Verbest v. Michael Yundt Co.

GARDNER, Circuit Judge. This is an appeal by the trustee in a reorganization proceeding under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, from an order of the bankruptcy court allowing appellee’s claim as a secured one. The facts were stipulated, and hence are not in dispute. The Pointer Brewing Company, referred to in the record as the debtor, is an Iowa corporation, with its place of business at Clinton, Iowa. On November 4, 1933, it entered into a conditional sale contract with Michael Yündt Company, appellee, for the purchase of certain machinery and equipment for the agreed purchase price of $21,000. The property was delivered to the debtor and continued in its possession. The contract provided that the machinery and equipment should remain the property of the vendor until the contract had been completely performed by the vendee. This contract was not acknowledged in accordance with the laws of Iowa so as to entitle it to be filed for record, though it was in fact recorded in Clinton, Iowa, where the debtor’s plant was located. This contract provided for payment by monthly installments. These payments were periodically made to and including the payment for July, 1936, when they were discontinued. On February 9, 1937, the debtor filed a petition for reorganization under Section 77B of the Bankruptcy Act. At that time there existed a default on the part of the debtor in the payments due on the 11th days of August, September, October, and November, 1936, respectively. Because of these defaults in payment, the vendor, appellee herein, elected to reclaim the property, but the trustee refused to deliver possession. The principal balance then due and unpaid was $3,412.50 and the interest to February 9, 1937, amounting to $237.71. To the petition of reclamation filed by appellee, the trustee filed objections, contending that there was no valid notice of appellee’s claim filed for record as required by the laws of Iowa, in that the contract was not acknowledged, and hence, was not entitled to be filed for record. The cause was submitted to a special master on an agreed statement of facts. The special master made his report, including findings of fact and conclusions of law, denying appellee’s lien on the property, but allowing its claim as a general creditor. The lower court sustained exceptions filed by appellee to the report of the special master, and held that the contract was valid as between the parties, and that there was no showing that it was void by reason of an attaching creditor taking the same without notice. The court denied the appellee’s right to reclaim the property, but allowed the amount of its claim as a secured claim and so classified it. The pertinent part of Section 47a of the Bankruptcy Act, Sec. 75(a) 11 U.S.C.A., reads as follows: “(a) Trustees shall respectively * * * (2) collect and reduce to money the property of the estates for which they are trustees, under the direction of the court * * *; and such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding [480] a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.” Subparagraph (a), Section 107, 11 U.S. C.A., reads as follows: “(a) Claims which for want of record or for other reasons would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate." As the trustee is vested with “all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings,” it is important to determine what th.e rights of such a creditor are. The Bankruptcy Act does not purport to define nor determine the character or extent of such right. The validity and construction of the conditional sale contract here involved, as affecting the right of the trustee in bankruptcy, must be determined under the law of the State of Iowa. Bryant v. Swofford Bros. Dry Goods Co., 214 U.S. 279, 29 S.Ct. 614, 53 L.Ed. 997; York Mfg. Co. v. Cassell, 201 U.S. 344, 26 S.Ct. 481, 50 L.Ed. 782; Emerson-Brantingham Implement Co. v. Lawson, D.C., 237 F. 877; Sweeney v. Medler, 10 Cir., 78 F.2d 148; In re Penglase Sand & Gravel Co., 7 Cir., 76 F.2d 593; Liquid Carbonic Corp. v. Phillips, 5 Cir., 68 F.2d 515. Section 10015 of the Iowa Statutes in effect provides that no sale or mortgage of personal property where the vendor or mortgagor retains actual possession shall be valid “against existing creditors or subsequent purchasers without notice,” unless a written notice conveying the same is executed, properly acknowledged, and duly recorded or filed in the county where the mortgagor or vendor resides at the time of the execution of the instrument. Section 10016 reads as follows: “No sale, contract, or lease, wherein the transfer of title or ownership of personal property is made to depend upon any condition, shall be valid against any creditor or purchaser of the vendee or lessee in actual possession obtained in • pursuance thereof, without notice, unless the same be in writing, executed by the vendor and vendee, or by the lessor and lessee, acknowledged by the vendor or vendee, or by the lessor or lessee, and recorded or filed and such instrument or a true copy thereof be deposited the same as chattel mortgages.” Section 9949 provides: “1. Where there is a contract to sell specific goods * * * the seller may, by the terms * * * reserve the right of possession or property in the goods until certain conditions have been fulfilled.” ' In F. P. Gluck Co. v. Therme, 154 Iowa 201, 134 N.W. 438, 440, the Supreme Court of Iowa held that an assignee for benefit of creditors was not, within the meaning of the Iowa statute, a purchaser without notice. In the course of the opinion it is there said: “The assignee in insolvency proceedings takes no higher or better right in the subj ect of the assignment than was held by his insolvent grantor, and, if the plaintiff could have asserted ownership of or lien upon the property as against the drug company, the same title or lien may be asserted