Missouri Moline Plow Co. v. Spilman

117 F. 746, 1902 U.S. Dist. LEXIS 96

Opinion

PHILIPS, District Judge.

This cause has been certified to the court by John Montgomer)L Jr., referee in bankruptcy, at the instance of the Missouri Moline Plow Company, petitioner, for review. The controversy grows out of the following facts, substantially:

Some time prior to the adjudication in bankruptcy against Morris Fraizer, the Missouri Moline Plow Company, under a written agreement with said Fraizer, of date December 14, 1901, sold and delivered to said Fraizer a list of goods, consisting of certain agricultural implements. The said Fraizer, upon the receipt of the goods, or upon monthly balances, at his option, was to execute notes to the said company for the amount to be paid for the goods. The contract contained the following provisions:

“The second party [that is, Fraizer] agrees that the title to and ownership of the implements which may be shipped as hereinafter provided shall • remain in the party of the first part [the Moline Company]; and their proceeds, in case of sale, shall be the property of the Missouri Moline Plow •Company, held subject to their order, until full payment shall have been made for said goods or said notes, and until any judgment rendered therefor •or thereon is paid in full. If the purchaser under this contract sells out, fails, or becomes insolvent, or any member of the purchaser’s firm fails, •sells out, or becomes insolvent, or dies, all accounts and notes for goods bought under this contract, including renewal notes, in whose hands soever •said notes shall be, shall then become due and payable, whether the notes be given in payment for the goods or accounts, or collateral security thereto.”

At the time of the adjudication in bankruptcy, the bankrupt held •certain goods sold and shipped to him under the foregoing agreement, .and the same were taken possession of by the trustee in bankruptcy. Said Missouri Moline Plow Company thereafter presented its petition to the referee in bankruptcy for an order on the trustee to turn ■over and deliver said goods to the petitioner. The contract aforesaid was neither acknowledged nor recorded in the county where Morris Fraizer, the vendee, resided, and where the goods were delivered. On this statement of facts, the referee denied the petition, .and the petitioner asks to have this ruling reviewed.

Section 3412 of the Revised Statutes of Missouri, 1899* declares that:

“In all cases where any personal property shall be sold to any person, to be paid for in whole or in part in installments, or shall be leased, rented, hired or delivered to another on condition that the same shall belong to the person purchasing, leasing, renting, hiring or receiving the same whenever •the amount paid shall be a certain sum, or the value of such property, the -title to the same to remain to the vendor, lessor, renter, hirer or deliverer, of ■the same, until such sum, or the value of such property, or any part thereof, •shall have been paid, such condition, in regard to the title so remaining until such payment, shall be void as to all subsequent purchasers in good faith, and creditors, unless such condition shall be evidenced by writing executed, acknowledged and recorded as provided in cases of mortgages of •personal property.”

The state supreme court, in Collins v. Wilhoit, 108 Mo. 451, 18 S. W. 839, holds that the term “creditors,” as employed in the foregoing statute, applies to all creditors of the vendee, whether prior or subsequent. The case at bar is therefore ruled by the decision of •the court of appeals of this circuit in Re Pekin Plow Co., 112 Fed. 308, 50 C. C. A. 257, in which it is held that although the term “creditor,” employed in a correlative statute, means a creditor “armed with légal process” (that is, one who has taken legal steps to enforce his right as a creditor), yet all creditors of an involuntary bankrupt, .after adjudication in bankruptcy and the presentation of their claims, become creditors, within the meaning of the statute aforesaid, and the various provisions of the bankrupt act; that a trustee chosen under the bankrupt act of 1898 “becomes the representative of all the creditors, and is possessed of their rights to attack fraudulent conveyances”; and that he becomes vested by operation of law of all the property which prior to the filing of the petition in bankruptcy the insolvent debtor could by any means have transferred, “or which ¡might have been levied upon and sold under judicial process against hi'm.” And therefore, as all the creditors of the bankrupt, by operation of law, became parties to the judicial proceeding for the seizure and appropriation of all the apparent property of the bankrupt for the payment of his creditors, such a conditional sale of property, not evidenced by an instrument in writing duly acknowledged and recorded in pursuance of the state statute, is void as against such creditors.

Other reasons occur to my mind in support of the ruling of the referee, but all argument is concluded by the ruling of the court of appeals in the Pekin Plow Co. Case, supra.

It results that the exceptions to the referee’s decision are overruled, and his findings and conclusions are affirmed.

On Rehearing.

August 27, 1902.

