In re Danville Hotel Co.

• Decision Date: 15 June 1929
• Docket Number: No. 260-D.,260-D.
• Citation: 33 F.2d 162
• Parties: In re DANVILLE HOTEL CO., Inc.
• Court: U.S. District Court — Eastern District of Illinois

33 F.2d 162 (1929)

In re DANVILLE HOTEL CO., Inc.

No. 260-D.

District Court, E. D. Illinois.

June 15, 1929.

COPYRIGHT MATERIAL OMITTED

Jones, McIntire & Jones, of Danville, Ill., and W. E. Norvell, Jr., of Nashville, Tenn., for mortgagees and Caldwell & Co.

Gunn, Penwell & Lindley, of Danville, Ill., for trustee.

Acton, Acton & Snyder, of Danville, Ill., and Dent, Dobyns & Freeman, of Chicago, Ill., for Charles Benson, Inc., and Ætna Casualty & Surety Co.

Clark & Hutton, of Danville, Ill., for Arthur A. Marer & Co.

R. R. Bookwalter, of Danville, Ill., for O. K. Yeager.

Acton, Acton & Snyder, of Danville, Ill., for Carson-Payson Co.

Good, Childs, Bobb & Wescott, of Chicago, Ill., for E. M. Weiner Co.

O. D. Mann, of Danville, Ill., for Clifford Shields.

Charles Troup, of Danville, Ill., for Danville Brick Co.

Lewman & Carter, of Danville, Ill., for Hartmann & Co.

Allen & Dalbey, of Danville, Ill., for Vermilion County Telephone Co.

LINDLEY, District Judge.

After the adjudication in bankruptcy and election of a trustee herein, the latter filed his petition before the referee for a sale of all assets belonging to the bankrupt, consisting of a lot with hotel building and equipment thereon, free and clear of liens. On May 23, 1923, an order of the character prayed for was entered, after the trustees under the general deed of trust and numerous lien claimants had filed answers, with prayers for affirmative relief, and various issues had been presented to the referee and were pending before him. This order directed the sale of the property free and clear of liens and transferred any and all liens to the proceeds of sale. The appraised value of the real estate was $843,536; that of the personal property $95,177.07. All of said property was sold for the sum of $622,500; $56,216.52 being the amount received for the personal property, and $566,283.48 for the real estate.

After the sale the referee proceeded to a hearing and adjudication of the various issues pending before him. The chief controversies related to the question of whether the original contractor and various subcontractors and materialmen were entitled to mechanics' liens, under the statute of the state of Illinois, as against the trustee in bankruptcy, hereinafter termed trustee, the trustees under the general mortgage, hereinafter termed mortgagees, and all other persons. The mortgagees claimed a prior lien by virtue of their real estate mortgage to the extent of $700,000 of par value of bonds. Various controversies were presented arising out of the questions of priorities between the alleged mechanic lienholders, the trustee, and the mortgagees. There was presented also a controversy between the trustee and Caldwell & Co. as to a fund, aggregating more than $63,000, which the trustee claimed belonged to the estate. Caldwell & Co., underwriters of the bond issue, had retained out of the proceeds thereof, over and above its contracted profit, the sum of $40,000, and in addition had paid out to mortgagees and others $23,000 from said proceeds, all of which the trustee claimed should be paid to the bankrupt estate. The vendor of the furniture and fixtures claimed a mechanic's lien upon the real estate, because of alleged addition to the improvement thereof. All of these controversies have been disposed of by the referee, and certificates of review have been filed as to certain matters thereof, which are hereinafter discussed separately.

The Claim of Liberty Central Trust Company and H. J. Miller, as Mortgagees.

The Liberty Central Trust Company and Miller as trustees, being also trustees under the real estate mortgage securing bonds, received from the bankrupt a chattel mortgage covering all furniture, furnishings, crockery, glass, silverware, carpets, utensils, screens, curtains, fixtures, window shades, vacuum cleaners, and all other chattels of every description on July 2, 1926, and recorded the same on the same date. The form of the mortgage complies with the Illinois statute. The evidence shows that the bankrupt, on that date, did not have or own any chattels whatsoever, and did not acquire any until after December 1, 1926. The mortgagees did not at any time take possession of any of the property described in said mortgage. The owner remained in possession of the same until bankruptcy, whereupon the trustee entered into possession. Thus the question is raised as to whether a mortgage upon chattel property, having no existence at the time of the execution of the mortgage, shall apply to after-acquired property as against a trustee in bankruptcy, who under the Bankruptcy Act occupies the position of a judgment creditor armed with an execution. The solution of this question depends upon the law of Illinois.

