Under 67a of the Bankruptcy Act of 1898, the effect to be given
to an unrecorded chattel mortgage must be determined by the
recording law of the state.
As construed by the highest court of the state, the term
"creditors," as used in § 496, Kentucky Statutes 1903, which
declares that no mortgage shall be valid against purchasers without
notice or creditors until recorded, does not include antecedent
creditors or subsequent creditors whose claims are acquired with
notice, but does include subsequent creditors without notice who,
by diligence, secure a specific lien before the mortgage is
recorded; but that court has not specifically decided whether the
term includes subsequent creditors without notice who have not so
secured such lien.
The circuit Court of Appeals having held that, under the
decisions of the highest court of the state bearing on the
question, the term "creditors" as used in § 496, Kentucky Statutes,
1903, does not include subsequent creditors without notice who have
not secured a lien on the property prior to the recording thereof,
and this Court not being able to say that such construction is
wrong,
held that the title of the holder of an unrecorded
chattel mortgage on property in Kentucky is valid and effective as
against the trustee in bankruptcy as to the creditors who became
such after the mortgage was given and who had not fastened any lien
on the property prior to the proceeding in bankruptcy.
174 F. 127 affirmed.
The facts, which involve priority of claims against the
bankrupts' estate, are stated in the opinion.
Page 224 U. S. 264
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
This appeal brings up for review a decree reversing an order of
the District Court for the Western District of Kentucky in a
proceeding in bankruptcy. The matter in dispute is the validity
under the recording law of that state of an unrecorded chattel
mortgage as against creditors who became such after the mortgage
was given, and without knowledge of it, where none of them had
secured a lien upon the mortgaged property by execution,
Page 224 U. S. 265
attachment, or otherwise. The mortgagee, in making proof of its
claim, asserted a lien under the mortgage and sought priority of
payment out of the proceeds of the property covered by it. The
claim was allowed, but the district court, being of opinion that
the mortgage was invalid as against the subsequent creditors
without notice, held that it gave no right to priority of payment
as against them. The mortgagee appealed to the circuit Court of
Appeals, and that court, taking the view that the mortgage was
valid as against those creditors, since none had secured any
specific lien upon the mortgaged property, sustained the right to
priority asserted by the mortgagee. 174 F. 127. The trustee
prosecutes the present appeal.
Section 67a of the Bankruptcy Act declares:
"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."
And the applicable provision of the recording law of Kentucky
(Stat. 1903, § 496) is as follows:
"No deed or deed of trust or mortgage conveying a legal or
equitable title to real or personal estate shall be valid against a
purchaser for a valuable consideration without notice thereof or
against creditors until such deeds shall be acknowledged or proved
according to law and lodged for record."
It is apparent from the language of § 67a and from the decisions
of this Court in
York Manufacturing Co. v. Cassell,
201 U. S. 344;
Thomas v. Taggart, 209 U. S. 385, and
other like cases that the effect to be given to the unrecorded
chattel mortgage must be determined by the recording law of the
state, and it is also apparent that the question arising under that
law turns upon who are included in the term "creditors" in §
496.
Upon that question, the decisions of the Court of Appeals
Page 224 U. S. 266
of the state have not been uniform, but it is conceded, and is
evident upon an examination of the more recent decisions, that the
term does not include antecedent creditors or subsequent creditors
whose claims are acquired with notice of the unrecorded mortgage,
but does include subsequent creditors without notice who, by their
diligence, secure a specific lien upon the property, as by
execution or attachment, before the mortgage is recorded.
Baldwin v. Crow, 86 Ky. 679;
Wicks v. McConnell,
102 Ky. 434;
Clift v. Williams, 105 Ky. 559;
Bowles v.
Jones, 123 Ky. 395;
Swafford's Adm'r v. Asher, 105
S.W. 164. And so the question for decision is reduced to this: does
the term include subsequent creditors without notice who have not
secured such a lien?
No case in that court has been called to our attention, and none
has been found by us, in which this question was presented for
decision and decided; but, in two of the later cases, there are
expressions bearing thereon which are respectively relied upon
here. Thus, in
Wicks Bros. v. McConnell, supra, where the
prior cases were reviewed with the evident purpose of extracting a
general and guiding rule, it was said:
"On the one hand, the unrecorded lien is upheld as against
creditors who cannot be presumed to have given credit upon the
faith of the property held in lien. On the other hand, creditors
who may be presumed on such faith to have given credit are
protected as against the secret lien
in the rights which they
secure by their diligence in the levy of their execution or
attachment."
(Italics ours.) And in
Swafford v. Asher, supra, it was
said:
"As the mortgage was not recorded,
it would, of course, not
be valid as to creditors whose debts were subsequently
created, but, as to those whose debts were created prior to
the purchase of the teams and the mortgage upon them, the lien is
valid, although not recorded as required by § 496 of the Kentucky
Statutes [of 1903], and,
Page 224 U. S. 267
as said before,
there is nothing to show that any debt of
the estate was created after the purchase of the teams, except that
of appellant, who had actual notice."
As
Wicks v. McConnell was cited as sustaining this
statement, it is not probable that the court regarded it as
overruling or departing from what had been said in that case, and
this view receives added support from the fact that the opinion in
Swafford v. Asher was marked by the court, "Not to be
officially reported." These considerations, coupled with the
further fact that, in cases such as
Bowles v. Jones,
supra, where subsequent creditors prevailed over such a
mortgagee, the court was careful to state not only that the claims
of the creditors arose after the date of the unrecorded mortgage,
but also that the creditors had obtained attachment or other liens
upon the mortgaged property before the mortgage was recorded, are
persuasive, that what was said in
Wicks Bros. v. McConnell
should be accepted as reflecting the true construction of § 496 in
the absence of some more positive and direct ruling upon the
subject by the Court of Appeals of the state. Such was the view of
the circuit court of appeals, and we are at least unable to say
that it was wrong. It follows that, as here the subsequent
creditors had not fastened any lien upon the property covered by
the mortgage prior to the proceedings in bankruptcy by which the
title passed to the trustee, the mortgage, although unrecorded, was
valid and effective against them.
Decree affirmed.