Case Name: MASSACHUSETTS TRUST CO. v. MacPHERSON
Court: United States Court of Appeals for the First Circuit
Jurisdiction: United States
Decision Date: 1924-02-26
Citations: 1 F.2d 769
Docket Number: No. 1676
Parties: MASSACHUSETTS TRUST CO. v. MacPHERSON.
Judges: Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 1
Pages: 769–774

Head Matter:
MASSACHUSETTS TRUST CO. v. MacPHERSON.
(Circuit Court of Appeals, First Circuit.
February 26, 1924.
On Rehearing November 5, 1924.)
No. 1676.
Bankruptcy (§=> 163 — Taking of possession within four months prior to bankruptcy, under right which was acquired more than four months prior thereto, heid not to constitute unlawful preference.
Where automobile dealer, more than four months prior to bankruptcy proceedings against him, transferred warehouse receipts covering automobiles to secure transferee’s loan to dealer of 80 per cent, of the purchase price of the cars, and the transferee took possession of the cars before rights of third persons had intervened and before the commencement of proceedings in bankruptcy, the dealer’s tmst.ee in bankruptcy was not entitled to the cars on the ground that the taking of possession constituted an unlawful preference, under Bankruptcy Act, § 47a, cl. 2, as amended in 19J0 (Oomp. St. § 9631), though the transferee took possession within four months before bankruptcy, since transferee’s right to possession was acquired more than four months prior to bankrujitcy, and its possessory title or lien related back and took effect as of the time the right accrued.
Anderson, Circuit Judge, dissenting on rehearing.
Appeal from the District Court of the United States for the District of Massachusetts; James Arnold Lowell, Judge.
Suit "by Henry S. MacPherson, trustee in bankruptcy of the Chandler Motors of New England, ‘Ine., against the Massachusetts Trust Company. Decree for complainant (291 F. 676), and defendant appeals.
Reversed and remanded, with directions.
Michael J. Mulkern, of Boston, Mass. (Ralph H. Willard and Ham, Willard & Taylor, all of Boston, Mass., on the brief), for appellant.
Joseph B. Jacobs, of Boston, Mass. (Jacobs & Jacobs, p£ Boston, Mass., on the brief), for appellee.
Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

Opinion:
BINGHAM, Circuit Judge.
The appellee is trustee in bankruptcy of the Chandler Motors of Now England, Ine., against whom an involuntary petition in bsi.iki'iiptcy was filed on the 19th of October, 1922, and upon which it was later adjudicated a bankrupt. In his suit to recover an unlawful preference relating to a transfer on the 19th of September, 1922, of certain automobiles to the defendant (the Massachusetts Trust Company), there was a decree against the defendant for the sum of $16,024 and interest to the date of the decree, amounting to $568.85.
The Chandler Company was a dealer in Chandler automobiles, with its principal place of business in Boston. Its business in the handling of those ears was financed by the Trust Company in the following manner:
The manufacturer of the cars shipped them to the Chandler Company at Boston. A bill of lading, with a draft attached drawn on the Chandler Company, was sent to the Trust Company. The Trust Company then notified the Chandler Company, who brought to it a check for the amount of the draft. The Trust Company on receiving the chock, surrendered the bill of lading, but held the draft until the Chandler Company removed the ears from the railway to the Beacon Storage Company, a storage warehouse, and obtained therefrom warehouse receipts describing the particular cars described in the draft and the bill of lading. The Chandler Company then hypothecated these receipts with the Trust Company to secure their notes for 80 per cent, of the amount of the check or draft, and thereupon a loan of 80 per cent, of the value of the cars covered by the bill of lading was credited to the Chandler Company's account in the Trust Company, and the check was charged against that account. In other words the actual loan was for 80 per cent, of the check or draft, and notes for this amount were given by the Chandler Company to the Trust Company, to secure which a warehouse receipt or receipts describing the particular car or cars into which the loan went were pledged.
The Beacon Storage Company had a place of business on the fourth floor of a building, the first and second floors of which wore occupied by the Chandler Company. It issued a nonnegotiable warehouse receipt for each car which was brought there by the Chandler Company under the conditions above stated. In each receipt the Beacon Storage Company acknowledged that it had' received as depository from the Chandler Company on account of the Trust Company a car, describing it and giving its number, and stating that it would deliver the same on surrender of the receipt properly indorsed and the payment of storage charges. The Beacon Storage Company was a warehouse company incorporated under the laws of Massachusetts. Its officers were also the officers of the Chandler Company, and, while the Trust Company did not know who its officers were, it did know they were connected with the Chandler Company. There was no sign of the Beacon Storage Company on the outside of the building, although it had signs on many of the interior doors.
The bulk of the ears covered by the warehouse receipts were kept on the fourth floor of the building, and the particular cars here in question, when taken by the Trust Company as hereafter stated, were taken from this floor; but the evidence showed that the Chandler Company had, at times theretofore, removed cars from the fourth floor to its salesrooms for display and sale. Bach car bore a manufacturer's number, which was inserted in the'warehouse receipt for that ear, and attached to the radiator rod under the hood of the car was a tag with the word "Mass." to indicate that it belonged to the Massachusetts Trust Company.
The Trust Company knew that the Chandler Company was engaged in the business of selling ears, and knew that certain of the ears covered by the warehouse receipts were offered for sale; but in negotiating the sale of a car the Chandler Company was expected and required to pay the note and take up the warehouse receipt covering such ear before delivering it to a purchaser, and this was done.
