Reardon v. Rock Island Plow Co.

SEAMAN, Circuit Judge (after stating the facts as above). The sufficiency of the bill and amended bill filed by the appellant, as trustee in bankruptcy, to charge the appellee with accountability for receiving a preference within the terms of the bankruptcy act, is unquestioned; and the only issue for review is whether the facts set up in the appellee’s plea are sufficient to avoid such charge, as the trial court ruled thereupon. That the contracts and defaults averred in the plea justified the taking or retaking of the property in question, as between the appellee and the bankrupt, may not be doubted. Under the provisions of the bankruptcy act, however, the facts averred in the bill and' admitted by the plea raise a different question, as to the import and force of such contracts in reference to the rights set up by the trustee ; and we are impressed with no theory of the contract conditions on which the plea can be upheld. The contentions on behalf of the appellee, in support of the plea, rest upon the premise that these contracts were conditional-sale con-tracts — not chattel mortgages or liens upon personal property, within the provisions of paragraph 1 of thé chattel mortgage act of Illinois (2 Starr & C. Ann. St. 1896, c. 95, p. 2743) — and so recognized as valid under authorities cited. On the other hand, the twofold contentions for the appellant are: (1) That no conditional sale appears, for want of contract terms retaining title in the seller, so that the several contracts are without force as liens' under the Illinois act above mentioned; and (2) that, treated as conditional sale contracts, they furnish no defense against the right of action vested in this trustee, through the paramount liens of execution creditors, under the established rule in Illinois in reference to such contracts. So, it is not claimed [657] on the part of the appellee that its taking of the property in controversy can be upheld by way of the enforcement of a lien thereon in any form; and it clearly appears from the above-cited statutory provision in Illinois and the decisions thereunder that the contracts furnish no support for a lien to bar recovery under the bill. The contract terms or conditions set out in the plea and relied upon in the argument for the interpretation sought as a conditional sale make no express provision in reference to the title — neither for retaining it in the seller, nor for its transfer to the purchaser on delivery, although the parties are so named therein — and no direct provision for title to the property delivered to the purchaser appears elsewhere in the contracts exhibited with the plea. Each contract is in the twofold form of an order (by the purchaser) for the goods specified, and an invoice (by llie seller) stating prices and terms of payment, which plainly intends delivery to the purchaser for unrestricted sale, on his own account, in the usual course of business, subject only to the express terms referred to. While those terms distinctly provide, not only that delivery is made “in reliance upon the credit standing and business prospects of the purchaser,” with “indebtedness” for purchase money immediately due, at the seller’s election, for causes stated, but that “right to the possession of all goods” and proceeds of sale '‘shall remain in and inure to” the seller, “with the effect” that the seller “may hold or retake and subject same as security in the manner described by law” for “the indebtedness hereby contracted,” we arc not satisfied that terms appear under which the contract can rightly be interpreted as one of conditional sale, within the authorities, and thus distinguished from a contract of sale with apt terms reserving a purchase-money lien. In view, however, of the conceded averments of fact in reference to liens preserved in favor of the estate under prior executions, we are of opinion that the contracts and possession taken thereunder are equally without force to defeat recovery under the bill, whether the sale be interpreted as conditional or otherwise; and so proceed to considerations of such facts, on the assumption that conditional-sale contracts appear, without determining the actual character of the contracts. The bankruptcy act provides (section 67 b, c, f) for the preservation of liens in favor of the estate, when obtained by afiy creditor of the bankrupt, through legal proceedings or otherwise, and set aside in bankruptcy, with the trustee subrogated therein for their enforcement; and the effect of this provision, in reference to an order in bankruptcy so preserving a lien obtained in legal proceedings, is not open to question (First National Bank v. Staake, 202 U. S. 141, 146, 148, 26 Sup. Ct. 580, 50 L. Ed. 967) as rendering it inoperative as a preference, while the statute recognizes its force otherwise, but “distributes the lien among the whole body of the creditors,” in conformity with the policy of the act. The executions described in the bill were issued in favor of judgment creditors of the bankrupt and in the hands of the sheriff for levy; and when bankruptcy intervened, liens being claimed, the court made ibis statutory order, on notice to the claimants--the only notice, as we believe, intended by the provision — so that the trustee became subrogat658 ed to any lien obtained by such creditors, as of the date of the adjudication of bankruptcy. With' the trustee thus entitled to the benefits of the executions, the remaining inquiries are: (1) Whether a lien was obtained upon personal property in the hands of the bankrupt upon delivery of the executions to the sheriff; and, (2) if so, whether such lien is applicable to property held by him under a contract of conditional sale. As the law of Illinois must govern the answer to both questions, and the rule there is well settled, as we believe, for an affirmative answer to each, no difficulty appears in the solution. Paragraph 9 of chapter 77, Rev. St. Ill. 1874 (2 Starr & C. Ann. St. 1896, p. 2336), provides: “No execution shall bind the goods and chattels of the person against ' whom it is issued, until it is delivered to the sheriff or other proper officer to be executed.” This is a modification of the rule at common law which created a lien from the issuance of the writ, and its effect to create a lien in favor of the execution creditor is recognized in numerous decisions noted in Starr & C. Ann. St., supra. See Frink v. Pratt & Co., 130 Ill. 327, 331, 22 N. E. 819, one of the citations in appellee’s brief. The cases cited contra, declaratory of the rule that an officer receiving the execution has “no interest in the property itself” to maintain an action therefor “until after a levy,” do not touch the present inquiry of lien in favor of the execution creditor, and are plainly inapplicable. Upon the second question,' it is stated in Gilbert v. Nat. Cash Register Co., 176 Ill. 288, 296, 52 N. E. 22, that “whatever may be the rule in other jurisdictions,” this rule is established in Illinois: “If a person agrees to sell to another a chattel on condition that the price shall be paid within a certain time, retaining the title in himself in the meantime, and delivers the chattel to the vendee so as to clothe him with an apparent ownership, a bona fide purchaser or execution creditor of the latter is entitled to protection as against the claim of the original vendor.” The authorities there cited for such rule are deemed sufficient reference ; and we remark that no departure appears from the doctrine thus stated in any of the Illinois cases called to our attention. The decree of the District Court is reversed, therefore, with direction to overrule the plea and proceed further in accord with this opinion.