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In re Grebe

February 9, 1949


Author: Major

Before MAJOR, Chief Judge, KERNER, Circuit Judge, and LINDLEY, District Judge.

MAJOR, Chief Judge.

This is an appeal from a decree of the District Court, entered June 9, 1948, confirming on petition for review an order of the Referee in Bankruptcy denying the validity and priority of appellant's chattel mortgage as against the Trustee in Bankruptcy and against Wheeler Catering Company (hereinafter referred to as Wheeler), whose chattel mortgage was adjudged to be a valid and subsisting lien. The contested issues are (1) whether appellant's chattel mortgage is a valid and superior lien to that of Wheeler, and (2) whether appellant has equitable rights superior to those of Wheeler.

The issues were formulated below by the respective reclamation petitions of appellant and Wheeler founded upon their respective chattel mortgages covering the same personal property in the possession of the mortgagor's Trustee in Bankruptcy. The Trustee filed an answer denying the validity of appellant's chattel mortgage. No answer was filed by the Trustee to the petition for reclamation of Wheeler, and the Trustee did not dispute the validity of its chattel mortgage.

The facts were stipulated, and for the purpose of the question for decision may be briefly stated. Appellant is the owner and endorsee of a promissory note dated November 22, 1943, in the principal amount of $7,000.00, and a purchase money chattel mortgage securing the same executed and delivered by the mortgagor (bankrupt) to appellant's deceased husband. Appellant's chattel mortgage was duly filed of record on November 30, 1943, in the appropriate county, pursuant to Sec. 9 of the Indiana Chattel Mortgage Act. Section 9 of Chap. 147, Acts of Indiana 1935, Sec. 51-509, Burns 1933 Ind.Stats.Ann., 1947 Cum.Supp.

On November 12, 1946, the bankrupt executed and delivered to Wheeler his promissory note in the principal amount of $15,000.00 for money borrowed, which was duly filed of record in the appropriate county on November 14, 1946, or sixteen days prior to November 30, 1946, the date of expiration of appellant's mortgage. The chattel mortgage of Wheeler was made without appellant's knowledge or consent and contrary to the provisions of her mortgage, which prohibited the mortgagor from further encumbering the property.

Appellant did not file an extension statement of her chattel mortgage prior to the expiration of the three-year period, as is provided for by Sec. 15 of the Indiana Act,*fn1 Burn's Ann.St. ยง 51-515. On November 14, 1947, an involuntary petition in bankruptcy was filed against the mortgagor, and subsequently a Trustee in Bankruptcy was appointed who as such represented general creditors who extended credit to the bankrupt after November 30, 1946 and prior to March 17, 1947. The mortgaged property was ordered sold by the Referee free and clear of liens, the liens, if any, to attach to the proceeds of sale.The property sold for $14,100.00, which sum is now being held by the Trustee pending the determination of the validity and priority of the liens asserted by appellant and Wheeler. There is due and unpaid on appellant's chattel mortgage note the principal sum of $3,200.00, and on that of Wheeler the sum of $10,437.92 together with interest, certain costs and attorney fees on each note.

The primary issue raised by the appellant involves the construction or interpretation to be given to Sec. 15 of the Act, which so far as here material provides:

"A chattel mortgage executed under and pursuant to this act shall be invalid as against creditors, purchasers, junior mortgagees, other lienors and encumbrancers and third parties after the expiration of a period of three [3] years, reckoning from the time of filing of said chattel mortgage or from the time of filing of a statement as herein provided for, unless before the expiration of such term the mortgagee or some one in his behalf shall file a statement containing the names of the parties to the mortgage, the time and place where filed, and the amount then due thereon for principal and interest, in which case the lien of the mortgage shall be extended for three [3] years from and after the date of the filing of said statement. * * *"

Thus, under this section appellant had until November 30, 1946 to file an extension statement of her chattel mortgage. Admittedly, this was not done. In the meantime, Wheeler had on November 14, 1946 procured its chattel mortgage upon the same property as was covered by appellant's chattel mortgage. No question is raised but that appellant had a valid chattel mortgage and lien upon the property at the time Wheeler took and received its chattel mortgage. Neither is there any issue on the record but that appellant's chattel mortgage as to creditors who extended credit to the bankrupt after November 30, 1946 was invalidated by reason of appellant's failure to file an extension statement in compliance with Sec. 15, and we suppose no question would be raised but that her lien would for the same reason have been invalidated as to Wheeler had its mortgage been executed after November 30, 1946.

The question for decision arises from the fact that Wheeler's mortgage was obtained while and during the period that appellant was possessed of a valid chattel mortgage lien. The Referee in Bankruptcy in his order (confirmed by the court on petition for review) states:

"We are here concerned with Section 15 of the Act and do not find that it is either indefinite, uncertain or ambiguous. It provides that a chattel mortgage shall be invalid after the expiration of a three year period."

In our view, the question cannot be so summarily disposed of, notwithstanding Wheeler's argument that Sec. 15 in plain and unambiguous terms requires such a result.

Sec. 15, so far as we are aware, has not been construed by an Indiana court, and thus we are called upon to determine, or perhaps it would be more accurate to say speculate, on the construction which the Indiana courts would give to the section. It would seem more appropriate that State courts should first construe legislative enactments of their States, but Federal courts are frequently required to meet this seemingly incongruous situation. In the absence of an Indiana decision, our attention is called to numerous decisions from other jurisdictions claimed to support the construction here sought ...

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