In York Manufacturing Company v. Cassell, the same question arose as in the Hewit case. There was a sale of property to one who thereafter became bankrupt, with a condition that no title to the property should pass until it was paid for.Summary of this case from Security Warehousing Co. v. Hand
Argued March 14, 1906. Decided April 2, 1906.
A mortgage containing no clause covering after-acquired property is not a lien on machinery placed on the land after the execution of the mortgage, and the title to which is reserved in the vendor until payment therefor. The trustee in bankruptcy is vested with no better right or title to the property than the bankrupt had when the trustee's title accrued; and where, as in the State of Ohio, a conditional sale contract is good as between the parties themselves although not filed, the vendor of machinery, sold and delivered under such a contract and payment for which had not been made, may remove the same as against all creditors of the bankrupt who have not fastened upon it by some specific lien.
The Circuit Court of Appeals, upon appeal by the York Manufacturing Company, affirmed the District Court, 135 F. 52, and that company has appealed here.
Mr. Constant Southworth, with whom Mr. John L. Lott and Mr. Louis J. Dolle were on the brief, for appellant:
Unrecorded conditional sale of chattels is superior to lien of prior realty mortgage. Fosdick v. Schall, 99 U.S. 235; Manhattan Trust Co. v. Sioux City Ry. Co., 76 F. 658; Meyer v. Car Co., 102 U.S. 1; Cumberland v. Maryport (1892), 1 Chan. 415; Mott Iron Works v. Middle States L.B. C. Co., 17 App.D.C. 584; Duntz v. Granger Brewing Co., 83 N.Y.S. 957. Other cases of conditional sales are: Ins. Co. v. George, 77 Minn. 319; Adams Mach. Co. v. Association, 119 Ala. 97; Warren v. Liddel, 110 Ala. 232; Lansing c. Works v. Wilbur, 111 Mich. 413; Harris v. Hackley, 127 Mich. 46; German v. Weber, 16 Wn. 95; Page v. Edwards, 64 Vt. 124. See also Campbell v. Roddy, 44 N.J. Eq. 244; Hine v. Morris, 3 Bull. 515 (Ohio Dist. Ct.); Tifft v. Horton, 53 N.Y. 377; Blinkley v. Forkner, 117 Ind. 176; Wheeler v. Bedell, 40 Mich. 693.
Whether personalty attached to realty becomes realty is a question of intention between the parties. Tifft v. Horton, supra; Aldine Mfg. Co. v. Barnard, 84 Mich. 632.
The word "creditors" in the Ohio conditional sales law includes only judgment creditors. A judgment is requisite in order to enable a creditor to attack a previous conveyance by his debtor. This is because the existence of his debt must be in some way ascertained and must be fastened upon the land. Martin v. Bowen, 51 N.J. Eq. 452.
It is as well settled in statutes as to conditional sales, as in statutes in regard to chattel mortgages, that the word "creditor" refers solely to creditors who hold some additional lien. The reason for this is that the fact that the conditional vendor, or the mortgagee, under instruments not properly filed, has no less rights than formerly, and such failure to record does not give to the mere creditor any specific right in the property conditionally sold. It merely leaves the property in such a condition that the general creditor by diligence may acquire a prior lien thereon. Jones on Chattel Mortgages, 4th ed., § 245; In re Cassie L. Chadwick, 50 Wkly. Law Bull. (Ohio) 413; Jones v. Graham, 77 N.Y. 628; Sheldon v. Wickham, 161 N.Y. 500; Stephens v. Meriden Brittania Co., 160 N.Y. 178; Meyer Bros. Drug Co. v. Pipkin Drug Co., 136 F. 396; Stewart v. Beale, 7 Hun, 405; Hall v. Keating Implement Co., 33 Tex. Civ. App. 526; Bowen v. Wagon Works, 91 Tex. 385 [ 91 Tex. 385].
