148 F. 975 | 6th Cir. | 1906
The question in this case is as to whether Mrs. Chadwick’s chattel mortgage securing a past indebtedness to the Savings Deposit & Trust Company of $37,000 is invalid as a preference under section 60a of the Bankrupt I,aw of July 1, 3898 (30 Stat. 562, c. 5tl [U. S. Comp. St. 1901, p. 3145]), as amended by Act-Feb. 5, 1903, c. 487, § 13, 82 Stat, 799 (U. S. Comp. St. Supp. 1905, p. 689], This mortgage was made April 27, 1904. By an agreement between the parties it was withheld from record until November 22, 1904, on which day the mortgagee took actual possession of the mortgaged property and put the mortgage to record. On December 1, 1904, proceedings in bankruptcy were begun against Mrs. Chadwick, and in due course she was adjudged a bankrupt. By agreement the mortgaged property was placed in the hands of the bankrupt receiver for purpose of sale, the rights of the mortgagee in the fund to be reserved and adjudicated by the court. Thereupon the bankrupt trustee filed a petition attacking the mortgage as a preference voidable under the bankrupt law. The bank consented to the jurisdiction and entered its appearance, and filed a cross-petition asserting its right to enforce the
, The transcript recites that it was conceded by the mortgagee bank on the hearing below:
“That at the time the chattel mortgage was executed by Cassie L. Chadwick, to-wit: April 27, 1904, and delivered to J. C. Hill, its president, that said Cassie L. Chadwick was insolvent, and that said J. C. Hill as president of said bank had reasonable cause to believe at that time that she was insolvent and that such condition existed on the 22d day of November, 1904. It also appeared from the evidence that the effect of enforcing such chattel mortgage, if held valid, will be to enable said bank to obtain a greater percentage of its debt than any other of the bankrupt creditors of the same class.’’
The concession brings this transfer squarely within the definition of a voidable preference, provided it was such a transfer as under the law of Ohio was “required” to be recorded within the meaning of section 60a of the bankrupt law of 1898 as amended by the act of February 5, 1903. District Judge Tayler, who heard this case in the court below, was of opinion that under the laws of Ohio, the state wherein the mortgaged property was situated, a chattel mortgage is not “required” to be recorded within the meaning of the amendment referred to, and that the preference related to the date of the actual execution of the transfer, and was, therefore, valid as a preference made more than four months before the filing of the petition. To support this conclusion tie cites section 4150, Ohio Rev. St. 1906, Francisco v. Ryan, 54 Ohio St. 307, and In re Shirley, 112 Fed. 301, 50 C. C. A. 252, as to the validity of an unrecorded-chattel mortgage “not accompanied by an immediate delivery and followed by an actual-and continual change of possession,” as against all persons except “creditors of the mortgagor, subsequent purchasers and mortgagees in good faith.” To support the proposition that an unrecorded lién, good as between the parties under the law of the state, -is good against a bankrupt trustee, if the lien antedates the filing of the petition more than four months, the cases of Humphrey v. Tatman, 198 U. S. 91, 25 Sup. Ct. 567, 49 L. Ed. 956, and Rogers v. Page et al., 140 Fed. 596, 72 C. C. A. 164, decided by this court, are cited. As to the construction of section 60a before the amendment of 1903, Meyer Brothers Drug Co. v. Pipkin Drug Co., 136 Fed. 396, 69 C. C. A. 240, an opinion arising under the recording statute of Texas, arid decided by the Circuit ■ Court of Appeals of the Fifth Circuit, is cited as holding that the law has not been changed by the amendment of February 5, 1903.- It must be conceded that, under the settled law of Ohio,' this mortgage was valid without recording, as between the parties and became good when recorded against all creditors who had fastened no lien' thereon before, questions of actual fraud in witholding it from record- oiit Of the way. It-must also be conceded that prior to the amendment of the bankrupt law by the amending act of February 5.
“ISv adding to ‘A’ a clause which shall be equivalent to that found in section a B (11 Act July 1, 1898, e. 511, 30 Slat. 51(5 [XT. S. Comp. St. 1901, p. 31221. It seems that as section COA now stands a preferential mortgage may be given and the creditor preferred, by withholding It from record four months be able to dismiss the trustee suit to recover the same though the paper was actually recorded within the fonr months period. See In re Wright (D. C. Ga.) 9(5 Fed. 187; In re Mersman (N. Y.) 7 Am. Bankr. Rep. 4(5.” Volume 35, part. 7, Cong. Record, 6,943.
Before this amendment section 60a read as follows;
“A person shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.”
