April 15, 1891, and duly recorded April 18 | this mortgage, which he obtained in 1891, as of that year. The defendant has paid some a lien upon the after-acquired property, yet $500 of the indebtedness of the bankrupt for prior to the title of the trustee for the which defendant was liable as indorser on a benefit of creditors, it must be because of note, and he remains liable to pay the note some provision of the bankruptcy law, which of $2,510.75, held by the Passumpsic Savings we think the court ought not to construe or Bank, which was signed by him as surety. endeavor to enforce beyond its fair meaning. The property taken possession of by the defendant under the chattel mortgage was sold by a deputy sheriff on the 11th of June, 1900, and the net avails of the sale, amounting to $922.08, have been paid over by the officer who made the sale, to the defendant. This suit is brought by the trustee to recover from the defendant those net avails on the theory that the action of the defendant in taking possession and making the sale of the property was unlawful under the provisions of the bankrupt act. The defendant had assisted the bankrupt in the purchase of the property and had indorsed notes for him in order to enable him to carry on the business of conducting a livery stable. This mortgage, to secure him for these payments and liabilities, was given some seven years before the passage of the bankrupt act, and at the time it was given it was agreed by the parties to it that the bankrupt might sell or exchange any of the livery stock covered by it, as he might desire, and should, by purchase or exchange, keep the stock good, so that the defendant's security should not be impaired, and it was also agreed that all after-acquired livery property should be covered by the mortgage as security for the debts specified therein. Under this agreement the bankrupt made sales, purchases, and exchanges of livery stock to such an extent that on May 16, 1900, there remained but two horses of the property originally on hand. The stock as it existed on the above date was all acquired by exchange of the original stock, or with the avails of the old stock sold, or the money derived from the business. In Vermont it is held that a mortgage such as the one in question is good. The supreme court of that state has so held in this case, and the authorities to that effect are also cited in the opinion of that court. And it is also there held that when the mortgagee takes possession of after-acquired property, as provided for in this mortgage, the lien is good and valid as against every one but attaching or judgment creditors prior to the taking of such possession. At the time when the defendant took possession of this after-acquired property, covered by the mortgage, there had been a breach of the condition specified therein, and the title to the property was thereby vested in the mortgagee, subject to the mortgagor's right in equity to redeem. This has been held to be the law in Vermont (aside from any question as to the effect of the bankrupt law), both in this case and in the cases also cited in the opinion of the supreme court of Vermont. The taking of possession of the after-acquired property, under a mortgage such as this, is held good, and to relate back to the date of the mortgage, even as against an assignee in insolvency. Peabody v. Landon, 61 Vt. 318, 15 Am. St. Rep. 903, 17 Atl. 781, and other cases cited in the opinion of the supreme court. Whether and to what extent a mortgage of this kind is valid is a local question, and the decisions of the state court will be followed by this court in such case. Dooley v. Pease, 180 U. S. 126, 45 L. ed. 457, 21 Sup. Ct. Rep. 308. The question that remains is whether the taking of possession, after condition broken, of these mortgaged chattels before although within four months of filing the petition in bankruptcy, was a violation of any of the provisions of the bankrupt act. There is no pretense of any actual fraud being committed or contemplated by either party to the mortgage. Instead of taking possession at the time of the execution of the mortgage, the defendant had it recorded The trustee insists that such taking posin the proper clerk's office, and the record session of the after-acquired property, under stood as notice to all the world of the exist- the mortgage of 1891, constituted a preference of the lien as it stood when the mort-ence under that act. He contends that the gage was executed, and that the defendant would have the right to take possession of property subsequently acquired, as provided for in the mortgage. The bankrupt was, therefore, not holding himself out as unconditional owner of the property, and there was no securing of credit by reason of his apparent unconditional ownership. The record gave notice that he was not such unconditional owner. There was no secret lien, and if defendant cannot secure the benefit of defendant did not have a valid lien against creditors, under