Patnott v. Simpson & Co.

WILBUR, Circuit Judge. This is an appeal from an order in bankruptcy directing that the receiver in bankruptcy pay to the appellee the amount due upon its chattel mortgage from the proceeds of the receiver’s sale of a stock of merchandise and fixtures cov *841 ered by tbe mortgage. Tbe question presented by the appeal of tbe trustee in bankruptcy is as to tbe validity and effect of tbe mortgage as against tbe mortgagee’s creditors. Tbe mortgage was dated June 12, 1928, but was executed and recorded July 5,1928, to secure $2,800 already owing to tbe appellee and an additional loan of $1,200 then made. Tbe trial court correctly decided tbat there was no actual fraudulent intent to delay, binder, or defraud creditors. Tbe mortgage contemplated tbe continuation of tbe retail grocery business conducted by tbe mortgagor and bankrupt. Tbe latter therein agreed to keep bis stock replenished, and thus by clear implication tbat tbe mortgage should cover tbe stock of goods thus replenished. Tbe mortgagor paid monthly $333 as agreed for several months, but failed to pay anything in November and also December and during December suffered bis stock to be depleted. Thereupon tbe mortgagee instituted proceedings for foreclosure of tbe mortgage and thereafter on January 17, 1929, took possession of the mortgaged property with tbe consent of tbe mortgagor. Four days later a petition in bankruptcy was filed, sale under the chattel mortgage enjoined, and sale by tbe receiver ordered without prejudice to tbe mortgagee’s claim to tbe proceeds of tbe sale. Under the decisions of the Supreme Court of Idaho, tbe lien of a chattel mortgage upon after-acquired property is valid between tbe parties when so agreed in tbe mortgage, and is also valid as to tbe general creditors of tbe mortgagor when tbe mortgagee takes possession of tbe property before tbe creditor secures a Hen by attachment. Kettenbach v. Walker, 32 Idaho, 544, 186 P. 912. So far as that decision declares tbe law of Idaho it is controlling upon us. In re Hickerson (D. C.) 162 F. 345; Thompson v. Fairbanks, 196 U. S. 516, 25 S. Ct. 306, 49 L. Ed. 577; Humphrey v. Tatum, 198 U. S. 91, 25 S. Ct. 567, 49 L. Ed. 956. Tbe only federal question is as to whether or not tbe taking of possession by tbe chattel mortgagee within four months of tbe bankruptcy proceedings constituted a preference within tbe meaning of section 60a of tbe National Bankruptcy Act (11 USCA § 96(a) and tbat question has been settled in tbe negative by our Supreme Court. Sexton v. Kessler & Co., 225 U. S. 90, 32 S. Ct. 657, 56 L. Ed. 995; and see other cases cited by tbe Supreme Court of Idaho in its opinion in Kettenbach v. Walker, supra. Appellant’s position is tbat tbe mortgage is void under section 5432 of tbe Idaho Compiled Statutes 1919 making trusts for the debtor void as to bis creditors. Even if we saw any merit in this claim, which we do not, tbe above decision of tbe Idaho Supreme Court settles tbe question adversely to tbe appellant’s contention. Appellant further claims tbat during tbe period between tbe giving of tbe mortgage, which, under tbe decision of tbe Idaho Supreme Court in Lewiston National Bank v. Martin, 2 Idaho (Hasb.) 734, 23 P. 920; was void as to creditors, and tbe taking of possession of tbe mortgaged property by tbe mortgagee, tbat is, from July 5,1928, to January 17,1929, in tbe case at bar, tbe mortgagee must account for or be charged with the proceeds of tbe sales of tbe mortgaged property made in due course of business. It is sufficient to say tbat tbe creditors represented by tbe trustee, not having secured a lien on tbe property before tbe mortgagee secured possession, are not in a position to raise that question. As to them as well as to tbe parties thereto tbe mortgage is valid ab initio. Tbe creditors bad due notice of tbe mortgage and of its provisions by tbe recordation thereof. Tbe claim made here tbat tbe mortgagee must be charged with the value of the merchandise sold during tbe life of tbe mortgage has no basis in tbe mortgage which controls tbe rights of tbe parties, and creditors, after tbe possession of tbe mortgagee. To claim tbat the mortgagee must be charged with tbe value of tbe mortgaged property sold by tbe mortgagor before tbe mortgagee took possession is merely to claim in another form that tbe mortgage is invalid to tbat extent on tbe after-acquired property. The decree is affirmed.