Lewis v. Manufacturers National Bank of Detroit

PETITIONER: Lewis
RESPONDENT: Manufacturers National Bank of Detroit
LOCATION: Trailways Bus Terminal

DOCKET NO.: 94
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 364 US 603 (1961)
ARGUED: Dec 15, 1960
DECIDED: Jan 09, 1961

Facts of the case

Question

Media for Lewis v. Manufacturers National Bank of Detroit

Audio Transcription for Oral Argument - December 15, 1960 in Lewis v. Manufacturers National Bank of Detroit

Earl Warren:

Number 94, William G. Lewis, Trustee, Petitioner versus Manufacturers National Bank of Detroit.

Mr. Hertzberg.

Stuart E. Hertzberg:

Mr. Chief Justice, may it please the Court.

This matter arises on a writ of certiorari to the Sixth Circuit Court of Appeals.

And the crucial issue involving this matter is the proper interpretation of Section 70c of the Bankruptcy Act, the so-called "Strong-Arm Clause", thus the trustee in bankruptcy for the rights of a lien creditor at the date of bankruptcy whether or not such a creditor actually exist.

The trustee in the case at bar attempted to invalidate a Michigan chattel mortgage which had been belatedly recorded but recorded prior to the date of bankruptcy.

There was no proof of the existence of a simple contract creditor who had extended credit between the date of execution and the date of recording of this mortgage.

This was the type of creditor who was protected under Michigan law.

The referee in bankruptcy invalidated this mortgage under Section 70c and was reversed by the District Court which was then affirmed by the Sixth Circuit Court of Appeals.

The Second Circuit Court of Appeals in the now famous case of Constance versus Harvey with a similar set of facts arrived in a directly contrary conclusion.

In that case, they had involved a New York chattel mortgage --

John M. Harlan II:

More accurately, we have reached two conclusions.

Stuart E. Hertzberg:

A sua sponte opinion, Your Honor --

John M. Harlan II:

That's the way I narrowed (Voice Overlap) --

Stuart E. Hertzberg:

-- took a different position.

Thank you.

I arrived at a different conclusion in a sua sponte opinion.

In that case, a New York chattel mortgage had been recorded prior to bankruptcy but not within a reasonable time as required under New York law.

Again, there was no proof of the existence of a simple contract creditor who extended credit between the date of execution and the date of the recording of this mortgage.

This was the type of creditor who was protected under New York law.

The referee in the District Court took the position, that even though there was no actual creditor who could have invalidated this mortgage without the intervention of bankruptcy, that the trustee was a lien creditor at the date of bankruptcy and that necessarily included within these rights were the rights of a lessor creditor, namely an interim creditor under New York law and invalidated this mortgage.

The Second Circuit, in a sua sponte opinion, affirmed the position of the District Court.

We feel that the decision in the Second Circuit Court of Appeals arrived at the correct conclusion and we are seeking an affirmation by this Court of the decision in Constance versus Harvey.

Now, the trustee's rights under the Bankruptcy Act are not derivative.

He is an independent creature whose rights arise, rights and powers arise by act of Congress.

And there are many instances where his rights and powers are in excess of the actual rights and powers of a natural creditor under state law.

And we feel that Constance versus Harvey is just another instance where you find the rights of the trustee in bankruptcy by reference to the language of the Bankruptcy Act and not by reference to the rights of any actual questionable creditor under state law.

There are many other examples in the Bankruptcy Act where these rights are in excessive creditor's rights under state law.

Section 60 allows the trustee to invalidate preference obtained within four months of bankruptcy.

Many States including Michigan do not give creditors this right under any consideration.Section 67a (1) allows the trustee in bankruptcy to invalidate judicial liens obtained within four months of bankruptcy where there is insolvency.