A mortgage containing no clause covering after-acquired property
is not a lien on machinery placed on the land after the execution
of the mortgage, and the title to which is reserved in the vendor
until payment therefor.
The trustee in bankruptcy is vested with no better right or
title to the property than the bankrupt had when the trustee's
title accrued, and where, as in the State of Ohio, a conditional
sale contract is good as between the parties themselves although
not filed, the vendor of machinery, sold and delivered under such a
contract and payment for which had not been made may remove the
same as against all creditors of the bankrupt who have not fastened
upon it by some specific lien.
The York Manufacturing Company has appealed from a judgment of
the circuit court of appeals which held that the company had no
lien upon or right to remove certain machinery as against creditors
of the Mount Vernon Ice, Coal & Milling Company, a bankrupt
corporation. The facts upon which the question arises are as
follows.
The corporation above named was organized under the laws of the
State of Ohio, and was doing business at Mount Vernon, in that
state. The company desired to enlarge its plant for the purpose of
making ice, and to that end it was necessary to secure the proper
machinery. It therefore entered into a contract, which was
concluded October 27, 1902, with the appellant, the York
Manufacturing Company, to supply that machinery for the sum of
$7,375, to be paid in installments, as stated in the contract. The
contract also contained a stipulation
"that the title to the ownership of the machinery, apparatus, or
plant herein contracted for shall remain in the York Manufacturing
Company until the entire purchase price herein agreed to be paid .
. . shall be actually paid in cash."
The vendor
Page 201 U. S. 345
was given the right to enter the premises of vendee and remove
the property in case of default. Twenty-five percent only of the
price of the machinery was ever paid. This contract was never
filed, as required by the statute of Ohio relating to conditional
sales. Section 4155, which is set forth in the margin.
*
The corporation, being short of funds for the purpose of
building, desired to obtain them by the execution of a mortgage on
the lot on which the building was to be erected. One William Mild
was the president of the corporation and was the owner of and had
the legal title to the real estate upon which its plant was being
constructed. Mild applied to Messrs. Waight & Ames to assist in
raising money, by lending their credit as sureties on notes to be
given for loans to the corporation up to the sum of $10,000, by
such persons or banks as loans could be
Page 201 U. S. 346
obtained from. Waight & Ames agreed to become such sureties,
and the parties then entered into an agreement for that purpose,
the particulars of which it is not necessary here to deal with.
At the date of the Waight & Ames agreement -- November 1,
1902 -- no part of the machinery had come to the possession of the
company, but it began to arrive in January, 1903, and was finally
installed in the plant three or four months later.
On the same date that the agreement was executed, a mortgage,
without date, was also executed by William Mild, in whom the title
was, to Waight & Ames, conditioned for their indemnification
for becoming sureties, as contemplated by their agreement. This
mortgage was not recorded until July 16, 1903, and on the next day,
the corporation made a general assignment for the benefit of its
creditors. On July 22, 1903, a petition by creditors of the
corporation was filed for an adjudication of bankruptcy against it,
and on December 11, 1903, the adjudication was made.
Soon after the adjudication, the York Manufacturing Company
filed an intervening petition, which set forth the contract under
which they sold the machinery to the bankrupt, and alleged default
in payment, and prayed that the company might be allowed to enter
the premises and remove the machinery therefrom. This petition was
resisted by the creditors.
A short time thereafter, Waight & Ames filed their
intervening petition, setting up their mortgage and alleging that
they had no knowledge of the contract with the York Manufacturing
Company at the time of taking their mortgage, and prayed that they
might be given precedence over that company. It appears they did
raise for Mild the sum of $10,000 by indorsing for him to that
extent, and a portion of it they have since been compelled to pay,
and they are liable for the balance.
The referee in bankruptcy, before whom the question came, held
that the mortgage of Waight & Ames was a valid lien on all the
bankrupt's property, including the machinery furnished by the York
Manufacturing Company, subject, however, to a
Page 201 U. S. 347
purchase money mortgage on the lot for $1,000. He also held that
the York Manufacturing Company had no lien on the machinery, but
was a general creditor only.
