Humphrey v. Tatman

Background

A businessman named Davis executed a mortgage in 1899 to a creditor, Humphrey, covering his present and future stock and fixtures, but the mortgage was not recorded and the goods stayed with Davis. On April 30, 1901, Humphrey, believing Davis was insolvent, took physical possession of the merchandise over Davis’s protests. Davis filed for bankruptcy on May 23, 1901, and a bankruptcy trustee later demanded the goods without paying the mortgage debt. The Massachusetts courts reached a decision for Humphrey, and the case came to the United States Supreme Court.

Reasoning

The central question was whether taking possession under the mortgage before the bankruptcy made the mortgage valid against the bankruptcy trustee. The Court examined Massachusetts law that generally requires recording a mortgage unless the mortgagee receives and keeps the property. Massachusetts precedents had treated a mortgagee’s prior possession as giving a title good against creditors and assignees. Balancing those state decisions, the Court concluded that, under Massachusetts law as interpreted by the state courts, Humphrey’s possession before the bankruptcy gave him a valid claim to the goods and defeated the trustee’s demand. The Supreme Court therefore reversed the judgment against the creditor.

Real world impact

The decision means creditors who take possession of mortgaged inventory before a bankruptcy may keep that property under Massachusetts law. It reduces a bankruptcy trustee’s ability to recover such goods, but the outcome depends on state recording rules and state court interpretations. The opinion notes that if the Massachusetts Supreme Judicial Court later changes its view, this ruling would no longer control.