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of law with the title of the bankrupt, as of the date he was adjudged, except in so far as it is to property which is exempt, to all * * * (5) property which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him.”
Under the facts disclosed in the record, can the claim of Mrs. Young be enforced in equity, in a bankruptcy court, upon the fund derived from the sale of the mortgaged property ?
Her mortgage was not recorded in the town in which the mortgagor resided when the mortgage was given. It was recorded at Calais, but not until after the adjudication in bankruptcy. It is clear that her rights are determined by the date of the filing of the petition in bankruptcy. The language of section 70a of the bankrupt act, which I have quoted, makes this clear. The decisions of the federal courts also make it clear that the rights of creditors to insolvent estates, administered in equity, relate to the time of institution of proceedings in bankruptcy. The mortgage, not having been recorded before the filing of the petition in bankruptcy, may be treated as an unrecorded mortgage. It will be noted that the bankrupt act of 1898 defines the rights in property which pass to a trustee in different language from that employed by the law of 1867 in defining rights which pass under that act to an assignee in bankruptcy. So that the long line of decisions under the act of 1867 do not apply.
The case of Humphrey v. Tatman, 198 U. S. 91, 25 Sup. Ct. 567, 49 L. Ed. 956, is often cited in the federal courts as deciding that the state law controls in this matter. In that case the court held that:
“Whether the taking possession of after-acquired property within months of the filing of the petition in bankruptcy, under a mortgage made in good faith prior to that period, is good or is void as against the trustee in bankruptcy, depends upon whether it is good or void according to the law of the state. Held, that such a taking is under the circumstances of this case good according to the law of Massachusetts as construed by its Supreme Judicial Court."
In speaking for the court, Mr. Justice Holmes said:
“The question, then, is one of Massachusetts law, and unfortunately the decision does not leave us free from doubt, upon that point. If hereafter the Supreme Court of the state should adopt a different view from that to which we have been driven, this case would cease to be a precedent. The language of the Massachusetts statute is: “Unless the property mortgaged has been delivered to and retained by the mortgagee, the mortgage shall not be valid against a person other than the parties thereto until it has been so recorded ; and a record made subsequently to the time limited (fifteen days) shall be void. Mass. Rev. Laws, c. 198, § 1. There are cases which indicate that an ssignee in bankruptcy is a universal successor, like an executor or a husband, and so that, as it is put in Lowell, Bankruptcy, $ 309, the assignee is the bankrupt.
* But it is the settled law of Massachusetts that such a fictitious identity does not satisfy the statute that the trustee in bankruptcy is 'a person other than the parties thereto,' and that, therefore, as against him, the mortgage is void. Bingham v. Jordan, 1 Allen (Mass.) 373, 79 Am. Dec. 748; Blanchard v. Cooke, 144 Mass. 207, 226, 11 N. E. 83; Haskell v. Merrill, 179 Mass. 120, 124, 125, 60 N. E. 485. Haskell v. Merrill is cited and relied on in the Supreme Court of the state, and we assume that it and the other cases cited still correctly state the law. It is clear under these cases that recording or taking possession after the qualification of the trustee would be too late, and it certainly would seem not illogical to hold that as against him the mortgage was to be treated as nonexistent at any earlier date
until the things were done which made it good under the act. In this case the
. court speaks of the proceedings by which the mortgagee obtained his lien, three weeks before the filing of the petition,' which at least suggests, if it does not adopt, the idea that the mortgage then first came into being as against the trustee."
But in some late decisions in this circuit the Court of Appeals does not treat Humphrey v. Tatman as decisive of the question that the state law is controlling; but tends to the doctrine that in equity this question is a federal question, and that equitable rights of claimants and of the trustee should be settled under the federal decisions, and without reference to local statutes and decisions. Upon an examination of Humphrey v. Tatman, supra, it will be found that it relates to the title to chattels which were added to a stock of merchandise after it was mortgaged. It raises the issue whether a mortgagee gets any title to subsequently acquired property; but some of the language which I have quoted from that opinion relates to the question of how far creditors can seize that which is not the property of the bankrupt. The case turned on the question of the mortgagees having taken possession of the property. If the mortgagee had not taken possession, and the question had arisen whether the mortgagee could then hold the after-acquired property in question, as against the trustee in bankruptcy, the rule might have been stated differently. In any event, the Court of Appeals in this circuit tends to hold the question as one having nothing to do with local statutes, but as presenting an equitable question, which should be settled without reference to the statutes of the state where the question arises. In the late case of Alice H. Loveland, Petitioner, in the Matter of Warren H. Littlefield, Bankrupt, and Alfred W. Putnam, Trustee, Appellant, v. Alice H. Loveland, Petitioner (wherein the opinion is as yet unpublished), the Court of Appeals sustained a claim in equity under an unrecorded mortgage of real estate, and held that the mortgagee had a lien superior to the rights of the trustee in bankruptcy. In speaking for the court,
. Judge Lowell said:
“The general principles of equity, as 'recognized in the federal courts, give effect to the intention of parties who intend to create a lien under the circumstances of this case, notwithstanding that their agreement by reason of its informality is invalid at law. In York Mfg. Co. v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782, the Supreme Court had to deal with an unrecorded conveyance in a state whose statutes required a record, and the title of the transferee was held to be superior to that of the trustee in bankruptcy. The statute there in question, as construed by the state court, made an unrecorded mortgage void as against certain classes of creditors, while leaving it valid as against other classes. The state statute before us makes the unrecorded conveyance void as against creditors without notice, leaving it yalid as against those creditors who have notice of it."
