Reconstruction Finance Corp. v. Weiner, 192 F.2d 760, 2d Cir. (1951)
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Scribd Government DocsReconstruction Finance Corp. v. Weiner, 192 F.2d 760, 2d Cir. (1951)
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Scribd Government Docs192 F.
2d 760
RECONSTRUCTION FINANCE CORP.
v.
WEINER.
No. 49.
Docket 22094.
United States Court of Appeals Second Circuit.
Argued October 11, 1951.
Decided November 7, 1951.
Harold E. Jacobsen, New York City, for appellant, Reconstruction
Finance Corp.; Abram Glaser and Charles Hemmersley, New York City,
of counsel.
Harry A. Margolies, New York City, for Louis S. Weiner, receiver and
trustee.
Melbourne Bergerman and Jack J. Levinson, New York City, for C. I. T.
Financial Corp., amicus curiae.
Before AUGUSTUS N. HAND, CHASE and WOODBURY, Circuit
Judges.
AUGUSTUS N. HAND, Circuit Judge.
On April 1, 1946, The Daunt Corporation, the bankrupt, as security for a loan,
executed and delivered to the R. C., appellant, a chattel mortgage, dated that
day, of all of the bankrupt's fixtures, furniture, machinery, tools, dies and
equipment then located in Brooklyn, New York. This mortgage was filed the
same day it was executed pursuant to the laws of the State of New York.
Subsequent to its execution, the bankrupt acquired additional machinery and
equipment located in Brooklyn and in Queens County, New York, and
thereafter executed and delivered to the R. F. C. supplemental chattel
mortgages covering the additional machinery and equipment, which were also
filed for record.1 Between May 15, 1948 and September 1, 1948, the bankrupt
purchased a factory site in Trenton, New Jersey, and removed all of its
machinery and other assets to that city. The R. F. C. was given notice of the
removal and may be deemed to have consented thereto. On November 22,
1948, the bankrupt executed and delivered to the R. F. C. in New Jersey a
further supplemental chattel mortgage upon all the properties referred to in the
original and supplemental New York mortgages, and on the same day a copy of
the New Jersey mortgage was filed for record in Trenton under the laws of the
State of New Jersey. On November 22, 1948, the R.F.C. knew, or had
reasonable cause to believe, that the bankrupt was insolvent. On November 24,
1948, the bankrupt filed a petition for an arrangement pursuant to Chapter XI of
the Bankruptcy Act, 11 U.S.C.A. 701 et seq., and on June 15, 1949, an order
was entered directing the dismissal of that petition, the debtor was adjudged a
bankrupt, and a receiver was appointed.
2
The receiver, and the trustee who succeeded him, filed petitions with the
referee for an order declaring the mortgages held by the R.F.C. null and void as
against the trustee. The R.F.C. moved to dismiss the petitions on the ground
that they did not state claims on which relief could be granted. On the admitted
facts set forth above, the referee denied the R.F.C.'s motion and entered an
order to that effect, which was affirmed by the District Court without opinion.
The referee reached his conclusions as to the invalidity of the New York
mortgages and the district judge followed those conclusions for the reasons
expressed by the referee in his opinion as follows:
"On the conceded facts I find, as a matter of law, that the petitions state a claim
upon which relief can be granted.
"Under the established rule of this Court I would be compelled to apply New
Jersey law to the problem here presented were it not for the fact that the precise
question here presented has never been passed upon by a New Jersey Court.
"The question has, however, been discussed in quite a number of cases in
various states, the great majority of which have held that the lien of a mortgage
on chattels removed from one state to another with the knowledge and consent
of the mortgagee is not recognized and is not enforceable in the second state
against innocent purchasers, incumbrances or judgment creditors. This rule is
based upon a variety of reasons, all of which, in my judgment, are logical and
sound. Some states decided the question on the principle of public policy, * * *
others on the principle of fraud or estoppel, * * * and still others on the
principle of waiver * * *.
"In propounding this principle of law, the courts have carefully weighed the
equities. The dominant factor underlying their reasoning is that an innocent
party should not be made to suffer by reason of the wrongful act of another
whose conduct occasioned such wrongful act. By failing to do what he could
have done to protect his lien upon a removal of mortgaged chattels to another
state, a mortgagee thereby loses his rights therein as against innocent third
parties.
"Duly considering the facts and the legal principles propounded in the cases, I
find that I am in accord with the majority rule expressed therein and accept it as
applicable here."
We cannot agree with the court below that its decision was in accord with any
majority rule or correctly disposed of the equities of the situation.
