statutes the decisions in the several jurisdictions are not in accord.11 Where the statute invalidates unrecorded conditional sales as against "subsequent creditors and bona fide purchasers," it is not necessary to entitle a person to the protection afforded by the statute that he should unite in himself the character of both, as the two classes being distinct the word "and" will be read as "or." 12 Where protection is afforded subsequent levying creditors of the buyer without notice as well as bona fide purchasers, if the levying creditor is entitled to protection the purchaser at the sale thereunder will also, it would seem, be entitled to protection, as he is entitled to every benefit which the levying creditor would have had if the latter had been the purchaser, 18 and furthermore to guarantee to one a right to sell and deny to all others a right to buy would be solecism in law, and it would be imputing folly as well as mischief to the law under such circumstances to say that it either permitted the (subsequent) creditor alone to buy or precluded him also as a purchaser with though a creditor without notice. In some instances the statutes have required that on the removal of the property from the county in which the buyer resides and where the contract was recorded in the first instance as required by the statute that it shall be again recorded in the county to which the property is removed, within a certain time after such removal, to render it valid as against bona fide purchasers from the buyer for value and without notice; and under such a statute it has been held that where the contract is not recorded in the county to which the property is removed within the required time, a bona fide purchaser for value is entitled to protection though his purchase was made within the time allowed for recording the contract.15 A mortgagee of a railroad holding under a mortgage containing an after acquired property clause, which, as between the parties, would be effectual to cover after acquired rolling stock, has been held not to be entitled to the protection of a statute rendering unrecorded contracts of conditional sales invalid as against any creditor of or purchaser from the buyer, so as to give the mortgage preference over the reserved title of one selling rolling stock to the railroad company after the exccution of the mortgage; 16 and the same has been held true as to a statute rendering the unrecorded contract invalid as against the rights and interests of "any third person." 17 763. Creditors without Lien.-The courts in determining the class of creditors of the buyer protected by the statute have been influenced by their previous decisions relating to the provision of a statute. requiring chattel mortgages to be recorded for the reason that the object of both classes of statutes is the same.18 And, as in the case of chattel mortgages, it seems to be the better view that where the statute in general terms invalidates the seller's reservation of title as against creditors of the buyer, this affords protection only to such creditors as have acquired a lien on the property by levy thereon or other proceedings, and if the contract is recorded or possession retaken by the seller before a creditor of the buyer obtains a lien on the property, the seller's right is superior in the absence of actual fraud in withholding the contract from record.19 The reason generally given for this is because a debtor may transfer his property in satisfaction of his bona fide indebtedness, without giving any general creditor the right to object thereto, and therefore the word "creditor" as used in the statute must have been used in view of this principle.20 And a fortiori, a statute rendering an unrecorded conditional sale absolute as to subsequent creditors in good faith does not operate to destroy the condition in favor of creditors who have secured no lien, and who extended credit to the buyer without knowledge that the property embraced in the conditional sale had been delivered to him, or was in his possession. Other cases, however, take the view that if the creditor's indebtedness was created after the execution of the contract and delivery of the property to the buyer, but before the contract was recorded, he is entitled to the protection of the statute.2 16. Myer v. Western Car Co., 102 U. S. 1, 26 U. S. (L. ed.) 59 (construing an Iowa statute). 17. Fosdick v. Schall, 99 U. S. 235, 25 U. S. (L. ed.) 339 (Illinois statute). 18. York Mfg. Co. v. Cassell, 201 U. S. 344, 26 S. Ct. 481, 50 U. S. (L. ed.) 782; Malmo v. Washington Rendering, etc., Co., 79 Wash. 534, 140 Pac. 569, L.R.A.1917C 440. 