Border Nat. Bank v. Coupland

WALKER, Circuit Judge (after stating the facts as above). [1] Under the law of Texas a verbal mortgage or lien is valid between the parties and as against purchasers with notice and’ creditors other than lien creditors. Gardner v. Planters’ National Bank, 54 Tex. Civ. App. 572, 118 S. W. 1146; Crews v. Harlan, 99 Tex. 93, 87 S. W. 656, 13 Ann. Cas. 863; Galbraith v. First State Bank (Tex. Civ. App.) 133 S. W. 300; Grace v. Wade, 45 Tex. 522; Overstreet v. Manning, 67 Tex. 657, 4 S. W. 248. Under section 47a, cl. 2, of the Bankruptcy Act, as amended in 1910 (36 Stat. 838, 840), the trustee in bankruptcy takes the status of a lien creditor as of the time the petition in bankruptcy is filed. Bailey v. Baker Ice Machine Co., 239 U. S. 268, 36 Sup. Ct. 50, 60 L. Ed. 275; Martin v. Commercial National Bank, 228 Fed. 651, 143 C. C. A. 173. Valid liens created by mortgages made by the bankrupt before the institution of the bankruptcy proceeding are not subordinated to the rights of his trustee in bankruptcy, which vest as of the date of the filing of the petition in bankruptcy. When the verbal mortgages to the Bank were made by De Bona, the lien of..the trustee was not in existence. The statute in question does not purport to displace valid liens given before the petition in bankruptcy was filed. [2] The evidence which was excluded was admissible to prove that the mortgage of February 17, 1916, was not given to secure an in-' debtedness which previously was unsecured, but was given to secure debts all of which were secured at the times they came into existence by liens valid against any one other than a purchaser without notice or a creditor holding a prior lien. The effect of the execution of that mortgage was to give the creditor written evidence available for rec [358] ord, and recorded, of a lien given in exchange for previously existing liens given when the secured debts came into existence. The mortgage of February 17th did not operate as a preference, as it did not diminish the debtor’s estate; the effect of it beingUhe mere substitution of one written lien in place of previously existing valid verbal and written liens covering the same property. [3] “Every mortgáge, deed of trust or other form of lien attempted to be given by the owner of any stock of goods, wares or merchandise daily .exposed to sale, in parcels, in the regular course of the business of such merchandise,- and contemplating a continuance of the possession of said goods and control of said business, by sale of said goods by said owner, shall be deemed fraudulent and void.” Revised Civil Statutes of Texas (1911) art. 3970. The facts to which this statute gives the effect of invalidating a mortgage, deed of trust, or other form of lien attempted to be given by the owner of any stock of goods, wares, or merchandise are that a continuance of the owner’s possession of the goods and control of the business are contemplated and that the goods are daily exposed to sale, in parcels, in the regular course of business. The mortgagor’s continued possession of the mortgaged goods does not by itself avoid such a mortgage. To have the invalidating effect given by the statute that fact must be accompanied by the further fact that the mortgaged goods are daily exposed for sale, in parcels, in the regular course of business. The invalidating facts must be shown either by the instrument itself, -\yhich undertakes to give the lien, or by other evidence. Bergen, v. Producers’ Marble Yard, 72 Tex. 53, 11 S. W. 1027; Gregg & Son v. Cleveland & Co., 82 Tex. 187, 17 S. W. 777; Bettes v. Weir Plow Co., 84 Tex. 543, 19 S. W. 705. Certainly under the terms of De Bona’s mortgage.to the Bank ■the former did not have the right to expose the mortgaged automobiles for sale, in parcels, in the regular course of business. The un-, contradicted evidence was to the effect that such a right was explicitly withheld, and that it was contemplated and understood by the parties that no mortgaged automobile .was to be sold by De Bona without his first getting special permission from the Bank to make the sale. The evidence further showed that the only sales of any of the mortgaged aútomobiles which were made were in pursuance of special permission given by the Bank, it receiving the proceeds of the sale when made. Sales negotiated and made in the manner disclosed by the evidence are plainly out of the regular course of a mercantile business. Under the evidence in the case the transaction between De Bona and the Bank did not have the effect of enabling the former to deal with the mortgaged machines just as he could have done if they had not been subject to 'the lien of the mortgage. He was not empowered to sell them in the usual course of business. He could not sell them at all, freed of the lien of the mortgage, except by the Bank’s special permission, given after an opportunity to make a sale was presented, and then the proceeds of the sale had to be paid to the Bank, to be applied on the mortgage indebtedness. The statute is aimed at a form of security which would enable a merchant to deal with his stock of goods just as if it was unincumbered, selling it in parcels, freed of the mortgage lien, the mortgagee not receiving the proceeds, and at the same [359] time have it shielded from the claims of his creditors, other than the preferred one, to whom the ineffectual lien is given. The undisputed evidence in the case negatives the conclusion that the mortgage in question was such a one as the statute quoted declares shall be deemed fraudulent and void. As the rulings made by the trial court were in conflict with the conclusions above stated, the decree appealed from is reversed.