The opinion of the court was delivered by: BAUMAN
This is an action by a trustee in bankruptcy brought under § 70 of the Bankruptcy Act, 11 U.S.C. § 110, to invalidate the assignment of an aircraft lease made by the lessor bankrupt to defendant bank and to have defendant's interests in it declared subordinate to those of plaintiff trustee.
Plaintiff moves for summary judgment pursuant to Rule 56 of the Civil Rules and defendant cross moves for summary judgment and counterclaims for the proceeds from the trustee's sale of collateral.
The following facts are undisputed. On August 18, 1970 Leasing Consultants, Incorporated (hereinafter "LCI"), a New York corporation, filed a petition for an arrangement under Chapter XI of the Bankruptcy Act in the United States District Court for the Eastern District of New York and was adjudicated a bankrupt some two months later on October 16, 1970.
During an earlier period of relative financial salubrity, LCI purchased a Cessna 411 airplane from Sunny South Aircraft Service, Inc., which it leased to Devcon International
for a sixty month term at a monthly rental of $2,430.40. The Devcon lease was not filed with the Federal Aviation Agency Aircraft Registry in Oklahoma City.
In July, 1967, LCI borrowed $140,963.20 from Chase Manhattan Bank (hereinafter "Chase"). To secure its loan Chase took a "chattel mortgage and security agreement", dated July 12, in the airplane; a written assignment from LCI of the Devcon lease dated July 11; and physical possession of the lease. Chase then recorded the chattel mortgage with the FAA Registry on July 19, but did not record either the Devcon lease or its assignment.
In August and September of 1971 Devcon's monthly rental payments to Chase were not promptly made and subsequently Devcon informed the trustee that it possessed a purchase option on the airplane which it then offered to exercise. The trustee, finding no such purchase option in the lease or in the bankrupt's files, rejected the offer.
By January 1, 1972, Devcon had become delinquent in its rental payments, whereupon Chase seized the airplane with the intention of selling it at public auction. One day before the sale, on March 20, 1972, Devcon commenced action against Chase in the United States District Court for the Southern District of Florida to restrain the sale and reform the lease agreement to include a purchase option at a price of $10.
There ensued a number of conferences among attorneys for Chase, Devcon and the trustee, after which, in January, 1973 Chase and Devcon executed a stipulation of discontinuance of the Florida action pursuant to which Chase assigned all of its interest in the mortgage to Devcon, and Devcon paid Chase $18,000, in full satisfaction of the remaining rentals due. Three months later, in April, the trustee sold the airplane to Devcon for $20,000.
What is at issue here is the $53,460
Devcon paid to Chase under the assigned lease after LCI filed its petition in bankruptcy on August 18, 1970, including the $18,000 paid in January, 1973. The trustee contends that Chase's failure to file LCI's assignment of the lease with the FAA registry left Chase without a perfected security interest in the lease payments making its interest subordinate to his rights and invalid as against him. Chase contends that its security interest in the lease was perfected by taking physical possession of it and by filing the chattel mortgage with the FAA and that recording the assignment was not a condition for perfection. Chase further contends that the trustee sold the airplane without adequate notice to Chase and for less than its fair market value and counterclaims for $55,000.
What remains for my determination is the legal question as to whether, by taking possession of the lease and filing the chattel mortgage with the FAA, Chase perfected its security interest or whether, under the law, more was required.
Section 503 of the Federal Aviation Act, 49 U.S.C. § 1403,
establishes a nationwide recording system for security interests in airplanes. Any conveyance for which recording is required by Section 1403(a) (1) as "(affecting) the title to, or any interest in, any civil aircraft," is invalid except as against those persons with actual notice if it is not recorded. See 49 U.S.C. § 1403(c). Its purpose, as stated in Marsden v. Southern Flight Service, Inc., 227 F. Supp. 411, 415 (M.D.N.C. 1961), is "to protect persons who have dealt on the faith of recorded title . . . and as to whom it would be a fraud to give effect to unrecorded titles to their detriment." See also International Atlas Services, Inc. v. Twentieth Century Aircraft Co., 251 Cal. App. 2d 434, 438, 59 Cal. Rptr. 495, 497, (1967). Like the Federal Ship Mortgage Act,