Haines v. Keating

DAVIS, Circuit Judge. This is an appeal from a decree of the District Court, declaring a chattel mortgage between the Universal Tool Company, bankrupt mortgagor, and the Union County Trust Company, mortgagee, void because the affidavit annexed to the mortgage did not comply -with statutory requirements. Section 4 of the Chattel Mortgage Act of New Jersey (1 Compiled Statutes of New Jersey, p. 463) provides that every mortgage conveyance intended to operate as a mortgage of goods and chattels, which shall not be accompanied by an immediate delivery and followed by actual or continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor unless the mortgage has annexed thereto an affidavit or affirmation made and subscribed by the holder, his agent, or attorney, stating the consideration of the mortgage, and as nearly as possible the amount due and to grow due thereon. Until about the year 1908 the affidavit annéxed to chattel mortgages in New Jersey was a statutory requirement of. considerable technicality. Graham Button Co. v. Spielmann, 50 N. J. Eq. 120, 24 Atl. 571; In re Novelty Web Co., 236 Fed. 501, 149 C. C. A. 553; McCullough v. McCrea (C. C. A.) 287 Fed. 342. But the present rule is that, in the absence of fraud, substantial compliance only is [898] required. Hunt v. Ludwig, 93 N. J. Eq. 314, 116 Atl. 699; American Soda Fountain Co. v. Stolzenbach, 75 N. J. Law, 721, 68 Atl. 1078, 16 L. R. A. (N. S.) 703, 127 Am. St. Rep. 822; Shupe v. Taggart, 93 N. J. Law, 123, 107 Atl. 50; Milberg v. McCullough (C. C. A.) 292 Fed. 103. The affidavit annexed to the mortgage in question was made by the vice president of the mortgagor company. This was not a substantial compliance with the requirements of the statute. It was not a compliance at all. So far as the statutory provision is concerned, the affiant was a stranger to the transaction. It is urged that in his capacity as vice president of the mortgagor he was agent of the mortgagee company, and therefore the affidavit complied with the statute. The testimony, however, does not establish this contention. At the time the ’affidavit was made there was no thought by any one that he was acting in the capacity of agent for the mortgagee. A mistake was made, and, so far as its compliance with the statute goes, the affidavit is just the same as though it had not been made at all, because it was not made by any person mentioned in the statute by whose terms we are bound. It is argued that, although the instrument as a mortgage may be void, it may nevertheless be considered as an assignment, which, under the laws of New Jersey, need not be recorded, and, so considered, it gives the mortgagee a lien on the book accounts of the bankrupt mortgagor, and his claim to that extent constitutes a preference. But the mortgage was not in purpose and form an assignment, and in terms does not include book accounts. The claimant seeks to have them included under the words, “all other property” which the mortgagor then had or might théreafter acquire. If it be considered án unrecorded assignment the claimant cannot prevail, because the trustee, who represents all unsecured creditors, is deemed to be vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings, as to all property coming into the custody of the bankruptcy court. Section 47 of the Bankruptcy Act (Comp. St. § 9631). In re Sayage Baking Comany (D. C.) 259 Fed. 976, 981; Fairbanks Shovel Co. v. Wills, 240 U. S. 642, 36 Sup. Ct. 466, 60 L. Ed. 841. It was the purpose of the amendment of 1910 to this section of the act to prevent unrecorded instruments generally and secret liens from attaching to property as a prior lien to the disadvantage of general unsecured creditors. It appears that there was due Michael N. Chanalis, secretary of the bankrupt company, two months’ salary at $25 per week. This was disallowed him as a priority claim. Section S3 of the New Jersey act concerning corporations (2 Compiled Statutes of New Jersey, p. 1650) provides that, in case of insolvency of any corporation, the “laborers and workmen, and all persons doing labor or service of whatever character, in the regular employ of such corporation, shall have a first and prior lien upon the assets thereof for the amount of wages due to them respectively for all labor, work and services done, performed or rendered within two months next preceding the date when proceedings in insolvency shall be actually instituted and begun against such- insolvent corporation.” The statute is very explicit that labor or services of whatever character, whether as salary or wages [899] shall constitute a prior lien for two months before the institution of insolvency proceedings. Buvinger v. Printing Co., 72 N. J. Eq. 321, 65 Atl. 482. The preference given by this section is in derogation of the right of creditors to be paid equally. Navigation Co. v. Railroad Co., 29 N. J. Eq. 252. The decree of the District Court, therefore, disallowing the claims based upon the validity of the mortgage as priority claims and the claim based upon the book account as a prior claim are affirmed, but that part of the decree disallowing the two months’ salary of Michael N. Chanalis, secretary to the bankrupt company, is reversed; the appellants to pay two-thirds and the appellee one-third of the costs. BUFFINGTON, Circuit Judge, took no part in the consideration or decision of this case.