Rock Island Plow Co. v. Reardon - 222 U.S. 354 (1912)
U.S. Supreme Court
Rock Island Plow Co. v. Reardon, 222 U.S. 354 (1912)
Rock Island Plow Company v. Reardon
Submitted December 11, 1911
Decided January 9, 1912
222 U.S. 354
A bankrupt, in Illinois, within a few days of filing a petition in voluntary bankruptcy, confessed judgments upon which executions were issued and returned unsatisfied but no actual levy was made; thereafter, and before filing the petition, he transferred goods in his possession to the vendor thereof, who claimed they had been delivered on conditional sales; the trustee began subrogation proceedings to preserve the liens of the judgments for the benefit of the estate, to which the judgment creditors assented, and also commenced proceedings to compel redelivery of the goods transferred on ground that lien of judgments inured to estate; the trustee had also claimed a right to recover the goods on the ground of unlawful preference; held that
Under the law of Illinois, delivery to the sheriff of the executions on the judgments operated without levy to create liens upon the property of the judgment debtor within the county.
Such liens were paramount to rights in the property possessed by the vendor under contracts of conditional sale.
The effect of the subrogation order was to render inoperative as a preference in favor of the judgment creditors the liens obtained through the executions and to preserve such liens as of the date of filing the petition for the benefit of the estate. First National Bank v. Staake, 202 U. S. 141.
Liens of execution creditors, as they exist when a petition of involuntary bankruptcy is filed, cannot be subsequently destroyed by acts of the creditors to the prejudice of the estate.
As the holder of the goods had not been prejudiced by the proceedings to recover for unlawful preference, the trustee was not barred from asserting the lien of the judgments on the same goods for the benefit of the estate.
168 F. 654 affirmed.
Whether the plow company or Reardon, as trustee of the bankrupt estate of Frank Brown, have the better right to certain personal property delivered by Brown to the plow company is the question to be decided on this record.
The facts pertinent to the controversy are these: Brown was a merchant and engaged in business at Pekin, Tazewell County, Illinois. On November 13, 1907, he confessed judgment for $247.15 and $400 and costs in favor of a creditor, the Peoria Cordage Company, a corporation, and on the same day an execution was issued, which was received and indorsed by the sheriff of Tazewell County on the following day. On November 23, 1907, Brown confessed judgment in favor of another creditor, the D. M. Sechler Carriage Company, a corporation, for the sum of $282.25 and $400, with costs, and on the same day execution issued, and on the next day was received and indorsed by the sheriff of Tazewell County. While these executions were outstanding and unsatisfied, Brown, on November 25, 1907, delivered merchandise, consisting of gang plows, cultivators, and other farm implements of the value of $500, to the Rock Island Company, appellant, and as the result of the transaction an indebtedness of Brown to the plow company of $406 was extinguished. When the goods were delivered to the plow company, Brown was insolvent, and the plow company had reason to believe that such was the fact. Two days after the delivery of the property to the plow company, Brown filed a petition in voluntary bankruptcy, and Reardon was subsequently qualified as trustee of the bankrupt estate.
Seeking to avail of the provisions of § 67, paragraphs c and f of the Bankruptcy Act,1 the trustee, on January 21, 1908, filed with the referee a petition setting forth the obtaining of the judgments by the Sechler and cordage companies heretofore referred to, that the executions issued on those judgments were liens from the date of receipt by the sheriff on all the real and personal property
of the bankrupt located in Tazewell County, Illinois, and continued to be liens down to the date of the filing of the petition in bankruptcy, and prayed that the liens of said executions might be declared null and void as to the Sechler and cordage companies, but might be preserved served for the benefit of the estate in bankruptcy. The creditors just named entered their appearance and consented that the prayer of the petition be granted, and an order was entered on the date when the petition was filed, granting the relief sought.
Three days after the entry of the subrogation order, the trustee commenced this litigation by filing a bill of complaint on the chancery side of the District Court of the United States, Southern District of Illinois, Northern Division, the same court in which the bankruptcy proceedings were pending. The petition assailed the transfer and delivery of property by Brown to the plow company on November 25, 1907, heretofore referred to, as an unlawful preference. The court was asked to decree a surrender of the property to the trustee, or payment of its value. On March 27, 1908, the plow company filed its plea, and therein in substance contended that the assailed transaction was not an unlawful preference. It averred that it had previously delivered the property to Brown, under and by virtue of the terms of certain written contracts, annexed as exhibits to the plea; that the title of such property "always was and remained in" the plow company; and, that it "lawfully took and repossessed itself" of the property by reason of the failure of Brown to pay for the same according to the contracts. Shortly after, the trustee, by leave, filed an amendment to his bill of complaint. The amendment consisted in detailing the facts as to the obtaining of the judgments of the Sechler and cordage companies heretofore referred to, and an issue of executions on the judgments prior to the transfer of Brown to the plow company, and that the executions
were outstanding at the time of the filing of the petition in bankruptcy. The proceedings before the referee culminating in the order preserving the liens of the judgments for the benefit of the bankrupt estate were next set forth, and it was claimed that the liens thereby preserved were superior to any claim which the plow company had to the goods in controversy. In a plea to the amended bill, the plow company reiterated the facts upon which it based the claim that, in receiving the goods from Brown, it merely took possession of its own property, and had not obtained an unlawful preference. It further sets forth that, when it received the goods, no levy had been made under either of the executions issued upon the judgments obtained by the Sechler and cordage companies, and that, in consequence, it had the superior right to the goods. Want of notice of the subrogation proceedings and the consequent invalidity of the order of subrogation was also averred. It was in addition averred that the judgment in favor of the cordage company was not a valid lien on January 21, 1908, the date when the order of subrogation was made, because, prior thereto, the execution had been returned by the sheriff and filed and docketed in the court which had issued the same. Furthermore, it was averred that the execution on the Sechler judgment had been returned by the sheriff with an indorsement, "no property found," and was filed on February 22, 1908, in the court from which it had issued, and that rights based upon the issue of such execution could not be originated thereafter, viz., on April 16, 1908, when the amended bill was filed.
The cause was heard upon the sufficiency of the plea just reviewed, and the plea was held sufficient. The trustee elected not to file a reply to the plea, and a decree was thereupon entered dismissing the bill. On appeal, the decree of dismissal was reversed by the circuit court of appeals (168 Fed. 654), and this appeal was then taken.