In re Flatland

• Decision Date: 20 May 1912
• Docket Number: 2,105.
• Citation: 196 F. 310
• Parties: In re FLATLAND et ux. v. MANN JENNINGS
• Court: U.S. Court of Appeals — Ninth Circuit

196 F. 310

In re FLATLAND et ux.

JENNINGS v. MANN

No. 2,105.

United States Court of Appeals, Ninth Circuit.

May 20, 1912

Leopold M. Stern, of Seattle, Wash., for petitioner.

A. W Buddress, of Seattle, Wash., for respondent.

Before GILBERT and ROSS, Circuit Judges, and WOLVERTON, District judge.

ROSS Circuit Judge.

The record in the case shows that the respondent, Mann, was a creditor of the bankrupt, and presented a claim to the trustee based upon a promissory note of the bankrupt, coupled with the statement that the note was secured by two mortgages one upon real and the other upon personal property of the estate, entitling his claim to priority over the other creditors. The referee certified to the District Court the question which arose in the proceedings before him in respect to the validity of the chattel mortgage, stating the facts which were accepted by the court, as follows:

'Said chattel mortgage purported to cover all fixtures of every nature and kind, including baking outfit, showcases, shelving, scales, and all other fixtures of every nature and kind; also all the stock of goods of every nature and kind in or hereafter placed in that certain storeroom in the Hermosa Building, at No. 404 Cedar street, in Seattle, King county, Wash.

'It was disclosed upon the undisputed proofs submitted at the hearing that at the time said mortgage was made, executed, and delivered there was no stock of goods whatever in the building described in the mortgage; that the only fixtures therein at that time were the shelving, and possibly one showcase; that at the time of the delivery of the mortgage it was intended by the mortgagors to at once proceed with the installation of the fixtures in that building, and to place therein a stock of goods for sale in the usual course; that it was the intention of said mortgagors to use the money borrowed of the mortgagee, to secure which the said purported mortgage was executed and delivered, in the purchase of said fixtures and of said stock of goods, and that the money so borrowed was, in fact, so used.'

The District Court sustained the priority claimed, and gave judgment accordingly.

The trustee seeks to review that action by means of the present petition, opening his brief with the statement:

'This petition for review presents a question of law alone. The facts are not in dispute.'

The respondent moves to dismiss the petition on the ground that the petitioner's remedy was by appeal. The motion is denied. The question presented, being one of law only, depending upon a statement of facts, not contested, is properly reviewable by petition by virtue of section 24b of the Bankruptcy Act (30 Stats. 553), which is as follows:

'The several Circuit Courts of Appeal shall have jurisdiction in equity, either interlocutory or final, to superintend or revise any matter of law or proceedings in the several inferior courts of bankruptcy within their jurisdiction. Such power shall be exercised on due notice and petition by any party aggrieved.'

See In re Lee, 182 F. 579, 105 C.C.A. 117, and cases there cited. Coder v. Arts, 213 U.S. 223, 29 Sup.Ct. 436, 53 L.Ed. 772, 16 Ann.Cas. 1008, is not to the contrary.

Upon the merits it is plain that resort cannot be had either by court or counsel to anything outside the record. From that it must be taken that the language of the chattel mortgage covered all of the fixtures in the storeroom mentioned and all of the goods then in or thereafter to be placed therein; but that as a matter of fact at the time of the execution of the mortgage the only fixtures in the room were the shelving and 'possibly one showcase,' and no goods there at all, but that it was the intention of the mortgagors to at once proceed with the installation of the fixtures, and to place in the storeroom a stock of goods for sale in the usual course by means of the money borrowed on the mortgage, which money so borrowed and secured was in fact so used. In other words, the bankrupt borrowed on his note secured by the mortgage in question the money with which to equip a storeroom and install therein a stock of goods for sale, and did so use the money; and the question is, Is the mortgage valid as against the other creditors of the bankrupt?

The counsel for the petitioner concedes that, as between the parties, the mortgage created an equitable lien upon the property in question. In his brief he says:

'Unquestionably, as between the original parties, an equitable lien was created by the chattel mortgage, and the mortgagor could not make any of the defenses interposed by the trustee. The trustee, however, does not stand in the shoes of the bankrupt, but has all the rights of a creditor possessing a levy upon the property in controversy. If the lien of the chattel mortgage would not for any reason be valid as against the claim of a levying creditor, had there been no bankruptcy, it would not be a valid lien against the trustee. This is the effect of the Amendment of 1910 (Act June 25, 1910, c. 412, Sec. 8, 36 Stat. 840 (U.S. Comp. St. Supp. 1911, p. 1500)) to section 47 (a) of the Bankruptcy Act defining the trustee's title and rights as follows: '(2) Collect and reduce to money the

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