In Re Summit Hardware, Inc.

• Decision Date: 06 January 1961
• Docket Number: No. 81669.,81669.
• Citation: 192 F. Supp. 489
• Parties: In the Matter of SUMMIT HARDWARE, INC., Bankrupt. John A. SCHWEMLER, Trustee, Plaintiff, v. Everett L. FOOTE, Defendant.
• Court: U.S. District Court — Northern District of Ohio

192 F. Supp. 489

In the Matter of SUMMIT HARDWARE, INC., Bankrupt.

John A. SCHWEMLER, Trustee, Plaintiff, v. Everett L. FOOTE, Defendant.

No. 81669.

United States District Court N. D. Ohio, E. D.

January 6, 1961.

Clair Whitmer (of Johnson, Whitmer & Sayre), Akron, for trustee.

Clarence W. May (of Brouse, McDowell, May, Bierce & Wortman), Akron, for defendant.

CONNELL, Chief Judge.

This action is before the Court on a petition for review of an order and judgment of the Referee in Bankruptcy, which denied petitioner's (a defendant in trustee's petition to sell personalty) claim of a factor's lien on all the goods, chattels, wares, and merchandise of the bankrupt up to the amount of $25,000, the amount loaned to the bankrupt.

In studying the transcript of proceedings and the various exhibits that were so assiduously prepared by the Referee for the Court's consideration, it appears to us as if the Referee relied primarily upon the fact that the purported factor did not comply technically or strictly with the requirements of Ohio Revised Code, § 1311.60 regarding the creation of a factor's lien. Thus the issue decided by the Referee is somewhat more comprehensive than the issue actually created by plaintiff-trustee's answer No. 2 in reply to petitioner's cross-petition for reclamation. In any event, the issue which we deem as confronting us presently is whether Foote sufficiently complied with the provisions of the Ohio Factor's Law, O.R.C. §§ 1311.59-1311.64, so as to have created a valid factor's lien, thereby establishing rights to the personalty of the bankrupt superior to those of the trustee.

The section of the Ohio Factor's Law that the trustee asserts and the Referee finds has not been complied with by Foote, the petitioner, is Section 1311.60, and it reads, in pertinent part, as follows:

"If it is provided by a written agreement with the borrower, a factor shall have a lien upon such merchandise owned by and in the custody or possession of the borrower, including such merchandise as is temporarily out of the borrower's custody or possession, as is from time to time after the execution of said written agreement designated in separate written statements dated and signed by the borrower and delivered to the factor. * * * Such lien is perfected and valid from the time of filing the notice referred to in sections 1311.61 to 1311.64 * * *."

Section 1311.61 provides for the filing of the notice of the lien and the recording thereof in the appropriate county recorder's office(s). It is apparently conceded that Foote filed notice of the asserted factor's lien in due time and in due form, so that this procedural requirement is not in issue here.

As is indicated from the above-quoted language, Section 1311.60 contemplates the preparation of two separate written instruments. One is nominated "written agreement" and is the instrument that actually creates the lien, albeit that notice of the lien must be filed in accordance with Section 1311.61 before the lien becomes effective. The second written instrument contemplates a running record of the merchandise that is the security for the lien. To us it is significant that these statements, dated and signed by the borrower, are simply delivered to the factor and apparently are neither intended nor required to be part of the notice given to those who check the factor's lien index in the county recorder's office.

A review of the record before us indicates that Foote and the bankrupt entered into a lengthy written agreement which provided a lien in favor of Foote, as factor, "on all its (Summit Hardware, the bankrupt) hardware, screws, nuts, bolts, work in process, tools, merchandise, and all other chattel property * * * including any and all chattel property held for sale * * * to cover the aforesaid note in the amount of Twenty-five Thousand Dollars (25,000.00) * * *. Said factor's lien shall cover any and all chattel property including nuts, bolts, hardware, tools, supplies, or merchandise hereafter acquired." It was further agreed that Summit Hardware would furnish Foote each thirty days or oftener a list of all merchandise acquired by it.

It can hardly be doubted that the written agreement fulfilled the first requirement of Section 1311.60; i. e. that the lien is to be created by means of a written agreement between the factor and the borrower. However, it appears, despite some argument by Foote to the contrary, that there were never any separate written agreements dated and signed by the borrower and delivered to the factor which contained the description of the merchandise subject to the lien, despite the agreement of the bankrupt to so provide.

It is because of this apparent failure to comply strictly with the provisions of Section 1311.60 that the Referee based his decision. In so holding, the Referee determined that the present factor's lien statute is in derogation of common law and thus must be construed strictly. Under such a construction, it...