In re Price Drug Co.

FARIS, District Judge. In this estate an order was made by the referee denying to petitioner reclamation of certain soda water furniture, fixtures, and appurtenances, which came into the hands of the trustee in bankruptcy. Petitioner, Hessig-Ellis Drug Company, brings up the validity and correctness of such order by a petition for review. Petitioner is engaged in business at Memphis, Tenn. The bankrupt began business in June, 1924, at Cardwell, Mo. On June 3, 1924, and seemingly, therefore, at the very beginning of its business the Price •Drug Company bought the merchandise in controversy, pursuant to a conditional sale agreement, which agreement was neither filed nor recorded until the 23d day of November, 1926. A little more than one month thereafter, the Price Drug Company was adjudicated a bankrupt, to wit, on the 29th day of December, 1926. The trustee took possession of the property in controversy, and petitioner duly brought its reclamation proceeding, which, as said, was denied by the referee; whereupon the instant petition for review was sued out. Petitioner did not tender hack, under the provisions of section 2285, R. S. Mo. 1919, any part of the money paid to it by the bankrupt under the conditional sale agreement. The trustee contends that the conditional sale agreement is absolutely void, under the provisions of section 2284, R. S. Mo. 1919, as to creditors whose debts accrued after the making and before the recording of the agreement, and that all, or practically all, of the claims thus accrued. Petitioner, upon the question of law, contends contra. While I am greatly impressed with the reasoning of what is said in the case of In re Bennett (D. C.) 264 F. 533, I feel constrained to follow the rule laid down in the ease of Bailey v. Baker Ice Machine Co., 239 U. S. 268, 36 S. Ct. 50, 60 L. Ed. 275. The instant ease involves a construction, as to one point herein, at least, of section 47a of the Bankruptcy Act, as amended by the Act of June 25, 1910 (Comp. St. § 9631). In the Bailey Case, supra, the facts are quite similar to, if not on all fours with, the facts involved in the case at bar. There, as here, the document evidencing the lien relied on was not promptly recorded, but it was recorded some two months before the filing of the petition for adjudication. The statute of Kansas, which ruled that case, is in fact far more favorable to the contentions of the trustee here than is the apposite statute of Missouri. The Missouri statute provides that unrecorded conditional sale agreements shall be void as to subsequent creditors, while the Kansas statute, in the section cited by the Supreme Court in the Bailey Case, supra, provides simply that such unrecorded liens shall be void as [270] to or editors1 without' differentiation touching ■whether the creditors are antecedent or subsequent. ■ ■ It may- be regretted, for, that it creates doubt that the substance of the Kansas statute as set out by the Supreme Court in the Bailey Case (loc. cit. 275 [36 S. Ct. 54]) does not accurately quote such statute. But,, be this as it may be, the Supreme Court took occasion to construe in that ease section '.47a, supra, which is the identical statute involved here.,. The court held that, since the instrument evidencing the lien was in fact recorded before the petition for adjudication was filed, the trustee could not recover; and that, as seen already, is the situation here. Upon ■■ the point the court said, at page 276 (36. S. Ct. 54), this: “Had it been intended that the trustee should take .the status of a creditor holding alien by. legal or equitable process as of a time anterior to the initiation of the bankruptcy proceeding, it seems reasonable to believe that some expression of that intention would have been embodied in section 47a as amended.' As this was not done, we think the better view, and one which accords with other provisions of the act, is that the trustee takes the- status of such a creditor as of the time when the petition in bankruptcy is filed. Here the petition was filed almost two months after the contract was filed for record, and therefore the trustee was not entitled- to assail it under the recording law of the state.” . I concede that logically, and in the light of constructions which- have been had of the various statutes of the several states as to-the'rights of’creditors in property on which there is an unrecorded lien, a different _ Conclusion is possible. Cf. In re Bennett, supra: But it is much to be desired that a general- rule, if possible, shall -be laid down; otherwise, confusion akin to chaos will occur. The Supreme Court in the Bailey Case, supra, construing the .-statute on which the trustee is here relying, has in effect 'said that, whatever the rights of the trustee, cognate to those given by the statutes of the several states to creditors; may be, those rights are to be applied to the case as-of the daté of filing the.