Lewin v. Telluride Iron Works Co.

• Decision Date: 25 March 1921
• Docket Number: 5510.
• Citation: 272 F. 590
• Parties: LEWIN v. TELLURIDE IRON WORKS CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

272 F. 590

LEWIN v. TELLURIDE IRON WORKS CO. et al.

No. 5510.

United States Court of Appeals, Eighth Circuit.

March 25, 1921

Ernest Morris, of Denver, Colo., for plaintiff in error.

H. R Kaus, of Denver, Colo. (L. W. Allen, of Telluride, Colo., and L. F. Twitchell, of Denver, Colo., on the brief), for defendants in error.

Before SANBORN and STONE, Circuit Judges, and MUNGER, District Judge.

SANBORN Circuit Judge.

On May 3, 1918, the trustee in bankruptcy of the Weller Mining &amp Milling Company, a corporation, adjudged bankrupt on January 30, 1918, brought an action at law against the Telluride Iron Works Company, a corporation, to recover of it $5,000, the alleged value of the building known as the Weller Stamp Mill, the shafting, wheels, pulleys, tools, and other appurtenances thereto, which the Weller Company had placed on the Union placer mining claim survey No. 737 while it was a lessee under a lease of that claim to it made on July 15, 1913, by the owner thereof, the San Miguel Consolidated Mining Company. The trustee alleged that the Telluride Company had taken and appropriated this building and its appurtenances to its own use when, at the time of the adjudication of the bankruptcy, they were the property of the Weller Company. The answer of the Telluride Company that is important here was that the lease of July 15, 1913, under which the Weller Company held the stamp mill, etc., provided that the lessor leased the mining claim to the Weller Company for 10 years 'for the purpose of the construction and maintenance thereon of a stamp mill and such other buildings as may be required by' the Weller Company in connection with its mill operations, that the Weller Company would pay as rent for the premises $350 per annum and all taxes on the premises and on the improvements thereon, that it would pay double rent for every day it or any one else in its name should hold any part of the premises after the expiration or forfeiture of the lease, and that 'all improvements erected on said premises by said second party (the Weller Company), or its assigns, or by any one who may claim under it or them, are bound for the payment of each installment of rent and for the county and state taxes and all other taxes and demands, as aforesaid, and for any arrears of rent or taxes'; that the Weller Company had erected the stamp mill and placed the pulleys, shaftings, and other property the trustee claimed to recover the value of, on the premises under this lease; that at the time of the Weller Company's adjudication in bankruptcy it owed the lessor $436.71 unpaid taxes and $1,700 unpaid rent; that the trustee had never intended or offered to pay these unpaid rents or taxes and had never assumed the lease or taken possession of any of the leased premises or any of the property in controversy; that on August 28, 1918, the then owner of the lessor's interest in the leased premises duly forfeited in accordance with the terms of the lease, the lessee's interest in the leased premises and in the improvements and property here in controversy; and that thereafter on October 23, 1918, such owner sold, assigned, and conveyed to the Telluride Company the lessor's title and interest in the leased premises and in the building and improvements placed thereon by the Weller Company under the lease. There was a trial by a jury. At the close of the trial the evidence was conclusive that the building and its appurtenances, the pulleys, shafting, and other property in controversy were placed on the premises leased by the Weller Company and used by it under the lease as a part of the operative stamp mill and plant, that neither the trustee nor any of the officers of the court of bankruptcy had assumed the lease or taken possession of the leased property or premises, that there was due for taxes $476.71, and for unpaid rent $1,750, that before the Telluride Company acquired the lessor's interest in the leased premises, the lessor had forfeited the Weller Company's interest in the mill and appurtenances under the lease, and that thereafter all the interest in and title of the lessor in the leased premises and in the stamp mill and property placed thereon by the Weller Company under the lease were duly conveyed to the Telluride Company, which had taken possession thereof. Thereupon the court below instructed the jury to return a verdict for that company, and the trustee excepted.

An examination of the record has convinced that the real questions here presented are: (1) Were the lien and title of the lessor to the building and property in controversy which were conveyed to the Telluride Company on October 23, 1918, prior in right or superior in equity to the claim of the trustee thereto? and (2) if so, was all the property in controversy subject to that lien and title?

