no notes having been given by Farmers' Supply Company, as contemplated by one of the conditions of the conditional bill of sale) other than the writing itself. It was further admitted that the accounts of the Farmers' Supply Company for fertilizers furnished by Federal Chemical Company and sold to customers were discovered by the trustee of Farmers' Supply Company some time subsequent to his appointment and qualification and during the administration of the effects of the bankrupt concern; that the trustee at the time of the filing of their intervention by Federal Chemical Company had collected about all of said accounts and had the proceeds in his hands; that the question presented on this review is: The contract attached to the petition of Federal Chemical Company being one of 'conditional sale,' unrecorded, did the trustee, under the amendment to section 47a of the original act of 1910, ' as to all property in the custody of or coming into the custody of the bankrupt court, become invested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon'? Amendment 1910 to section 47a(2) Bankruptcy Act 1898; In re Williamsburg Knitting Mill, 27 Am.Bankr.Rep. 178 (D.C. va.) 190 F. 871; In re Hartdagen, 26 Am.Bankr.Rep. 532 (D.C. Pa.) 189 F. 546; In re Calhoun Supply Co., 26 Am.Bankr.Rep. 528 (D.C. Ala.) 189 F. 537; In re Bazemore, 26 Am.Bankr.Rep. 494 (D.C. Ala.) 189 F. 236; In re Gehris-Herbine Co., 26 Am.Bankr.Rep. 470 (D.C. Pa.) 188 F. 502; Holt & Co. v. Trustees Williamsburg Knitting Mill et al. (193 F. 1020) U.S. Court of Appeals Fourth Circuit, No. 1063, affirmed February 20, 1912.'

The rights of a seller of property sold on what is called conditional sales in Georgia has been dealt with by this court in several cases, and particularly in the case of the Atlanta News Pub. Co. (D.C.) 160 F. 519.

There is no doubt that prior to the amendment of Bankr. Act June 25, 1910, a conditional sale, although unrecorded as required by the statutes of Georgia (sections 2776 and 2777, Code of 1895; sections 3318 and 3319, Hopkin's Code of 1910), was good as against general creditors and as against the trustee in bankruptcy. It was prior to this late amendment of the bankruptcy act assumed that the trustee in bankruptcy stood in the shoes of the bankrupt, and had no greater rights than the latter would have had to contest the priority of lien of one making such a sale.

In the Atlanta News Pub. Co. Case, in the opinion (160 F. 522) it was said:

'The statute of this state on the subject of conditional sales as embodied in section 2776 of the Code of Georgia of 1895 is as follows: 'Whenever personal property is sold and delivered with the condition affixed to the sale, that the title thereto is to remain in the vendor of such personal property until the purchase price thereof shall have been paid, every such conditional sale, in order for the reservation of title to be valid as against third parties, shall be evidenced in writing, and not otherwise. And the written contract of every such conditional sale shall be executed and attested in the same manner as mortgages on personal property; as between the parties themselves, the contract as made by them shall be valid and may be enforced whether evidenced in writing or not.' The next section (2777) is as follows: 'Conditional bills of sale must be recorded within thirty days from their date, and in other respects shall be governed by the laws relating to registration of mortgages.' The meaning of section 2776 as applied to the facts in this case, as construed by the Supreme Court of the state, is this: (1) Where there is a mere oral reservation of title and no writing whatever on the subject, the title will be so fixed in the vendee that the rights of third parties obtaining judgments or liens antedating the sale may be enforced against the vendor's claim of title. (2) Where the contract reserving title in the vendor is in writing, although not properly executed and recorded as required by the statute, the reservation is good as between the parties, and as to general creditors, and also as to creditors with liens antedating the conditional sale; and is only subject to such liens as are obtained, or debts arising from credit given in good faith by reason of the property being in the possession of the vendee with apparent ownership and without any notice of title elsewhere.'

The trustee in bankruptcy, occupying no better position than the bankrupt who was the purchaser of property from one reserving title, under the state law could not contest the priority or lien of the seller. This being the law of Georgia on the subject, it would be recognized and enforced in the bankruptcy court, but the amendment of June 25, 1910 (36 Stat. 838, c. 412), amending section 47 of the original Bankruptcy Act, contains the following language:

'And such trustees as to all property in the custody or coming into the custody of the bankrupt court shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon.'

This amendment made a vital change in the act. Instead of the trustee having no greater right than the bankrupt would have he now has, and had when the present bankruptcy proceeding was instituted, 'the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings. ' The lien or...