Rosenbluth v. DeForest & Hotchkiss Co.

The plaintiff, as trustee in bankruptcy, seeks from the Superior Court such equitable relief as will annul, and make as though they never were, two conveyances of real estate executed by his bankrupt to the defendant, one recorded and the other unrecorded, and give to him, as such trustee, the title to such real estate, unaffected by such conveyances, which title by reason thereof now appears upon the land records to be in the defendant. The complaint as finally amended contains, in support of its prayers, certain allegations which assert the invalidity, as against the plaintiff, of the conveyances in question, by reason of noncompliance therein, or in connection therewith, with the requirements of the law of this State. It also contains others which make an appeal to those sections of the Bankruptcy Act which deal with preferences.

These two classes of averments relate to entirely separable and independent matters. If the first position is well founded it is sufficient for the plaintiff's purpose, and the second is wholly superfluous. It is a necessary condition precedent to a preference, that there has been a transfer of property by the bankrupt whereby a creditor is enabled to obtain a greater percentage of his debt than other creditors of the same class. Bankruptcy Act, § 60a, 32 U.S. Stat. at Large, p. 799, § 13. If, therefore, the conveyances in question were originally, and remained, a nullity as against the grantor's trustee in bankruptcy, there was no transfer within this definition, and all those questions in the case which center about the charge that the bankrupt was guilty of an attempted preference would be altogether immaterial. Our first question, therefore, naturally relates to the legal effect, as against the plaintiff, to be given to the two conveyances.

Section 70a of the Bankruptcy Act provides that a trustee of the estate of a bankrupt, upon his appointment and qualification, shall be vested by operation of law with the title of the bankrupt, as of the date he was adjudged to be a bankrupt, to all property not exempt which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him. 30 U.S. Stat. at Large, p. 566. Whether or not property, prior to the filing of the petition, could have been levied upon and sold under judicial process against the bankrupt, is a matter to be determined by the local law.Thompson v. Fairbanks, 196 U.S. 516, 523, 25 Sup. Ct. Rep. 306. The question to be decided thus becomes resolved into one as to whether under the law of this State a creditor of the bankrupt, armed with a judgment and execution, could, immediately before the filing of the petition in bankruptcy, have appropriated, in satisfaction of the judgment, the real estate interest of the bankrupt which the two deeds purported to convey to the defendant, or whether these deeds, or one of them, were at that moment effective to prevent such an appropriation.

The quitclaim, which is the second in the order of time of the deeds, may be dismissed summarily. Having been withheld from record, it clearly would not, as a conveyance, have stood in the way of the creditor. General Statutes, § 4036. It is the warranty deed of January 4th, 1908, or, more strictly speaking, that deed taken in connection with the events of December 3d 1908, which presents the questions calling for discussion.

The defendant concedes that this later deed, although absolute in form, must be treated as a mortgage. Williams v. Chadwick, 74 Conn. 252, 255, 50 A. 720;French v. Burns, 35 Conn. 359, 363. While, as between the parties, good as a mortgage, it was not valid as against creditors of the grantor. Ives v. Stone, 51 Conn. 446;Merwin v. Richardson, 52 id. 223, 237. Clearly this was the situation after the deed was recorded down to December 3d 1908, at least. On that date the parties to the deed and unrecorded agreement had such further transactions that their actual status in relation to the property became conformed to their apparent status as disclosed by the recorded instrument, and their rights, as between themselves, such as the record announced them to be. It then, for the first time, came to speak the truth. The defendant claims that from that moment it became a valid conveyance as to all persons who had not acquired a lien upon the property during the interval when it did not do so. It makes a further and secondary claim that this transaction of December 3d 1908, which was within four months of the adjudication in bankruptcy, did not constitute a transfer as of that date within the meaning of the Bankruptcy Act, but related back to the original transfer, and simply rescued it from its infirmity. This secondary claim has no pertinence except as bearing upon the matter of preference, and, therefore, we have no concern with it in our present inquiry. We have for its purpose only to learn whether or not, the instrument on record having come to state the precise present position of the parties as between themselves, it thereupon acquired validity for the future as against all the world.