In Walker v. Brown, 165 U.S. 654, 662, 663, 669, 17 Sup.Ct. 453, 41 L.Ed. 865, the Supreme Court in effect adopted and made section 1235 of Pomeroy's Equity Jurisprudence the law of this land, at least in the federal courts. That section declares:

'That every express executory agreement in writing, whereby the contracting party sufficiently indicates an intention to make some particular property, real or personal, or fund, therein described or identified, a security for a debt or other obligation, or whereby the party promises to convey or assign or transfer the property as security, creates an equitable lien upon the property so indicated, which is enforceable against the property in the hands not only of the original contractor, but of his heirs, administrators, executors, voluntary assignees, and purchasers or encumbrancers with notice. ' Pierce v. Nat. Bank of Commerce (8th C.C.A., opinion filed November 6, 1920) 268 F. 487.

The lease of July 15, 1913, evidences an equitable lien far within the definition here given, and it fastened such a lien for the rent and taxes in favor of the lessor and its successor in interest (the Telluride Company) upon the buildings and appurtenances placed upon the leased premises by the Weller Company to constitute, and used by it for the purpose of, the stamp mill described in the lease.

But counsel for the trustee argues: (a) That under the laws of Colorado, even if the lessor's lien was equitable and clearly granted by the lease and valid against the lessee, the Weller Company, it was invalid as to third parties under sections 512 and 521 of the Revised Statutes of Colorado 1908, which provide that no mortgage or other conveyance of personal property having the effect of a mortgage or lien upon such property shall be valid as against the rights of any third party unless possession of such personal property shall be delivered to and remain with the mortgagee or the said mortgage be acknowledged and recorded, citing Sioux Valley State Bank v. Honold, 85 Iowa, 352, 357, 52 N.W. 244; Ward v. Rippe, 93 Minn. 36, 37, 100 N.W. 386; Johnson v. Crofoot, 53 Barb. (N.Y.) 574; Mitchell v. Badgett, 33 Ark. 387, 396; Merrill v. Ressler, 37 Minn. 82, 33 N.W. 117, 5 Am.St.Rep. 822; McNeal v. Rider, 79 Minn. 153, 81 N.W. 830, 79 Am.St.Rep. 437; Clark v. Bright, 30 Colo. 199, 69 P. 506. (b) That under section 70a(5) of the Bankruptcy Act (9 U.S. Comp. Statutes, Sec. 9654), the stamp mill and appurtenances were property, which, prior to the filing of the petition in bankruptcy, the bankrupt could by any means have transferred, or which might have been levied upon and sold under judicial process against him, so that the trustee was vested with the title of the bankrupt as of the date he was adjudged a bankrupt by operation of law. (c) That under section 47a(2) as amended by the Act of June 25, 1910, Sec. 8 (9 U.S. Compiled Statutes, 1916, Sec. 9631), which provides that 'trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied,' the stamp mill and the appurtenances were, upon the filing of the petition, in the custody or coming into the custody of the bankruptcy court, and the trustee had the rights and remedies of a creditor having a lien thereon by legal or equitable proceedings. And (d) that therefore the lien and title of the trustee was superior to those of the lessor.

But the third person of the Colorado statute is not one who stands in the shoes of the mortgagor, but a purchaser or lienor for value without notice, or one in some such situation. Beatrice Creamery Co. v. Sylvester, 65 Colo. 569 179 P. 154, 155; Groce v. Phoenix Insurance Co., 94 Miss. 201, 48 So. 298, 299, 300, 22 L.R.A. (N.S.) 732; Green & Sons v. Weems et ux., 85 Miss. 566, 38 So. 551; Morse v. Morrison, 16 Colo.App. 449, 452, 66 P. 169; Puzzle Mining & Reduction Co. v. Morse Bros. Machinery Co., 24 Colo.App. 74, 79, 80, 131 P. 791. The trustee here stands in the shoes of the bankrupt lessee and had no higher or better right than it unless such higher or better right was vested in him by section 47a as amended by the Act of June 25, 1910, just quoted. Unless that grant has such an effect, the equitable lien and the title under it of the lessor and its assignees are prior in right and superior in equity to any title or right of this trustee. In the absence of such an express grant, the trustee takes the bankrupt's property subject to all rights and equities existing in favor of third persons against the bankrupt. York Mfg. Co. v. Cassell, 201 U.S. 344, 352, 26 Sup.Ct. 481, 50 L.Ed. 782; Hurley v. Atchison, T. & S.F....