This section, in its original form, was construed in the cases of Humphrey v. Tatman and Rogers v. Page et al., cited above, and in several other reported cases as avoiding no preference which originated under an unrecorded transfer made more than four months before the beginning of bankruptcy proceedings against the maker. Subsequently Mr. Ray became district judge for the Northern District of New York, and in the case styled In re Hunt (D. C.) 139 Fed. 283, he quotes from Collier on Bankruptcy (5th Fd.) p. 453, a statement that the amendment as offered added after the word “required” the words “or permitted,” and .“that the Senate for some reason struck out these words.” Judge Ray, from this history, held that because under the laws of New York an unrecorded conveyance was good as against everybody except subsequent purchasers without notice, that it was not “required” to be recorded in order to be effectual agaiust a bankrupt trustee. Independently of this legislative history, Judge Archbald, in English v. Ross (D. C.) 140 Fed. 630, and the Circuit Court of Appeals for the Eighth Circuit, in First National Bank v. Connett (C. C. A.) 142 Fed. 33, reached an opposite conclusion and held that a recording statute, which required a conveyance or transfer to be recorded to be effectual against a certain class or classes of persons, was a law which “required” the recording of the transfer in question, within the meaning of section 60a as amended. With this conclusion we agree.
Among the reasons winch justify this interpretation are these;
(1) A preference which is an act of bankruptcy by section 3 should in an harmonious law be voidable by the trustee. By that section a
(2) The evil to be corrected was that of secret preferences, given by withholding from record instruments which by the whole policy of recording statutes should be recorded. This evil was pointed out by the author of the amendatory act of 1903 and the object of the amendment of 60a was stated to be the remedying of this evil. The law, as it stood, encouraged such secret liens and preferences, for, if they could be concealed for four months, though acts of bankruptcy, they were not voidable by the trustee. If we say that unless the law of the state where the transfer is made makes void all such transfers as to all the world, that it is not a law which “requires” recording, the evil will continue and judges will continue to bewail the iniquity of a law which makes such a secret transfer an act of bankruptcy and yet holds the preference valid against the bankrupt’s estate because made more than
(3) Some effect should he given to the amendment of section 60a if the language of the provision will permit. If “required” be construed as applying only to a law which makes every such transfer absolutely void as to all persons, the amendment will be of no effect, for no recording statute, of which we have any knowledge, makes void transfers or conveyances as between the parties and all of them give effect to such instruments as against some classes of persons having actual notice. The amendment -would be idle, and the evil sought to be remedied would flourish as before and the legislative purpose be frustrated.
(4) In view of all of the foregoing considerations, we reach the conclusion that the word “required,” as used in the amendment, refers to the character of the instrument giving the preference or making the transfer, without reference to the fact that as to certain persons or classes of persons it may be good or bad according to circumstances. If to be valid against certain classes of persons, the law of the state "requires” the constructive notice of registration it is a transfer which under the amendment is “required” to be recorded. This takes account of the purpose and policy of recording acts, remedies the evil which flourished under the law before the amendment, gives effect to the plain purpose of Congress, and gives some effect and force to a provision which would otherwise be meaningless, and brings section 3 and 60a and 60b into harmony of purpose and meaning.
(5) We do not ignore the argument that in section 3 the word “required” is followed by the words “or permitted,” and that the latter words are omitted from the amendment, and that the words “or permitted” were in the act as introduced by the author of the bill and retained in the amendment as it passed the House, but was dropped in the Senate.
It is a fact of which we may take notice that it is common to recording statutes to set out a list of contracts, conveyances, and transfers which may be registered, or as “entitled” or “permitted” registration. But, if an instrument is not “entitled” or “permitted” by law to be. recorded, its record is of no effect as constructive notice. The effect of recording statutes is limited to such instruments as the statute permits record of. Burck v. Taylor, 152 U. S. 634, 14 Sup. Ct. 696, 38 L. Ed. 578; Lynch v. Murphy, 161 U. S. 247, 16 Sup. Ct. 523, 40 L. Ed. 688, Blake v. Graham, 6 Ohio St. 580, 67 Am. Dec. 360; 24 Encyclopedia of Law, p. 112, and cases cited. The Ohio statute concerning the recording of chattel mortgages does not require that such mortgages shall he recorded in order to be valid as against the parties or purchasers with notice. Only creditors and purchasers without notice can ignore an unrecorded chattel mortgage, and they cannot do so if there immediately followed a delivery and notorious change of possession. Yet the mortgagor or mortgagee is entitled or “permitted” to record the instrument, though not essential to its validity as against certain classes of persons.
We conclude from the general purpose and policy of recording statutes that the words “or permitted” are of no vital signification in sec
Under section 4150, Rev. St. Ohio 1906, a 'mortgage of chattels, not followed by immediate delivery and no actual and notorious change of possession, is “required” to be recorded. Otherwise it is invalid as to some persons and valid as to others. That such a mortgage is “required” by the law of Ohio to be recorded within the meaning of section 60a as amended, we have no doubt.
Other objections to the validity of the mortgage lien under the laws of Ohio, especially section 6343, Rev. St. Ohio 1906, have been argued. We express no opinion upon any other question than that discussed and decided.
The decree of the court below must be reversed, and the case remanded, with direction to proceed in accordance with this opinion.