The statute protects only subsequent creditors and mortgagees and not prior creditors. In re Sewell, 111 F. 791; In re Ducker, 133 F. 771; S.C., aff'd, 134 F. 43; Baldwin c. Co. v. Crow, 86 Ky. 679; Wicks v. McConnell, 20 Ky. L.R. 84; Brown v. Brabb, 67 Mich. 17; First National Bank of Corning v. Reid, 122 Iowa 280; In re Cannon, 10 Am. B. Rep. 64; Harrison v. South Carthage Mining Co., 106 Mo. App. 32. The date from which to reckon who are prior creditors is the date of delivery of the machinery. In re Gosch, 126 F. 627.
The trustee in bankruptcy takes no greater title than the bankrupt and the bankruptcy proceedings do not operate as a judicial seizure, conferring new and greater rights on the creditors of the bankrupt. Thompson v. Fairbanks, 196 U.S. 516; Hewit v. Berlin Machine Works, 194 U.S. 296; Sheldon v. Wickham, 161 N.Y. 500; Collier on Bankruptcy, 5th ed., 553; Gibson v. Warden, 14 Wall. 244; Douglas v. Vogeler, 6 F. 53; Donaldson v. Farwell, 93 U.S. 631; Winsor v. McLellan, 2 Story, 492; Mannix v. Purcell, 46 Ohio St. 102; Shaw v. Glen, 37 N.J. Eq. 32; Van Heusen v. Radcliff, 17 N.Y. 580; Nebraska Plow Co. v. Blackburn, 104 N.W. 178; Cincinnati Warehouse Co. v. Combs, 109 Ky. 21; In re Wise, 121 Iowa 359; Ryder v. Ryder, 19 R.I. 188.
It would be unconstitutional for Congress to attempt to give the mere filing of the petition, or the adjudication, the effect of rendering judgment in favor of all the creditors. The proceedings have none of the characteristics of a recovery of a judgment. The debts are not adjudicated. The mere filing of the petition could not have that effect. The adjudication could not have that effect, because at most the claims of only the petitioning creditors are passed upon.
If the equities of the York Manufacturing Company and the creditors are equal, the former must prevail, as being prior in time. Cincinnati Warehouse Co. v. Combs, supra.
As to the creditors having actual knowledge of the reservation of title to appellant, their claims are entitled to no priority.
The sole object and purpose of the recording act is to give notice. If there is actual notice the object of the act is accomplished. Hence, it has been uniformly held, that notice is equivalent to record. There is an exception in Ohio as to mortgages of land. This is because of the peculiar wording of the statute. That notice is equal to record has been the law ever since the leading case of Le Neve v. Le Neve, 2 White Tudor Leading Cases in Equity, 109. Batchelder v. Sanborn, 66 N.H. 192; Frick v. Fritz, 115 Iowa 438; Aultman v. Kennedy, 114 Iowa 444; Dyer v. Thorstad, 35 Minn. 534; Smith Nixon v. Simper White, 15 Ohio Cir. Ct. 375.
There was no appearance for appellee.
The question is simply whether the York Manufacturing Company has a right under its conditional sale of the machinery to the bankrupt corporation to take the machinery out of the premises where it was placed as against all except judgment, or other, creditors, by some specific lien. There are no judgment creditors in the case and no attachment has been levied, and the question is simply whether the adjudication in bankruptcy is equivalent to a judgment or an attachment on the property, so as to prevent the York Manufacturing Company from asserting its right to remove the machinery by virtue of the reservation of title contained in its contract.
In Wilson v. Leslie, 20 Ohio 161, the court was construing the language of the statute relating to chattel mortgages, which declared a mortgage absolutely void as against creditors of the mortgagor, and as against subsequent purchasers and mortgagees in good faith, unless the mortgage or a true copy thereof should be deposited forthwith, as directed in the act. The court held that the mortgage was not void for lack of filing, as between the parties thereto, but that the statute only avoided the instrument as to those creditors who, between the time of the execution of the mortgage and the filing thereof, had taken steps to "fasten upon the property for the payment of their debts." As against such as had in the interim secured liens by attachment, execution or otherwise, the mortgage would be void. When filed with the recorder the instrument became valid as against all persons, except those whose rights had attached upon the property before the recording of the instrument. See to the same effect In re Shirley, 112 F. 301.
