Constance v. Harvey, 215 F.2d 571, 2d Cir. (1954)
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Scribd Government DocsConstance v. Harvey, 215 F.2d 571, 2d Cir. (1954)
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Scribd Government Docs215 F.
2d 571
CONSTANCE,
v.
HARVEY.
No. 247, Docket 23036.
United States Court of Appeals, Second Circuit.
Argued May 12, 1954.
Decided July 7, 1954.
Rehearing Denied Aug. 3, 1954.
Milton E. Ehrenreich, New York City, for petitioner-creditor-appellant.
Harvey M. Lifset, Albany, N.Y., for trustee-appellee.
Before CHASE, Chief Judge, and HINCKS and HARLAN, Circuit
Judges.
HARLAN, Circuit Judge.
The question before us is whether a chattel mortgage given by Francis T.
Reilly, the bankrupt, to Thomas Constance, the appellant, is valid as against
Reilly's Trustee in Bankruptcy, the appellee.
On November 23, 1949, Constance sold to Reilly, residing at Watervliet,
Albany County, N.Y., a roadside diner located in the City of Albany, N.Y. The
purchase price was $35,000, payable $15,000 in cash and $20,000 by a
purchase money mortgage executed by Reilly in favor of Constance.
On November 25, 1949, Milton E. Ehrenreich, the attorney for Constance, set
copies of the mortgage to the County Clerk of Albany County and the Town
Clerk of Watervliet for filing, together with the appropriate filing fees. The
copy of the mortgage sent to the Albany County Clerk was duly filed in his
office in the City of Albany but the copy sent to the Watervliet Clerk was
returned to Mr. Ehrenreich, with a notation 'Filed in Albany.' Concededly,
Watervliet was the only proper place of filing, since (1) that was where Reilly,
the mortgagor, resided, and (b) the County Clerk of Albany County, in which
Watervliet was situated, had no office in Watervliet; and the filing in the
Albany County Clerk's office was of no avail. New York Lien Law Sec. 232,
McK. Consol. Laws, c. 33.1
4
Mr. Ehrenreich testified that he took the Watervliet Clerk's notation to mean
that Reilly had changed his residence to Albany, where the diner was located,
and that he made no further effort to accomplish filing in Watervliet until
October 5, 1950-- over ten months later-- when he sent a representative to
Watervliet for that purpose. This time the Watervliet Town Clerk filed the
instrument, and there was hearsay evidence, which was not objected to, that the
Clerk then acknowledged that he had made an error in not filing the mortgage
when he had originally received it in November 1949. It was found below that
the Clerk had so erred.
Reilly was adjudicated a bankrupt on October 23, 1951, and Arthur J. Harvey
was appointed Trustee. The sole asset of the estate was the diner which was
sold by the Trustee for $22,150, against which proceeds Constance claims a
valid lien to the extent of $15,650, the unpaid balance of the purchase price of
the diner. The District Court, confirming the Referee in Bankruptcy, has held
the chattel mortgage invalid as against the Trustee.
The first question we have to decide is this: Was the effective filing date of this
chattel mortgage shortly after November 25, 1949, when the Watervliet Clerk
received the instrument and erroneously failed to file it, or on October 5, 1950,
when the mortgage was actually filed at Watervliet? It is conceded that this
question is to be determined under New York law.
The New York Lien Law makes chattel mortgages which have not been filed as
provided therein void as against creditors of the mortgagor and subsequent
good faith purchasers and mortgagees for value, but specifies no time for filing.
Secs. 230, 232. The New York Courts hold that filing must be within a
reasonable time after execution of the instrument. Tooker v. Siegel-Cooper Co.,
1909, 194 N.Y. 442, 87 N.E. 773. Absent extenuating circumstances, it could
scarcely be disputed that a delay of over ten months is not a filing within a
reasonable time. It is argued, however, that this delay was excused by the
mistake of the Watervliet Clerk, and we are referred to a number of cases in
which it has been held that the failure or refusal of a public official to file an
instrument required to be filed is not to be charged against one claiming under
it. Manton v. Brooklyn & Flatbush Realty Co., 1916, 217 N.Y. 284, 111 N.E.
819; President etc. of the Manhattan Company v. Laimbeer, 1888, 108 N.Y.
578, 15 N.E. 712; New York County Nat. Bank v. Wood, 1st Dept. 1915, 169
App.Div. 817, 153 N.Y.S. 860, affirmed New York County Nat. Bank v.
Peckworth, 222 N.Y. 662, 119 N.E. 1062; In re Labb, D.C.W.D.N.Y. 1941, 42
F.Supp. 542.
8
We think these cases are distinguishable from the one before us. In each of
them the fault was entirely that of the public official involved, without any
neglect on the part of the person attempting to file, or there were no intervening
rights of third parties. Here the Referee found that the attorney for the
mortgagee knew that the mortgagor resided at Watervliet, and the attorney
himself testified that he understood the law to require filing there. Yet he did
nothing further to accomplish filing in Watervliet until over ten months after
the Clerk had returned the mortgage to him without filing, and offered no
excuse for this inaction. The circumstances here are quite different from those
in New York County Nat. Bank v. Wood, supra, where the managing clerk of
the lienor's attorney took back to his superior the instrument which he had
attempted to file, and the matter was then promptly followed up and filing
accomplished within less than one hour.
In the present case, the inaction of the appellant's attorney was in effect an
acquiescence for more than ten months in the Watervliet Clerk's failure to file
the mortgage. As was said by Cardozo, J., in the Manton case, supra, 217 N.Y.
at page 288, 111 N.E. at page 820: 'If the act of the lienor has made notice
impossible, he must be held to have estopped himself from enforcing his lien
against persons who would otherwise be misled to their prejudice.' We think
that the Referee and the District Court were correct in holding that the filing in
the present case was not seasonable under the New York law.
