Court Opinion

ID: 9643260
Source: CourtListenerOpinion
Date Created: 2023-08-22 20:24:16.951926+00
Date Added: 2024-06-11T18:10:58.936290
License: Public Domain

On Rehearing.
JOHNSON, Circuit Judge.
An opinion in the above case was handed down by this court' February 26, 1924. Since then the ease has been reargued, and it is claimed that we erred in our former opinion in applying the doctrine of Humphrey v. Tatman, 198 U. S. 91, 94, 25 S. Ct. 567, 49 L. Ed. 956, to tills case because, under the law of Massachusetts, it is not applicable to a pledge.
In our former opinion we based the right of the Massachusetts Trust Company to hold the proceeds derived from the sale of the cars of which it took possession upon the ground that the note and receipt given by the Motor Company did not constitute a promise to give security in the future, but gave a present light which attached to the specific, car upon which each loan was made and for which a note and receipt were given. No decision of tlfe Massachusetts court has been cited by counsel in which that court has held that the taking of possession by the pledgee within four months of the filing of a petition in bankruptcy, under an agreement executed before this period, made such taking a preferential transfer under section 60b of the Bankruptcy Act (Comp. St. § 9614). In Coggan v. Ward, 215 Mass. 13, 102 N. E. 336, the court said:
“It is the settled law of this commonwealth that an instrument of transfer of personal property, absolute in form but intended by the parties to be a mortgage, genuine, honest and valid as such when executed and delivered, authorizes the person named as vendee to take possession of the property, in order to secure his own debt, at any time before the rights of other persons have intervened, and that thereby he acquires a title which relates back for its validity to the date of the instrument, and that, although the taking possession may be at a time when the debtor is insolvent to the knowledge of himself and of his creditor named as vendee in the instrument of transfer, it is nevertheless effectual, although occurring within a period of time previous to insolvency, which would invalidate the *772transaction if the initial step had occurred at the time of taking possession.”
While the general law of pledge requires possession in the pledgee, yet, where possession is taken before the rights of third parties have intervened and in the assertion of a right given by a contract made before the beginning of the four months’ period, which gave the pledgee an equitable lien upon the property taken, we think the same law should be applied as in ease of a mortgage, given before but not recorded until within the four months’ period. The Massachusetts court in its decisions has given as broad an application of the doctrine of an equitable lien as have the federal courts. See Westall v. Wood, 212 Mass. 540, 99 N. E. 325, in which the court cites with approval Hurley v. Atchison, Topeka & Santa Fé Ry., 213 U. S. 126, 29 S. Ct. 466, 53 L. Ed. 729, and Connolly v. Bouck, 174 F. 312, 98 C. C. A. 184; also Delval v. Gagnon et al., 213 Mass. 203, 207, 99 N. E. 1095.
As we pointed out in our former opinion, the right of the trustee attached at the time of the filing of the petition in bankruptcy, citing Bailey v. Baker Ice Machine Co., 239 U. S. 268, 36 S. Ct. 50, 60 L. Ed. 275. At that time no third party had secured any adversary rights. After possession had been taken no creditor could have attached the automobiles or seized them upon execution; and under the Bankruptcy Act the trustee, as to property not in the possession of the bankruptcy court, has the right of a creditor holding an execution which has been returned unsatisfied.
Counsel have claimed in argument that Humphrey v. Tatman, supra, may be distinguished from the present case because, in that case, a mortgage was given and there was a present transfer of title. In the present case, however, there was a transfer to the pledgee of an equitable lien with a present right of possession. There is no question about the honesty and validity of the claim of the Trust Company. The proof is clear and convincing that it actually advanced the money which was used in the purchase of the cars upon which a lien was given for the satisfaction of its loan in each instance; and that it was the understanding and intention of the parties that the Trust Company should have a lien upon each car for the money which it had advanced toward its purchase.
If it be admitted that the delivery to the Beacon Storage Warehouse Company did not satisfy the requirement of a pledge, because the possession of the Warehouse Company was not exclusive — a question which we do not now feel called upon to decide— it is, nevertheless, true that the notes gave -the Trust Company an equitable lien upon each ear for the money which it had advanced to pay for the same, with the right of possession. When it exercised this right,' before the rights of third parties intervened and before the filing of the petition in bankruptcy, its power to do so was conferred by the notes and the warehouse receipts, all of which were given before the four months’ period began to run.
That a pledgee may hold property of which possession is thus taken was recognized in this District by Judge Dodge in Wood v. United States Fidelity & Guaranty Co. (D. C.) 143 F. 424, who held that the right of the defendant to take possession of property was to be adjudged not by the state of facts existing when possession was taken, but by the state of facts existing when the right was given, and that, since possession was taken before bankruptcy, the defendant held the property by a title relating back to the time when its right was acquired and that there was no preference, in taking possession within the four months’ period before bankruptcy.
The same was held by this court in Atherton v. Beaman, 264 F. 878, in which we cited Johnson v. Root Mfg. Co., 241 U. S. 160, 36 S. Ct. 520, 60 L. Ed. 934, Sumner v. Hamlet, 12 Pick. (Mass.) 76, and Copeland v. Barnes, 147 Mass. 388, 390, 18 N. E. 65.
In that ease we held that the designation of carload lots of lumber within four months of bankruptcy, made under an authorization given before the commencement of that period, would not render the pledge invalid as against the trustees in bankruptcy, “because, in a transaction untainted with fraud and where the rights of third pai’ties are not affected, such designation relates back to the date of the order.”
As we pointed out in our former opinion, this was not an agreement to give a pledge 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.”
After a careful examination of the federal decisions and those of the Supreme Judicial Court of Massachusetts, we see no reason to change the conclusion which we reached in our former opinion.