Title Guaranty & Surety Co. v. Witmire

• Citation: 195 F. 41
• Decision Date: 05 March 1912
• Docket Number: 2,195.
• Parties: TITLE GUARANTY & SURETY CO. v. WITMIRE.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

195 F. 41

TITLE GUARANTY & SURETY CO. v. WITMIRE.

No. 2,195.

United States Court of Appeals, Sixth Circuit.

March 5, 1912

The trustee in bankruptcy, Witmire, sued to recover the value of certain property alleged to belong to the bankrupt's estate and to have been converted by the plaintiff in error (the defendant below) to its use. At the conclusion of the evidence, such defendant's motion for a directed verdict was overruled, and the jury was instructed to return a verdict for the trustee on his motion for such damages as it might find him entitled to recover under the charge given. Judgment having been rendered on the verdict for $2,800 error is prosecuted to secure a review of the proceedings had in the Circuit Court.

The facts disclosed by the record are as follows: Early in 1909 Stone and Green (hereinafter called the contractors) entered into a contract for the construction of a ditch in Polk county, Minn. On March 20, 1909, the contractors applied to the Title Guaranty & Surety Company (hereinafter called the Surety Company), at Chicago, Ill., for a bond conditioned for the faithful performance of their work, and entered into an agreement with it, which was signed by them only, to pay in advance a premium of $24.07 for each year during the continuance of such bond, and to indemnify the Surety Company against all loss, costs, damage, charges, and expenses, of whatever kind, resulting from any acts, default, or neglect of theirs that the Surety Company might sustain or incur by reason of its execution of such bond or any continuation thereof. The agreement further recites: 'The undersigned does (do) further agree, in the event of its (their) being unable to complete or carry on the aforementioned contract to assign, and does (do) hereby assign, such plant as the undersigned may own or have on said work, to the said the Title Guaranty & Surety Company. ' Other provisions of the agreement are that the contractors would accept, as conclusive against them, the vouchers or other evidence of any loss paid by the Surety Company under its obligation and also of all costs and expenses incurred by the Surety Company in adjusting such loss or in completing the contract for ditching, and that, in the event they defaulted in or breached any of the provisions of the ditching contract, the Surety Company, as surety upon the bond, should be subrogated to all their rights and properties as principal in such contract, and that deferred payments and any and all moneys and properties that might be due and payable to them at the time of such default, or that might thereafter become due and payable to them on account of such contract, should be credited upon any claim made upon the Surety Company under the bond.

Thereupon the Surety Company became their surety on the last-named date on a $5,000 bond given to Polk county for the faithful performance of their contract for ditching. The agreement was not filed for record because the Surety Company was not accustomed so to file instruments of that character; but it was not withheld from record in pursuance of any agreement between the parties, or to strengthen the credit of the contractors, or to hinder, delay, or defraud their creditors. On May 11th the contractors purchased a land dredge or steam shovel, at Marion, Ohio, for $3,040, which was forwarded about June 10th to the scene of their future work in Minnesota, and, on its arrival, it was installed and used by them in the digging of the ditch. On September 4th the contractors abandoned the completion of their contract. At that time they had on the line of their work the steam shovel, a camping outfit, a water tank, oil lamps, and other tools. On September 10th they filed a petition in bankruptcy in the District Court for the Eastern District of Michigan and five days later the Surety Company took possession of their property theretofore used by them in their Minnesota work, and completed their contract, at a loss of $2,500. This loss was subsequently reduced to $1,500 by the Surety Company's sale of such property for $1,000, which was the best price obtainable therefor. A trustee in bankruptcy having been elected, he sued to recover the value of the property so sold, with the result heretofore mentioned.

L. W. Goodenough, for plaintiff in error.

H. V. Barbour and E. A. McDonald (Bowen, Douglas, Eaman & Barbour, on the brief), for defendant in error.

Before WARRINGTON and KNAPPEN, Circuit Judges, and SATER, District judge.

PER CURIAM.

The agreement between the contractors (Green and Stone) and the Surety Company was made in Illinois, but it concerned property to be located in, and which was in fact transferred to, Minnesota. The contractors' plant was used there, and remained in their possession in that state until it was taken over by the Surety Company. The parties intended that their agreement should be carried out where the ditch was to be digged. It must, therefore, be interpreted with reference to the law of Minnesota. Union Trust Co. v. Bulkeley, 150 F. 510, 80 C.C.A. 328; Re Green (D.C.) 134 F. 137.

Both parties rightly concede, and it was rightly held by the learned trial judge, that under the law of Minnesota a chattel mortgage vests the legal title to the mortgaged property in the mortgagee. Kellogg v. Olson, 34 Minn. 103, 24 N.W. 364; Fletcher v. Neudeck, 30 Minn. 125, 14 N.W. 513. Nor is it controverted that, under the law of that state, a mere general creditor who has not seized the mortgaged property by legal process, or acquired some lien upon it, cannot question the validity of a chattel mortgage which has not been filed as provided by sections 3461 and 3462, Rev.L.Minn. 1905. Only a subsequent purchaser who acquired the mortgaged property while the mortgage was unfiled, or a creditor who laid hold of the property by legal process during such time, can avoid the mortgage for the simple reason that it was not filed. Clark v. Richards Lumber Co., 68 Minn. 282, 288, 71 N.W. 389; Ellingboe v. Brakken, 36 Minn. 156, 30 N.W. 659; Tolbert v. Horton, 31 Minn. 518, 18 N.W. 647; Howe v. Cochran, 47 Minn. 403, 50 N.W. 368.

The court below adopted the view that the indemnity agreement created a mere equitable charge or lien in favor of the Surety Company, to be thereafter consummated by voluntary delivery of possession or by compulsory action under a bill for specific performance, and that it cannot be classified as a chattel mortgage. It was of the opinion that, although a chattel mortgage under the Minnesota rule operates to convey a legal interest in the title to after-acquired property, the rule must rest on the theory that the mortgage affects an existing body of property to which the after-acquired property is merely incidental, and that, as there was in this case no existing body to which the subsequently purchased property could be incidental, no interest in the legal title to the property so purchased was acquired by the Surety Company under its agreement. If these conclusions are correct, an affirmance must follow. If they are unsound there must be a reversal.

The controlling questions, then, presented by the record for decision are: (1) Was the agreement between the contractors and the Surety Company in substance and effect a chattel mortgage? (2) If it was such, did the after-acquired property at the time of its purchase by the contractors become subject to and pass under the mortgage?

The purpose of the agreement was not merely to obligate the contractors to the payment of the premium for the bond for the first year and annually thereafter in case of its continuation, but also fully to indemnify the Surety Company against all loss, costs, damage, charges, and expenses resulting from any acts, default, or...