Court Opinion

ID: 6877970
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:10:36.746876+00
Date Added: 2024-06-11T16:05:31.901281
License: Public Domain

BELL, District Judge (dissenting).
The opinion in this case holds that a conditional sale contract, even though not acknowledged and recorded at the time of the bankruptcy of the vendee as required by the statutes of the state, is good as *482against the trustee in bankruptcy in possession of the property covered by the contract. I cannot subscribe to that principle.
The Court says: “The validity and construction of. the conditional sale contract here involved, as affecting the right of the trustee in bankruptcy, must be determined under the law of the State of Iowa.” Three decisions of the Supreme Court are cited to show the law of that state. F. P. Gluck Company v. Therme, 154 Iowa 201, 134 N.W. 438; American Laundry Machinery Company v. Everybody’s Laundry, 185 Iowa 760, 171 N.W. 161; International Harvester Company v. Poduska, 211 Iowa 892, 232 N.W. 67, 71 A.L.R. 973. These cases clearly arp distinguishable from the one under consideration.
The Gluck case involved an assignment for the benefit of creditors under the Iowa Code. It was not a bankruptcy proceeding and no reference was made to the bankruptcy law. Moreover, there was a controversy as to whether the assignee was in possession of the property that was involved and there was a reversal so that there might be a determination of that question.
The American Laundry Machinery Company case was a bankruptcy proceeding and the instrument involved was a conditional sales contract but the Court found that it was duly recorded at the time of bankruptcy; consequently, we again find a wholly different case from the one before us. Because of that distinction this Court in the case of Albert Pick & Company v. Wilson, 8 Cir., 19 F.2d 18, refused to follow the dictum contained in that decision.
In International Harvester Company v. Poduska the plaintiff sold certain property to the defendant under conditional sales contracts in 1926 and 1927. On May 28, 1928, the defendant made an assignment for the benefit of creditors under the Iowa Code. The vendor promptly replevined the property involved and obtained possession of it. On September 24, 1928, the defendant filed a petition in' bankruptcy. The bankrupt, or his assignee, at that time did not have possession of the property, had not had it for approximately four months, and the trustee in bankruptcy never acquired possession of it. The property at no time was in possession of the bankruptcy court. This distinction is made entirely clear by the Supreme Court of Iowa and the provisions of the Bankruptcy Act, 11 U.S.C.A. § 1 et seq., were expressly eliminated from consideration in the case. This Court’s quotation from that decision clearly shows the position of the Iowa Court as to the character of the title of an assignee under the Code, but it in no way defines the title of a trustee in bankruptcy under the laws of the United States or the State of Iowa in a case where the property is in possession of the bankruptcy court and where the adverse claim is made under an instrument unrecorded at the time of bankruptcy. The Court, following F. P. Gluck Co. v. Therme, American Laundry Machinery Co. v. Everybody’s Laundry, and other decisions, held that a deed of assignment conveyed only the property of the assignor, that the assignee under the Code was neither a purchaser nor a creditor and succeeded only to the rights of the assignor; and that, as between the vendor and the assignee, “the question as to whether the contracts were properly acknowledged, and filed, or recorded so as to give constructive notice thereof, becomes wholly immaterial.” [211 Iowa 892, 232 N.W. 70, 71 A.L.R. 973.]
The Supreme Court of Iowa has not decided the question before us. This Court is not bound by the dictum of that Court or required to guess from it what may be decided in the future. In the absence of a definite, established rule settled by controlling decisions the way is open to follow the general rules of law.
This case is squarely ruled by the decision of this Court in Albert Pick & Company v. Wilson, supra, which is supported by an overwhelming weight of authority, is right on principle, and there is no substantial reason why it should be reversed. The only utterance of the Iowa Court on the subject, since that case was decided, was in International Harvester Company v. Poduska, supra, wherein the Court disclaimed the applicability of the bankruptcy law and made no pretense at solving our problem.
