In re Jettner

• Citation: 24 F.2d 734
• Decision Date: 03 February 1928
• Docket Number: No. 136.,136.
• Parties: In re JETTNER.
• Court: New York District Court

24 F.2d 734 (1928)

In re JETTNER.

No. 136.

District Court, D. Indiana, South Bend Division.

February 3, 1928.

Harry B. Tuthill, of Michigan City, Ind., for mortgagee.

Robert Moore, of Michigan City, Ind., and Floyd O. Jellison, of South Bend, Ind., for trustee.

SLICK, District Judge.

This is a petition for review of an order made by Hon. Alvin F. Marsh, referee. The facts found by the referee are briefly as follows:

Bankrupt borrowed of the Farmers' State Bank of New Carlisle sums aggregating $2,219, and Charles D. White was surety on the note at the bank. For this service, which White rendered as surety, bankrupt executed to White a chattel mortgage on his entire stock of new Ford parts and accessories, office furniture, fixtures, and shop equipment. The mortgage was duly recorded according to law, and within four months preceding the bankruptcy action. The mortgage provided that the bankrupt should retain possession and have the use of all of the property mortgaged until the note secured became due, and then provided that, in the event the note was not paid when due, the mortgagee would have the right to take possession of the property. The mortgagor agreed in the mortgage not to remove the property mortgaged from the place where it was located, nor to sell, assign, or lease the same without the consent of the mortgagee.

The referee further finds that the mortgagor continued in possession of the property and continued to sell the same with the knowledge and consent of the mortgagee, and that he spent a part of the proceeds from such sales for divers purposes and did not apply the same to the payment of said note. It is specifically found that the mortgagee had knowledge of certain expenditures made by the bankrupt, and that the mortgage constituted a secret trust, and for that reason was held by the referee void as to general creditors. Referee disallowed the mortgage as a preferred claim, and allowed it as a general claim.

There is no finding by the referee that the mortgagor was insolvent at the time the mortgage was given.

Hon. Harry B. Tuthill, appearing for mortgagee, urges that, inasmuch as the referee has not found that the mortgagor was insolvent at the time the mortgage was executed, it does not come within the provisions of the Bankruptcy Law — citing section 107 (e), 11 USCA. That part of section 107 (e) relied upon, reads as follows:

"All conveyances, transfers, or incumbrances of his property made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the state, territory, or district in which such property is situate, shall be deemed null and void under the provisions of this title against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt."

It is the law that whether and to what extent a mortgage of this nature is valid or invalid is a question to be determined by examining the decisions of the courts of the state in which said mortgage was executed and recorded. Thompson v. Fairbanks, 196 U....