U.S. Supreme Court
Knapp v. Milwaukee Trust Co., 216 U.S. 545 (1910)
Knapp v. Milwaukee Trust Company
Submitted January 10, 1910
Decided March 7, 1910
216 U.S. 545
An intervention to establish his lien by a mortgagee in a petition by the trustee to sell property of the bankrupt is a controversy arising in a bankruptcy proceeding within the meaning of the Bankruptcy Act and the procedure under § 24a is the same as under Court of Appeals Act of 1891. General Order No. XXXVI adopted under authority of § 24a does not apply in such a case, and no special findings of fact are required.
Under the law of Wisconsin, as construed by the highest court of that state, a mortgage of personal property is not valid as against creditors unless the possession be given to, and retained by, the mortgagee, chanroblesvirtualawlibrary
or the mortgage be filed; nor can a mortgagor appropriate proceeds of sale of the mortgaged property to his own use. Held that the mortgages in this case, even in the absence of intentional bad faith, are fraudulent in law, and void as to creditors.
Although the trustee stands in the shoes of the bankrupt and takes the property subject to equities impressed on it while in the bankrupt's hands, he can attack a pledge which is so void a against creditors that the property could have been levied on and sold under judicial powers against the bankrupt at the time of the adjudication.
Provisions in a mortgage for the retention and use of the mortgaged property by the mortgagor which are prohibited by the law of the state render the conveyance fraudulent in law, even in the absence of intent, and as conclusively permit the trustee to attack it as though the mortgage were fraudulent in fact and intent existed.
The fact that a trustee might by suit against other parties collect enough to pay creditors is not a bar against setting aside a fraudulent conveyance on the entire property of the bankrupt in his hands.
The facts are stated in the opinion. chanroblesvirtualawlibrary