US SUPREME COURT DECISIONS

A mortgage containing no clause covering after-acquired property is not a lien on machinery placed on the land after the execution of the mortgage, and the title to which is reserved in the vendor until payment therefor.

The trustee in bankruptcy is vested with no better right or title to the property than the bankrupt had when the trustee's title accrued, and where, as in the State of Ohio, a conditional sale contract is good as between the parties themselves although not filed, the vendor of machinery, sold and delivered under such a contract and payment for which had not been made may remove the same as against all creditors of the bankrupt who have not fastened upon it by some specific lien.

The York Manufacturing Company has appealed from a judgment of the circuit court of appeals which held that the company had no lien upon or right to remove certain machinery as against creditors of the Mount Vernon Ice, Coal & Milling Company, a bankrupt corporation. The facts upon which the question arises are as follows.

The corporation above named was organized under the laws of the State of Ohio, and was doing business at Mount Vernon, in that state. The company desired to enlarge its plant for the purpose of making ice, and to that end it was necessary to secure the proper machinery. It therefore entered into a contract, which was concluded October 27, 1902, with the appellant, the York Manufacturing Company, to supply that machinery for the sum of $7,375, to be paid in installments, as stated in the contract. The contract also contained a stipulation

"that the title to the ownership of the machinery, apparatus, or plant herein contracted for shall remain in the York Manufacturing Company until the entire purchase price herein agreed to be paid . . . shall be actually paid in cash."

The vendor chanrobles.com-red

Page 201 U. S. 345

was given the right to enter the premises of vendee and remove the property in case of default. Twenty-five percent only of the price of the machinery was ever paid. This contract was never filed, as required by the statute of Ohio relating to conditional sales. Section 4155, which is set forth in the margin. *

The corporation, being short of funds for the purpose of building, desired to obtain them by the execution of a mortgage on the lot on which the building was to be erected. One William Mild was the president of the corporation and was the owner of and had the legal title to the real estate upon which its plant was being constructed. Mild applied to Messrs. Waight & Ames to assist in raising money, by lending their credit as sureties on notes to be given for loans to the corporation up to the sum of $10,000, by such persons or banks as loans could be chanrobles.com-red

Page 201 U. S. 346

obtained from. Waight & Ames agreed to become such sureties, and the parties then entered into an agreement for that purpose, the particulars of which it is not necessary here to deal with.

At the date of the Waight & Ames agreement -- November 1, 1902 -- no part of the machinery had come to the possession of the company, but it began to arrive in January, 1903, and was finally installed in the plant three or four months later.

On the same date that the agreement was executed, a mortgage, without date, was also executed by William Mild, in whom the title was, to Waight & Ames, conditioned for their indemnification for becoming sureties, as contemplated by their agreement. This mortgage was not recorded until July 16, 1903, and on the next day, the corporation made a general assignment for the benefit of its creditors. On July 22, 1903, a petition by creditors of the corporation was filed for an adjudication of bankruptcy against it, and on December 11, 1903, the adjudication was made.

Soon after the adjudication, the York Manufacturing Company filed an intervening petition, which set forth the contract under which they sold the machinery to the bankrupt, and alleged default in payment, and prayed that the company might be allowed to enter the premises and remove the machinery therefrom. This petition was resisted by the creditors.

A short time thereafter, Waight & Ames filed their intervening petition, setting up their mortgage and alleging that they had no knowledge of the contract with the York Manufacturing Company at the time of taking their mortgage, and prayed that they might be given precedence over that company. It appears they did raise for Mild the sum of $10,000 by indorsing for him to that extent, and a portion of it they have since been compelled to pay, and they are liable for the balance.

The referee in bankruptcy, before whom the question came, held that the mortgage of Waight & Ames was a valid lien on all the bankrupt's property, including the machinery furnished by the York Manufacturing Company, subject, however, to a chanrobles.com-red

Page 201 U. S. 347

purchase money mortgage on the lot for $1,000. He also held that the York Manufacturing Company had no lien on the machinery, but was a general creditor only.

The district court, on a petition for review, reversed this ruling and held that the mortgage of Waight & Ames did not cover the machinery supplied by the York Manufacturing Company, but that the latter had no lien thereon as against general creditors; that the mortgage of Waight & Ames was a valid lien on the rest of the property, subject to the purchase money mortgage on the lot; that they were not creditors of the bankrupt corporation except as to the sum of $1,500 they had charged for becoming sureties under the contract above mentioned, but the court held that they might prove the debts of the creditors who held the notes on which they were sureties, if the creditors failed to do so, and that they might be subrogated to the rights of the creditors to the extent they had paid or might pay any balance due on said notes remaining after applying thereon the surplus of the proceeds of the sale of the real estate, after the purchase money mortgage had been paid, and that the entire $10,000 of the notes, which were mentioned in the contract between Waight & Ames and the company, and for which they were to be sureties, might be included in this right of subrogation. This, of course, did not include a note for $1,000, which had been paid five months before the proceedings in bankruptcy. The district court held that the mortgage of Waight & Ames was subordinate to the lien of the York Manufacturing Company because no part of it had been placed on the ground of the bankrupt until two months after the making of the mortgage to Waight & Ames. The court, however, held that the general creditors were entitled to have the plant of the York Manufacturing Company sold for the payment of their claims because of the failure of that company to file the conditional sale contract, as required by the Ohio statute, and such failure rendered the contract void as to the creditors. Waight & Ames did not appeal from the district court's decree. chanrobles.com-red

Page 201 U. S. 348

The circuit court of appeals, upon appeal by the York Manufacturing Company, affirmed the district court, 135 F. 52, and that company has appealed here. chanrobles.com-red

Page 201 U. S. 350