The district court, on a petition for review, reversed this
ruling and held that the mortgage of Waight & Ames did not
cover the machinery supplied by the York Manufacturing Company, but
that the latter had no lien thereon as against general creditors;
that the mortgage of Waight & Ames was a valid lien on the rest
of the property, subject to the purchase money mortgage on the lot;
that they were not creditors of the bankrupt corporation except as
to the sum of $1,500 they had charged for becoming sureties under
the contract above mentioned, but the court held that they might
prove the debts of the creditors who held the notes on which they
were sureties, if the creditors failed to do so, and that they
might be subrogated to the rights of the creditors to the extent
they had paid or might pay any balance due on said notes remaining
after applying thereon the surplus of the proceeds of the sale of
the real estate, after the purchase money mortgage had been paid,
and that the entire $10,000 of the notes, which were mentioned in
the contract between Waight & Ames and the company, and for
which they were to be sureties, might be included in this right of
subrogation. This, of course, did not include a note for $1,000,
which had been paid five months before the proceedings in
bankruptcy. The district court held that the mortgage of Waight
& Ames was subordinate to the lien of the York Manufacturing
Company because no part of it had been placed on the ground of the
bankrupt until two months after the making of the mortgage to
Waight & Ames. The court, however, held that the general
creditors were entitled to have the plant of the York Manufacturing
Company sold for the payment of their claims because of the failure
of that company to file the conditional sale contract, as required
by the Ohio statute, and such failure rendered the contract void as
to the creditors. Waight & Ames did not appeal from the
district court's decree.
Page 201 U. S. 348
The circuit court of appeals, upon appeal by the York
Manufacturing Company, affirmed the district court, 135 F. 52, and
that company has appealed here.
Page 201 U. S. 350
MR. JUSTICE PECKHAM, after making the foregoing statement,
delivered the opinion of the Court.
The question is simply whether the York Manufacturing Company
has a right, under its conditional sale of the machinery to the
bankrupt corporation, to take the machinery out of the premises
where it was placed, as against all except judgment or other
creditors by some specific lien. There are no judgment creditors in
the case, and no attachment has been levied, and the question is
simply whether the adjudication in bankruptcy is equivalent to a
judgment or an attachment
Page 201 U. S. 351
on the property, so as to prevent the York Manufacturing Company
from asserting its right to remove the machinery by virtue of the
reservation of title contained in its contract.
In
Wilson v. Leslie, 20 Ohio, 161, the court was
construing the language of the statute relating to chattel
mortgages, which declared a mortgage absolutely void as against
creditors of the mortgagor, and as against subsequent purchasers
and mortgagees in good faith, unless the mortgage or a true copy
thereof should be deposited forthwith, as directed in the act. The
court held that the mortgage was not void for lack of filing, as
between the parties thereto, but that the statute only avoided the
instrument as to those creditors who, between the time of the
execution of the mortgage and the filing thereof, had taken steps
to "fasten upon the property for the payment of their debts." As
against such as had in the interim secured liens by attachment,
execution, or otherwise, the mortgage would be void. When filed
with the recorder, the instrument became valid as against all
persons except those whose rights have attached upon the property
before the recording of the instrument.
See, to the same
effect,
In re Shirley, 112 F. 301.
We have not been referred to any decision of the Supreme Court
of Ohio as to the meaning of the statute requiring the filing of
contracts of conditional sales, but we concur with the circuit
court of appeals in this case that the statute would render the
unfiled contract void as to the same class of creditors mentioned
in the chattel mortgage statute. Therefore the contract would be
void as to creditors who, before its filing, had "fastened upon the
property" by some specific liens. As to creditors who had no such
lien, being general creditors only, the statute does not avoid the
sale, which is good between the parties to the contract.
The mortgage of Waight & Ames cannot be a lien on the
machinery sold by the York Manufacturing Company, because the
mortgage was prior to the time when any portion of such machinery
was placed upon the land. There was no clause in
Page 201 U. S. 352
the mortgage covering after-acquired property, and, in any
event, the mortgage would not cover property so acquired, the title
to which, as in this case, was reserved to the vendor. This was the
ruling of the district court, and no appeal was taken therefrom by
the mortgagees. There are no creditors with any specific liens, nor
is there any other mortgage, and there is no attachment.
We come, then, to the question whether the adjudication in
bankruptcy was equivalent to a judgment, attachment, or other
specific lien upon the machinery. The circuit court of appeals has
held herein that the seizure by the court of bankruptcy operated as
an attachment and an injunction for the benefit of all persons
having interests in the bankrupt's estate.
