Woods v. Klein

Opinion by Mr. Justice Brown, On November 23, 1905, John F. Klein, the owner of a steamboat called “ Island Queen,” executed a mortgage on it to Lawrence C. Woods to secure the payment of $2,000. This mortgage was recorded in the office of the collector of the port at Pittsburg six days later, and, by its terms, upon the default of the mortgagor, the mortgagee was authorized to take possession of the vessel, and, after giving thirty days’ notice by publication in a newspaper published in the city of Pittsburg, to sell it, returning any surplus to the mortgagor. A further provision was that .the mortgagee might become a purchaser of it at such sale. Default having been made, Woods, the mortgagee, took possession of the boat through a bailiff in March, 1907, by whom it was advertised to be sold on April 23, 1907. No sale was held on that day, an adjournment having been asked for by Klein, and, after another adjournment, also at his request, the boat was sold to Woods on May 15, 1907. After the sale Klein took a written option from Woods to repurchase it for $1,869.08, the option to be void if payment was not made on or before July 1, 1907. In the interval Klein was allowed to use the boat, but, not having exercised his option, Woods demanded possession of it on or about July 6, 1907, which was refused. On July 8,1907, this writ of replevin was issued, and, upon a bond given by Klein, he retained possession of the boat. On August 8, 1907, involuntary proceedings in bankruptcy were instituted against him, and, on the 29th of the same month he was adjudged a bankrupt. In November following, B. M. MacKenzie, his trustee in bankruptcy, was allowed to intervene as a defendant. A verdict was directed for the plaintiff, and damages were found by the jury under instructions from the court as to [265] their measure. These instructions, as well as the direction of a verdict, are assigned as error. The validity of the mortgage on the boat, as between the parties to it, is not questioned by any one of the thirty-six assignments of error. The contention of the appellant is that the sale under it was void as to his trustee in bankruptcy, because possession was taken of the mortgaged property within four months of the institution of the bankruptcy proceedings. The boat was a vessel within the provisions of the act of congress of July 29, 1850, and, having been recorded in accordance with that act, it was as valid a lien against the boat as a mortgage under the statute of this state would have been upon real estate of the mortgagor. In White’s Bank v. Smith, 7 Wall. 646, where it was held that the recording of a mortgage on a ship in the office of the collector of the home port of the vessel gives the mortgagee a preference over a subsequent purchaser or mortgagee, irrespective of any formalities required by the state statute to give effect to chattel mortgages, Mr. Justice Nelson said: “Congress having created, as it were, this species of property, and conferred upon it its chief value under the power given in the constitution to regulate commerce, we perceive no reason for entertaining any serious doubt but that this power may be extended to the security and protection of the rights and title of all persons dealing therein. The judicial mind seems to have generally taken this direction.” The appellee acquired no right or lien as a preference over other creditors of the appellant within four months of the institution of the bankruptcy proceedings. What he did within that period was the exercise of a right and the enforcement of a lien which had been acquired eighteen months before. The right was to take possession of the mortgaged boat and sell it at any time upon • the default of the mortgagor. The preference was obtained when the lien attached in 1905, and not when it was enforced in 1907. No provision of the bankrupt act contemplates that a valid lien, acquired more than four months before the filing of a petition in bankruptcy, shall be vacated by the bankruptcy proceedings, or that the enforcement of such a lien by execution shall, constitute an illegal preference: Owen et al. v. Brown, 120 Fed. Repr. 812. There [266] is a clear distinction between the bald creation of a lien within the four months and the enforcement of one previously acquired : Thompson v. Fairbanks, 196 U. S. 516. The lien that is invalidated by the bankrupt act is one created by a levy, judgment, attachment or otherwise, within four months; where the lien is obtained more than four months prior to the institution of the bankruptcy proceedings, it is not only not to be deemed null and void on an adjudication of bankruptcy, but its validity is recognized. When the lien is obtained within four months, the property of the bankrupt is discharged therefrom, but not otherwise: Metcalf Bros. & Co. v. Barker, 187 U. S. 165. If the appellee had