In Titus et al., Trustees, v. Mabee, 25 Ill. 232, a suit in equity, it was held that a chattel mortgage or deed of trust on chattels does not create a lien on personal property acquired after its execution as against creditors holding executions against the mortgagor, unless the mortgagee takes possession before the liens of the executions attach. That having been a suit in equity, the rule there recognized must be taken as the rule of law of Illinois in both equity cases and lawsuits. The rule apparently has not been modified. It was followed in Standard Brewery v. Nudelman, 70 Ill. App. 356, affirmed 172 Ill. 337, 50 N. E. 190; Schemerhorn v. Mitchell, 15 Ill. App. 418; Tennis v. Midkiff, 55 Ill. App. 642; Pinkstaff v. Cochran, 58 Ill. App. 72. The courts of Illinois have repeatedly held that a chattel mortgage covering all crops to be grown during a certain year on specified premises is void as to crops thereafter planted and grown, and that to make it effectual some new act of the mortgagor is necessary. Roy v. Goings, 6 Ill. App. 162, affirmed 96 Ill. 361, 36 Am. Rep. 151; Gittings v. Nelson, 86 Ill. 591; Stowell v. Blair, 5 Ill. App. 104. Other cases holding that a chattel mortgage is void as to subsequently acquired property as to judgment creditors are Hunt, Trustee, v. Bullock, 23 Ill. 258; Borden v. Croak, 33 Ill. App. 389, affirmed 131 Ill. 68, 22 N. E. 793, 19 Am. St. Rep. 23, and Palmer v. Forbes, 23 Ill. 237.

The United States Circuit Court of Appeals for the Seventh Circuit has previously considered this question and in the case of In re Mossler Co., 239 F. 262, at page 265, said: "It is clear that, until possession was taken, the lease, as a chattel mortgage or equitable lien, was without efficacy." The court went on to say that in Illinois an express power, to take possession of the property covered even by a fraudulent mortgage will protect the mortgagee who has actually seized the property. The language of the leading case in Illinois, Hunt v. Bullock, 23 Ill. 258, at page 264, is particularly pertinent. There the court said: "By its rules, all such efforts at a sale or mortgage are regarded as nothing more than a mere executory agreement for a sale, and for its breach," the law "gives compensation in damages, as for the nonperformance of any other executory contract. But, on the contrary, if such a mortgage is so far executed that the after-acquired property has passed into the hands of the mortgagee, under the original mortgage, it has been held to create an equitable lien which a court of chancery will recognize and enforce, unless prior liens have attached. Until possession is acquired by the mortgagee, the court will not afford relief, but will leave the party to his remedy at law, which is adequate and complete. If it was otherwise, it would be to decree a specific performance of an agreement for the sale of personal chattels, which the court will rarely do, as a matter of original jurisdiction. That cases may be found which hold that such agreements create an equitable lien on future acquired or created property, without reference to its having been reduced to possession, is no doubt true, but they seem to be opposed to the weight of authority, and in violation of the rules of equity jurisprudence. * * * To hold * * * that the principles of equity jurisprudence will uphold such instruments is to decide that what has been prohibited by statute, and what has been held by courts of law to constitute a fraud, is in equity legal, and has claims upon the chancellor to enforce it as equitable and just. Whatever may have been held in other states, in the absence of such a statute as ours, or such decisions as have been made in our courts of law, in this state, we feel wholly unauthorized to override the statutes and former decisions by assuming jurisdiction, and giving these instruments validity." The order of the referee denying validity to the chattel mortgage is affirmed and approved.

However, the mortgagees contend further that, if the chattel mortgage given them is invalid, the furnishings hereinafter mentioned, when installed, became accessions to the freehold, fixtures constituting a part of the real estate, and that therefore their real estate mortgage preserves to them a lien covering the same superior to the title of the trustee. The property in question included all furniture, electric lamps, draperies, curtains, tapestry, window shades, and carpets. In laying the carpets, a material known as ozite was first glued to the rough cement floor of the rooms; thereupon the carpet was laid over the ozite and glued at the edges thereof — that is, at the walls — and nailed to wooden carpet strips, especially designed and sunk into the walls at the foot thereof and at the edge of the floor, and sunk into the cement. The carpet was all specially ordered, selected, manufactured, made, sewed, and measured to fit the various rooms in the hotel building. The tapestry consisted of certain decorative tapestry hung in the lobby and club rooms, tacked to the wall. Bedroom and table electric lamps were fixed to the electric connections by ordinary sockets. The term "lamps," as here used, does not include electric...