Opinion
No. 235.
April 4, 1927.
Appeal from the District Court of the United States for the Southern District of New York.
Equity proceeding by John J. Quinn against the Bancroft-Jones Corporation, wherein receivers were appointed for defendant, after which the Thomson Electric Welding Company presented a claim asking priority over general creditors. From a decree affirming the report of the special master, allowing the claim in equality with general creditors, but denying its priority, claimant appeals. Reversed and remanded, with directions.
In 1924 the Thomson Electric Welding Company made a conditional sale agreement with the Bancroft-Jones Corporation for the purchase by the latter of an electric welding machine. The agreement contained the usual provisions reserving title in the vendor until payment in full by the vendee and giving the vendor the privilege to repossess itself of the machine upon default. Thereafter, in an equity proceeding by a general creditor of the vendee, receivers were appointed. The vendor thereupon demanded the machine from the receivers, who refused to deliver it, upon the ground that the conditional sale agreement had not been filed until after their appointment. The vendor then presented his claim for the unpaid balance of the purchase price, claiming priority over general creditors. The special master allowed the claim in equality with general creditors, but denied its priority. From a decree affirming the master's report, this appeal is prosecuted by the claimant.
Benjamin P. De Witt, of New York City (Sidney Pepper, of New York City, on the brief), for appellant.
O'Brien, Malevinsky Driscoll, of New York City (Richard J. Mackey, of New York City, of counsel), for appellees.
Before MANTON, HAND, and SWAN, Circuit Judges.
The sole question presented by this record is whether an unfiled conditional sale agreement is valid against a receiver appointed on a general creditor's bill in equity.
Section 65 of the Personal Property Law of New York, as added by Laws 1922, c. 642, § 2 (section 5 of the Uniform Conditional Sales Act), provides:
"Every provision in a conditional sale reserving property in the seller shall be void as to any purchaser from or creditor of the buyer, who, without notice of such provision, purchases the goods or acquires by attachment or levy a lien upon them, before the contract or a copy thereof shall be filed as hereinafter provided. * * *"
The contention of the appellees, adopted by the master whose report the court confirmed without opinion, is in effect that the sequestration of the vendee's property by a court of equity in receivership proceedings is equivalent, within the meaning of said section 65, to creditors acquiring "by attachment or levy a lien" upon the goods.
It is urged that for all practical purposes a conditional sale is no different from a chattel mortgage, and that under the law of New York an unfiled chattel mortgage is void as against a chancery receiver. American British Securities Co. v. American British Mfg. Corporation, 275 F. 121 (D.C.S.D.N.Y.); In re Rambler Cafeteria, 9 F.2d 861 (C.C.A. 2). While it may be true that mortgages and conditional sales are only formally different, the difference has long been part of the common law, has been recognized in legislation, and cannot be ignored by the courts. See Bailey v. Baker Ice Machine Co., 239 U.S. 268, 271, 36 S. Ct. 50, 60 L. Ed. 275. Accordingly, statutes providing for the recording of chattel mortgages are not generally held to cover conditional sales. Williston on Sales (2d Ed.) § 337. New York legislation has treated the two separately and in noticeably different language. Section 230 of the Lien Law (Consol. Laws, c. 33) declares an unfiled chattel mortgage "absolutely void as against the creditors of the mortgagor"; while section 65, above quoted, avoids an unfiled conditional sale only in favor of lien creditors. The problem before us is therefore not settled by the decisions as to unfiled chattel mortgages.
At common law a conditional vendee acquired no title until the condition was performed, and his attaching or execution creditors stood no higher. See Harkness v. Russell, 118 U.S. 663, 7 S. Ct. 51, 30 L. Ed. 285. The same was true of a chancery receiver for the vendee's property. Praeger v. Emerson-Brantingham Implement Co., 122 Md. 303, 89 A. 501, Ann. Cas. 1916A, 1255; Sayles v. National Water Purifying Co., 62 Hun (N.Y.) 618, 16 N.Y.S. 555, affirmed 141 N.Y. 603, 36 N.E. 740 (the statute here involved required filing to be valid against subsequent purchasers and mortgages).
Reported in full in the New York Supplement Reporter; not reported in full in Hun Reports.
The present statute (section 65) has given creditors a power, not previously possessed, to defeat the vendor's title by acquiring a specific lien upon the goods before the conditional sale contract is filed. Being in derogation of the common law, the statute should not be carried beyond the clear import of its language. Graves Elevator Co. v. Callanan, 11 App. Div. 301, 42 N YS. 930; Crocker-Wheeler Co. v. Genesee Recreation Co., 160 App. Div. 373, 145 N.Y.S. 477. The Legislature has used terms having a well-known, formal, legal meaning. Although a receivership has sometimes been called an equitable attachment, no authority has been cited which would justify treating it as equivalent to a lien by attachment or levy within the meaning of the statute in question. On the other hand, there are authorities from other states which directly oppose such a holding. In Smith v. Hotel Ritz Co., 74 N.J. Eq. 616, 70 A. 137, the Vice Chancellor held that a receiver could not be regarded as a judgment creditor within the meaning of the conditional sales statute (although under the Chattel Mortgage Act, [1 Comp. St. N.J. 1910, p. 463], which protected creditors generally, a receiver could assert the invalidity of an unfiled chattel mortgage). To the same effect, see Falaenau v. Reliance Steel Co., 74 N.J. Eq. 325, 69 A. 1098; Koerner v. U.S. Waxed Paper Co., 94 N.J. Eq. 655, 121 A. 338; Depew v. C.W. Depew Co., 98 N.J. Eq. 461, 131 A. 76; Delaware Trust Co. v. Edler Co., 12 Del. Ch. 263, 112 A. 370; Rhode Island Works v. Empire Co., 91 Ga. 639, 17 S.E. 1012; Mlodzik v. Ackerman Oil Co. (Wis.) 210 N.W. 694. T.L. Smith Co. v. Orr, 224 F. 71 (C.C.A. 8), which might appear to be contra, is distinguishable because the statute there involved protected creditors generally, not merely those who had acquired a specific lien. In York Mfg. Co. v. Cassell, 201 U.S. 344, 26 S. Ct. 481, 50 L. Ed. 782, it was held that an unrecorded conditional sale, void by statute as against creditors who had acquired a lien by attachment or levy, was valid as against the vendee's trustee in bankruptcy, the court saying:
"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."
The subsequent amendment to section 47a of the Bankruptcy Act (Comp. St. § 9631) has reversed the rule thus laid down. In re Master Knitting Corporation, 7 F.2d 11 (C.C.A. 2). But the amendment does not impair the authority of the court's reasoning in the Cassell Case.
We are satisfied that the appointment of the receivers and their taking possession of the machinery in question did not defeat the conditional vendor's title. Under the statute, some creditor must obtain a lien by attachment or levy. Had more been meant, more would have been said.
Were the problem doubtful, an additional reason for sustaining an unfiled conditional sale as against a chancery receiver might be found in that such decision will be in conformity with the few cases, supra, which have passed upon the problem under section 5 of the Uniform Conditional Sales Act.
The decree is reversed, and the cause remanded, with directions to enter a decree for the appellant.