Loeser v. Savings Deposit Bank & Trust Co.

• Citation: 148 F. 975
• Decision Date: 22 November 1906
• Docket Number: 1,535.
• Parties: LOESER v. SAVINGS DEPOSIT BANK & TRUST CO.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

148 F. 975

LOESER v. SAVINGS DEPOSIT BANK & TRUST CO.

No. 1,535.

United States Court of Appeals, Sixth Circuit.

November 22, 1906

Smith Taft & Arter and L. J. Grossman, for appellant Loeser.

W. W Boynton, for appellee.

Before LURTON and SEVERENS, Circuit Judges, and COCHRAN, District judge.

LURTON Circuit Judge.

The question in this case is as to whether Mrs. Chadwick's chattel mortgage securing a past indebtedness to the Savings Deposit & Trust Company of $37,000 is invalid as a preference under section 60a of the Bankrupt Law of July 1, 1898 (30 Stat. 562, c. 541 (U.S. Comp. St. 1901, p. 3445)), as amended by Act Feb. 5, 1903, c. 487, Sec. 13, 32 Stat. 799, (U.S Comp. St. Supp. 1905, p. 689).

This mortgage was made April 27, 1904. By an agreement between the parties it was withheld from record until November 22, 1904 on which day the mortgagee took actual possession of the mortgaged property and put the mortgage to record. On December 1, 1904, proceedings in bankruptcy were begun against Mr. Chadwick, and in due course when was adjudged a bankrupt. By agreement the mortgaged property was placed in the hands of the bankrupt receiver for purpose of sale, the rights of the mortgagee in the fund to be reserved and adjudicated by the court. Thereupon the bankrupt trustee filed a petition attacking the mortgage as a preference voidable under the bankrupt law. The bank consented to the jurisdiction and entered its appearance, and filed a cross-petition asserting its right to enforce the lien of its said mortgage, and that its claim, when determined, be awarded priority by virtue of the lien of its said mortgage against the fund in the possession of the court, the proceeds of the sale by the trustee of the chattels covered by the mortgage. The District Court denied this relief, and the cross-petitioner has appealed. The property mortgaged included Mrs. Chadwick's entire chattel estate, and consisted of household furniture, china, bric-a-brac, pictures, jewels, an automobile, and all chattels in her residence on Euclid avenue, Cleveland, and in her barns.

The transcript recites that it was conceded by the mortgagee bank on the hearing below:

'That at the time the chattel mortgage was executed by Cassie L. Chadwick, to-wit: April 27, 1904, and delivered to J. C. Hill, its president, that said Cassie L. Chadwick was insolvent, and that said J. C. Hill as president of said bank had reasonable cause to believe at that time that she was insolvent and that such condition existed on the 22d day of November, 1904. It also appeared from the evidence that the effect of enforcing such chattel mortgage, if held valid, will be to enable said bank to obtain a greater percentage of its debt than any other of the bankrupt creditors of the same class.'

