Rydberg v. Smith

KOHRSAAT, Circuit Judge (after stating the facts as above). Under the Illinois statute, a chattel mortgage is good as against the mortgagor and those representing him, even though unacknowledged (McDowell v. Stewart, 83 Ill. 538), or unrecorded (Barchard v. Kohn, 157 Ill. 579. 41 N. E. 902, 29 L. R. A. 803). As against creditors and third parties, an unrecorded mortgage prevails over all claimants not armed with an execution or writ of attachment or other process of the courts, subsequent incumbrancers, purchasers in possession, or other adverse possession based upon some lien. Sumner v. McKey, 89 Ill. 127; Union Trust Co. v. Trumbull et al., 137 Ill. 146, 27 N. E. 24; Hooven v. Burdette, 153 Ill. 672, 39 N. E. 1107; Grafe v. Schoenhofen Brewing Company, 78 Ill. App. 570; Allcock v. Loy, 100 Ill. App. 574; Hansen v. Bruckman, 152 Ill. App. 18; Hock v. Mager198 stadt, 124 Ill. App. 140. In re Antigo Screen Door Co., 123 Fed. 249, 59 C. C. A. 248. There can be no doubt but that, under the Illinois statute, Blomberg perfected his lien as against the general creditors of the bankrupts by causing his .mortgage to be recorded before any subsequent title attached. Assuming, then, as is here conceded, that the original execution and delivery of the note and chattel mortgage were made in good faith, that the makers were solvent at the date of the transaction, that there was no fraudulent withholding of the mortgage from record, and that the whole transaction was had in good faith, did the recording of the mortgage within the four-month period bring the subject-matter within the disabilities of section 60a? The referee held that it did, basing" his opinion upon First National Bank of Buchanan Co. v. John A. Connett, Trustee, etc., 142 Fed. 33, 73 C. C. A. 219, 5 L. R. A. (N. S.) 148, and Loeser, Trustee, etc., v. Savings Deposit Bank & Trust Co., 148 Fed. 975, 78 C. C. A. 597. The case first named came to the Circuit Court of Appeals for the Eighth Circuit from the Western District of Missouri. The decision of the Court of Appeals is based upon the construction of the Missouri statute by the Missouri courts, given before the amendment of 1903 to section 60a. “If,” says the court, “one (a mortgage) is given before (the four months period) but is recorded within that period, and, under the local law, the fiction of relation back to the date of execution is not indulged in, but, on the contrary, fhe instrument is deemed to have first come into existence as a mortgage, when recorded, the trustee may likewise defeat it if the condition of a voidable preference appear.” The Illinois Supreme Court in Dean v. Plane, 195 Ill. 500, 63 N. E. 274, has held that a transfer takes place as of the date of the execution and delivery of the note and mortgage. The facts in Loeser v. Savings Deposit & Trust Co., supra, so far as material here, were conceded by the holder of the mortgage to be as follows, viz.: “That at the time the chattel mortgage was executed by Cassie L. Chadwick, to wit, April 27, 1904, and delivered to .T. C. Hill, its president, that said Cassie L. Chadwick was insolvent and that said J. C. Hill as president of said bank had reasonable cause to believe at that time that she was insolvent, and that such condition existed on the 22d day of November, 1904.” (The date when possession was taken and the mortgage recorded.) Manifestly, this case comes within the language and meaning of section 60a. Neither of the two, however, are here in point upon the facts. We do not concur in the construction given to section 60a by the referee and sustained by the District Court as applied to the present case. That section applies to cases “where a preference consists in a transfer.” Here the transfer when made constituted no preference. If the word “required” of section 60a is to be construed as referring to a transaction which would be invalid for all purposes, then it does not apply to the case in hand, for the recording of the mortgage is not required in that sense under the Illinois statute. The recording laws are only for the purpose of notice. Dean v. Plane, 195 Ill. 495-500, 63 N. E. 274. This construction of section 60a does not strike at the object sought to be attained by the amendments of [199] 1903. It would former^ have been an easy matter to make a preferential transfer prior to the beginning of the four-month period, and withhold the transfer instrument from record until after the period had begun to run, thus defeating the benefit contemplated by the creation of that period. Manifestly Cong'ress must have construed the law as it then stood as making the transfer to date from the time it was actually made, without regard to the date of filing for record. Therefore a transfer, though fraudulent, could not have been attacked, even though the instrument evidencing the transfer were recorded within the four months. In order to cure this, the amendment was added, so that no fraudulent transfer constituting a preference could escape the four-month provision unless the recording was effected prior to that period. In Eppstein v. Wilson, 149 Fed. 197, 79 C. C. A. 155, the Circuit Court of Appeals for the Fifth Circuit sustained the lien of an unregistered chattel mortgage given only six days before the petition in bankruptcy was filed to secure an existing debt, on the ground that: “The referee does not find that the bankrupt was insolvent at the time the mortgage was executed, or that there was any fraud in the inception or execution of the mortgage.” This involved the Texas statute which is, so far as the question here involved, substantially like that of Illinois as interpreted by the Illinois courts. In Meyer Bros. Drug Co. v. Pitkin Drug Co., 136 Fed. 396, 69 C. C. A. 240, the same court held that under the Texas statute a chattel mortgage made and delivered more than six months before the filing of the petition in bankruptcy, but recorded only 22 days before such filing, was a valid lien, there being no proof of insolvency or fraud at the time the transfer was made. “We think,” says the court, “it follows that the chattel mortgage in this case was valid between the bankrupt and the holders thereof, and as to all parties shown to be interested in the bankrupt’s estate, whether the said mortgage was recorded or not. It cannot be said, therefore, that the mortgage was one required to be registered or recorded under section 3328 of the Revised Statutes of Texas of 1895, nor that the granting of said mortgage constituted a preference within the four months under section 60a of ihe bankrupt law.” To the same effect is In re Doran, 154 Fed. 467, 83 C. C. A. 265, decided by the Circuit Court of Appeals for the Sixth Circuit in 1907 construing the Kentucky law, which in substance is 'the same as that of Illinois. In re Beckhaus, 177 Fed. 141, 100 C. C. A. 561, relied upon by the trustee herein, is not in point. In that case one Rasmussen sought to recover certain personal property from the trustee claiming the same under and by virtue of a certain unrecorded preferential agreement or conveyance made when the bankrupt was insolvent, which property was never reduced to possession by Rasmussen. The effect of the amendment to section 60a upon the record within the four-montli period and prior to the filing of the petition in bankruptcy of a transfer valid when, made was not before or considered by [200] the court. It was there held that the trustee, under the facts of that case had sufficient title to refuse to recognize the transfer, following, in substance, the decision of this court in Re Bement, 172 Fed. 98. 96 C. C. A. 412. While there may be found in the reports cases which seem to hold contrary to the foregoing; an examination of each case will disclose that the decisions in such cases are based upon construction of the several state statutes by the local or state courts. The order of the District Court appealed from is reversed, with directions to proceed further in accordance herewith.