Case Name: In re R. E. TAYLOR CORP. In re PRENTICE
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1917-12-19
Citations: 248 F. 223
Docket Number: No. 79
Parties: In re R. E. TAYLOR CORP. In re PRENTICE.
Judges: Before WARD, ROGERS, and HOUGH, Circuit Judges.
Reporter: Federal Reporter
Volume: 248
Pages: 223–226

Head Matter:
In re R. E. TAYLOR CORP. In re PRENTICE.
(Circuit Court of Appeals, Second Circuit.
December 19, 1917.)
No. 79.
Chattel Mortgages &wkey;>19! — Validity—Subterfuge.
Lien Law (Consol. Laws N. Y. c. 33) § 230, declares that every chattel mortgage, not accompanied by immediate delivery and followed by an actual and continued change of possession, is void as against creditors of the mortgagor and as against subsequent purchasers and mortgagees in good faith, unless the mortgage is filed, gome months before adjudication the bankrupt corporation desired to purchase motor cars from claimant, which refused to sell on credit, and, as the bankrupt was about to sell some of its preferred stock under an agreement that no additional lions should be placed on its property, it was arranged that a third person should take title to the cars, give a chattel mortgage thereon, and to secure payment his notes would be indorsed by the bankrupt. The mortgage was duly filed, and the individual purchaser executed a bill of sale of the cars to the bankrupt. Held that, as the mortgage was filed and became notice of record, and as no fraud was practiced on the purchaser of the bankrupt’s preferred stock by reason of the transaction, the covenant not to place addilional liens on the bankrupt’s property not applying to subsequently acquired property, and the transaction increasing the bankrupt’s assets by its equity in the motor cars, the chattel mortgage is not subject to attack on the ground that it was in fraud of the Lien Law.
Rogers, Circuit Judge, dissenting.
Petition to Revise Order of the District Court of the United States for the Southern District of New York.
In the matter of the bankruptcy of the R. E. Taylor Corporation, The petition of Ezra P. Prentice, as receiver of the bankrupt, to enjoin the Maxwell Motor Sales Corporation from making any claim upon the proceeds of a sale of certain motor cars being denied, the receiver petitions to revise.
Order affirmed.
Blau, Zalkin & Cohen, of New York City, fo.r appellant.
Joline, Parkin & Rathbone, of New'York City, for appellee.
Before WARD, ROGERS, and HOUGH, Circuit Judges.

Opinion:
WARD, Circuit Judge.
In September, 1916, the R. Eh Taylor Corporation was in negotiation with the Maxwell Motor Sales Corporation for the purchase of 20 automobiles. The Maxwell Company was not willing to sell on credit, but required that a chattel mortgage be given it for the balance of the purchase money unpaid. The Taylor Company was not willing to do this, because it was about to sell some of its preferred stock under an agreement that no additional liens should be placed upon its property. Therefore it was arranged that one Cowan should take title to the cars and give a chattel mortgage upon them to the Maxwell Company to secure payment of his notes, indorsed by the Taylor Company. This was done, and thereupon Cowan executed a bill of sale of the cars to the Taylor Company. The chattel mortgage was duly filed in accordance.with the Lien Law of the state of New York (Consol. Laws, c. 33), but does not' appear in the record.
March 28, 1917, an involuntary petition in bankruptcy was filed against the Taylor Company, and a receiver was appointed April 20th. The Maxwell Company, in accordance, as it is stated, with the terms of the mortgage, took possession of 10 of the cars for nonpayment of notes, and 10 came into the possession of the receiver. May 3, 1917, Judge Mayer, upon the motion of the receiver, ordered the Maxwell Company to turn over the cars in its possession to him, and that he sell them free and clear and out of the proceeds pay the lien of the Maxwell Company.
May 8th, the circumstances under which the chattel mortgage was executed having come to the knowledge of the receiver, he filed a petition praying that the Maxwell Company be enjoined from making any claim upon the proceeds of sale, because the chattel mortgage was void as against him, representing the creditors of the Taylor Company it having been made in fraud of the Lien Law. June 8th Judge Augustus N. Hand entered an order denying the petition, and thereupon the receiver filed this petition to revise.
Section 230, art. 10, of the Lien Law, reads:
"Every mortgage or conveyance intended to operate as a mortgage of goods and chattels or of any canal boat, steam tug, scow or other craft, or the appurtenances thereto, navigating the canals of the state, which is not accompanied by an immediate delivery, and followed by an actual and continued change of possession of the things mortgaged, is absolutely void as against the creditors of the mortgagor, and as against subsequent -purchasers and mortgagees in good faith, unless the mortgage, or a true copy thereof, is filed as directed in this article."
We see nothing to indicate that a fraud was practiced by any of the parties either upon the Lien Law or upon any one. The Maxwell Company was certainly entitled to insist upon a mortgage from the purchaser, and it sold to Cowan in order to get a mortgage. That was what the parties intended to do, and Cowan must be regarded as being the purchaser. As the mortgage was duly filed, knowledge of it was imputed to Cowan's creditors, and of course to the Maxwell Company, which had actual notice of it. If the purchasers of Taylor & Co.'s preferred stock have any right to complain, it is clear no fraud was practiced upon them, because" the Taylor Company's covenant not to put any additional liens on its property would not apply to subsequently acquired property. In it the preferred stockholders would get the benefit of everything the Taylor Company had, viz. the equity over the mortgage.
The order is affirmed.