Rock Island Plow Co. v. Reardon

222 U.S. 354 (1912)

ROCK ISLAND PLOW COMPANY
v.
REARDON, TRUSTEE IN BANKRUPTCY OF BROWN.

No. 98.

Supreme Court of United States.

Submitted December 11, 1911. Decided January 9, 1912. APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

Mr. W.H. Sholes, with whom Mr. Walter H. Kirk was on the brief, for appellant.

Mr. Franklin L. Velde, with whom Mr. Ira J. Covey was on the brief, for appellee.

MR. CHIEF JUSTICE WHITE, after making the foregoing statement, delivered the opinion of the court.

The only question arising for decision is whether the facts set up in the plea of the Plow Company are sufficient to exempt that company from accountability to the trustee for receiving a preference within the terms of the Bankruptcy Act. The consideration which this question received in the opinion delivered by the Circuit Court of Appeals makes unnecessary any elaborate review of the subject.

We assume, for the sake of argument, as did the Circuit Court of Appeals, that the contracts by virtue of which the Plow Company claimed it re-took possession of the property in question were conditional sale contracts, whereby the Plow Company retained in itself the title and right of possession of its goods until paid for by Brown, and that by virtue of such contracts the taking or re-taking of the property in question was valid as between the Plow Company and the bankrupt. The inquiry then is whether the contracts and the possession taken thereunder of the property in controversy by the Plow Company are operative to bar the rights asserted by the trustee in and by force of the subrogation proceedings. The claim of the trustee was in substance, 1, that delivery to the sheriff of executions upon the Sechler and Cordage judgments operated without levy to create liens upon the real and personal property of Brown the judgment debtor within the county; 2, that such liens were paramount to rights in the property possessed by a vendor under a contract of conditional sale; and, 3, that the effect of the subrogation order was to render inoperative as a preference the liens obtained by the judgment creditors through their executions, and to preserve such liens as of the date of the filing of the proceedings in voluntary bankruptcy for the benefit of the estate in bankruptcy. That the Circuit Court of Appeals rightly held the affirmative of these three propositions we entertain no doubt. Upon the first two propositions that court said (p. 658):

"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 Illinois, 327, 331, 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 Illinois, 288, 296, 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."

It is significant that in the argument at bar counsel for the Plow Company make no attempt to point out wherein the authorities cited by the court are not applicable and authoritative on the propositions which they were cited as supporting, and indeed entirely omit any reference to them.

The decision in First National Bank v. Staake, 202 U.S. 141, 146, is authoritative upon the last proposition. As the executions issued upon the judgments, which executions were held by the sheriff for levy, operated to create liens upon the property in question, then in the possession of Brown although held under conditional sale contracts, and such liens were paramount to the rights of the vendor, the Plow Company, it is manifest that the right of the judgment creditors to resort to such property in satisfaction of their liens could not be destroyed by a mere transfer of possession from one party to the contract to the other party thereto. It also follows in reason, we think, that the liens of the execution creditors in the property as they existed when the petition in involuntary bankruptcy was filed could not be subsequently destroyed by the acts of the creditors, the third parties, to the prejudice of the estate, and that if the rights of the bankrupt estate could be lost by the laches of the trustee, the record presents no evidence of such laches. The circumstance that the trustee, in ignorance perhaps of the existence of the conditional sale contracts, first based the right to relief solely upon the claim that an unlawful preference was created through the payment by means of the transfer made by Brown, when insolvent, of an indebtedness to the Plow Company, did not operate to the prejudice of the Plow Company and was plainly insufficient to bar the trustee from asserting an additional right to the relief prayed, viz., the right growing out of the subrogation order made prior to the commencement of the litigation.

Decree affirmed.