We think that it did not. "It has ever been the policy of our laws, to make every man's title to his real estate, as far as practicable, appear of record." Beach v.Osborne, 74 Conn. 405, 411, 50 A. 1019, 1118; Bush v.Golden, 17 Conn. 594, 601. To this policy we have given a rigid adherence, and in pursuance of it we have repeatedly held that a mortgage to be valid as against creditors must "disclose, with as much certainty as the nature of the case will admit of, the real state of the incumbrance upon the property." Hart v. Chalker,14 Conn. 77, 79; Ives v. Stone, 51 id. 446, 456. The reasons underlying this policy are stated at length in the last-named case, and need not be repeated. It would be a distinct relaxation of the strict application which has always been made of that policy, if we were now to hold that a deed, which, although absolute on its face, was, when made, a mortgage, by reason of the secret agreement of the parties, and thus a mortgage which not only did not disclose the real state of the incumbrance, but professed to be a conveyance which divested the grantor of all interest in the property, might be converted back again into what it was in form, and made valid as to everybody according to its tenor, through the operation of another secret agreement. That would be to hold that a deed might have its real character dependent upon the private agreement of the parties entered into after its delivery and record, and without any record indication to the world that a changed condition had arisen. A recorded instrument might thus have one effect one instant, and another the next, according as the parties chose to deal with the situation, and land records come to speak in uncertain and uninforming language, when certainty and information are the ends sought. "Once a mortgage always a mortgage" is an accepted principle applicable here. Lounsbury v. Norton, 59 Conn. 170, 178,22 A. 153. It will not do, if our recording system is to accomplish its intended purpose, to say that it was competent for these parties, however innocently they may have acted, to change their relations to this land or interest in it, as against all the world, by their mere private agreements and action.

This conclusion, that the deed of January 4th, 1908, was not validated as to creditors by the events of December 3d 1908, carries with it the inevitable conclusion that it never became a valid conveyance as to such persons and as to this plaintiff. The judgment in the latter's favor was, therefore, justified. This justification results from a very few salient and unquestioned facts of the situation presented. All other claimed or found facts and allegations of fact are, therefore, superfluous. That being the case, all the questions of law presented by the record and discussed in the briefs relating to the amendment of the complaint, to the rulings excluding testimony offered by the defendant as bearing upon the subject of intent, to the finding and conclusions of the court upon subordinate matters pertinent to the claim of preference, and to the court's ultimate conclusion upon that subject, in so far as it may be claimed to have entered into the judgment, possess no further interest, and need not be considered.

One question remains. The defendant, by rulings upon demurrer and the admission of testimony was prevented from asserting its claim that it should not, in any event, be deprived of the security of the conveyance of January 4th, 1908, except upon the condition that the plaintiff pay to it the amount of certain lien claims which it, relying upon that security, failed to perpetuate, by taking the necessary steps. Were the question one of the existence of a preference, the fact that one security was substituted for another would have been distinctly material, at least if the surrendered security was of equal value with the substituted. Cook v. Tullis, 18 Wall. (85 U.S.) 332, 340; Stewart v. Platt,101 U.S. 731, 743. But the defendant is not by the judgment deprived of any security or property for the reason that it was obtained as a preference. His loss is one which results from a failure to comply with the law of this State governing conveyances and incumbrances. The fault lies at the defendant's own door, in that it withheld from record a document, which, being there, would have disclosed the true state of the title. Neither the plaintiff nor his bankrupt were responsible for that fault. The defendant certainly is in no better position, and presents no stronger claim for equitable protection by way of compensation for what it gave up, than any other mortgagee would who, having accepted and recorded a mortgage invalid for want of a sufficient description of the condition, should ask to be reimbursed for the consideration which he in fact gave before the mortgage should be declared inoperative.

There is no error.

In this opinion the other judges concurred.