279 F. 812 | 3rd Cir. | 1922
This is an appeal from a decree of the District Court affirming an order of the referee holding that the title of the trustee in bankruptcy to certain personal property in his custody was superior to that of Thomas PI. Hayes, equitable lienor and mortgagee. On November 13, 1919, Mr. Hayes entered into a written agreement with the New York & Baltimore Inland Transportation Company, a corporation created under the laws of the state of Mary
On March 19, 1920, the $73,000 having been advanced, the circuit court of Baltimore City dissolved the Maryland Company and directed, the receiver to transfer the barges and tugs to Hayes or his nominee, the Delaware Company, upon delivery to the receiver, of the $90,000 preferred stock and $25,000 common stock. The Delaware Company having been formed in accordance with the agreement, on March 2Ó, 1920, at_ a special meeting of the board of directors, a resolution was passed authorizing it to purchase from the receiver of the Maryland Company the property in question, including the barges and tugs, and “all of said property being subject to liens thereon in favor of Thomas H. Hayes, * * * said liens aggregating the sum of $100,000.” The issue of $90,000 preferred stock, $25,000 common stock, and the $100,000 first mortgage 7 per cent, bond issue was ordered in the resolution.
The tugs and barges were delivered to the Delaware Company on or about March 20, 1920, but not the bills of sale, and so on August 20, 1920, Mr. Hayes, who had become president of the Delaware Company, wrote for them. They were received three days later, and on the same day the hills of sale for the barges and tugs and the $100,000 first mortgage were executed by the Delaware Company and delivered to Mr. Hayes. These were recorded in the custom house at Baltimore on September 3, 1920. On September 14, 1920, the Delaware Company filed a voluntary petition in bankruptcy, and was on that day adjudicated a bankrupt. All the barges and tugs were seized and sold under maritime liens in the several jurisdictions where found. After payment of the various liens out of the amount received from the sales, a balance of $27,640.31 was left in the hands of the trustee in bankruptcy. This fund is claimed by both Mr. Hayes and the trustee.
The superiority in title is the sole question here in issue. The referee in bankruptcy held that the title of the trustee was superior to that of Mr. Hayes. The learned trial judge of the District Court, in a well-reasoned opinion, sustained the conclusion of the referee, and the case is here on appeal from the decree of that court.
In a contest between the trustee, having such a standing, and theeqtitable lienor, who has the superior title? While an equitable lien arising from express contract, as here, may be enforceable against the specific property embraced in the contract in-the hands of the contract- or and subsequent purchasers and incumbrancers with notice, it may not be enforced against prior incumbrancers or subsequent incumbrancers without notice. In re Ronk (D. C.) 111 Fed. 154; Morgan et al. v. First National Bank of Mannington et al., 145 Fed. 466, 76 C. C. A. 236; Moore v. Green et al., 145 Fed. 472, 479, 76 C. C. A. 242. The-trustee belongs to the latter class. An agreement, made more than four months before a petition in bankruptcy is filed, to mortgage or transfer, is in fact not a mortgage of transfer. The legal title still remains in the owner, unincumbered, at the beginning of the four months period, and stands pledgéd under this section of the act for the benefit of all the creditors pro rata. In re Great Western Manufacturing Co., 152: Eed. 123, 127, 81 C. C. A. 341. If the Delaware corporation had on March 20, 1920, given Hayes a mortgage, which had remained unrecorded, this would not have prevailed against the rights and remedies of the trustees since the amendment of 1910. Fairbanks Steam Shovel Co, v. Wills, 240 U. S. 642, 649, 36 Sup. Ct. 466, 60 L. Ed. 841.
This precise question has been passed upon in other circuits with the same conclusion as reached in this. Moore v. Green et al., supra. - In the Tilt Case, Judge Cross quoted the following from Judge San-born of the Eighth Circuit Court of Appeals who wrote the opinion in the Great Western Manufacturing Co., 152 Fed. 123, 127, 81 C. C. A. 341, 345:
“A mortgage or transfer of Ms property by an insolvent debtor within four months of the filing of a petition in bankruptcy against him, which otherwise constitutes a voidable preference, is not deprived of that character or made valid by the fact that it was executed in performance of a contract to do so made more than four months before the filing of the petition.”
This conclusion is supported by the Supreme Court in the case of Wilson v. Nelson, 183 U. S. 191, 22 Sup. Ct. 74, 46 L. Ed. 147. In that case, long prior to the four months period, Nelson gave a note attached to which was a power of attorney, with authority to confess judgment; but judgment was not confessed until within the four months period. It was held that the judgment and execution thereon was a preference “suffered or permitted” within the meaning of the act. This conclusion completely ignores, appellant says, all his antecedent rights.