The fact that a chattel mortgage was involved in the case of Albert Pick & Company and a conditional sales contract is involved in this case is a barren distinction. Sweeney v. Medler, 10 Cir., 78 F.2d 148. This Court in Burroughs Adding Machine Company v. Bogdon, 10 Cir., 9 F.2d 54, held a conditional sales contract void as against the trustee in bankruptcy of the purchaser, where possession was not retained by the seller, and the instrument was not filed for record at the time the bankruptcy proceeding was commenced. It *483is true that the title to property sold under a conditional sale contract remains in the vendor until the conditions of the contract have been performed, but in this case the rights of creditors without notice intervened. The purpose of the Bankruptcy Act vesting the trustee with rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings, is for the protection of creditors and where liens are claimed on property in the custody of the bankrupt or his trustee, it is immaterial whether the title to the property is in the mortgagee under a mortgage or in the vendor under a conditional sales contract.
An important bankruptcy question is here presented, and, as affecting the right of the trustee the Bankruptcy Act must be con-suited. The Constitution of the United States, Section 8, Article 1, U.S.C.A., confers on Congress the power “to establish * * * uniform Laws on the subject of Bankruptcies throughout the United States.” The decisions of the state courts defining property rights do not bind the federal courts in bankruptcy, when contrary to the policy and the proper contruction of the Bankruptcy Act. Board of Trade of City of Chicago et al. v. Johnson Trustee, 264 U.S. 1, 44 S.Ct 232, 68 L.Ed. 533. The federal courts have he power to construe the language of the Bankruptcy Act. If that power is not exercised there may be as many constructions as there are states and there will be no uniformity m the law. In re Landis, 7 Cir., 41 F.2d 700. In the interpretation of a federal act, local law is not controlling unless the federal statute “bv exoress lanunless tile tederal statute Dy express lan guage or necessary implication, makes its own operation dependent upon state law. Heiner, Collector, v. Mellon et al., 304 U.S. 271, 58 S.Ct. 926, 930, 82 L.Ed. 1337. We must accept the interpretation of the state law by the highest judicial tribunal of the state (Supreme Lodge, Knights of Pythias v. Meyer, 265 U.S. 30, 44 S.Ct. 432, 68 L.Ed. 885), just as we must accept its declaration of the principles of the common law (Erie Railroad Company v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487), but the federal courts are vested with the power to interpret the federal statutes. Albert Pick & Company v. Wilson, supra.
The opinion in this case fails to give effect to the amendment of June 25, 1910, to Section 47a of the Bankruptcy Act, 11 U.S.C.A. § 75(a) which provides: “* * * trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon.” Prior to this amendment the trustee took only the title of the bankrupt. York Manufacturing Company v. Cassell, 201 U.S. 344, 26 S.Ct. 481, 50 L.Ed. 782, with exceptions not here germane. Subsequent to the amendment the trustee’s title, effective at the time of filing the petition in bankruptcy, was not only that of the bankrupt but also that of a creditor holding a judgment. Bailey v. Baker Ice Machine Company, 239 U.S. 268, 36 S.Ct. 50, 60 L.Ed. 275. The effect of the amendment is stated Gilbert's Collier on Bankruptcy, fourth Edition, Section 1344 as follows: This amendment reaches that class of cases ln which no creditors have acquired a lien by legal or equitable proceedings. It vests trustee for the benefit of a11 the creditors the potential rights of a creditor having such a lien. ights such «editors as against a chattel mortgage or other instrument ... , ,B which for want of record or other reason is invalid as to them may be asserted with game force and effect b the trustee of ^ bankrupt debtor» Remington on Bankruptcy, Volume 4, Section 1405, says: "And Amendment of 1910 it simply gave to the bankruptcy proceedings the effect of arming the trustee with process, so that the creditors might not be debarred tbe asserting 111 beíalf of a11 crcdltors the mights Slven t0 «-editors law dependent on their being armed with process.’ ” This Court in Albert Pick & Company v. Wilson, supra, said [19 F.2d 20]
“The intention of the Bankruptcy Act prior to 1910 was that the trustee should take the estate precisely where he found it, with no additional rights, excepting, of course, the specific right to set aside preferences and liens acquired within the four-month period. York Mfg. Co. v. Cassell, 201 U.S. 344, 26 S.Ct. 481, 50 L.Ed. 782. But, as pointed out in Smith-Flynn Commission Co. [8 Cir., 292 F. 465], supra, and the Congressional Record, 61st Congress, 2d Session, 2275-2277, the amendment under discussion was designed t0 supersede that decision,
“* * * jn other words, the amendment arms the trustee with process to the *484same extent that any judgment creditor would have according to the law of the particular state, and he is not necessarily concluded by an instrument or agreement which might have been good against the bankrupt had bankruptcy not intervened.” Citing authorities.
