Court Opinion

ID: 7278699
Source: CourtListenerOpinion
Date Created: 2022-07-25 20:03:25.304283+00
Date Added: 2024-06-11T16:18:58.216814
License: Public Domain

Mr. Justice Robb
delivered the opinion of the Court:
It is apparent that the question for determination is whether these deeds of trust took effect as to the creditors of Nolan and as to the trustee who represents them on the day of their delivery for record, that is, on October 13, 1913, or on September 12, 1913, the date when the creditors received actual notice of said deeds. Section 60-b, as amended, of the Federal Bankruptcy Act, upon which this suit is based, reads as follows: “If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and if, at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by the law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and'the judgment or transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person. And) for the purpose of such recovery, any court of bankruptcy, as hereinbefore defined, and any State court which would have had jurisdiction if bank*369niptcy had not intervened, shall have concurrent jurisdiction.” [36 Stat. at L. 842, chap. 412, Comp. Stat. 1916, § 9644.]
It is urged by the appellee that the decision in Dulany v. Morse, 39 App. D. C. 523, is conclusive of the question here presented. In that case an instrument in the form of a deed given as security for a loan, although executed more than four months previously, was withheld from record until the day preceding the filing of a petition in bankruptcy against the grantor, whose creditors had no notice of its existence. There was no contention that the holder of the instrument was not fully advised when he recorded it that the grantor was bankrupt. As the fact of bankruptcy then was open and notorious, it logically followed that a preference had been given within the moaning of the Bankruptcy Law. The question here in issue was not there involved and, of course, not decided.
Carey v. Donohue, 240 U. S. 430, 60 L. ed. 726, L.R.A. 1917A, 295, 36 Sup. Ct. Rep. 386, involved an interpretation of the provisions of secs. 60~a and 80-b, although the precise question here in issue was not there passed upon. The bankrupt in that case had executed a deed when insolvent, and the grantee at the time had reasonable cause to believe that the transfer to him wotdd effect a preference, it being in payment of an antecedent debt. The deed was not recorded until within four months of the petition in bankruptcy. The question involved, therefore, was whether the deed was one which was “required” to be recorded within the meaning of the Bankruptcy Law. If it was not, there could he no recovery, as it was executed and delivered more than four months before the petition in bankruptcy was filed. If it was “required” to be recorded in the sense of the statute it was voidable, as the recording was within the four mouths’ period, and the other conditions of recovery were satisfied. The provisions of the Ohio Code governing the recording of the deed declared that such deeds should be deemed fraudulent, “so far as relates to a subsequent bona fide purchaser having, at the time of the purchase, no knowledge of the existence of such former deed or instrument.” The court found that under the Ohio decisions there was no require*370ment that this conveyance should be recorded in order to-give it validity as against any creditor of the bankrupt, whether a general creditor or lien creditor, or a judgment creditor with execution returned unsatisfied, “that is, as against any class of persons represented by the trustee, or with whose 'rights, remedies, and powers’ he was to be deemed to be vested.” The trustee claimed that the provision in the interest of subsequent bona fide purchasers constituted a requirement of recording which entitled a trustee to recover for the benefit of creditors. After a careful analysis of the section involved and the divergent views of the circuit courts of appeals with reference to it, it was said: “As Congress did not undertake in sec. 60 to hit all preferential transfers, otherwise valid, merely because they were not disclosed, either by record or possession, more than four months before the bankruptcy proceeding, the inquiry is simply as to the nature of the requirement of recording to which Congress referred. The character of the transfer itself, both with respect to what should constitute a transfer and its preferential effect, had been carefully defined. It is plain that the words are not limited to cases where recording is required for the purpose of giving validity to the transaction as between the parties, •x- * -x- q^g and, we think, the intended meaning was to embrace those cases in which recording was necessary in order Lo malee the transfer valid as against those concerned in the distribution of the insolvent estate; that is, as against creditors, including those whose position the trustee was entitled to take.” (Italics ours.) As the requirement of the Ohio statute was wholly in favor of subsequent bona fide purchasers without notice, the court held that there could be no recovery by the trustee.
This brings us to an examination of sec. 499 of the local Code [32 Stat. at L. 531, chap. 1329], which reads as follows: “When deeds to take effect.—Any deed corn-eying real property in the District, or interest therein, or declaring or limiting any use or trust thereof, executed and acknowledged and certified as aforesaid and delivered to the person in whose favor the same is executed, shall be held to take effect from the date of *371the delivery thereof, except that as to creditors and subsequent bona fide purchasers and mortgagees without notice of said deed, and others interested in said property, it shall only take effect from the time of its delivery to the recorder of deeds for record.”
This section differs from the Ohio statute in that creditors are within its protection. There is no doubt, of course, that as to creditors without notice a deed takes effect only from the time of its delivery for record, but the question is, when does it take effect as to creditors with notice ? In other words, is the same effect to be given actual notice as the statute clearly gives to constructive notice? Had appellant recorded these deeds on September 22d, the day when actual notice was given the creditors, it is not disputed that they would have taken effect from that date, and unless it could have been made to appear by the trustee that the conditions for recovery then existed, the transfer would have stood. Of course, such record is as effective against existing creditors as it is against future creditors. The Bankruptcy Law, in effect, merely declares that all creditors shall have four months from the time when such a deed takes effect within which to assert their rights. That is to say, under the Bankruptcy Law, if the equities of other creditors are equal to those of the grantee, they may be asserted and enforced by appropriate proceedings within the four months’ period. The recording of the deed is merely constructive notice of its existence, and we see no reason for holding that actual notice shall bo less effectual than constructive notice. It is plain that under the decision in Carey v. Donohue, to which we have referred, the delivery of these deeds for record was not a prerequisite to their validity as against creditors having actual notice of their existence. And if actual notice was to take the place of constructive notice, we think it should be given the same effect. It was open to creditors, within four months of the date of this notice, to assert and enforce their equities, provided they could satisfy the court of the existence of the requisite conditions; and unless those conditions existed on the date of notice, the date when the deeds became effective as to such creditors, there *372was no more reason for challenging those deeds than any other instrument recognized by the law. This interpretation is consistent not only with the language used in sec. 499, but with the general rule that the object of recording statutes is to furnish means of notice. After a deed has been recorded under the provisions of sec. 499, no one can be heard to say that he did not have notice of it, and yet it is insisted that it was intended by this statute to give the recipient of actual notice greater rights than would have resulted from mere constructive notice. Eecord is required as to those without and not as to those with notice, and notice takes the place of record in substance as well as in form.
Some criticism is aimed at the answer, on the ground that it does not go far enough. In our view it goes farther than the averments of the bill, and that should be sufficient. In the bill it was alleged merely that the defendant, on October 13, 1913, had reasonable cause to believe the transfer was intended to give him a preference. The answer denies this averment and also denies that the defendant, on the 12th day of September, 1913, had reasonable cause to believe the transfer was intended to give such a preference.
The decree is reversed, with costs, and the cause remanded for further proceedings not inconsistent with this opinion.

Reversed and remanded.