The appellee below succeeded in setting aside, as preferential under section 60b of the Bankruptcy Act (11 USCA § 96), a transfer of merchandise by the bankrupt to the aрpellants which was made just a day previous to the filing of a petition in bankruptcy against one Morris B. Horowitz of New York City. Under a written contract made September 20, 1928, the bаnkrupt assigned his accounts receivable as collateral security for advances made to him of 80 per cent, of the net amount of his approved sales. Thе contract provided: “Merchandise refused or returned by customers is hereby transferred to Busch" as security for monies owing to Busch to whom is hereby given a lien on said merchandise with right to sell at public or private sale and at their discretion, and if any of such merchandise comes into the possession of Horowitz he shall receive same only as trustee for, and agrees to turn same over forthwith to, Busch and/or to secure the monies owing to the satisfaction of Busch.”
Horowitz, the bankrupt, testified that it was his practiсe, on receiving the returns of merchandise from the assigned accounts, to segregate the same on separate racks and to notify the appellants thereof, and to pay them for such returned merchandise by assigning new accounts to them in place thereof, and that he recognized, until he had thus repurchased the merchаndise, that it belonged to the appellants. The day before the bankruptcy, Horowitz notified the appellants that he had in his store a quantity of merchandise which had prеviously been returned to him by customers whose accounts had been assigned to the appellants under the contract and of which returns he had not previously notified them. He said the merchandise had been set apart from his regular stock. At the time he was indebted to the appellants for $18,906. Upon receiving notice of the returned merchandise, the appellants immediately demanded possession of the goods under the provisions of their contract, and sent a representative to the bankrupt’s store, cheeked up the returned goods, and removed them from his premises to their own and sold them, realizing $1,720. The court below found that the merchandise thus obtained consisted solely of goods returned to the bankrupt by customers whose accounts had been assigned to them. Therefore these were goods upon which a lien was given with right to possessiоn under the provisions, of the contract above quoted. There is a finding below that the bankrupt was not given unrestricted dominion over the returned merchandise, and the apрellant’s lien thereon was therefore not rendered void. Lee v. State Bank
&
Trust Co.,
The claim of the appellee is that, since actual possession of the merchаndise was taken by the appellants just prior to the filing of the petition in bankruptcy, their lien thereon was void as against the trustee because of failure to file the cоntract under section 230 of the New York Lien Law (Consol. Laws N. Y. c. 33), and that thereby a preferential transfer was created. But the con7 tract here creates a pledge of the returned merchandise and was not a chattel mortgage. Section 230 of the Lien Law applies to chat
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tel mortgages and not to pledges. A pledge differs from a chattel mortgage in that a pledge does not convey legal title to the property but grants a lien thereon to the pledgee as security, and permits him to sell the property to satisfy his lien, while a chattel mortgage is a conveyance which transfers the title and property to the lender. It gives him an absolute title if there bе a default. Sexton v. Kessler,
The merchandise here in question was taken into possession by the appellants prior to bankruptcy, excepting as to 25 or 30 items referred to, which were taken after bankruptcy. Those items taken prior to bankruptcy and pursuant to the agreement were so taken with the intent of carrying out the contract of pledge between the parties, and the trustee therefore has no right to levy on the goods, nor can he successfully attack the lien of the appellants. Finance Co. v. Oppenhimer,
There was no claim at thе time the contract of pledge was entered into that the bankrupt was insolvent. It was clearly intended by the parties that a pledge be given of the merchandise, when thе accounts receivable, covered by the returned goods, no longer remained as collateral security. The right to the returned merchandise was absolute under the contract. It is therefore reasonably presumed that the parties did not deem the provision of their contract to be void and inoperative, and thereforе they had cause to believe they had a right to take possession of the goods of the bankrupt and had a valid lien thereon. Taking such merchandise did not effect an unlаwful preference. The appellants have no cause or reason to believe that the merchandise was such as general creditors of the bankrupt had а right to have subjected to their claims, and the appellants took possession of this merchandise because their contract expressly gave
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them a lien, thereon and the right to possession. A voidable preference cannot be established under such circumstances. Thompson v. Fairbanks,
As to the items delivered after the bankruptcy, they are not subject to the lien of the pledge. The bankrupt had no right in these goods taken after the petition was filed, and they now belong to the trustee in bankruptcy. In rе Bernard
&
Katz,
A decree will be entered below providing that the trustee may prove his proportionate interest in the proceeds of the sale represented by the 25 or 30 items.
Decree modified accordingly.