The consideration for the transfer was not anything then presently received by the Delaware corporation. It was the satisfaction and discharge of the equitable lien in pursuance of the agreement of November 13, 1919. The consideration was the long antecedent advancement of the $73,000. So the mortgage was a transfer made not for a “pres-
But this conclusion cannot prevail under section 47a (2), appellant says, because the transfer took place before the petition in bankruptcy was filed, and the amendment of 1910, investing the trustee with the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings, does not give him such status prior to that time. In support of this proposition he cites Bailey v. Baker Ice Machine Co., 239 U. S. 268, 36 Sup. Ct. 50, 60 L. Ed. 275, Carey v. Donohue, 240 U. S. 430, 36 Sup. Ct. 386, 60 L. Ed. 726, L. R. A. 1917A, 295, and Martin v. Commercial Bank, 245 U. S. 513, 38 Sup. Ct. 176, 62 L. Ed. 441. The cases establish that—
‘The status of the trustee as a creditor holding a lien exists as of the date of the filing of the petition, and is not retroactive as regards the prior four months period.”
The conclusion is then drawn that, prior to the filing of the petition, during the four months period, the transfer is not voidable by the trustee. Section 60b provides that if the bankrupt, being insolvent, shall have made a transfer of any of his property within four months before the filing of the petition in bankruptcy, and the transfer operate as a preference and the person receiving it shall have reasonable cause to believe that the enforcement of the transfer would effect a preference, it shall be voidable by the trustee.
Do the cases cited nullify the practical operation of this section as amended? for that is the effect of the contention. All that Bailey v. Baker Ice Machine Co. decides is that the conditional sale between the Baker Ice Company and the bankrupt was good and as between them the title remained in the vendor, so that when the conditional sales contract, which, was executed before the four months period began, but was recorded afterward', the bankrupt estate was not diminished, ur.der the Kansas statute, by recordation. The contract under the Kmsas law was void as against a creditor of the vendee who fastened a ’ ien upon the property by. execution, attachment, or like legal process, before the contract was filed for record. Gen. Stat. 1909, § 5237; McVay v. English, 30 Kan. 368, 371, 1 Pac. 795; Dixon v. Tyree, 92 Kan. 137, 139, 139 Pac. 1026. But no creditor of the vendee at the time the petition in bankruptcy was filed had fastened a lien upon the property, and there was no one represented by the trustee or with whose “rights, renedies and powers,’’ he was deemed to be vested who could attack the contract, and the trustee, therefore, could not d© so. The title, consequently, still stood in the vendor, where it had always been. The case would have been different if title, at any time, had been in the bankrupt. The property before the court stood just as if it had never been conditionally sold. If, however, title to the property had been in the bankrupt during the four months period, as it was in the instant case, .title would have vested in the trustee as of the time the petition was filed-, and the. transfer would have been voidable by him under section 60b.
“Until so recorded or filed for record, they shall be deemed fraudulent so far as relates to a subsequent bona fide purchaser having, at the time of the purchase, no knowledge of the existence of such former deed or instrument.” Section 8543, General Code of Ohio.
The question before the court was: What was meant by the word “required,” in section 60b, providing that the transfer of an insolvent’s property is voidable by the trustee if the transfer is recorded within four months of the filing of the petition, “if by law recording or registering thereof is required”? It had been held in the Sixth, Seventh, and Eighth circuits that the word “required” referred tO' the character of the instrument giving the preference, without regard to the persons in whose favor the requirement is made. In the Second, Fifth, and Ninth circuits the opposite conclusion had been reached, and in this case the Supreme Court held that the word “required” referred, not to the character of the instrument, but to particular persons, certain designated creditors, for whose benefit recording was made necessary, “and in whose behalf or in whose place, the trustee is entitled to act,” and since a “subsequent bona fide purchaser having, at the time of the purchase, no knowledge of the existence of such former deed or instrument,” is not within the class of persons for whose benefit recording was imposed, the recording within four months of filing of the petition in bankruptcy was not a transfer within the meaning of the statute within that period, and so it could not be avoided by the trustee, representing creditors, and not subsequent bona fide purchasers. He had no one of the class for whom recording was required to represent. In the case at bar the trustee has such persons to represent, and so the transfer is voidable by him.
In the case of Martin v. Commercial National Bank, 245 U. S. 513, 38 Sup. Ct. 176, 62 L. Ed. 441, a mortgage was executed more than four months before the petition in bankruptcy was filed, but was recorded only one day before. Section 3260 of the Georgia Code of 1910, the state in which the transaction occurred, provides that mortgages not recorded within the time required remain valid as against the mortgagor, but invalid against a lien creditor who fixes a lien on the property before recording takes place. No creditor had fastened a lien on the property before recording. The trustee represented no one who actually held rights superior to the mortgage while it was off the record, and so the claim based upon the mortgage was allowed as preferred.
The case under consideration differs from those cited, in that the trustee represented creditors for whose benefit recording was “required,” and, the mortgage not having been recorded within four months prior to the filing of the petition in bankruptcy, the .transfer
We see no ground for disturbing the decree of the District Court, md it is affirmed.