that act; that his lien might, under other circumstances, have been consummated by the taking of possession, but, as that was done within four months of the filing of the petition in bankruptcy, the lien was not valid. Did this taking of possession constitute a preference within the meaning of the act? It was found by the referee that when the defendant took possession of the property he knew that the mortgagor was insolvent | recognized in the above case. So in this and was considering going into bankruptcy, case, although there was no actual existing but that he did not intend to perpetrate any lien upon this after-acquired property until actual fraud on the other creditors, or any the taking of possession, yet there was a of them, but did intend thereby to perfect positive agreement, as contained in the his lien on the property, and make it avail- mortgage and existing of record, under able for the payment of his debts before which the inchoate lien might be asserted other complications, by way of attachment and enforced, and when enforced by the takor bankruptcy, arose. He then understood ing of possession, that possession under that Ryan's attachment would probably hold the facts of this case, related back good against his mortgage. The question to The question to the time of the execution of the whether any conveyance, etc., was in fact mortgage of April, 1891, as it was only made with intent to defraud creditors, when by virtue of that mortgage that pospassed upon in the state court, is not one of session could could be taken. The taken. The supreme a Federal nature. McKenna v. Simpson, court of Vermont has held that such a mort129 U. S. 506, 32 L. ed. 771, 9 Sup. Ct. Rep. gage gives an existing lien by contract, 365; Cramer v. Wilson, 195 U. S. 408, 25 Sup. which may be enforced by the actual taking Ct. Rep. 95, 49 L. ed. 256. It can scarcely of possession, and such lien can only be be said that the enforcement of a lien by the avoided by an execution or attachment credtaking possession, with the consent of the itor whose lien actually attaches before the mortgagor, of after-acquired property cov- taking of possession by the mortgagee. Alered by a valid mortgage, is a conveyance or though this after-acquired property was subtransfer within the bankrupt act. There is ject to the lien of an attaching or an execuno finding that, in parting with the posses- tion creditor, if perfected before the mortsion of the property, the mortgagor had any gagee took possession under his mortgage, purpose of hindering, delaying, or defraud- yet, if there were no such creditor, the ening his creditors, or any of them. Without forcement of the lien by taking possession a finding to the effect that there was an in- would be legal, even if within the four tent to defraud, there was no invalid trans-months provided in the act. There is a disfer of the property within the provisions of § 67e of the bankruptcy law. Sabin v. Camp, 98 Fed. 974. In the case last cited the court, upon the subject of a preference, held that though the transaction was consummated within the four months, yet it originated in October, 1897, and there was no preference under the facts of that case. "What was done was in pursuance of the pre-existing contract, to which no objection is made. Camp furnished the money out of which the property, which is the subject of the sale to him, was created. He had good right, in equity and in law, to make provisions for the security of the money so advanced, and the property purchased by his money is a legitimate security, and one frequently employed. There is always a strong equity in favor of a lien by one who advances money upon the property which is the product of the money so advanced. This was what the parties intended at the time, and to this, as already stated, there is, and can be, no objection in law or in morals. And so when, at a later date, but still prior to the filing of the petition in bankruptcy, Camp exercised his rights, under this valid and equitable arrangement, to possess himself of the property, and make sale of it in pursuance of his contract, he was not guilty of securing a preference under the bankruptcy law." The principle that the taking possession may sometimes be held to relate back to the time when the right so to do was created is tinction between the bald creation of a lien It is admitted on the part of the counsel for the plaintiff in error that the rule in Vermont, in cases of chattel mortgages of after-acquired property (where possession by the mortgagee is necessary to perfect his title as against attaching or execution creditors), is that, although such possession be not taken until long after the execution of the mortgage, yet the possession, when taken (if it be before the lien of the attaching or execution creditor), brings the property under the cover and operation of the mortgage as of its date,-the time when the right of possession was first acquired. It was also admitted that