Court Opinion

ID: 9643261
Source: CourtListenerOpinion
Date Created: 2023-08-22 20:24:16.95608+00
Date Added: 2024-06-11T18:10:58.937616
License: Public Domain

*773ANDERSON, Circuit Judge
(dissenting). On careful reconsideration, I am driven to the conclusion that this decision is wrong; and that the error will go far to destroy the wholesome preference provisions of the Bankruptcy Act. The fundamental trouble grows, I think, out of a misinterpretation of the record. Both opinions go upon tho theory of some right accruing to the Trust Company before the four months’ period. But the notes given were nothing hut collateral notes in familiar form, reciting’ the deposit of designated ears, with the usual powers of sale and of substitution. They are, except as to names and amounts, for all legal purposes, exactly like the collateral notes found in the form books. Compare Tiffany’s Form Book, pp. 1124 and 1125. But in this case the recital of the pledge of designated cars was false, as both parties well knew. The ea.rs remained in the possession of the owner-debtor-bankrupt. That the receipt of the Beacon Storage Warehouse Company was nothing but the receipt of the pledgor under an alias is too plain for serious discussion. There was, therefore, nothing but collateral notes with a false recital therein — the recital of a nonexistent pledge. This was everything the Trust Company had — and relied upon — until, within the four months’ period, it found its debtor in default and insolvent. It then seized the ears, thus showing conclusively that it knew it had no real pledge. This seizure, if with the debtor’s assent, grounded a real pledge, then made. If without the debtor’s assent, it was a conversion; the debtor might have replevied the ears. But if with the debtor’s assent, tho result was, so far as present questions are concerned, the same as if the Trust Company had then sued and attached the ears.
The majority hold that this false recital shall he transmuted into an equitable lien, or into some unnamed right, thus described in the original opinion: “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." (Italics mine.) Not so; it purported “to give” nothing; the note simply recited that the promisor had “deposited with said company as general collateral security” various ears. It was only from the deposit already or contemporaneously made that any security could arise, as the note itself recognized. It was not the writing that made the pledge. No writing can make a pledge. No real pledge requires any writing. It requires an act. As the cars had not, in fact, been deposited with said company, the reeital to the contrary was idle and empty of legal import.
To sustain this result is to hold that every false recital of a present pledge shall be transmuted into an equitable lien — or into some other undefined and hitherto unknown species of security — and to allow it to prevail against the title of the trustee in bankruptcy. To such a destruction of vital, provisions of the bankruptcy law, I cannot contribute.
It has always been elementary that mere intent cannot change the legal results, arising from one form of agreement, into another form of agreement. Cf. Hunt v. Rhodes, 1 Pet. 1, 15, 17, 7 L. Ed. 27, where it was held that when the parties had adopted a power of attorney as a means of security, the creditor took the risk of losing it by the death of tho grantor. Nothing has ever been more common (or more futile) than for debtors and creditors to agree upon an unrecorded bill of sale as security, thinking’ thereby to avoid the annoyance and publicity incident to a duly recorded chattel mortgage. If the courts are to transmute false recitals of pledge into equitable liens and enforce them as against trustees in bankruptcy, a fortiori, unrecorded mortgages, or even agreements for mortgages, must be allowed to prevail. In this case it is clear that the parties did not want recorded mortgages, and did want to leave the putative pledgor in possession of the ears so as to be unhampered in the sale thereof. This arrangement was for the obvious purpose of avoiding the limitations the law puts upon ostensible but unreal ownership. Compare Harkness v. Russell, 118 U. S. 663, 669, 670, 7 S. Ct. 51, 30 L. Ed. 285. It is no part of the duty of courts to assist parties to adopt business methods running counter to the public policy evidenced by our recording acts and by the requirement that creditors, in order to have real pledges, must take and retain possession — not leave the property in the possession, and apparent ownership, of the debtor. Compare Blanchard v. Cooke, 144 Mass. 207, 218, 225, 11 N. E. 83; Casey v. Cavaroc, 96 U. S. 467, 24 L. Ed. 779.
My view of the facts makes it unnecessary to consider and discuss the cases of conflict between the rights of holders of real equitable liens and trustees in bankruptcy. This problem is elaborately treated in 4 Remington (3d Ed.) §§ 1782, 1783 and 1784; *774and the nature and scope of equitable liens are fully discussed in 3 Pomeroy’s Equity (4th Ed.) §§ 1233 to 1791, particularly 1235. In Hayes v. Gibson, 279 F. 812, 22 A. L. R. 1372, the opinion of the Court of Appeals for the Third Circuit shows a recognition of the danger to the fundamentally important principle of equality of treatment of creditors in bankruptcy, arising out of holding equitable liens superior to the title of a trustee in, bankruptcy. It is a doctrine not to bp extended by construction.
But I repeat and emphasize: The close and difficult questions arising in cases in which creditors plainly have equitable liens are not now before us. So far as I know, no court, except this, has ever held that false recitals of pledges in ordinary collateral notes can be transmuted into equitable liens and, as against trustees in bankruptcy, be enforced as valid forms of security.