In Re Lake's Laundry, Inc.

79 F.2d 326, 102 A.L.R. 247, 1935 U.S. App. LEXIS 4098

• Court: Court of Appeals for the Second Circuit
• Decided: July 29, 1935
• Docket: 473
• Status: Published

Opinions

CHASE, Circuit Judge.

The debtor filed its petition for reorganization under section 77B in the District Court for the Southern District of New York on February 13, 1935, and the petition was approved the same day. Thereafter each of the appellees moved to reclaim property sold and delivered to the debtor under conditional sales contracts. One such petition related to an automobile truck and the others to machinery. All of these sales contracts had been executed and filed as provided by the laws of New York, and the debtor was in default in respect to each, contract when the petition for reorganization was filed.

Though some question has been raised as to whether or not the appellees are creditors within the purview of section 77B wc think it too plain that they are to require extended comment. The debtor had made contracts which required it to pay them certain agreed sums of money at stated times and the payments had not been made. This alone made them creditors, in that they were holders of claims against the debtor, and under subdivision (b) of section 77B of the act (11 USCA § 207 (b) it is immaterial whether such claims were provable under the Bankruptcy Act or not.

A plan of reorganization has been filed. All the property of the debtor will be affected by it if and when it is approved. Tí the property covered by these conditional sales contracts is property of the debtor, it should not be permitted to be taken out of the reorganization proceedings before the approval of the plan. If it is not such property, the pendency of the reorganization proceedings cannot curtail such rights m respect to it as would otherwise be possessed by the sellers.

If the appellees had only a lien upon the property, as they would were they mortgagees, it is clear that it would be covered by the reorganization petition. Section 77B includes within its scope property of the debtor on which another has a lien or mortgage. In re Prudence-Bonds Corp., 77 F. (2d) 328 (C. C. A. 2). Compare Continental Illinois Nat. Bank & Trust Co. v. Chicago, Rock Island & Pacific R. Co., 294 U. S. 648, 55 S. Ct. 595, 79 L. Ed. 1110 (Decided April 1, 1935).

But, even though section 77B is a -'remedial statute to be construed liberally, we think Congress did not intend to ignore the distinction between property mortgaged by a debtor and property held by a debtor as conditional vendee. The distinction has been recognized in legislation from early times, and was a part of the common law. The fact that Congress expressly included the words “conditional sale agreement” in subdivision (o) (6) of section 75 of the act, 11 USCA § 203 (o') (6), and omitted any reference to conditional sales in subdivision (c) (10) of section 77B of the act, 11 USCA § 207 (c) (10), is significant and points to the conclusion that it meant in this instance to exclude property in the possession of the debtor whose rights therein were only those of a conditional vendee. We should not ignore the distinction. Quinn v. Bancroft-Jones Corporation, 18 F.(2d) 727 (C. C. A. 2). That property held by a conditional vendee is the property of the conditional vendor until the contract price is paid is a principle Jirmly rooted in the lawJ Bailey v. Baker Ice Machine Co., 239 U. S. 268, 36 S. Ct. 50, 60 L. Ed. 275; Interstate I. & P. Corp. v. United States Fire Ins. Co., 243 N. Y. 95, 152 N. E. 476; In re Master Knitting Corporation, 7 F.(2d) 11 (C. C. A. 2); In re Fitzhugh Hall Amusement Co., 230 F. 811 (C. C. A. 2). In New York the Uniform Conditional Sales Act is in force (New York Personal Property Law §§ 60-80-i). Under its provisions the common-law rule prevails except as to any purchaser from or creditor of the buyer, who without notice of the contract, purchases the goods, or acquires by attachment or levy a lien upon them before the contract or a copy of it shall be filed as the law requires. Baker v. Hull et al., 250 N. Y. 484, 166 N. E. 175. So within the provisions of section 77B the property the appellees sold the debtor under these conditional sales contracts, which provided'that it should remain the property of the sellers until paid for, is not property of the debtor. For that reason it is not • a part of the subject-matter of the reorganization proceedings, and such rights as the sellers may have under New York law to repossess the property cannot be impaired in this suit. We now leave open all questions as to final disposition of the proceeds of such equities in the property as the 'debtor may be found to have when it is repossessed and dealt with as the laws of New York provide.

Orders affirmed.

L. HAND, Circuit Judge, dissents with opinion.