116 F. 404 | S.D. Ga. | 1902
(orally). This is a contest between equities. The Exchange Bank, engaged in the banking business in this city, ha's loaned Simon Josephsoii sums of money at various times, and taken promissory notes, and mortgages on his stock of goods therefor.
Now, these mortgages of the Exchange Bank were not recorded, and that is the gravamen of the complaint of the excepting creditors. It is not contended that there was any actual agreement to withhold these mortgages from record. It cannot be contended, I think, successfully, from the record that the Exchange Bank or its responsible officers knew that Simon Josephson was insolvent at the time these mortgages were executed. It appears from the record that they were exécuted to secure debts for money loaned in the usual course of business of the bank, and they were all executed in consideration of a present advance from the bank to Josephson, which went into his business. It is said, however, that even in the absence of knowledge of insolvency of Josephson on the part of the officers of the bank, and in the absence of any agreement to keep these mortgages from record, and in the absence of any purpose to hinder, delay, or defraud creditors, the mortgages are nevertheless void, and that the debt which they were intended to secure must be treated as an unsecured debt, and that the Exchange Bank must stand upon the footing of the genera! creditors.
Now, it is conceded by both of the learned counsel for the trustees who take this position that record is not essential in Georgia to the validity of the mortgage. This has besides been repeatedly held by the supreme court, and may be regarded as settled law in this state.
The .supreme court of the United States in Etheridge v. Sperry, 139 U S. 276, 277, 11 Sup. Ct. 569, 35 L. Ed. 176, declares as follows :
“Wliile chattel mortgages are instruments of general use, each state has a right to determine for itself under what circumstances they may be executed, the extent of the rights conferred thereby, and the conditions of their validity. They are instruments for the transfer.of property, and the rules concerning the transfer of property are primarily, at least, a matter of state regulation. We are aware that there is a great diversity of rulings on this question in the courts of the several states, but, whatever may be our individual views as to what the law ought to be in respect thereto, there is so much of a local nature entering into chattel mortgages that this court will accept- tin settled law of each state as decisive in respect to any case arising therein.”
Then it follows that the settled law of the state is for the purpose of this decision the settled law to be enforced by the United States court. There can be no doubt as to the inexorable character of that rule, whatever we may think about the effect of “pocket mortgages,” whether injurious or otherwise, and that is a debatable question. Unquestionably we are bound by the construction of the highest appellate court of the state as to all the circumstances relating to them,
My conclusion upon this controversy would have been different had there been discovered in this evidence any fraudulent purpose, or any agreement of a secret character, by which it was intended that the general creditors should be prejudiced by the execution of this mortgage; but, as I have said, no 'such purpose appears. It is, however, said that this rule of Georgia with relation to unrecorded mortgages enables a debtor in failing .circumstances to obtain credit which is unfounded, and therefore injurious to persons giving it. This may be true in certain cases, but the remedy for this, if it be a mischief, is not with the courts. Said the 'supreme court in Sawyer v. Turpin, 91 U. S. 121, 23 L. Ed. 237:
“If it be said failure to put it on record enabled tbe debtor to maintain a credit wbieb be ought not to have enjoyed, the answer is that the bankrupt act was not intended to prevent false credits. Its purpose is ratable distribution.”
This bank lending this money parted with large sums in the due course of its business, and non constat but that this money, or a large portion of it, went directly to the discharge of debts of these creditors, or other debts of creditors now before the court. They’ dealt with full knowledge of the law of Georgia. They are presumed to be aware of the rule in this state with regard to the creation and registration of liens, and it would have been easily competent for Claflin & Co., by demanding a mortgage, and by recording it, to have outfaced the bank, and to have applied to their own claim the fund which is now before the court, and which the court thinks must go to the bank’s claims. They took a certain commercial risk in selling these goods; the bank took certain commercial risk in lending this money. The law of the state, under the facts, favors the bank. In