the supreme court of Vermont has held that when a chattel mortgage requiring possession of the mortgaged prop erty to perfect it as to third persons was executed more than four months before the commencement of insolvency proceedings, the taking of actual possession of the mortgaged property within the four months' period brought that property under the mortgage as of its date, and so did not constitute a preference voidable by the trustee, although the other elements constituting a preference were present. Many decisions of the supreme court of Vermont are cited to this effect. It will be observed, also, that the provisions of the state insolvency law in regard to void and voidable preferences and transfers were identical with similar provisions of the bankruptcy act of 1867. bert v. Vail, 60 Vt. 261, 14 Atl. 542. In Wilson Bros. v. Nelson, 183 U. S. 191, 46 L. ed. 147, 22 Sup. Ct. Rep. 74, it was held that the bankrupt had committed an act of bankruptcy, within the meaning of the bankrupt law, by failing, for at least five days before a sale on the execution issued upon the judgment recovered, to vacate or discharge the judgment, or to file a voluntary petition in bankruptcy. The judg ment and execution were held to have been such a preference, "suffered or permitted" by the bankrupt, as to amount to a violation of the bankrupt act. Although the judgment was entered upon the power of attorney given years before the passage of the Gil-bankrupt act, it was nevertheless regarded as "suffering or permitting" a preference, within that act. This is not such a case. As we have said, there is no finding that the defendant had reasonable cause to believe that by the change of possession it was intended to give a preference. As the state court has said, it was rather a recognition of what was regarded as a right under the previous agreement contained in the mortgage. Under that law it was held that the assignee in bankruptcy stood in the shoes of the bankrupt, and that "except where, within a prescribed period before the commencement of proceedings in bankruptcy, an attachment has been sued out against the property of the bankrupt, or where his disposition of his property was, under the statute, fraudulent and void, his assignees take his real and personal estate, subject to all equities, liens, and encumbrances thereon, whether created by act or by operation of law." Yeatman v. New Orleans Sav. Inst. 95 U. S. 764, 24 L. ed. 589. See also Stewart v. Platt, 101 U. S. 731, 25 L. ed. 816; Hauselt v. Harrison, 105 U. S. 401, 26 L. ed. 1075. Under the present bankrupt act, the trustee takes the property of the bankrupt, in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt, except in cases where there has been a conveyance or encumbrance of the property which is void as against the trustee by some positive | provision of the act. Re Gurcewich, 53 C. C. A. 510, 115 Fed. 87, 89, and cases cited. It is true that in the case in 95 U. S. 764, 24 L. ed. 589, the savings institution had a special property in the certificates which were the subject of dispute, and had possession of them at the time of the bankruptcy proceedings, and it was held that the institution was not bound to return them, either to the bankrupt, the receiver, or the assignee in bankruptcy, prior to the time of the payment of the debt for which the certificate was held. So the state court held in this case, where the defendant took possession under the circumstances detailed, by virtue of his mortgage, and where he had the legal title to the property mortgaged, after condition broken, that the possession thus taken related back to the date of the giving of the mortgage, and in thus enforcing his lien there was not a violation of any of the provisions of the bankruptcy act. Nor does the existence of the Ryan attachment, or the chattel mortgage of March 5, 1900, executed by the bankrupt, and delivered to the defendant, and by him assigned, on the 23d of March, 1900, to the bank, create any greater right or title in the trustee than he otherwise would have. The trustee moved under § 67f, [30 Stat. at L. 565, chap. 541, U. S. Comp. Stat. 1901, p. 3450], on notice to the defendant, for an order that the right or lien under the Ryan attachment should be preserved, so that the same might pass to the trustee for the benefit of the estate, as provided for in that section. This was denied. was denied. And unless such permission had been granted, the lien of the attachment was not preserved by the act, but, on the contrary, it was dissolved under § 67c. The mortgage assigned to the bank, and the attachment obtained by Ryan, having been dissolved by the bankrupt proceedings, the defendant's rights under his mortgage of April 15, 1891, stood the same as though there had been no subsequent mortgage given, or attachment levied. This is the view taken by the state court of the effect of the dissolution of the mortgage and attachment liens under the bankrupt act, and we think it is