MOORE, TRUSTEE IN BANKRUPTCY FOR THE ESTATE OF SASSARD & KIMBALL, INC., BANKRUPT,
v.
BAY
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A trustee in bankruptcy sought to avoid a mortgage on the bankrupt's property that failed to comply with California recording requirements, arguing it should be void as against creditors who extended credit after the mortgage was recorded. The Supreme Court reversed the lower courts' decision, holding under the Bankruptcy Act that a defectively recorded mortgage that is invalid against prior creditors is also invalid against subsequent creditors, and any recovered property must be distributed equally among all unsecured creditors rather than giving the mortgage priority.
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Mr. Justice Holmes delivered the opinion of the Court.
The bankrupt executed a mortgage of automobiles, furniture, show room and shop equipment that is admitted to be bad as against creditors who were such at the date of the mortgage and those who became such between the date of the mortgage and that on which it was recorded, there having been a failure to observe the requirements of the Civil Code of California, § 3440. The question raised is whether the mortgage is void also as against those who gave the bankrupt credit at a later date, after the mortgage was on record. The Circuit Court of Appeals affirmed an order of the District Judge giving the mortgage priority over the last creditors. Whether the Court was right must be decided by the Bankruptcy Act since it is superior to all state laws upon the subject. Globe Bank v. Martin, 236 U. S. 288, 298.
The trustee in bankruptcy gets the title to all property which has been transferred by the bankrupt in fraud of creditors, or which prior to the petition .he could by any means have transferred, or which, might have been levied upon and sold under judicial process against him. Act of July 1, 1898, c. 541, § 70; U.
S. Code, Title 11, § 110. By § 67, Code, Title 11, § 107 (a), claims which for want of record or for other reasons would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate. The rights of the trustee by subrogation are to be enforced for the benefit of the estate. The Circuit Courts of Appeals seem generally to agree, as the language of the Bankruptcy Act appears to us to imply very plainly, that what thus is recovered for the benefit of the estate is to be distributed in “ dividends of an equal percentum on all allowed claims, except such as have priority or are secured.” Bankruptcy Act, § 65, Code, Title 11, § 105. In re Kohler, 159 Fed.
871. Mullen v. Warner, 11 F. (2d) 62. Campbell v. Dalbey, 23 F. (2d) 229. Cohen v. Schultz, 43 F. (2d) 340. Globe Bank v. Martin, 236 U. S. 288, 305.
Decree reversed.
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Sampsell in Bankruptcy v. Imperial Paper & Color Corp., 313 U.S. 215 (U.S. 1941)…eral creditors is complete. Taylor v. Standard Gas & Electric Co., 306 U. S. 307; Pepper v. Litton, 308 U. S. 295; Bird & Sons Sales Corp. v. Tobin, 78 F. 2d 371. But the théme of the Bankruptcy Act is equality of distribution. § 65-a; Moore v. Bay, 284 U. S. 4. To bring himself outside of that rule an unsecured creditor carries a burden of showing by clear and convincing evidence that its application to his case so as to deny him priority would work an injustice. Such burden has been sustained by creditor…
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Prudence Realization Corp. v. Geist, 316 U.S. 89 (U.S. 1942)…t § 65 (a) requires that in liquidations a distribution of “dividends of an equal per centum” shall be made “on all allowed claims, except such as have priority or are secured,” see Globe Bank & Trust Co. v. Martin, 236 U. S. 288, 305; Moore v. Bay, 284 U. S. 4. It recognized also that the equity powers of the bankruptcy court may be exerted to subordinate the claims of one claimant to those of others of the same class where his conduct in acquiring or asserting his claim is contrary to established equitab…
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Buffum in Bankruptcy v. Peter Barceloux Co., 289 U.S. 227 (U.S. 1933)…of the unlawful pledge the Freeman administrator was not the only creditor. The uncontradicted evidence is that there were many other creditors whose claims are still, unpaid. -What the trüstee recovers will be for the benefit of all. Moore v. Bay, 284 U.S. 4. The result would not b'e different, however, if the administrator stood alone. Neither in.his own name nor indirectly, through the trustee is he building any rights upon the pledge or "claiming any preference over others. He has rejected the secur…
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Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- Globe Bank & Tr. Co. of Paducah v. Atkins, 236 U.S. 288 (U.S. 1915)
- In re Moore. Mullen v. Warner (two cases), 11 F.2d 62 (4th Cir. 1926)
- Cohen v. Schultz. in re Conforti, 43 F.2d 340 (3d Cir. 1930)
- Campbell v. Dalbey, 23 F.2d 229 (5th Cir. 1927)