See, also, James v. Gray, 131 Fed. 401, 65 C. C. A. 385, 1 L. R. A. (N. S.) 321; Tucker v. Curtin, 148 Fed. 929, 78 C. C. A. 557; Hewit v. Berlin Machine Works, 194 U. S. 296, 302, 24 Sup. Ct. 690, 48 L. Ed. 986.
I have referred to the above cases as showing the current of late decisions of the federal court in this circuit, touching matters relating to rights under unrecorded mortgages, conditional sales, and statutes of fraud.
In Atchison Railway Co. v. Hurley, 153 Fed. 503, in an opinion just sent down by the Circuit Court of Appeals for the Eighth Circuit, that court enforces an equitable lien upon very broad equitable principles, holding that the administration and distribution of the property of bankrupts is a proceeding in equity, and should be conducted on broad equitable lines, with a view to recognizing and enforcing the rights of all parties claiming an interest in the estate, whether they be legal or equitable or both. The court recites the line of authorities to which I have already referred, and says:
"Whatever rights the third party had against the property of the bankrupt before the adjudication that party, in the absence of fraud or fixed liens created by state statutes in favor of others, has against his estate in bankruptcy."
Previous to these late decisions the federal courts have often held that the state law in reference to unrecorded mortgages was conclusive in construing the bankrupt act relating to this subject; and in the Loveland Case, supra, Judge Lowell remarks:
“Where the trustee in bankruptcy and the transferee of the bankrupt both claim certain property which once belonged to the bankrupt, it may be difficult to decide how far the title to the property in question depends upon the state law which determines the effect of the bankrupt's conveyance, and how far upon the bankrupt act which declares what property the trustee shall take. The one law regulates the passage of title from the bankrupt and is interpreted by the state court. The other law regulates its passage to the trustee and is interpreted by the federal court."
The only case that has arisen in this district touching the question of an unrecorded mortgage was In re Shaw (D. C.) 146 Fed. 273. In that case“a bankrupt who operated a tannery in Maine, some two years prior to the bankruptcy, executed a chattel mortgage to a creditor on all the stock and materials at his tannery, and such as should thereafter be acquired. By agreement the mortgage was not recorded, nor was any possession ever taken thereunder. Subsequently the mortgagee made a mortgage to secure an indebtedness to a bank on certain bark at the bankrupt's tannery, to which it had no title unless by virtue of its own mortgage. Also, by agreement, this mortgage was not recorded, but an attempted delivery of possession was made by going to the tannery, scaling the bark, and placing on each pile a small board, having thereon a letter of the alphabet, and then formally delivering each pile to the agent of the bank who appointed the bankrupt its custodian. There was no visible change of possession, and the bankrupt's trustee took possession of and sold the bark as assets of the estate."
And this court held:
"That under Rev. St. Me. c. 93, § 1, which provides that 'no mortgage of personal property is valid against any other person than the parties thereto unless possession of such property is delivered to and retained by the mortgagee or the mortgage is recorded, there was no such delivery and retention of possession as to validate either mortgage, but that both were fraudulent as attempted secret liens, and void as against the bankrupt's estate."
And the court said:
"The testimony tends to show that, at the time of the giving cf the mortgage to the bank, Shaw was insolvent, that there was an obvious attempt to make the delivery to the mortgagee secret, rather than open, and that there was a distinct and affirmative understanding that the mortgage was not to be recorded. The case discloses a want of good faith, resulting in an actual fraud upon the general creditors."
It will thus be seen that the court placed weight upon the fact that there was an express agreement not to record the mortgage, and that this agreement was a circumstance tending to show actual fraud. In such a case, even under the recent decisions, the court must hold that the lack of record of a mortgage is a circumstance showing fraud. So that, whatever may be the condition of the law, the Shaw Case was decided in accordance with the principles of equity; and so it is in line with the cases to which I have referred. The cases cited in the Shaw Case show the current of decisions up to that time. The case to which I shall refer later in this opinion, In re Garcewich, 115 Fed. 87, 53 C. C. A. 510, is in line with the Shaw Case, and refers to a secret lien.
