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In re Royal Electrotype Corp.

decided as amended october 16 1973.: September 10, 1973.

IN THE MATTER OF: ROYAL ELECTROTYPE CORPORATION, DEBTOR, ALEX SHAW AND CATHERINE SHAW, CLAIMANTS UNDER RECLAMATION PETITION, APPELLANTS


Resubmitted Under Third Circuit Rule 12(6) September 4, 1973. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.

Seitz, Chief Judge, and Aldisert, Circuit Judge. Resubmitted: Seitz, Chief Judge, and Aldisert and Gibbons, Circuit Judges.

Author: Aldisert

Opinion OF THE COURT

ALDISERT, Circuit Judge.

This appeal from a district court order affirming a bankruptcy referee's decision requires us to decide whether the law of Pennsylvania relating to consequences of improper filing of a security instrument by a filing officer has been changed by the passage of the Uniform Commercial Code, 12A PENN. STAT. ANNO. § 9-303.

Appellants, creditors of the bankrupt, Royal Electrotype Corporation, caused to be filed in the office of the Philadelphia Prothonotary and the Pennsylvania Secretary of the Commonwealth an instrument entitled, "Security Agreement," in which the bankrupt gave appellants a security interest in accounts receivable. The Commonwealth Secretary erred in indexing the agreement in its records and showed appellant as the debtor and the bankrupt as the creditor. Although this erroneous information was also listed on the receipt given the appellant at the time of filing, the error was not discovered until after Royal was adjudicated a bankrupt. Appellants filed a reclamation petition with the referee requesting that the receiver deliver to them those proceeds assigned under the Security Agreement. The referee denied the petition and the district court affirmed, holding that the security interest was not perfected because of the improper filing, relying on Pennsylvania case law that "it is the duty of a person offering an instrument for record to see that it is both properly recorded and properly indexed." Commonwealth to the Use of Orris v. Roberts, 392 Pa. 572, 586, 141 A.2d 393, 400 (1958); Prouty v. Marshall, 225 Pa. 570, 576-77, 74 A. 550, 552 (1909): Jarrell v. Fidelity-Philadelphia Tr. Co., 33 Pa. D & C 2d 143, 146 (1963). This appeal followed.

Pennsylvania law controls this issue. The transaction between Royal and appellants was conducted under Pennsylvania law. Upon the adjudication of bankruptcy, the trustee has "the benefit of all defenses available to the bankrupt as against third persons, including . . . personal defenses." § 70(c) of the Bankruptcy Act, 11 U.S.C. § 110(c). "Except in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State. And whether the law of the State shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern. There is no federal general common law."*fn1 Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 82 L. Ed. 1188, 58 S. Ct. 817 (1938). "This is not a diversity case but the same principle may be applied for the same reasons. . . ." Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 18 L. Ed. 2d 886, 87 S. Ct. 1776 (1967).

That Pennsylvania law controls does not lighten our task because the precise issue presented by this appeal has not been adjudicated by the courts of that state. Conceding that Pennsylvania case law prior to the passage of the Uniform Commercial Code in 1954 holds that the party recording an instrument has the obligation to see that it is recorded properly, appellants rely on § 9-303:

(1) A security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken. Such steps are specified in Sections 9-302, 9-304, 9-305, and 9-306. If such steps are taken before the security interest attaches, it is perfected at the time when it attaches.

Appellants observe that the required steps were taken by them and that, therefore, the security interest was perfected: "A financing statement must be filed to perfect all security interests." § 9-302. "A security interest in chattel paper or negotiable documents may be perfected by filing." § 9-304.*fn2 They contend that their security interest was perfected by filing. They rely on § 9-403(1):

Presentation for filing of a financing statement and tender of the filing fee or acceptance of the statement by the filing officer constitutes filing under this Article.

Accordingly, their interest was perfected, they argue, as soon as the statement was presented, accepted, and the filing fee tendered.

Because the Pennsylvania courts have not addressed themselves to this precise issue we must ascertain the state law from all available data. "If there be no decision by [the State's highest court] then federal authorities must apply what they find to be the state law after giving 'proper regard' to relevant rulings of other courts of the State. In this respect, it may be said to be, in effect, sitting as a state court. Bernhardt v. Polygraphic ...


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