In re Quigley Motor Sales

• Decision Date: 18 February 1935
• Docket Number: No. 258.,258.
• Citation: 75 F.2d 253
• Parties: In re QUIGLEY MOTOR SALES, Inc.
• Court: U.S. Court of Appeals — Second Circuit

75 F.2d 253 (1935)

In re QUIGLEY MOTOR SALES, Inc.

No. 258.

Circuit Court of Appeals, Second Circuit.

February 18, 1935.

Costello, Cooney & Fearon, of Syracuse, N. Y., for claimant.

George A. Langan, of Syracuse, N. Y., for trustee in bankruptcy.

Stanley A. Williams, of Syracuse, N. Y., for cross-appellant Austin.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

SWAN, Circuit Judge.

The bankrupt obtained money from Metropolitan Commercial Corporation, hereafter for convenience referred to as the finance company, to conduct a retail motorcar sales business. The financing was of two sorts. The first involved loans upon chattel mortgages; the bankrupt would buy automobiles from the manufacturer, take the receipted invoices to the finance company, and obtain a loan secured by mortgage upon the automobiles it had already bought and paid for. When the petition in bankruptcy was filed on February 19, 1931, the bankrupt had possession of fifteen automobiles upon which the finance company claimed a lien under chattel mortgages. The District Court held that the mortgages were invalid because executed without compliance with section 16 of the New York Stock Corporation Law (Consol. Laws N. Y. c. 59), requiring the consent of at least two-thirds of the stockholders to the execution of a mortgage, and awarded to the trustee in bankruptcy the proceeds of sale of said automobiles. From this part of the decree the finance company has appealed.

The second way in which the finance company advanced money to the bankrupt was to discount notes given by purchasers of automobiles. Such notes were secured by conditional sale contracts which the bankrupt would assign to the finance company when the purchasers' notes were discounted, sometimes guaranteeing payment of the notes and sometimes indorsing them without recourse. Buyers did not pay as agreed, and the cars were repossessed by the finance company under the assigned conditional sale contracts. They would then be delivered at the bankrupt's premises to be sold by it for the account of the finance company after obtaining its consent as to terms. Thirty-one such cars were in the bankrupt's premises at the date of the bankruptcy petition. The District Court awarded them to the finance company, and from this part of the decree the trustee in bankruptcy has appealed.

The questions raised by the two appeals are independent. Taking up first the chattel mortgages, a contention is made by the finance company that they were purchase-money mortgages and as such expressly excluded from section 16 of the state statute. The special master so found, but the District Court reversed this finding and was clearly supported by the testimony in so doing. The chattel mortgages were given on cars which the bankrupt had already paid for; it is apparent that the money advanced by the finance company was not meant to be used in the purchase of those cars from the manufacturer and cannot be considered a part of that transaction. Compare Syracuse Savings & Loan Ass'n v. Hass, 134 Misc. 82, 84, 234 N. Y. S. 514; Lorenz Co. v. Gray, 136 Or. 605, 298 P. 222, 225, 300 P. 949; Van Loben Sels v. Bunnell, 120 Cal. 680, 53 P. 266, 267. Concededly the mortgages were not authorized by a vote of the bankrupt's shareholders, nor was a certificate of consent filed as the statute requires. Nevertheless, it does not necessarily result that they were void. In the case of In re Paul De Laney Co., 26 F.(2d) 961, this court held, following decisions of New York courts, that a corporation may be estopped to assert the invalidity of the mortgage if the shareholders knew of its execution...