We are of opinion that it did not operate as a lien upon the
machinery as against the York Manufacturing Company, the vendor
thereof. Under the provisions of the Bankrupt Act, the trustee in
bankruptcy is vested with no better right or title to the
bankrupt's property than belonged to the bankrupt at the time when
the trustee's title accrued. At that time, the right, as between
the bankrupt and the York Manufacturing Company, was in the latter
company to take the machinery on account of default in the payment
therefor. The trustee, under such circumstances, stands simply in
the shoes of the bankrupt, and, as between them, he has no greater
right than the bankrupt. This is held in
Hewit v. Berlin
Machine Works, 194 U. S. 296. The
same view was taken in
Thompson v. Fairbanks, 196 U.
S. 516. It was there stated that,
"under the present Bankrupt Act, the trustee takes the property
of the bankrupt, in cases unaffected by fraud, in the same plight
and condition that the bankrupt himself held it, and subject to all
the equities impressed upon it in the hands of the bankrupt."
See Yeatman v. Savings Institution, 95 U. S.
764;
Stewart v. Platt, 101 U.
S. 731;
Hauselt v. Harrison, 105 U.
S. 401. The same doctrine was reaffirmed in
Humphrey
v. Tatman, 198 U. S. 91. The
law of Ohio says the conditional sale contract was good between the
parties, although not filed. In such a
Page 201 U. S. 353
case, the trustee in bankruptcy takes only the rights of the
bankrupt, where there are no specific liens, as already stated.
The remark made in
Mueller v. Nugent, 184 U. S.
1, "that the filing of the petition [in bankruptcy] is a
caveat to all the world, and in effect an attachment and
injunction" was made in regard to the particular facts in that
case. The case itself raised questions entirely foreign to the one
herein arising, and did not involve any inquiry into the title of a
trustee in bankruptcy as between himself and the bankrupt, under
such facts as are above stated. The dispute in the
Mueller
case was whether the court in bankruptcy had power to compel, in a
summary way, the surrender of money or other property of the
bankrupt, in the possession of the bankrupt, or of someone for him,
without resorting to a suit for that purpose. This Court held, as
stated by the Chief Justice in delivering its opinion:
"The bankruptcy court would be helpless indeed if the bare
refusal to turn over could conclusively operate to drive the
trustee to an action to recover as for an indebtedness or a
conversion, or to proceedings in chancery at the risk of the
accompaniments of delay, complication, and expense intended to be
avoided by the simpler methods of the bankrupt law."
It was held that the trustee was not thus bound, but had the
right, under the facts in that case, to proceed under the bankrupt
law itself and take the property out of the hands of the bankrupt
or anyone holding it for him.
In this case, under the authorities already cited, the York
Manufacturing Company had the right, as between itself and the
trustee in bankruptcy, to take the property under the unfiled
contract with the bankrupt, and the adjudication in bankruptcy did
not operate as a lien upon this machinery in favor of the trustee
as against the York Manufacturing Company.
The decree of the circuit court of appeals is reversed, and the
case remanded to the district court, with directions to enter a
decree in conformity with this opinion.
Reversed.
* Section 4155, Revised Statutes of Ohio, provides as
follows:
"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 in 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 and mortgagees in good faith,
and creditors, unless such condition shall be evidenced by writing
signed by the purchasers, lessor, renter, hirer, or receiver of the
same, and also a statement thereon, under oath, made by the person
so selling, leasing, or delivering any property as herein provided,
his agent or attorney, of the amount of the claim, or a true copy
thereof, with an affidavit that the same is a copy, deposited with
the clerk of the township where the person signing the instrument
resides at the time of the execution thereof, if a resident of the
state, and if not such resident, then with the clerk of the
township in which such property is sold, leased, rented, hired, or
delivered is situated at the time of the execution of the
instrument; but when the person executing the instrument is a
resident of a township in which the office of county recorder is
kept, or when be is a nonresident of the state, and the property is
within such township, the instrument shall be filed with the county
recorder, and the officer receiving any such instrument shall
proceed with the same in all respects as he is required to do by
section four thousand one hundred and fifty-two of the Revised
Statutes of Ohio, and shall receive the same fees as are allowed by
law for similar services in other cases."