-petition for .adjudication. .So¿ at least, I am Constrained to construe the Bailey Case, ■ and the' language quoted. . -. Obviously any other rule would not only,as said already, result in irreconcilable conflict and confusion among-the-several states, but. would result in confusion in any given state for ‘ that great practical • difficulty would arise in determining who are antecedent creditors and who are subsequent creditors (under the Missouri statute, for example). Moreover, difficult questions would arise in the apportionment of the proceeds, resulting, it would seem in some cases, in giving either the whole of their debt, with a surplus over, to subsequent creditors, while antecedent creditors would have to content themselves with smaller dividends, or perhaps get nothing. Por logically, under the rule for which the trustee contends, the statute of Missouri, upon the view in the Bennett Case, cannot be construed to protect antecedent creditors. To construe it as protecting antecedent creditors,' in any case where there are subsequent creditors, or where there are not, would be to read into the statute something which the Legislature did not see fit to write into it. So the rule announced in the Bailey Case, aside from the fact that it concludes courts of inferior jurisdiction, seems at least to be a necessary rule of convenience, even though it be found impossible to fully reconcile it with each and every state statute on the subject, and with the local construction put on such statutes. It.-follows that: recording the conditional sale agreement before the filing, of the petition for adjudication was a sufficient compliance with the law of Missouri, so far as concerns the rights of the trustee in the property in controversy. What the effect of the situation might have been on the rights of subsequent creditors bringing individual and independent actions for their debts, absent bankruptcy, .1 do not and need not rule. The Legislating, in enacting section 2284, supra, did ■ not hold in mind the effect of the federal Bankruptcy Act there! on, or attempt .to construe the two acts in pari materia, or wholly to reconcile them. • In this case no tender ,of any part of the sum .received-by petitioner from-.the, bankrupt' on the purchase priee has been made. Section 2285,-R. S. Mo. 1919, provides that before anything sold under a conditional sale agreement can be reclaimed, the vendor shall tender to the purchaser — - now the bankrupt here — the total of the installment sums paid, less not moré than 25 per cent, of such aggregate payments, unless the property has been broken or actually damaged, in which latter event there may be deducted from the sum tendered an additional sum as reasonable compensation for breakage and for damage. • ' Petitioner contends that it may reclaim271 ■without compliance with the above section of the Missouri statute; that it may retain the full amount of some $375, paid by the bankrupt on the purchase 'price, and also reclaim all of the property sold. It also contends that, since it is a citizen of a foreign state, the statute invoked by the trustee has no application to it, and that if it does apply, the statute is invalid. I think the very statement of the last contention, without the necessity of exposition or authority, furnishes its own refutation. The first contention seems novel, however, and merits discussion. It is clear that, had not bankruptcy occurred, the petitioner, could not have reclaimed from the vendee without making the tender required. But bankruptcy happened, and now must petitioner make tender to the trustee of the bankrupt? I am of opinion that it must. It is true the statute does not in terms re-' quire partial restitution to any one except to the “purchaser, lessor, renter, hirer thereof, or any party receiving the same.” The trustee, even before the amendments of 1910 to the Bankruptcy Act, stood for mány purposes in the shoes of the bankrupt, and succeeded to his rights, titles, and interests. Ordinarily, what the bankrupt could have done, the trustee could do. The trustee is the party receiving the property, pursuant to devolution of title by law. Moreover, courts, in enforcing the Bankruptcy Act, are authorized to solve legal difficulties to an extent along just and equitable lines. If in fact it is legally correct to say that the trustee, as to such tender, stands under the statute in the shoes of the bankrupt vendee, and for this reason alone may enforce such tender, then it may well be that petitioner, having here made no tender has no standing to reclaim at all, unless a modicum of reliance in its favor be had on well-known doctrines of abstract justice and equity. The case of Vette v. Drug Co., 137 Mo. App. 229,117 S. W. 666, lends some color to both of the views herein upon the last two points discussed, especially in construing section 2285, supra (then section 3413, R. S. Mo. 1899), as applying to reclamation from a trustee in bankruptcy. I conclude that the petition for review should be granted, and the case sent back to the referee, with instructions to grant the petition for reclamation, upon petitioner’s complying in all things with the provisions of section 2285, R. S. Mo. 1919, as to tender; and so it is ordered.