Staunton Industrial Loan Corp. v. Wilson, 6258.

• Decision Date: 02 August 1951
• Docket Number: No. 6258.,6258.
• Citation: 190 F.2d 706
• Parties: STAUNTON INDUSTRIAL LOAN CORP. et al. v. WILSON.
• Court: U.S. Court of Appeals — Fourth Circuit

190 F.2d 706 (1951)

STAUNTON INDUSTRIAL LOAN CORP. et al. v. WILSON.

No. 6258.

United States Court of Appeals Fourth Circuit.

Argued June 13, 1951.

Decided August 2, 1951.

Wayt B. Timberlake, Jr., Staunton, Va., for appellants.

W. W. Wharton, Harrisonburg, Va., for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

DOBIE, Circuit Judge.

This is an appeal from a decision of the United States District Court for the Western District of Virginia. Appellants, Staunton Industrial Loan Corporation, a Virginia corporation, (hereinafter called Staunton) and Bessie S. Abdallah filed petitions in the bankruptcy proceedings of Showker Brothers, Incorporated, (hereinafter called Showker), asserting liens on certain motor vehicles of the bankrupt, and asking disclaimer of these vehicles on the ground their value was less than the claim of these two appellants. Appellant, David S. Showker, also filed a petition asserting a second lien on the same vehicles upon which Bessie Abdallah claimed a first lien.

The referee in bankruptcy denied the validity of the liens of all appellants and the District Court affirmed the referee's order.

Prior to October, 1947, Showker had been operated as a partnership. On November 3, 1947, shortly after its incorporation, it borrowed $19,000.00 from Staunton. The promissory note given Staunton recited as collateral for the loan a 1946 Ford truck, a 1947 Ford Truck and a 1948 International tractor trailer. Chattel mortgages dated March 31, 1948, were registered on the title certificates of the two Ford trucks by the Division of Motor Vehicles of the Commonwealth of Virginia. Similarly, on February 2, 1949, a chattel mortgage was registered on the International truck. The facts show, however, that written chattel mortgages were not executed on the Ford trucks until April 15, 1948, and on the International truck until July 1, 1949. Showker retained possession of all three vehicles until it filed a voluntary petition in bankruptcy on March 12, 1950. By that time, Showker's indebtedness to Staunton had been reduced to $6,600.00.

Bessie Abdallah, a sister of Randolph Showker who was chief stockholder of the Showker corporation, had lent that organization large sums of money. Some of these loans were repaid in preferred stock of Showker, but on March 23, 1949, Showker being still indebted to Mrs. Abdallah to the extent of $13,000.00, she demanded and received title certificates to ten motor vehicles as collateral security for this indebtedness. These title certificates were submitted to the Virginia Division of Motor Vehicles and liens in Mrs. Abdallah's favor were registered thereon. At one point in her testimony, Mrs. Abdallah stated that contemporaneously with the delivery of these title certificates, she received chattel mortgages on the ten motor vehicles. Sometime later she alleged that she was unable to locate these papers, whereupon Showker executed another set which were back dated to March 23, 1949.

David Showker, an uncle of Randolph Showker, was also a creditor of the Showker corporation. On March 23, 1949, he, too, demanded security for his loans, then amounting to $11,000. Second liens were thereupon executed in his favor on the same ten vehicles upon which Mrs. Abdallah claims first liens. Although David Showker's testimony is somewhat confused, one view of it is that a note and written chattel mortgages were executed on these ten vehicles at the time his liens were registered on March 23, 1949. He also had a duplicate note and chattel mortgages executed sometime in August or September of 1949.

The referee in bankruptcy first determined that the alleged instruments in support of the claims of Bessie Abdallah and David Showker were not in existence at the time their liens were recorded upon the title certificates. He then held the liens of all appellants invalid since there were no written mortgages in existence at the time the liens of the parties were registered on the title certificates. He further found, since the recordation of a non-existent lien is void, the subsequent execution of written mortgages did not validate the prior recordation. These findings were approved by the District Court and the parties have appealed to us.

This Court is not free to reverse the lower Court's finding of fact that Mrs. Abdallah and David Showker did not receive written instruments to support their liens contemporaneously with the registration of such liens on the title certificates of the vehicles, unless this finding be clearly erroneous. See United States v. Appalachian Electric Power Co., 4 Cir., 107 F.2d 769; Hudgins v. Gatewood, 4 Cir., 85 F.2d 939; Arundel Corp. v. Walthen, 4 Cir., 55 F.2d 228. In view of the conflicting and confusing statements made by both Mrs. Abdallah and David Showker on cross-examination, we think this finding of the District Court must be accepted as correct.

With the lower Court's determination that the liens of these appellants are invalid, we cannot agree. The heart of this case is the question whether a valid oral chattel mortgage can be created. The general rule is that as between the parties and creditors with notice an oral chattel mortgage is valid. See, e. g., Kearns v. Davis Bros., 186 N.C. 522, 120 S.E. 52; State Bank of Downs v. Abbott, 104 Kan. 344, 179 P. 326; Hart County Deposit Bank v. Hatfield, 236 Ky. 725, 33 S.W.2d 660; Paska v. Saunders, 103 Vt. 204, 153 A. 451. See also 10 Am.Jur. 750 § 52. The rule is succintly stated in 14 C.J.S., Chattel Mortgages § 49, pages 654-655 as follows: "Subject to the limitations, if any, imposed by the statutes of frauds and by other express statutory provisions, a mortgage, although not in writing, is ordinarily held to be valid as between the parties, and against those having actual notice of its existence, provided the oral agreement contains the elements necessary to constitute a valid written mortgage."

There seems to be no Virginia case squarely in point. The most that can be said of the opinion of Judge Baldwin in Siter, Price & Co. v. M'Clanachan, 1845, 2 Gratt 280, 308-309 is that this opinion appears, by implication, to favor the validity of chattel mortgages as between the parties.

The case most clearly in point, which unquestionably favors the instant chattel mortgagees, is Janney v. Bell, 111 F.2d 103, (decided by our Court, 1940), which dealt with the very problem before us. From our opinion in that case, 111 F.2d at pages 104, 105, 107, 108, we quote:

"The general law is pretty well settled that, apart from statutory restrictions, an unrecorded chattel...