the correct one. It is stated in the opinion of the state court as follows: "It is urged that with the annulment of the attachment, the property affected by it passed to the trustee as a part of the estate of the bankrupt under the express provisions of 8 671. There would be more force in this contention were it not for the provision that, by order of the court, an attachment lien may be preserved for the benefit of the estate. If there is no other lien on the property, there can be no occasion for such order; for, on the dissolution of the attachment, the property, unless exempt, would pass to the trustee anyway. It is only when the property for some reason may not otherwise pass to the trustee as a part of the estate that such order is necessary. We think such is the purpose of that provision, and that unless the lien is preserved, the property, as in the case at bar, may be held upon some other lien, and not pass to the trustee. Re Sentenne & G. Co. 120 Fed. 436." We think the judgment of the Supreme Court of Vermont was right, and it is affirmed. (196 U. S. 458) See same case below, 69 N. J. L. 270, 55 Atl. 724. Statement by Mr. Justice Brown: This was a suit begun in the supreme court of New Jersey by the Alleghany Company, to recover the amount due upon a promissory note dated at New York, July 16, 1900, given by the plaintiffs in error, under the firm name of I. N. E. Allen & Co., for $1,989.54, upon which payments amounting to $1,000 were indorsed. The declaration was upon the common counts, but annexed was a copy of the note, with a notice that the action was brought to recover the amount due thereon. The defendants pleaded four several pleas: 1. General issue. 2. That the note was executed and delivered in the state of New York to the plain ISAAC N. E. ALLEN et al., Plffs. in Err., tiff company, a business corporation created v. ALLEGHANY COMPANY. under the laws of North Carolina. That when said note was executed and delivered it was provided by the statute of the state of New York thatshall do "No foreign corporation Error to state court-Federal question-full faith and credit-construction of statute of other slate-sufficiency of pleadings-business in this state without having first comity. 1. Whether or not a corporate contract entered into in contravention of the statutes regulating foreign corporations was, under the proper construction of such statutes, ipso facto void, and therefore unenforceable in the courts of another state, does not present a question under the full faith and credit clause of the Federal Constitution which will sustain the exercise by the Federal Supreme Court of its appellate jurisdiction over state courts. 2. A decision of the highest state court that a plea, when construed most strongly against the pleader, does not disclose the defense that the note in suit was given to a foreign corporation in pursuance of business carried on in another state without compliance with the statutory conditions upon which its right to do business there depended, involves purely a local question, which will not sustain a writ of error from the Federal Supreme Court. 3. Whether or not the courts of one state should, on principles of comity, permit an action to be maintained on a contract entered into in contravention of the laws of another state, is not a Federal question which will sustain a writ of error from the Federal Supreme Court to a state court. procured from the secretary of state a certificate that it has complied with all the requirements of law to authorize it to do business in this state, and that the business of the corporation to be carried on in this state is such as may be lawfully carried on by a corporation incorporated under the laws of this state. No foreign stock corporation doing business in this state shall maintain any action in this state, upon any contract made by it in this state, unless, prior to the making of such contract, it shall have procured such certificate." The plea further averred that at the time of the making of the note the plaintiff was a business stock corporation, foreign to the state of New York, and had not theretofore procured from the secretary of state a certificate that it had complied with all the requirements of the law to authorize it to do business within the state, and that the business of said plaintiff was such as might be lawfully carried on by a corporation incorporated under the laws of said state for such or similar business, according to the form of the statute of New York in such case made and provided. 