1. Section 5224 of the Code of Virginia, providing that all
property used in his business by a person trading in his own name
shall, as to his creditors, be liable for his debts, means lien
creditors. P.
276 U. S.
11.
2. Where property sold on condition reserving title in the
vendor is retaken by him in accordance with the state law within
four months preceding the filing of a petition in bankruptcy
against the vendee, the vendee's trustee in bankruptcy acquires no
lien upon it, and the retaking cannot be set aside as an unlawful
preference under the Bankruptcy Act. P.
276 U. S.
12.
Page 276 U. S. 11
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a suit brought by the respondent, trustee in bankruptcy
for W. A. Lee, to recover the value of four automobiles seized by
the defendant, the petitioner, in circumstances alleged to have
made the taking a preference if maintained. The defendant sold the
automobiles to the bankrupt by a duly recorded contract of
conditional sale. On January 10, 1921, it repossessed itself of the
cars by a suit in detinue. Ten days later, on January 20, the
petition in bankruptcy was filed against Lee, and, on February 25,
he was adjudicated a bankrupt. About a year later, the trustee
brought this suit relying upon the Traders' Act, § 5224 of the Code
of Virginia, by which, it may be assumed, all the property used by
Lee in his business, including these cars, "shall, as to the
creditors of any such person, be liable for the debts of such
person." The trustee prevailed in the circuit court of appeals.
Opinion, 5 F.2d 486; formal conclusion, 15 F.2d 1011. A writ of
certiorari was granted by this Court. 273 U.S. 689.
We are of opinion that the decision was wrong for the reason
given by the dissenting judge below. The Supreme
Page 276 U. S. 12
Court of Appeals of Virginia has construed the Traders' Act, and
has established that "the creditors" in § 5224 means creditors
having a line.
Capitol Motor Corp. v. Lasker, 138 Va. 630.
The lien of the trustee in bankruptcy did not arise until after the
property in question had come back to the hands of the petitioner,
which had reserved title to itself.
Bailey v. Baker Ice Machine
Co., 239 U. S. 268,
239 U. S. 270;
Martin v. Commercial National Bank, 245 U.
S. 513,
245 U. S. 517;
Bankruptcy Act, § 47(a)(2), as amended. U.S.C., Tit. 11, § 75.
Therefore the retaking of the property was valid as against the
trustee. It could not work a preference unless he represented a
claim that was paramount when the property was seized. At that
time, the petitioner did what it had a right to do as against the
bankrupt, and simply took what was its own. It did no wrong to any
creditor, for no creditor not having a judgment or other lien could
have complained so far as the law of Virginia went.
See
Firestone Tire & Rubber Co. v. Cross, 17 F.2d 417,
421-422. The majority in the circuit court of appeals took the
distinction between a trustee under a conventional deed of trust
for the benefit of creditors and a trustee in bankruptcy, that the
former has no power to vacate preferences. But, as we have implied,
a party holding security does not create a preference by taking
possession under it within four months if he lawfully may under the
law of the state.
Thompson v. Fairbanks, 196 U.
S. 516;
Humphrey v. Tatman, 198 U. S.
91.
We understand it to be admitted that the plaintiff is entitled
to judgment for seven hundred dollars for property not covered by
the petitioner's title, that amount having been allowed by the
district court, although it held as we do that the seizure was
lawful. We follow the judgment in that respect. With this
understanding, the judgment of the circuit court of appeals is
reversed.
Judgment reversed.