Later in this opinion I shall discuss other cases bearing upon unrecorded Holmes notes and notes relating to conditional sales. In those citations I shall refer to some federal decisions previous to the late decisions in this circuit.
The question, however, relating to the claim of Mrs. Young to the fund derived from the sale of the mortgaged property does not necessarily depend upon the record of the mortgage; for, in any event, sufficient facts are not disclosed to sustain the equitable lien of the claimant upon the fund. The fund in question arises from the sale of the remnants of the whole of the mortgaged property. The mortgage of Mrs. Young was upon a portion only of the property. Further than that no possession was taken by the mortgagee; and no efforts were made by her to enforce her equitable rights. Under the facts disclosed by the record, her claim cannot be enforced to the fund of $225 derived from the sale of the remnants of the mortgaged property.
(b) What are the equitable rights of the claimant, Mrs. Young, in and to the fund arising from the adjustment of the fire insurance?
The record shows that at the time the loan was made there was an agreement that it was to be secured by an insurance policy, and that the only condition upon which the loan was obtained was the consideration that the property should be insured for the benefit of Mrs. Young. In pursuanec of that agreement, the bankrupt had the property insured. One of the policies, for $1,000, upon its renewal, January 4, 1902, was made payable to Mynia A. Young. She was the beneficiary as her interest might appear. Does the testimony
Does the testimony give her an equitable lien ?
It will be noted that we are not now discussing "property” within the meaning of the bankrupt act; but merely a contract to indemnify the insured in the event of a loss by fire. It is evident that a fire insurance policy is not an asset to which the purchaser could look for security until the occurrence of the loss by fire.
Did, then, an equitable lien exist, in consequence of the agreement, upon the policy and the money received therefrom?
In Wheeler v. Insurance Company, 101 U. S. 439, 25 L. Ed. 1055, it was held that:
"Where by his covenant or otherwise a mortgagor is bound to insure the mortgaged premises for the better security of the mortgagees, the latter have, to the extent of their interest in the property destroyed, an equitable lien upon the money due on a policy taken out by him."
In speaking for the Supreme Court, Mr. Justice Bradley said:
"It is settled by many decisions in this country that, if the mortgagor is bound by covenant or otherwise to insure the mortgaged premises for the better security of the mortgagee, the latter will have an equitable lien upon the money due on a policy taken out by the mortgagor to the extent of the mortgagee's interest in the property destroyed.
* And this equity exists, although the contract provides that in case of the mortgagor's failing to procure and assign such insurance the mortgagee may procure it at the mortgagor's expense.”
It will be observed that in the claim now before the court the mortgagee is made the beneficiary in the policy, so that she has a stronger claim than arose in the case which I have just cited. She has substantially the same claim in equity that she would have had if the insurance policy had been taken out in the name of the bankrupt, and had then been assigned to her.
See, also, Richardson v. White, 167 Mass. 58, 44 N. E. 1072; Stearns v. Quincy Ins. Co., 124 Mass. 61, 26 Am. Rep. 647, and cases cited.
The federal courts have held, in a consistent line of decisons, that in circumstances like those in the case at bar the recording of an equitable lien is not necessary.
In Re Little River Lumber Co. (D. C.) 92 Fed. 585, the court said:
"The transfer of these policies was not required by any law to be recorded or registered in order to give notice.
Prior to the fire these policies were not assets, like notes, mortgages, and other choses in action, to which creditors could look for security. Indeed, the company could not collect them. There had been no loss, and their collection depended on the loss. * * Is the equitable assignment thus made of the proceeds of a policy thus pledged more than four months before bankruptcy, in violation of the bankrupt act? If so, of what provision? * * * In the first place, these insurance policies were not property within the meaning of the bankrupt law. They were mere contracts to indemnify the assured in the event there was a loss by fire. They were not an asset to which creditors could look for any security until a loss had occurred.
They were, however, assignable in equity, and, before the loss, had been hypothecated to O'Dwyer & Ahern as collateral. But, if the policies were property, in order to contravene the section referred to they must have been transferred with intent to prefer such creditors over his other creditors.' *
When the original pledge was made, the evidence shows the company was solvent. It was insolvent when most of the policies were renewed, and most of them were renewed more than four months prior to the bankruptcy of the company."
In the claim now before me the facts stated in the record show that, as a condition for making the loan, there was an agreement to insure for the benefit of the claimant, and that the policy and the renewal of it were taken in her name as her interest might appear. Her insurable interest appears by the facts found in the statement of the case which I have made. Her equitable interest appears as I have just pointed out.
I find, then, that an equitable lien existed upon the policy for $1,000 to secure the claim of Mynia A. Young to the extent of that claim, namely, the sum of $600, with interest from January 7, 1903, making her whole claim $763.20.
2. The claim of W. L. Blake & Co. is also to be considered in two parts.