19. Myer v. Western Car Co., 102 U. S. 1, 26 U. S. (L. ed.) 59 (Iowa statute); York Mfg. Co. v. Cassell, 201 U. S. 344, 26 S. Ct. 481, 50 U. S. (L. ed.) 782 (Ohio statute); Holt v. Henley, 232 U. S. 637, 34 S. Ct. 459, 58 U. S. (L. ed.) 767 (Virginia statute); Bailey v. Baker Ice Mach. Co., 764. Receiver and Assignee for Creditors.-If the statute does not afford protection to general creditors of the buyer who have secured no lien on the property by levy or other proceeding, a receiver appointed for the buyer, representing general creditors only, will take the subject matter of the unrecorded conditional sale subject to the rights of the seller. And the same is true as regards an assignee or trustee for the benefit of creditors. If, however, the protection of the statute is extended to general creditors of the buyer, it will render the seller's reservation of title ineffectual as against a receiver appointed at the instance of and representing general creditors only. The view has also been taken that an assignee of the buyer for the benefit of general creditors will take free from the right of the seller, where protection is afforded by the statute to general creditors. the other hand it has been held that an assignee for the benefit of creditors stands merely in the shoes of his assignor and cannot claim protection either as a creditor of the buyer or a purchaser from him in good faith." On 765. Trustee in Bankruptcy Generally.-The validity of contracts of conditional sales depends on the law of the state governing the transaction and in case of the bankruptcy of the buyer the rights of the trustee in bankruptcy must ordinarily be determined by the local law of the state; 8 and if by the local law such a contract without being recorded is valid as against third persons, including the creditors of the buyer, the trustee takes subject to the rights of the seller." And this is of course also true if recording is required by the local state statute and this requirement has been complied with.10 Prior to the amendment to the bankruptcy law of June 25, 1910, chap. 412, where the buyer became bankrupt before he paid the price, and the property passed into the possession of his trustee in bankruptcy, the seller by petitioning the bankruptcy court was entitled to an order for the return to him of the property or the proceeds thereof; and this was 3. Meyer v. Western Car Co., 102 S. 344, 50 U. S. (L. ed.) 782; Bryant U. S. 1, 26 U. S. (L. ed.) 59; Malmo v. Swofford Bros. Dry Goods Co., 214 v. Washington Rendering, etc., Co., U. S. 279, 29 S. Ct. 614, 53 Ú. S. 79 Wash. 534, 140 Pac. 569, L.R.A. (L. ed.) 997; Rock Island Plow Co. v. 1917C 440. See also In re Morrison, Reardon, 222 U. S. 354, 32 S. Ct. 164, [1914] 1 Ch. 50, 109 L. T. N. S. 722, 56 U. S. (L. ed.) 231. 30 Times L. Rep. 59, 58 So. J. 80, 7 British Rul. Cas. 195. Note: Ann. Cas. 1916A 1258. 4. Notes: L.R.A.1917C 444; Ann. Cas. 1916A 1261. 5. Notes: L.R.A.1917C 442, 443; Ann. Cas. 1916A 1259. 6. Note: L.R.A.1918C 442. 8. York Mfg. Co. v. Cassell, 201 U. Note: Ann. Cas. 1916A 1264. 9. Bryant v. Swofford Bros. Dry Goods Co., 214 U. S. 279, 29 S. Ct. 614, 53 U. S. (L. ed.) 997. Note: Ann. Cas. 1916A 1264. 10. Myrick v. Liquid Carbonic Co., 137 Ga. 154, 73 S. E. 7, 38 L.R.A. (N.S.) 554. Note: Ann. Cas. 1916A 1264. the rule although the seller had not recorded his contract of sale as required by statute, if under the local law the effect of the failure was merely to invalidate the contract as to lien creditors and bona fide purchasers, since a trustee in bankruptcy only took such title to the property of the bankrupt as the bankrupt himself had. In this respect he stood in the shoes of the bankrupt, and any liens or equities against the latter were enforceable against him.11 In some jurisdictions, however, prior to the authoritative decision of the federal supreme court 12 the failure of a seller of property by conditional sale to record his contract as required by statute was held to preclude him from any relief so far as the property itself was concerned, where the property passed into the hands of a trustee in bankruptcy for the buyer. This result was reached on the theory that the contract was void as to the general creditors of the buyer, that therefore the title passed to the trustee in bankruptcy, relieved of any claim thereon by the seller.18. 766. Effect of Amendment of Bankruptcy Act in 1910.