In rejecting claimant's petition, the referee held that the facts recited above wholly failed to establish a bailment of the truck, and that if the "lien" which the parties sought to create were in the nature of a chattel mortgage, it would be invalid as to creditors despite the above amendment to the Motor Vehicle Code.
It is clear that under the facts of this case no bailment of the truck was intended or created between the claimant and the bankrupt, and no further consideration need be given to this question.
On the question whether the 1939 amendment to the Motor Vehicle Code does not afford protection against the creditors of the owner of a motor vehicle to one who has a lien thereon, valid as between him and the owner, and has had such lien noted on the title cretificate, further consideration must be given. On principle, there is much to be said for the claimant's argument. This question was most thoroughly analyzed in a well reasoned opinion by Judge Maris, then a district judge, in Re Fell, D.C., 16 F.Supp. 987, with respect to a 1933 amendment to Section 208 of the Pennsylvania Motor Vehicle Act, 75 P.S. § 38, which amendment was substantially identical to the 1939 amendment to Section 203(b) of the Act set forth above. After pointing out that, under Pennsylvania law, a pledge is valid against a purchaser from or an execution creditor of the pledgor, even where the pledgee did not take possession of the pledged article, provided that the purchaser or creditor has notice of the pledge, Judge Maris concluded that the notation of the pledgee's lien on the certificate of title was such notice to the trustee in bankruptcy, who stood in the position of an execution creditor, as made it unnecessary for the pledgee to take possession.
At that time there were no reported decisions by the State Courts of Pennsylvania interpreting this amendment. Thereafter, however, the Pennsylvania Superior Court, in the case of Kaufmann & Baer v. Monroe Motor Line, 124 Pa.Super. 27, 187 A. 296, construed Section 208 of the Pennsylvania Motor Vehicle Code to be applicable to certificates of title issued only after there had been a change in ownership of the vehicle in question by operation of law and judicial sale and not to certificates of title generally. Following this decision the Circuit, in an opinion by Judge Maris, now a member of that court, held that the construction of the Motor Vehicle Code by the Pennsylvania Courts was binding on the federal courts sitting in Pennsylvania, and that a pledge of a motor vehicle, unaccompanied by change of possession, was not, under this amendment, valid against creditors, even though a lien had been noted on the certificate of title. Taplinger v. Northwestern National Bank, 101 F.2d 274.
The 1939 amendment to Section 203(b) of the Pennsylvania Motor Vehicle Code, however, is not limited to certificates issued after a change in ownership of the vehicle by operation of law, but appears to apply to all certificates of title to motor vehicles. In the absence of a contrary construction by the Pennsylvania courts, therefore, my inclination would be to follow the reasoning in the Fell case, that notice on the certificate of title would be sufficient to render a pledge of a motor vehicle valid between the parties effective as against creditors of the pledgor. It does not appear that this amendment has been construed by the appellate courts of Pennsylvania having state wide jurisdiction, but it has been construed and passed upon in two decisions of the Common Pleas Courts of Pennsylvania. I have some doubt from the decisions whether Common Pleas Courts, without state wide jurisdiction, speak for the State in expressing the law of the State, and consequently whether a federal court is bound to follow their decisions in deciding a state question. Decisions of Common Pleas Courts determining the law of the state, however, are persuasive and may properly be followed by this Court in the absence of other pronouncements as to the state law. Fidelity Union Trust Co. v. Field, 311 U.S. 169, 61 S. Ct. 176, 85 L. Ed. 109; Charmley Drug Shop v. Guerlain, 3 Cir., 113 F.2d 247; North Philadelphia Trust Co. v. Smith, 3 Cir., 13 F.2d 585.
In Personal Finance Co. v. Cohen, 43 Pa.Dist. & Co. R. 215, the Common Pleas Court of Washington County held that the 1939 amendment to Section 203(b) of the Pennsylvania Motor Vehicle Code was not intended by the Legislature to validate as against creditors a chattel mortgage of a truck, created in another state and valid between the parties, even though the encumbrance was duly noted on the certificate of title. The same result was reasched by the Common Pleas Court of Erie County in Morse v. Phillips, 44 Pa.Dist. & Co. R. 146, in which it was indicated that the 1939 amendment was meaningless as drafted in view of the prior law in Pennsylvania with respect to liens without a change of possession.
Since there appears to be no decision to the contrary by the Pennsylvania Courts,
the law of Pennsylvania, since the 1939 amendment to the Motor Vehicle Code, still appears to be that a lien on a motor vehicle, valid between the parties, is invalid as to creditors where there has been no change of possession, and it is immaterial that a notation of such lien has been made on the certificate of title. Accordingly, that construction of the Pennsylvania law is accepted.In view of the Kaufmann decision and the language used by the Superior Court in the opinion of Ambler Nat. Bank v. Maryland Credit Fin. Co., 147 Pa.Super. 496, 24 A.2d 123, I am inclined to believe that the Pennsylvania Superior Court would arrive at a similar result in interpreting the 1939 amendment to § 203(b) as it did in its interpretation of § 208 in the Kaufmann case.
Claimant further challenges the correctness of the order of the referee denying his alternative prayer to be subrogated to the rights of the Atlantic Finance Corporation. Atlantic Finance Corporation was a bailment lessor of the truck and apparently had permitted a certificate of title to be issued to the bankrupt showing an encumbrance in its favor. In order to get this encumbrance removed from the certificate of title and to obtain a new certificate of title showing an encumbrance in his own name in the amount of money he advanced to the bankrupt, claimant paid off the balance due Atlantic. The referee denied the claimant the right to subrogation, however, on the ground that he merely paid off the amount due Atlantic and did not take an assignment of such rights as it had under the bailment lease.
I think there is considerable merit to claimant's contention that the right to subrogation depends on equitable principles rather than on contract or formal assignment, but on the record before me the evidence offered by claimant fails to establish that a lien existed in favor of Atlantic which was valid against the creditors of the bankrupt in whose name the truck was registered. Therefore, even if claimant were subrogated to such lien as Atlantic may have had, his claim to enforce that lien against the truck or its proceeds must fall.
The order of the referee is affirmed.