In re Sewell

• Citation: 111 F. 791
• Parties: In re SEWELL.
• Decision Date: 01 January 1901
• Court: U.S. Court of Appeals — Sixth Circuit

111 F. 791

In re SEWELL.

United States District Court, E.D. Kentucky.

January 1, 1901

T. G Bigstaff, for Cash Register Co.

R. A Chiles, for trustee.

COCHRAN District Judge.

Upon petition of the National Cash Register Company, the referee has certified to the court for review his decision as to its claim to a lien for unpaid purchase money upon a cash register sold by it to the bankrupt before the institution of these proceedings, and forming a part of his assets, and to have same subjected to the payment thereof in preference to the general creditors. The trustee, on their behalf, resisted the claim, and the referee, by the decision complained of has disallowed it. It was stipulated in the contract of sale of the register, which was in writing, that the title thereto should remain in the company until fully paid for, and that in default of payment of any installment of the purchase price, it should be entitled to retake possession thereof, and the payments theretofore made should be considered as paid for its use during the time Sewell had had it in possession. Such a stipulation in a contract of sale of personal property, according to the law of this state, has the effect of passing the title of the property sold back to the seller, as security for the purchase price, and therefore to create a mortgage thereon in his favor therefor. In the case of Baldwin v. Crow, 86 Ky. 679, 7 S.W. 146, Lewis, J., with reference to a contract of sale of personalty containing such a provision, said, 'It should therefore be regarded as an absolute sale and mortgage back. ' And in the case of Welch v. Cash Register Co., 103 Ky. 30, 44 S.W. 124, White, J., as to such a provision in a contract of sale of personalty, said, 'That contracts of this kind are only mortgages is equally well settled in this state. ' This proposition of law is recognized by the referee in his decision. His refusal to enforce the mortgage is based upon two other admitted facts in the case: One is that the contract of sale was never recorded; and the other, that all the other debts of the bankrupt were created subsequent to the making of that contract, and at a time when Sewell had the title and possession of the register, subject to this unrecorded mortgage. He holds that because of these two facts that mortgage is ineffectual and invalid as against those subsequent creditors, and the proceeds of the register should be distributed ratably amongst all the creditors, and bases his position upon the following statutory provision contained in the Kentucky Statutes, to wit:

'Sec. 496. No deed or deed of trust or mortgage conveying a legal or equitable title to real or personal estate shall be valid against a purchaser for a valuable consideration, without notice thereof, or against creditors, until such deed shall be acknowledged or proved according to law and lodged for record.'

In order to determine the applicability of this statute to this case, and whether it necessitates the referee's holding, it is essential to understand the construction which has been placed upon it by the court of appeals of this state. This or a substantially similar provision has been in force in Kentucky from an early date, and quite a number of cases have arisen since then in which that court has been called upon to decide its meaning and applicability in so far as it relates to creditors. The following is a list of such cases, to wit: Helm v. Logan's Heirs, 4 Bibb, 78; Campbell v. Moseby, Litt. Sel. Cas. 358; Graham v. Samuel, 1 Dana, 166; Morton v. Robards, 4 Dana, 258; Righter v. Forrester, 1 Bush, 278; Low v. Blinco, 10 Bush, 331; Baldwin v. Crow, 86 Ky. 679, 7 S.W. 146; Wicks v. McConnell, 102 Ky. 434, 43 S.W. 205. The result to be deducted from them is this: Though in terms the statute refers to creditors generally, it is limited in its application to them. It does not have the effect of invalidating a pocket deed or mortgage as against creditors whose debts were created antecedent to such deed or mortgage. In the early cases there was some oscillation of opinion on this subject, but it is now fixed and settled. The statute has relation solely to creditors whose debts have been created subsequent to the deed or mortgage. And, as to these, it is only such subsequent creditors whose debts were created without notice of the deed or mortgage, and in the belief that the debtors' title to the property was good and unincumbered, that can rely on the statute to invalidate the deed or mortgage. Two limitations have thus been placed upon the general terms of the statute in this particular by judicial construction. Only creditors who are both subsequent to, and without notice of, the deed or mortgage, can claim the benefit of it. In the case of Wicks v. McConnell, the last of the cases cited above, Du Relle, J., thus states the law:

'On the one hand, the unrecorded lien is upheld as against creditors who cannot be presumed to have given credit upon the faith of the property held in lien. On the other hand, creditors who may be presumed on such faith to have given credit are protected, as against the secret lien, in the rights which they secure by their diligence in the levy of their execution or attachment.'

The construction thus placed upon so...