taken from the appellant a mortgage upon a house or farm belonging to him and within four months of the bankruptcy proceedings had issued a scire facias upon it and sold the property at sheriff’s sale, such sale would have been perfectly good as against the trustee in bankruptcy; and so of the proceedings on this mortgage, recognized as a valid lien by the act of congress. An authority directly in support of the appellee’s title to the boat, acquired by the sale on the mortgage, is Fisher v. Zollinger, 149 Fed. Repr. 54, in which it was held by the United States circuit court of appeals for the sixth circuit that where a chattel mortgage was given more than four months prior to the bankruptcy of the mortgagor, "the taking possession by the mortgagee within such four months, with the consent of the mortgagor and as authorized by the terms of the mortgage, although with knowledge of the mortgagor’s insolvency; did not constitute a transfer or preference under the bankruptcy act. The intervention of the trustee in bankruptcy as a defendant in no manner affected the issue between Klein and Woods. The sole question after the intervention continued to be whether the title to the boat was in Woods at the time he brought his action of replevin, and the learned trial judge correctly decided as a matter of law that it was. The execution of the mortgage was admitted by the mortgagor; his default was clearly proved; the mortgagee, in accordance with the terms of the mortgage, took possession of the boat, sold it and became the purchaser of it, and, even if there had been any irregularities in the sale, they were waived by the mortgagor in [267] writing, when, on June 4,1907, he confirmed the sale and took an option from the appellee to repurchase the boat. In the face of this there was no possible defense on the question of title. The jury were instructed that in estimating the value of the boat they should find from the evidence its market value on July 8, 1907, and from this value deduct the amount of the valid and subsisting liens against it on that date which had not been waived or abandoned and which were not subsequently waived, abandoned or lost by the action of the claimants or by legal proceedings. This was clearly correct. The boat belonged to Woods, who was entitled to possession of it at the time the writ of replevin was issued. If at that time Klein had surrendered it to him, he would thereafter have been compelled to pay only such liens as had not been waived, abandoned or lost. If from the value of the boat there is now to be deducted the amount of liens against it that Klein was not compelled to pay, he will be profiting at the expense of the appellee. The right of the latter was to get the boat on July 8,1907, burdened with such liens only as he might thereafter be compelled to pay. The record in the bankruptcy proceedings, showing the petition of the receiver to sell the boat and the adjudication by the United States court of the maritime and statutory liens against it, was not evidence against the appellee as to the amount that ought to be deducted for such liens from the value of the boat, for he had not been a party to the proceedings in the United States court and was not heard there. The disallowance of the claim of James Keese & Sons Company by the court below as a lien is assigned as error. No competent evidence was offered in support of it as a lien. Neither Klein nor Blackmore, the bookkeeper of the claimant, called in support of the claim, testified that the supplies had .been furnished on the credit of the boat, and there was nothing shown that would have justified a finding by the jury that it was a valid lien. Five assignments of error complain of the court’s refusal to set aside the verdict on account of a remark made by the foreman of the jury after it had been received and recorded. It [268] seems that as the jury were about to separate after their verdict had been received the foreman complained to the court that their room had been cold and stated that if it had been properly heated, there would or might have been a different verdict. The exact words of • the foreman are uncertain, but the learned court, in disposing of the motion to set aside the verdict for the reason stated, properly said: “ But the question as to whether he used the word ‘ would ’ or the word ‘ might,’ we do not regard as of any importance, in view of the fact that not one word on the subject of the jury room was spoken until after the verdict had been duly returned and recorded. There was ample opportunity to protest against the verdict, had any juror desired to do so. We do not understand that any of the jurors, at any time, protested against the verdict. On the contrary, it was returned as the act of all, and expressly assented to by all.” The assignments of error are all overruled and the judgment is affirmed.