We have not been referred to any decision of the Supreme Court of Ohio as to the meaning of the statute requiring the filing of contracts of conditional sales, but we concur with the Circuit Court of Appeals in this case, that the statute would render the unfiled contract void as to the same class of creditors mentioned in the chattel mortgage statute. Therefore the contract would be void as to creditors who before its filing had "fastened upon the property" by some specific liens. As to creditors who had no such lien, being general creditors only, the statute does not avoid the sale, which is good between the parties to the contract.
The mortgage of Waight Ames cannot be a lien on the machinery sold by the York Manufacturing Company, because the mortgage was prior to the time when any portion of such machinery was placed upon the land. There was no clause in the mortgage covering after-acquired property, and in any event the mortgage would not cover property so acquired, the title to which, as in this case, was reserved to the vendor. This was the ruling of the District Court, and no appeal was taken therefrom by the mortgagees. There are no creditors with any specific liens, nor is there any other mortgage, and there is no attachment.
We come then to the question whether the adjudication in bankruptcy was equivalent to a judgment, attachment or other specific lien upon the machinery. The Circuit Court of Appeals has held herein that the seizure by the court of bankruptcy operated as an attachment and an injunction for the benefit of all persons having interests in the bankrupt's estate.
We are of opinion that it did not operate as a lien upon the machinery as against the York Manufacturing Company, the vendor thereof. Under the provisions of the bankrupt act the trustee in bankruptcy is vested with no better right or title to the bankrupt's property than belonged to the bankrupt at the time when the trustee's title accrued. At that time the right, as between the bankrupt and the York Manufacturing Company, was in the latter company to take the machinery on account of default in the payment therefor. The trustee under such circumstances stands simply in the shoes of the bankrupt and as between them he has no greater right than the bankrupt. This is held in Hewit v. Berlin Machine Works, 194 U.S. 296. The same view was taken in Thompson v. Fairbanks, 196 U.S. 516. It was there stated that "under the present bankrupt act, the trustee takes the property of the bankrupt, in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt." See Yeatman v. Savings Institution, 95 U.S. 764; Stewart v. Platt, 101 U.S. 731; Hauselt v. Harrison, 105 U.S. 401. The same doctrine was reaffirmed in Humphrey v. Tatman, 198 U.S. 91. The law of Ohio says the conditional sale contract was good between the parties, although not filed. In such a case the trustee in bankruptcy takes only the rights of the bankrupt, where there are no specific liens, as already stated.
The remark made in Mueller v. Nugent, 184 U.S. 1, "that the filing of the petition [in bankruptcy] is a caveat to all the world, and in effect an attachment and injunction," was made in regard to the particular facts in that case. The case itself raised questions entirely foreign to the one herein arising, and did not involve any inquiry into the title of a trustee in bankruptcy as between himself and the bankrupt, under such facts as are above stated. The dispute in the Mueller case was whether the court in bankruptcy had power to compel, in a summary way, the surrender of money or other property of the bankrupt in the possession of the bankrupt, or of some one for him, without resorting to a suit for that purpose. This court held, as stated by the Chief Justice in delivering its opinion: "The bankruptcy court would be helpless indeed if the bare refusal to turn over could conclusively operate to drive the trustee to an action to recover as for an indebtedness, or a conversion, or to proceedings in chancery, at the risk of the accompaniments of delay, complication, and expense, intended to be avoided by the simpler methods of the bankrupt law." It was held that the trustee was not thus bound, but had the right, under the facts in that case, to proceed under the bankrupt law itself and take the property out of the hands of the bankrupt or any one holding it for him.
In this case, under the authorities already cited, the York Manufacturing Company had the right, as between itself and the trustee in bankruptcy, to take the property under the unfiled contract with the bankrupt, and the adjudication in bankruptcy did not operate as a lien upon this machinery in favor of the trustee as against the York Manufacturing Company.
The decree of the Circuit Court of Appeals is reversed and the case remanded to the District Court, with directions to enter a decree in conformity with this opinion.