10
This, however, does not dispose of the case, as the District Court seems to have
thought, for the belated filing on October 5, 1950 may nonetheless have been
effective as against Reilly's Trustee in Bankruptcy. Section 70, sub. c of the
Bankruptcy Act, 11 U.S.C.A. 110, sub. c, upon which the Trustee principally
relies, clothes the Trustee with the status of a lien creditor as to any property of
the bankrupt with respect to which a hypothetical creditor of the bankrupt
'could have obtained a lien by legal or equitable proceedings at the date of
bankruptcy.' By definition the 'date of bankruptcy'is the 'date when the petition
was filed.' Bankruptcy Act, Sec. 1(13), 11 U.S.C.A. 1(13). But under New
York law the filing of this chattel mortgage, even though belated, was good as
to all creditors of Reilly who became such subsequent to the filing of the
mortgage, whether belated or not. In re Myers, 2 Cir., 1928, 24 F.2d 349; In re
Ideal Steel Wheel Co., 2 Cir., 1928, 25 F.2d 651. Hence under Sec. 70, sub. c
the Trustee did not have the status of a lien creditor with respect to this property
unless the petition in bankruptcy was filed prior to October 5, 1950, when the
chattel mortgage was filed by the Watervliet Town Clerk. 4 Collier on
Bankruptcy, pp. 1272, 1273, 1287-1293. The record shows that Reilly was
adjudicated a bankrupt on October 23, 1951, more than a year after the
mortgage was filed, but it fails to show when the petition in bankruptcy was
filed. Hence we are unable to determine whether under Sec. 70, sub. c the
belated filing by the mortgagee was valid or invalid as against the Trustee.
11
Nor is the position of the Trustee aided by Sec. 70, sub. e of the Bankruptcy
Act, 11 U.S.C.A. 110, sub. e, making void as against a Trustee any 'obligation
incurred by a debtor adjudged a bankrupt * * * which, under any Federal or
State law applicable thereto, is * * * voidable * * * by any creditor of the
debtor, having a claim provable * * * ' against the estate. Under New York law
this chattel mortgage was invalid only as to creditors of Reilly becoming such
prior to October 5, 1950, when the mortgage was filed at Watervliet, and unless
there was at least one such creditor the belated filing was nevertheless good as
against the Trustee. See Zamore v. Goldblatt, 2 Cir., 1952, 194 F.2d 933; In re
Myers, supra. Here again the record is deficient, since it fails to show that any
of the bankrupt's creditors had become creditors prior to October 5, 1950. So
again we are not in a position to determine whether under Sec. 70, sub. e the
mortgage was valid or invalid as against the Trustee.
12
In light of these controlling considerations, it becomes clear that on this record
the order below cannot stand. However, rather than reversing for dismissal, we
are constrained to remand the case to the District Court for further findings,
with instructions to grant the appellant's lien petition if it be found that the
petition in bankruptcy was filed after October 5, 1950, and that none of the
bankrupt's creditors, having a provable claim, became a creditor prior to
October 5, 1950, and otherwise to dismiss the petition.
13
Reversed and remanded.
On Petition for Rehearing
14
PER CURIAM.
15
Appellant's Petition for Rehearing sets forth nothing which persuades us that
we were wrong in concluding that the chattel mortgage was not timely filed.
We must therefore deny the Petition for Rehearing.
16
The Court, however, sua sponte takes this occasion to correct the opinion
already filed in one respect in which we think we were mistaken. We there
stated that Sec. 70, sub. c of the Bankruptcy Act, 11 U.S.C.A. 110, sub. c, did
not avail the Trustee because the record failed to show that the petition in
bankruptcy had been filed prior to the actual recording of the mortgage. On
further consideration we think that is not so in view of the provisions of Sec.
230 of the N.Y. Lien Law, McK. Consol. Laws, c. 33, as construed by the New
York Courts, making unrecorded chattel mortgages void as to simple contract
creditors becoming such, without notice, prior to actual recording-- see Karst v.
Gane, 1892, 136 N.Y. 316, 323, 32 N.E. 1073; In re Shay's Estate, Surrogate's
Court, Livingston Co., 1935, 157 Misc. 615, 285 N.Y.S. 379-- in contrast to the
provisions of Sec. 65 of the N.Y. Personal Property Law, McK. Consol. Laws,
c. 41, making unrecorded conditional sales contracts void as to creditors,
without notice, who have acquired liens on the goods prior to recording of the
contract. Since an existing creditor without notice of the chattel mortgage,
could have obtained a lien at the time of the filing of the petition in bankruptcy,
and since under Sec. 70, sub. c of the Bankruptcy Act the Trustee was entitled
to be put in the position of an 'ideal' hypothetical creditor-- Hoffman v. CreamO-Products, 2 Cir., 180 F.2d 649, certiorari denied 1950, 340 U.S. 815, 71 S.Ct.
44, 95 L.Ed. 599-- we think his position must prevail over that of the
mortgagee-appellant.
17
This leads us to correct our original opinion in this respect, and on this ground
to affirm the judgment below.
18
Petition for rehearing denied. Judgment below affirmed.
'Sec. 232. Where filed
* * * Every * * * chattel mortgage, or an instrument intended to operate as
such, or a true copy thereof, must be filed * * * in the town or city where the
mortgagor, if a resident of the state, resides at the time of the execution thereof,
and if not a resident, * * * in the town or city where the property mortgaged is
at the time of the execution of the mortgage. * * * In every other town or city of
the state (other than New York City), such instrument shall be filed in the office
of the town or city clerk, unless there is a county clerk's office in such town or
city, in which case it must be filed therein.'
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