against the company’s assignee for the benefit of creditors. * * * The assignee is not a purchaser for value, neither does the assignment have the effect of the levy of an attachment of the goods in favor of creditors. * * * As between buyer and seller of personal property, an agreement that the title shall remain in the latter until the purchase price is paid is valid (Bailey v. Harris, 8 Iowa 331, 74 Am.Dec. 312; Moseley v. Shattuck, 43 Iowa 540), and it may be enforced except as against creditors and purchasers without notice.” The court held that such an assignee acquired no right to property involved in a conditional sale contract. In International Harvester Co. v. Poduslca, 211 Iowa 892, 232 N.W. 67, 69, 71 A.L.R. 973, the court considered a contest between a vendor under a conditional sale contract and a trustee in bankruptcy. Referring to Section 10016 of the Iowa Code, the court said: “This statute does not declare the sale or contract to be invalid as between the parties. The assignee, Mackovets, stood in the shoes, and only succeeded to the rights, of the assignor, Poduska. It is the repeated pronouncement of this court that the assignee for the benefit of the creditors of the assignor is neither a purchaser nor a creditor within the meaning of the statute. He cannot be deemed a purchaser for value as he paid nothing for the property. The word ‘creditor,’ as used in the statute, means one who has obtained a lien as by attachment, execution, or otherwise upon the property before notice, actual or constructive, of the conditional contract of sale. * * * It is therefore apparent that, in'accord with our previous holding, [481] as between the appellee and the assignee, Mackovets, the rights of the assignee are no greater or better than the rights of the assignor, Poduska, at the time of the assignment. Thus, it is seen that the rights of the trustee are in no way aided because of the deed of assignment, as claimed by the appellant. The assignor could not by a deed of assignment convey the appellee’s property to his assignee for the benefit of his (the assignor’s) general creditors. The deed of assignment operates only on the property of the assignor and not upon the property of the appellee. Since, under our holdings, the assignee is neither a purchaser nor a creditor within the meaning of the law, and succeeds only to the rights of his assignor, as between appellee and the assignee, the question as to whether the contracts were properly acknowledged, and filed, or recorded so as to afford constructive notice thereof, becomes wholly immaterial.” The contract, under the Iowa law, being valid as between the parties, title to the property remained in the vendor, and when the vendee filed its petition for reorganization the property covered by the conditional sale contract was not the property of the debtor, and hence, did not pass to the trustee. Prior to the decision in International Harvester Co. v. Poduska, supra, the Supreme Court of Iowa had announced the same principle in American Laundry Machinery Co. v. Everybody’s Laundry, 185 Iowa 760, 171 N.W. 161, but in that case the conditional sale contract was in fact properly filed for record, and hence this court, in Albert Pick & Co. v. Wilson, 8 Cir., 19 F.2d 18, declined to follow the dictum contained in the American Laundry Machinery Company case. It should be noted too that in the Albert Pick & Company case there was involved a chattel mortgage and not a conditional sale contract. Under such circumstances, the trustee took title to the property because the debtor had title, but where, under the state law, the title of the vendor under a conditional sale contract is recognized as valid, title does not pass to the trustee. In re Lake’s Laundry, 2 Cir., 79 F.2d 326, 102 A.L.R. 247; Michael Yundt Co. v. Phillips, 7 Cir., 84 F.2d 388. The Albert Pick & Company case is therefore distinguishable on its facts from the instant case. Since the decision of this court in that case, the Iowa Supreme Court has adhered to the doctrine announced in American Laundry Machinery Co. v. Everybody’s Laundry, supra, by its decision in the International Harvester Company case. It is urged that even in the International Harvester Company case it was not necessary for the court to decide the question here at issue, and there is some basis for this contention. We are here, however, attempting to determine what the law of Iowa is on this question, and these two decisions are clear indications as to the views of that court, and, as said in Hawks v. Hamill, 288 U.S. 52, 53 S.Ct. 240, 242, 77 L.Ed. 610, decided since our decision in Albert Pick & Co. v. Wilson, supra: “A wise comity has decreed that deference shall at times be owing, though there may be lacking, in the circumstances, a strict duty of obedience. * * * To be sure there is room for argument that limiting distinctions will have to be drawn in the future. We must leave it to the courts of Oklahoma to declare what they shall be. * * * At least it is a considered dictum, and not comment merely obiter. It has capacity, though it be less than a decision, to tilt the balanced mind toward submission and agreement.” It is also there said that: “The stranger from afar, unacquainted with the local ways, permits himself to be guided by the best evidence available, the directions or the counsel of those who dwell upon the spot.” See, also, Blue Valley Creamery Co. v. Consolidated Products Co., 8 Cir., 81 F.2d 182. This last decision of the Supreme Court of Iowa is, we think, sufficient “to tilt the balanced mind toward submission and agreement.” We need not consider whether the court should have awarded the appellee the possession of the property because appellee has not appealed from the order allowing its claim as a secured one. We conclude that no rights of the appellant have been prejudiced by the order appealed from and it is therefore affirmed.