HOLMES, Circuit Judge.
The question in this case is: In what way, if any, is the Mississippi purchase-money lien affected by the bankruptcy act? This is a federal question, but it is one which in this case depends partly upon property rights given by state statutes in the construction of which we follow state decisions.
We are controlled by federal law in determining what liens are preserved in bankruptcy; what character of title to the debtor's property is vested in the trustee in bankruptcy; and, as to such property, what rights, remedies, and powers are deemed vested in the trustee. We look to state law to ascertain what property the debtor owned immediately preceding the time of bankruptcy; what liens thereon, if any, then existed; the character thereof; and the order of priority among the respective creditors holding such liens. More specifically in this case, we determine under state law whether the purchase-money lien creditor would have had priority over a creditor then holding a lien thereon by legal or equitable proceedings.
The facts are undisputed: In April, 1938, the bankrupt purchased in Mississippi an automobile truck, executing in favor of the vendor an installment note for part of the purchase price, payable in monthly installments, and a conditional sales contract, which was not recorded, in which the title to said truck was retained in the vendor until the note should be fully paid. Before the first installment was due, the note and contract were assigned for value to appellant, which held the same at the time of bankruptcy (November 19, 1938), when there was a balance due thereon of $360, which includes interest and other charges, some of which may be distinct from the purchase price. The bankrupt operated a grocery store and traded in cattle under his own name, using the truck mainly in the latter business. The truck was turned over to the trustee in bankruptcy, who sold it and holds the proceeds in lieu thereof.
Appellant filed its claim in bankruptcy, asserting a statutory purchase-money lien on said truck, and praying that the proceeds of the sale thereof be applied to the balance due it on the purchase price. It is contended that the Mississippi sign statute defeats the claim of appellant; that, if the sign statute is inapplicable, the lien of the trustee is superior to the lien of appellant; and that, if the lien of the trustee is not superior to the lien of the vendor where notice is given to the trustee, the notice in this case is insufficient.
This is not a claim for reclamation of the property. Although the seller and its assignee took and retained until the time of bankruptcy a conditional sales contract, the appellant in this proceeding does not stand upon this contract, but concedes that the debtor was a trader using the truck in its business, that the contract was not recorded, and that the sign statute cuts off a secret claim of ownership of this character.
We come then to the question first stated, whether or not the purchase-money lien is affected by the bankruptcy act. So far as this is a federal question, it cannot rest upon any such shifting basis as whether the trustee had notice of the lien. The rights of the trustee were fixed by federal statutes as of a date prior to his appointment, and before any one could know with certainty who would be appointed. The title of the bankrupt to the truck was vested in the trustee by operation of federal law. He is not such a purchaser
Without reference to any special lien or class of liens, the general rule is that a trustee in bankruptcy is not an innocent purchaser, but takes the property of the bankrupt subject to all valid liens, claims, and equities existing against it in the hands of the bankrupt at the time the petition is filed, except in cases where there has been a conveyance or incumbrance of the property which is void as against the trustee by some positive provision of the act, and except as affected by section 70, sub. c of the Chandler Act.
The Mississippi statute gives the vendor of personal property a lien thereon for the purchase money while it remains in the hands of the first purchaser or of one deriving title or possession through him with notice that the purchase money was unpaid.
The judgment creditor succeeds only to such rights in the judgment debtor's property as the judgment debtor had. He takes the place of the judgment debtor and is barred by all the equities which bar the judgment debtor. He can assert no demand that the judgment debtor is precluded from asserting.
Two later Mississippi decisions are cited,
In the Pearson case, supra [146 Miss. 225, 110 So. 710], the court seemed to be of the opinion that "a contract lien secured from the purchaser of the goods within four months preceding the bankruptcy" should be set aside under the bankruptcy act (which is a federal question), and the creditor required to "take its place in line with the other creditors of the bankrupt." The lien relied on here is not contractual, nor is it one created by legal proceedings; it arose solely by virtue of the Mississippi statute.
The decision to restore custody of the property to the trustee in bankruptcy turned upon whether or not the trustee took title to the property with notice that the purchase money was unpaid. This also was a federal question, because the title of the trustee to the property of the bankrupt vests by virtue of the federal statute, and, prior to the amendment of 1910, the trustee was vested with no better right or title than belonged to the bankrupt at the time the petition in bankruptcy was filed.
The final and vital question presented on this appeal was not decided in the Pearson case. The court referred to an enrolled judgment creditor as "a lien-holder who prevails over creditors who have not secured judgment," and indicated that the lien of an enrolled judgment is stronger and more far-reaching than that of an execution
In Norris v. Trenholm,
Our conclusion in the instant case is that the trustee merely stands in the shoes of the bankrupt, and can assert no better title to the truck than the bankrupt had. The purchase-money creditor, being first in time, is first in right; and the trustee in bankruptcy cannot defeat its claim by asserting rights of a creditor holding, under state law, a lien by legal or equitable proceedings. We decide nothing with reference to paragraph c of Section 67 of the Bankruptcy Act of 1938,
The judgment appealed from is reversed, and the cause remanded to the district court for further proceedings not inconsistent with this opinion.