The concession brings this transfer squarely within the definition of a voidable preference, provided it was such a transfer as under the law of Ohio was 'required' to be recorded within the meaning of section 60a of the bankrupt law of 1898 as amended by the act of February 5, 1903. District Judge Tayler, who heard this case in the court below, was of opinion that under the laws of Ohio, the state wherein the mortgaged property was situated, a chattel mortgage is not 'required' to be recorded within the meaning of the amendment referred to, and that the preference related to the date of the actual execution of the transfer, and was, therefore, valid as a preference made more than four months before the filing of the petition. To support this conclusion he cites, section 4150, Ohio Rev. St. 1906, Francisco v. Ryan, 54 Ohio St. 307, and In re Shirley, 112 F. 301, 50 C.C.A. 252, as to the validity of an unrecorded chattel mortgage 'not accomplished by an immediate delivery and followed by an actual and continual change of possession,' as against all persons except 'creditors of the mortgagor, subsequent purchasers and mortgagees in good faith. ' To support the proposition that an unrecorded lien, good as between the parties under the law of the state, is good against a bankrupt trustee, if the lien antedates the filing of the petition more than four months, the cases of Humphrey v. Tatman, 198 U.S. 91, 25 Sup.Ct. 567, 49 L.Ed. 956, and Rogers v. Page et al., 140 F. 596, 72 C.C.A. 164, decided by this court, are cited. As to the construction of section 60a before the amendment of 1903, Meyer Brothers Drug Co. v. Pipkin Drug Co., 136 F. 396, 69 C.C.A. 240, an opinion arising under the recording statute of Texas, and decided by the Circuit Court of Appeals of the Fifth Circuit, is cited as holding that the law has not been changed by the amendment of February 5, 1903. It must be conceded that, under the settled law of Ohio, this mortgage was valid without recording, as between the parties and became good when recorded against all creditors who had fastened no lien thereon before, questions of actual fraud in withholding it from record out of the way. It must also be conceded that prior to the amendment of the bankrupt law by the amending act of February 5, 1903, the preference, if free from actual fraud, would relate to the date of the making and delivery of the instrument creating it, and, if that date was more than four months before the filing of the petition for adjudication in bankruptcy, the lien would be good against the trustee. Humphrey v. Tatman and Rogers v. Page et al., cited above. Both of the cases last cited arose under preferences given before the amendment of February 5, 1903. What has been the effect of that amendment? This fact was referred to by Mr. Ray of the House Judiciary Committee, who explained the amendment in question, when proposed in Congress, as intended to prevent preferences under unrecorded instruments given more than four months before the filing of the petition. Touching this he said:

'By adding to 'A' a clause which shall be equivalent to that found in section 3 B (1) Act July 1, 1898, c. 541, 30 Stat. 546 (U.S. Comp. St. 1901, p. 3422). It seems that as section 60A now stands a preferential mortgage may be given and the creditor preferred, by withholding it from record four months be able to dismiss the trustee suit to recover the same though the paper was actually recorded within the four months period. See In re Wright (D.C. Ga.) 96 F. 187; In re Mersman (N.Y.) 7 Am.Bankr.Rep. 46. ' Volume 35, part, 7, Cong. Record, 6,943.

Before this amendment section 60a read as follows:

'A person shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.'

This section, in its original form, was construed in the cases of Humphrey v. Tatman and Rogers v. Page et al., cited above, and in several other reported cases as avoiding no preference which originated under an unrecorded transfer made more than four months before the beginning of bankruptcy proceedings against the maker. Subsequently Mr. Ray became district judge for the Northern District of New York, and in the case styled In re Hunt (D.C.) 139 F. 283, he quotes from Collier on Bankruptcy (5th Ed.) p. 453, a statement that the amendment as offered added after the word 'required' the words 'or permitted,' and 'that the Senate for some reason struck out these words. ' Judge Ray, from this history, held that because under the laws of New York an unrecorded conveyance was good as against everybody except subsequent purchasers without notice, that it was not 'required' to be recorded in order to be effectual against a bankrupt trustee. Independently of this legislative history, Judge Archbald, in English v. Ross (D.C.) 140 F. 630, and the Circuit Court of Appeals for the Eighth Circuit, in First National Bank v. Connett (C.C.A.) 142 F. 33, reached an opposite conclusion and held that a recording statute, which required a conveyance or transfer to be recorded to be effectual against a certain class or classes persons, was a law which 'required' the recording of the transfer in question, within the meaning of section 60a as amended. With this conclusion we agree.

Among the reasons which justify this interpretation are these:

(1) A preference which is an act of bankruptcy by section 3 should in an harmonious law be voidable by the trustee. By that section a transfer made by one 'while insolvent' of any portion of his property to one or more of his creditors 'with intent to prefer such creditors over his other creditors ' is made an act of bankruptcy, and a petition may be filed against such person 'within four months after the commission of such act. ' With respect to the date of the commission of such act of bankruptcy, subdivision (1) of the same section provides that the date from which the four months begins to run shall be 'the date of the recording or registering of the transfer or assignment when the act consists in having made a transfer of any of his property * * * for the purpose of giving a preference as hereinbefore provided, * * * if by law such recording or registering is required or permitted, or, if it is not, from the date when the beneficiary takes notorious,...