3. The third plea sets out that the note was made and executed in the state of Pennsylvania to the plaintiff company, a foreign corporation created under the laws of North Carolina. That when said note was executed and delivered it was provided by the state of Pennsylvania that "1. No foreign corporation shall do any business in this commonwealth until said state, no foreign corporation could do business there without a certificate of the secretary of state that it had complied with all the requirements of law to authorize it to do business there; and that no such corporation could maintain any action in that state unless, prior to the making of such contract, it had procured such certificate; that plaintiff was a foreign corporation within the meaning of the law, and had not procured a certificate. The third plea was similar in terms, averring the note to have been made in Pennsylvania, whose statutes provided that foreign corporations should do no business in the state without filing a certain statement in the secretary's office and procuring the certificate of the secretary of the commonwealth, and further providing that the agent of any foreign corporation transacting business within the state, without complying with the provisions of the law should be deemed guilty of a misdemeanor. The plea also averred noncompliance with those provisions. corporation shall have established an office | York, and that, under the laws of that or offices and appointed an agent or agents for the transaction of its business therein. 2. It shall not be lawful for any such corporation to do any business in this commonwealth until it shall have filed in the office of the secretary of the commonwealth a statement, under the seal of said corporation, and signed by the president or secretary thereof, showing the title and object of said corporation, the location of its office or offices, and the name or names of its attorney, agent, or agents therein, and the certificate of the secretary of the commonwealth, under the seal of the commonwealth, of the filing of such statement, shall be preserved for public inspection by each of said agents in each and every of said offices. 3. Any person or persons, agents, officers, or employees of any such foreign corporation, who shall transact any business within this commonwealth for any such foreign corporation, without the provisions of this act being complied with, shall be guilty of a misdemeanor, and upon conviction thereof shall be punished by imprisonment, not exceeding thirty days, and by a fine not exceeding one thousand dollars, or either, at the discretion of the court trying the same." The plea further averred that, at the making of the note, the plaintiff was a corporation foreign to the said commonwealth, and had not theretofore filed in the office of the secretary a statement showing the title and object of said plaintiff, the location of its office, and the name of its authorized agent therein, according to the form of said statute; yet, notwithstanding the premises, the plaintiff, at the time of the making of the said note, did business in the said commonwealth of Pennsylvania, contrary to the form of the said statute. The plaintiff demurred to the second and third pleas, and, the demurrer being overruled, the cause was sent down to the Circuit Court of Hudson county for trial on an issue of fact raised by the fourth plea, which is not material here. The trial judge there directed a verdict for the plaintiff, and upon appeal to the court of errors and appeals of New Jersey the judgment of the lower court was affirmed. 69 N. J. L. 270, 55 Atl. 724. Both the supreme court and the court of errors and appeals held that a contract made in contravention of these statutory regulations, though not enforceable in the courts of New York and Pennsylvania, was not ipso facto void, and might be, notwithstanding such statutes, enforced in New Jersey. Plaintiffs in error insist that by this ruling full faith and credit was denied by the courts of New Jersey to the statutes of New York and Pennsylvania, in contravention to § 1, article 4, of the Constitution. By § 709 of the Revised Statutes (U. S. Comp. Stat. 1901, p. 575), authorizing writs of error to the state courts, it is declared that final judgments, where is drawn in question the validity of a statute of any state, or any authority exercised under any state, on the ground of their being repugnant to the Constitution, etc., and the decision is in favor of their validity, may be re-examined here. But the validity of these statutes was not denied. The case turned upon their construction and the effect to be given to them in another state. The New York statute directly, and the Pennsylvania indirectly, Mr. Alexander S. Bacon for plaintiffs forbade the maintenance of actions "in this in error. state." The Pennsylvania statute made it Mr. James A. Gordon for defendant in a misdemeanor to transact business without error. complying with the law. Neither statute declared the contract so made to be void, Mr. Justice Brown delivered the opinion and it was apparently upon this ground that of the court: the New Jersey courts held that the case The defendants, plaintiffs in error here, did not fall within those decisions wherepleaded that the note upon which suit was in it is declared that a contract void by the brought was executed in the state of New 'lex loci contractus is void everywhere. |