August 1, 1922, the Trust Company learned that the Chandler Company had a deficit of $37,000 in its quick assets, and, shortly before September 19, that it was unable to renew with another bank an unsecured loan for $75,000. About this time or shortly thereafter it demanded payment of the collateral notes (which were demand notes), and on the 19th of September, 1922, took possession of the automobiles described in the warehouse receipts, and removed them from the fourth floor of the building occupied by the Beacon Storage Warehouse Company, and later sold them.
It is agreed that the ears were of the value of $16,024. In the court below it was found that the Trust Company had reasonable cause to believe that the .Chandler Company was in serious difficulties and was insolvent; that the cars, prior to September 19, had not been in the actual or constructive possession of the Trust Company, as the Beacon Storage Company did not have such exclusive possession of the cars as would give the Trust Company constructive possession of them under the warehouse receipts. It did not find that the transaction between the Chandler Company and the Trust Company was fraudulent, and there was no evidence from which fraud in fact could reasonably be found.
We do not think, on the facts in this case, that the finding that the Beacon Storage Company did not have exclusive possession of the motor cars concludes the case in the plaintiff's favor. The facts show that 80 per cent, of the purchase price of these cars was advanced by the Trust Company; that in consideration of this advance it was agreed between the parties that the specific cars into which the Trust Company's money went should be held as security in the nature of a pledge for the notes evidencing the loan that went into each car; that there was no fraud in the transaction; that as a car was sold by the Chandler Company the purchase price was required to be and was paid by it to the Trust Company before delivery of the ear to pay the note evidencing the loan that went into the car; and that, the notes representing the particular cars in controversy not having been paid upon demand, the Trust Company took possession of them a month or more prior to the filing of the petition in bankruptcy, as they had the right to do under the agreement contained in the warehouse receipts. At the time the Trust Company took possession of the cars no rights of third persons had intervened, and the right under which they took possession having been acquired more than four months prior to filing the petition in bankruptcy, its possessory title or lien related back and took effect as of the time the right accrued. It may be conceded that, if on September 19, 1922, when the Trust Company took possession of the automobiles, which was within four months of the filing of the petition, its rights in the property began only .on that date, the Chandler Company being then insolvent, and the Trust Company having reasonable cause to believe that it was, the taking of possession would constitute an unlawful preference. But as the Trust Company's rights in the automobiles arose as of the time the loans were made and the notes and warehouse receipts were given, and the transactions were entered into in good faith, the taking of possession did not constitute an unlawful preference or transfer within the four months. The agreement contained in each note and receipt was not a promise to give security in the future; it was of a more limited and cautious nature, confined to specific and identified things, and purported to give a present right.
The possession taken before commencement of the proceedings in bankruptcy, and before third persons had obtained liens or rights by attachment or otherwise, gave the Trust Company a lien which was good under the common law of Massachusetts as against creditors of the Chandler Company. Tatman v. Humphrey, 184 Mass. 361, 362, 68 N. E. 844, 63 L. R. A. 738, 100 Am. St. Rep. 562; Sawyer v. Turpin, 91 U. S. 114, 23 L. Ed. 235; Humphrey v. Tatman, 198 U. S. 91, 94, 25 S. Ct. 567, 49 L. Ed. 956; Mitchell v. Black, 6 Gray (Mass.) 100, 104, 105.
In the Tatman Case the mortgage, which covered the mortgagor's present and after-acquired stock in trade and fixtures, was not recorded and the goods in controversy remained in the mortgagor's possession down to within three weeks before the filing of the petition in bankruptcy, when they were taken possession of by the mortgagee, and it was held that the taking of the property by the mortgagee was not a preference voidable under the bankruptcy law. Such a mortgage, so far as it related to the after-acquired property, only created an equitable title in the property when acquired with a right in the mortgagee to take possession, and possession having been taken in pursuance of that right, the equitable title became a legal one. That case seems to be weaker than the one now before us, for there is nothing in that case to show that the obligation the mortgage was given to secure was for a present rather than a past consideration, or, if for a present consideration, that the money obtained went into the after-acquired property, while hero there is no question but that the money loaned by the Trust Company to the bankrupt went into the specific cars which the parties understood and agreed were pledged to secure the loan. See, also, on this question Hurley v. Atchison, Topeka & Santa Fé Ry., 213 U. S. 126, 29 S. Ct. 466, 53 L. Ed. 729; Thompson v. Fairbanks, 196 U. S. 516, 25 S. Ct. 306, 49 L. Ed. 577; Sexton v. Kessler, 225 U. S. 90, 32 S. Ct. 657, 56 L. Ed. 995; Macomber v. Parker, 14 Pick. (Mass.) 497, 504, 505; Federal Finance Corporation v. Reed, 296 F. 1, decided by this court February 26, 3924.
The trastee in bankruptcy acquired no rights as an attaching or judgment creditor in the ears by virtue of section 47a, clause 2 'of the Bankruptcy Act of 1898 as amended in 1910 (Comp. St. § 9631) for any rights of this nature conferred upon him by section 47a, clause 2, would not arise or relate back to a date earlier than the filing of the petition in bankruptcy, which was long subsequent to the taking of possession by the Trust Company. Bailey v. Baker Ice Machine Co., 239 U. S. 268, 274, 275, 36 S. Ct. 50, 60 L. Ed. 275.
The decree of the District Court is reversed, and the ease is remanded to that court, with directions to enter a decree for the appellant, with costs.