10
On the facts alleged in the petitions, the longest interval between the date of
execution and the date of filing of any of the mortgages was seven days and we
hold that the New York chattel mortgages were filed within a reasonable time
as required by the decisions interpreting New York Lien Law,
McK.Consol.Laws, c. 33, 230. In the Matter of the Assignment of Paramount
Finishing Corp., 259 N.Y. 558, 182 N.E. 180; Trimble v. Broun-Green Co., 105
Misc. 210, 172 N.Y.S. 726. It is not alleged that any creditors intervened
between the dates of execution and the dates of filing as happened in Huber v.
Ehlers, 76 App.Div. 602, 604, 79 N.Y.S. 150.
11
It is conceded that the chattel mortgages executed and delivered in New York
would prevail over subsequent New Jersey purchasers or creditors if the
mortgagees had not consented to the removal of the mortgaged property from
New York to Trenton. But the trustee in bankruptcy, who is invested with the
rights of a judgment creditor, argues that the consent to the removal invalidated
the liens of the New York mortgages. To this we do not agree. Judge Goodrich
in his "Handbook of the Conflict of Laws" (2d ed. 1938) says (at pp. 418-9): "It
is, by the better view, immaterial that the mortgaged property has been taken to
the second state with the mortgagee's consent" (mistakenly termed the
"mortgagor").
12
And in discussing the equities of the situation, he says (at pp. 420-1): "* * * is
there any more chance for deception in such a case than in a common case of
bailment, or a removal of the mortgaged property from one county to another in
the same state, in neither of which instances would the owner's or mortgagee's
right be seriously questioned. When the property is removed to the second state,
new rights may be created under the law of that jurisdiction. A local statute
may give a garage keeper a lien for new work done which will have priority
over the previously given valid chattel mortgage. If business convenience
demands that the original mortgagee shall again record his mortgage after the
property has been moved, a statutory provision like that in the Uniform
Conditional Sales Act is the proper method by which to accomplish the result."
13
The American Law Institute reached the same conclusion as did Judge
Goodrich. Section 270 of the Restatement of Conflict of Laws provides that:
"If, after a chattel is validly mortgaged, it is taken into another state with the
consent of the mortgagee, the interest of the mortgagee is divested by an
attachment or execution levied by a creditor of the mortgagor in the second
state only if a statute of the second state so provides." See also Section 271.
14
Thus, the effect on the validity of the mortgages of the removal of the property
to Trenton depended on the law of the State of New Jersey. Restatement,
Conflict of Laws 269. There is a statute in New Jersey which voids chattel
mortgages unless recorded. N.J.Rev.Stat. 46:28-5 N.J.S.A. But this statute has
been interpreted as applying only to chattel mortgages executed on property in
New Jersey, Parr v. Brady, 37 N.J.L. 201; Mygirack v. Lepore, 6 N.J. Super.
505, 69 A.2d 772, and, indeed, the statute so states by its very terms. See N.J.
Rev.Stat. 46:28-7 N.J.S.A.
15
There is no statute in New Jersey which provides for the recording of or which
invalidates foreign chattel mortgages, and the policy of New Jersey would seem
to be in favor of recognizing such liens as against New Jersey purchasers and
creditors. Thus, in Marvin Safe Co. v. Norton, 48 N.J.L. 410, 7 A. 418, the
property was shipped into New Jersey with the consent of the conditional
vendor and the New Jersey Supreme Court, by what may be an extreme
decision, upheld a Pennsylvania conditional sale as against a subsequent New
Jersey purchaser even though the conditional sale was invalid in Pennsylvania.
See also Lane v. J. E. Roach's Banda Mexicana Co., 78 N.J. Eq. 439, 79 A.
365. The courts of other states have in various instances sustained the lien of a
chattel mortgage which was valid in the original jurisdiction when the
mortgaged property has been brought into the second state with the consent or
knowledge of the mortgagee. Cobb v. Buswell, 37 Vt. 337; Smith v. Brooks,
154 Neb. 93, 47 N.W.2d 389; Farnham v. Eichin, 230 App. Div. 639, 246
N.Y.S. 133; Shapard v. Hynes, 8 Cir., 104 F. 449, 452, 52 L.R.A. 675, and
Goetschius v. Brightman, 245 N.Y. 186, 192, 156 N.E. 660, appear to have
adopted the same view.
16
We conclude that as the mortgages made in New York to the R. F. C. were
there valid and would be so recognized under New Jersey law, the order of the
district court should be reversed and the petitions of the receiver and trustee
dismissed.
17
Accordingly, the proceeding is remanded to the district court with directions to
dismiss the petitions.
Notes:
1
The execution date and the date and place of filing are shown by the following
schdule:
Date of execution
June 6, 1946
Aug. 9, 1946
Jan. 30, 1947
May
28, 1947
Date of Filing
June 11, 1946
Aug. 9, 1946
Feb. 4, 1947
Feb. 4, 1947
June 4, 1947
June 4, 1947
County of Filing
Kings
Kings
Kings
Queens
Kings
Queens
