274 P. 68 | Cal. | 1929
THE COURT.
This is an appeal from a judgment on a verdict in favor of the plaintiff for the sum of $10,000 in an action for conversion.
The facts essential to a proper disposition of the appeal are undisputed. Paul Petrich, plaintiff's bankrupt, conducted a wholesale and retail fresh fish and fish canning business at San Diego under the name of Coronado Fish Company. On August 10, 1923, an involuntary petition in bankruptcy was filed against him by his creditors. He was adjudicated a bankrupt and on October 22, 1923, the plaintiff was appointed the trustee of the bankrupt's estate. On November 3, 1923, as such trustee, the plaintiff demanded possession of the property described in the complaint. Upon a refusal of the defendant to surrender the same this action was brought.
During the canning season of 1921 and 1922 the defendant advanced to Petrich about $22,000 with which to conduct his business. On March 23, 1923, there remained due to the defendant the sum of $8,705.65, on which day the defendant obtained from Petrich a promissory note for the unpaid balance and a chattel mortgage securing the same covering the personal property involved in this action. This chattel mortgage was filed for record on March 26, 1923, but it lacked *268
the formality of an acknowledgment as required by section
We think the position of the plaintiff is well taken. Section
[1] It is conceded by the parties that no question is involved herein as to whether the chattel mortgage or the act of the defendant in taking possession of the property created a voidable preference under the Bankruptcy Act. Nor is it claimed by the defendant that the evidence is insufficient to sustain the verdict fixing the value of the property at the sum of $10,000. It is insisted, however, that it was not shown that any of the creditors of the bankrupt were in position to attack the mortgage in that it did not appear that any of them were creditors who had acquired a lien upon the mortgaged property by virtue of some legal proceeding or who had come armed with some process authorizing seizure of the property and that a mere creditor at large may not attack the mortgage. It is urged that the case ofLoosemore v. Baker,
Interpreting said section 47 (a) 2 of the Bankruptcy Act the supreme court of the United States has held that the trustee acquired a lien status as of the time when the petition *270
in bankruptcy was filed. (Bailey v. Baker Ice Machine Co.,
[2] Even if it be assumed that a mortgage void as to creditors pursuant to the plain terms of the statute could be transformed into a valid mortgage by the mortgagee seizing the mortgaged property or by otherwise taking possession of the same with the consent of the mortgagor and thus shut out general creditors or creditors not possessing a lien or armed with process, yet we are satisfied that it was the intention of the Bankruptcy Act to safeguard the rights of such general creditors by giving the trustee the status of a lien creditor and also to prevent the mortgagee from defeating the rights of the creditors of the bankrupt by contending that such creditors were general creditors only. It seems reasonable to conclude, also, that the purpose of the Bankruptcy Act in vesting power in the trustee to attack a chattel mortgage void under the statute was to render ineffectual as to creditors the act of the mortgagee in taking possession of the property before the commencement of the bankruptcy proceedings. In other words, the trustee was intended to be placed in the position of a lien creditor who would, but for the bankruptcy proceeding, be entitled to attack the alleged void mortgage and to enable him to protect the interests of general creditors against invalid liens, unlawful transfers, etc. (1 Collier on Bankruptcy, 12th ed., p. 728 et seq.) [3] Therefore, since it was competent for the plaintiff to commence the present action for conversion and since the proffered chattel mortgage was void as to creditors under the statute there was no error in excluding the mortgage and as matter of law instructing the jury that there was no issue for the jury to determine on the question of conversion.
[4] It is next contended by the defendant that the court erred in refusing to instruct the jury that the verdict should be limited to the amount of the claims which arose from credit being extended to Petrich after the mortgage was executed. The schedule of claims shows that some of the claims arose prior to the execution of the mortgage. The position of the defendant in this connection is stated by its counsel as follows: "But, conceding for the purpose of this *271
argument, that the trustee does stand in a position to challenge this mortgage; i.e., conceding that general creditors, without first having obtained a lien on the chattels, can attack and question the validity of this mortgage, nevertheless, it is our contention that the mortgage would be void, if at all, only as to creditors whose claims arose after the mortgage was given and before possession was taken. For that reason, if for no other reason, appellant should have been permitted by the trial court to introduce in evidence the mortgage and the proceedings thereunder." Counsel then call attention to the fact that inRuggles v. Cannedy, supra, at page 299 of 127 Cal. [53 P. 915], the court left this question open in the following language: "Whether it [the chattel mortgage] is void against a creditor who extended credit before the making of the mortgage does not here call for a decision." Also that in the case ofLoosemore v. Baker, supra, the point was not decided, and the inference is drawn that the question is an open one in this state. But such is not really the case. Commenting on the scope of the term "creditors" as used in section
[5] It is further contended by the defendant that the chattel mortgage should have been received in evidence to show the good faith of the mortgagee. Good faith is not an element bearing on its admissibility. The code section *273 makes the mortgage void as to those mentioned regardless of the good or bad faith of the mortgagee.
Furthermore, we discover no error in the order of the trial court overruling the demurrer to the complaint.
The judgment is affirmed.
Preston, J., and Langdon, J., being disqualified, did not participate.