In the opinion heretofore filed, on exceptions by the intervener, the Moline Plow Company, overruling the exceptions to the referee’s action denying the claim of the intervener, the court followed the ruling of the court of appeals of this circuit in Re Pekin Plow Co., 50 C. C. A. 257, 112 Fed. 308. Petitioner has filed a motion for rehearing, directing the attention of the court to the fact that the case ruled by the court of appeals was a proceeding in involuntary bankruptcy; whereas the case at bar is a voluntary proceeding. The contention is that the ruling of the court of appeals rested upon the proposition that a petition in involuntary bankruptcy.is an adversary proceeding taken by the creditor against the bankrupt, and that the institution of such adversary action places the creditors in the position of “using the courts of law and their process for the collection of their debts,” within the meaning of the term “creditors,” employed in section- 3412, Rev. St. Mo. 1899, quoted in the former opinion herein. It may be conceded that, as a general rule, courts are not concluded by a decision beyond the particular facts and principles of law arising therein. But it must likewise be conceded that, in applying the ruling of a court in a given case, its reasons assigned, and the underlying principles of law asserted, should guide in carrying them into another cause,—especially so in construing the same statute in pari materia. Why should there be any difference in respect of a conditional sale, in effect fraudulent against creditors under the Missouri statute, when the bankrupt is declared to be'bankrupt in a voluntary or involuntary proceeding? 'In both instances the bankrupt estate becomes amenable to the operation of the bankrupt act. The postulate announced by the court in Mueller v. Nugent, 184 U. S. 14, 22 Sup. Ct. 269, 46 L. Ed. 405, “that the filing of a petition is a caveat to all the world, and in effect an attachment and injunction,” in the very necessities of the whole scheme and spirit of the bankrupt act, must apply as well to a voluntary as an involuntary proceeding. The moment the petition is filed the proceeding is in rem. It, in legal effect, sequesters all of his property interests for the benefit of all of his creditors, pari passu, as if seized under attachment or a writ of execution. His whole estate passes into custodia legis. Eo instante every creditor of the bankrupt becomes an adversary party in a legal propeeding for the appropriation of the property of the bankrupt, and stands as a creditor seeking the aid of the court of exclusive jurisdiction. The trustee, representing the creditors, becomes antagonistic to such a creditor as the petitioner, who claims as a vendor of personal property under a conditional sale, not acknowledged and not recorded. So that after filing his petition in bankruptcy the bankrupt cannot dismiss the petition without notice to all of his creditors, with the consequent right on their part to appear and contest. It was of this right, under section 59, subsec. “g,” Bankr. Act, that the court, inter alia, in Re Pekin Plow Co., asserted:

“These provisions evince an unquestionable intent on the part of congress to make all creditors of the bankrupt parties to the proceeding, when once instituted. The effect of the institution of such proceeding is to forthwith sequester and appropriate all the property of the bankrupt to the payment of his debts pro rata and equally.”

The trustee in bankruptcy acquires the same property rights and interests and privileges, and has the same duties and obligations imposed upon him, under a voluntary as under an involuntary proceeding. He acquires no less and no greater rights and interests than the trustee in an involuntary proceeding, under section 70a, “to all the property which prior to the filing of the petition he [the bankrupt] could by any means have transferred, or which might have been levied upon and sold under judicial process against him.” When Judge Adams, speaking for the court of appeals in Re Pekin Plow Co., said, “The trustee chosen under the act of 1898 becomes the representative of all creditors, and is possessed of their right to attack fraudulent conveyances,” etc., the language, by its natural force, applies as well to a trustee in a voluntary as in an involuntary proceeding. It is also observable in the foregoing case that the court attached much importance to subdivision “g” of section 59 of the bankrupt act, which declares that “a voluntary or involuntary petition shall not be dismissed by the petitioner or petitioners or for want of prosecution or by consent of parties until after notice to the creditors,” and also subdivision “a” of section 67, which provides that “claims which for want of record or for other reasons would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate.” This provision first appears in the bankrupt act of 1898. What was the claim of the creditors of the bankrupt as against the property sold and delivered to the bankrupt by the vendor under an instrument of writing unacknowledged and unrecorded? Admittedly, it was the right to institute legal proceedings, and, under writs, to seize such property and appropriate it to the payment of their debts. As against creditors, both prior and subsequent, who sought the aid of the courts and judicial process, such vendor’s claim was void. The moment of the institution of the proceedings in bankruptcy, such creditors, as already stated, by operation of law, became adversary parties; and the clear expression of the act is that the claim of such vendor shall thereafter be no more a lien against the bankrupt’s estate than he would have had against the claims of creditors, had they, prior to-the institution of the bankruptcy proceedings, invoked the process-of court for the collection of their debts. In other words, the intention of congress was to as effectually cut off such lien in favor of creditors by the adjudication of bankruptcy as if the creditors-had, prior to the recording of such contract of sale, sought the aid of a court for the collection of their debts. And this is emphasized by the language of Judge Adams in commenting upon this provision of the bankrupt act, in declaring that “it means that any liens which would not have been valid if other creditors had a right, before bankruptcy, to avoid the same, either for want of record or otherwise, shall not constitute a lien against the estate in bankruptcy.” No matter what the form of the legal proceeding taken by the creditor, if it be instituted prior to the assertion of the lien by the vendor, the prior right of the creditor has attached. The general language of the court in Re Pekin Plow Co. that “the effect of the institution of such proceeding is to forthwith sequester and appropriate all the property of the bankrupt to the payment of his debts, pro rata and equally,” was not limited to the instance of an involuntary proceeding, as shown by the context. The learned judge had just quoted subdivision “g” of section 59, that “a voluntary or involuntary petition shall not be dismissed by the petitioner or petitioners either for want of prosecution or by consent of the parties until after notice-to the creditor,” for the purpose of showing that after filing a voluntary or involuntary proceeding all the creditors acquired such rights and interests therein that it was neither in the power of the bankrupt nor the -petitioning creditors to dismiss the cause without notice to and hearing by all the creditors. There is nothing expressed in the whole bankrupt act giving color to the idea that a. creditor or the trustee under an involuntary proceeding should have any greater rights than under a voluntary proceeding. Any such discrimination would run counter to the whole scheme and policy of the bankrupt act, which is to secure equality among all creditors of the bankrupt estate. It would be remarkable that an insolvent debtor, by anticipating a movement on the part of his creditors to throw him into bankruptcy, could file a voluntary proceeding, and by his act bring about such inequality of right between the creditors of a voluntary and an involuntary bankrupt.

The logic of the ruling of the court of appeals in Re Pekin Plow Co., in my judgment, sustains the conclusion of the referee that it should apply to the instance of a voluntary as well as an involuntary bankrupt. Therefore the motion for a rehearing is denied.