This should be, and in my opinion is, the general rule: A conditional sales contract is not valid against the vendee’s trustee in bankruptcy in possession, unless the contract is recorded as required by local law, and the trustee is armed with the rights of a creditor holding a lien by legal or equitable proceedings. Section 47a of the Bankruptcy Act; Albert Pick & Company v. Wilson, supra; Sweeney v. Medler, supra; Barbee v. Spurrier Lumber Company, 10 Cir., 64 F.2d 5; In re Supreme Furniture Company, D.C., 25 F.2d 488; In re Press Printers & Publishers, 3 Cir., 23 F.2d 34; In re Public Opinion Pub. Co., D.C., 20 F.2d 404; In re Master Knitting Corporation, 2 Cir., 7 F.2d 11; In re Douglas Lumber Company, D.C., 2 F.2d 985; Groner v. Babcock Printing Press Mfg. Co., 4 Cir., 267 F. 822; In re Youngs Cornell Utilities, D.C., 20 F.Supp. 381; Fairbanks Steam Shovel Company v. Wills, 240 U.S. 642, 36 S.Ct 466, 60 L.Ed. 841; Bailey v. Baker Ice Machine Company, supra. Under this rule there is no interference with the operation of the state law in the interpretation of the instrument involved, the property rights under it and whether it meets the requirements of the recording act. When a petition in bankruptcy is filed and the property involved passes in custodia legis, certain provisions of the Bankruptcy Act become paramount and must have a uniform interpretation for the preservation of the act itself. The provisions here involved should have universal interpretation and should not be invalidated by the construction of the courts, state or national, or by judicial legislation. Certainly, there is no occasion for it in this case for the simple reason that there is no settled rule in Iowa to the contrary.
The conditional sales contract with which we are concerned was valid as between the parties, but when the petition in bankruptcy was filed and the trustee took possession of the property covered by the contract, the rights of creditors without notice were involved and the trustee became vested under Section 47a with “all the rights, remedies, and powers of a creditor holding a lien by legal or' equitable proceedings thereon.” If a creditor of the vendee, prior to bankruptcy, had reduced his claim to judgment and had found it necessary to levy on this same property to satisfy the judgment, the levy would have been sustained. In other words, appellee’s claim would not have been valid against a judgment creditor without actual or constructive knowledge of the conditional sales contract. It was admitted that the contract involved in this case was not acknowledged and recorded so as to give constructive notice.
There was no occasion for a showing by the creditors that they did not have actual knowledge. The burden of proof was on the party claiming under the unrecorded instrument. Albert Pick & Company v. Wilson, supra; Martin Bros. & Co. v. Lesan, 129 Iowa 573, 105 N.W. 996. The statutory requirements for recording were mandatory. Lee County Sav. Bank v. Snodgrass Bros., 182 Iowa 1387, 166 N.W. 680, 681.
The opinion of the Court in this case follows the law of Iowa applicable to assignments under the state code and the bankruptcy law prior to the amendment of 1910 and not the bankruptcy law as it now exists. It is subversive of the amendment and will restore the very defect the amendment was designed to remedy. It is not conducive to uniformity and will open the door to fraud. Consequently, I am forced to the conclusion that there should be a reversal.