-In 1910, Congress amended § 47a, cl. 2, of the bankruptcy act by adding a provision to the effect that if property coming into the custody of the court be claimed by another, the trustee is vested with all the rights, remedies and powers of a creditor holding a lien by legal or equitable proceedings thereon. Applying this amendment, most of the cases passing on the question subsequently thereto have held that if the seller has failed to record the contract, where such failure by statute renders the contract invalid as to lien creditors or bona fide purchasers, he has no remedy against the trustee in bankruptcy of the buyer who has the custody of the property, in so far as concerns the property or any lien thereon, he being nothing but a mere general creditor with a right merely to share with them in the assets of the estate.14 In other cases, however, the right of the seller has been sustained even under this amendment.15 The provision that the trustee shall be vested with all the rights of a lien creditor speaks as of the 11. Hewit v. Berlin Mach. Works, 194 U. S. 296, 24 S. Ct. 690, 48 U. S. (L. ed.) 986; York Mfg. Co. v. Cassell, 201 U. S. 344, 26 S. Ct. 481, 50 U. S. (L. ed.) 782; Holt v. Henley, 232 U. S. 637, 34 S. Ct. 459, 58 U. S. (L. ed.) 767 (decided after 1910 but not applicable to the amendment because the sale was made prior to 1910, the court refusing to give a retroactive effect to the amendment); Monitor Drill Co. v. Mercer, 163 Fed. 943, 90 C. C. A. 303, 16 Ann. Cas. 214, 20 L.R.A. (N.S.) 1065; Myrick v. Liquid Carbonic Co., 137 Ga. 154, 73 S. E. 7, 38 L.R.A.(N.S.) 554 and note. Notes: 38 L.R.A. (N.S.) 554; Ann. Cas. 1916A 1262. See generally, BANKRUPTCY, vol. 3, p. 218 et seq., as to property passing to a trustee in bankruptcy. 12. York Mfg. Co. v. Cassell, 201 U. S. 344, 26 S. Ct. 481, 50 U. S. (L. ed.) 782. 13. Notes: 38 L.R.A. (N.S.) 555; Ann. Cas. 1916A 1262. 14. Potter Mfg. Co. v. Arthur, 220 Fed. 843, 136 C. C. A. 589, Ann. Cas. 1916A 1268. Notes: 38 L.R.A. (N.S.) 556; Ann. Cas. 1916A 1262. 15. Note: 38 L.R.A. (N.S.) 556. time of the bankruptcy, and he cannot therefore assert his lien to defeat rights secured before such time, and for this reason if a contract of conditional sale is of record at the time of the bankruptcy of the buyer, and thereby has become valid as against creditors of the buyer, though for a time it was withheld from record and would have been invalid if during such time creditors had levied on the property, this provision does not enable the trustee to claim title as against the seller. 16 The decisions of the lower federal courts on the question whether the amendment applies to conditional contracts of sale entered into prior to the amendment have not been in accord. In a recent decision, however, the federal supreme court has refused to give a retroactive effect to the amendment so as to render it applicable to a conditional sale executed prior to the enactment of the amendment, even though for a month or two after the amendment of the statute the seller might have registered the contract and thereby have given it full effect against the trustee in bankruptcy as a registered contract. 18 767. Fraud; Unlawful Preferences.-If the seller withholds the recording of the contract, with the intent to give a false credit to the buyer, this will, it seems, invalidate, on the ground of fraud, his reservation of title as against the trustee in bankruptcy of the buyer; but it has been held that such a fraudulent intent is not shown by the facts that the contract was so withheld until the buyer found himself in financial difficulties, and that in prior dealings between the partics similar contracts had been executed between them, but not filed when the buyer complied with his agreement. 19 Where the sale is to a retailer or the buyer is given express or implied authority to resell before paying the price, the view is taken in some cases that this will render the reservation of title fraudulent per se as against the creditors of the buyer, and therefore the trustee in bankruptcy takes the chattel free from the claim of the seller.20 In other jurisdictions, and this seems the better view, an express or implied term. authorizing the buyer to sell the property in the ordinary course of retail trade is held not to be fraudulent per se as to the latter's creditors, and the seller is entitled by a petition in the bankruptcy court having jurisdiction of the matter to an order requiring the trustee of the buyer to turn over to the seller the property, or the proceeds thereof if he has sold it, and where, by the terms of the contract between the original parties, the notes and accounts taken by the buyer in the 16. Bailey v. Baker Ice Mach. Co., 239 U. S. 268, 36 S. Ct. 50, 60 U. S. (L. ed.) 275; Big Four Implement Co. v. Wright, 207 Fed. 535, 125 C. C. A. 577, 47 L.R.A. (N.S.) 1223. 34 S. Ct. 459, 58 U. S. (L. ed.) 767. 19. Big Four Implement Co. v. Wright, 207 Fed. 535, 125 C. C. A. 577, 47 L.R.A.(N.S.) 1223. 20. Notes: 38 L.R.A. (N.S.) 557; L.R.A.1917B 660; Ann. Cas. 1916A 17. Note: Ann. Cas. 1916A 1262. |