Warner v. Citizens' Bank of Ana-Cortes

DIETRICH, Circuit Judge.

The appellant as trustee of the estate of A. B. Campbell, bankrupt, brought this suit for the cancellation of a chattel mortgage delivered to the appellee bank September 3, 1925, upon the theory that, having been given to secure a pre-existing indebtedness, it ceased to be effective after the filing of the petition in bankruptcy, which was within four months after the execution of the mortgage.

We are of the opinion that the complaint fails to state facts sufficient to constitute a cause of action. There is no description, oven of a general nature, of the property covered by the mortgage, nor any allegation that the bankrupt owned any property covered by it when the petition in bankruptcy was filed, or thereafter, or that the appellant, trustee, ever acquired title to or possession of any such property. And, upon a reference to the evidence, it appears that he must have advisedly refrained from alleging either title or possession. It seems that Campbell had been the owner of a bakery, and upon December 3, 1925, he made to the Seattle Merchants’ Association for the benefit of all his creditors a common-law assignment thereof, including all supplies, equipment, furniture, bills and accounts receivable, cash, deposits, good will, and, in short, everything except possibly the lease upon the bakery building. This it turns out was the property which in part was covered by the mortgage. Anticipating the possibility of such an assignment, the association had previously interested one Beck in making a purchase of the business, and upon the day alitor the assignment accepted an offer from him of $6,764.67 for the entire property, $2,-764.67 of which was to bo paid in cash and the balance in twenty installments of $200 each. Accordingly’ the association executed a bill of sale conveying to him the property free from all liens, and gave him possession, which he has ever since maintained.

Seemingly a dispute arose thereafter as to whether or not the appellee had agreed with the association to release its mortgage, hut that is not thought to be presently material. It in fact declined to release it, and, upon its refusal, the association, representing the creditors, caused to be filed against Campbell the involuntary petition in bankruptcy upon which he was adjudged a bankrupt. In due course a meeting of creditors was held, at which the appellant, who had been and still is the managing agent for the association, was elected trustee. The association has • continued to retain possession of the money paid by Beck and of the notes and chattel mortgage executed by him covering the deferred installments, and has from time to, time collected such installments. Upon certain conditions, including the reimbursement of certain expenses and protection to it on account of the conveyance to Beck of the property clear of incumbrances, it offered to turn over to the trustee the proceeds of the sale; but the referee declined to authorize acceptance upon the. conditions named, and it still retains possession, with the approval of the creditors. The appellant does not challenge the validity of the sale to Beck, or his possession or right of possession. We therefore have a case where both under the pleadings and the evidence, a trustee in bankruptcy is seeking to have declared void a mortgage upon property to which he has neither legal nor beneficial title, and of which he never had possession and in which he claims no right or interest. The only property in which the trustee has any possible interest is the proceeds of the sale to Beck, of which it may be admitted Campbell was the beneficial owner when he was adjudged a bankrupt; but the bank makes no claim of lien upon or interest in it under its mortgage or otherwise; and, of course, without its consent it cannot be compelled to accept a lien thereon in lieu of its lien upon the specific property described in the mortgage. If by virtue of some agreement or estoppel in pais it should be held to have waived its mortgage lien, that is a matter between it and the association, with Beck possibly an interested third party. Clearly, it is not the subject-matter of this suit, nor is such a controversy of federal cognizance.

Accordingly, the judgment dismissing the bill is affirmed. '