In re Federal Contracting Co.

• Decision Date: 14 January 1914
• Docket Number: 2047.
• Citation: 212 F. 688
• Parties: In re FEDERAL CONTRACTING CO. v. WILLS. FAIRBANKS STEAM SHOVEL CO.
• Court: U.S. Court of Appeals — Seventh Circuit

212 F. 688

In re FEDERAL CONTRACTING CO.

FAIRBANKS STEAM SHOVEL CO. v. WILLS.

No. 2047.

United States Court of Appeals, Seventh Circuit.

January 14, 1914

From the agreed statement of facts it appears that on March 25 1913, Federal Contracting Company hereinafter termed the bankrupt, was adjudicated a bankrupt in the District Court of the United States for the Southern District of Illinois Southern Division, upon petition filed December 30, 1912. Prior to such adjudication, and on September 6, 1907, the bankrupt gave a written order to appellant for one two-yard dredge complete, describing the machinery in detail, to be delivered at Beardstown, Ill., price $10,500, for which sum the bankrupt agreed to give its notes, and, at the time and place of delivery, 'to give in security of said notes a first mortgage on the above-named machinery,' and further agreed in writing that 'the title to the goods above ordered shall not pass until paid for in cash or until notes given for the same are fully paid and discharged, but shall rest only in you and the property shall be yours until that time. ' The order was accepted, the dredge delivered, and the notes and a chattel mortgage securing the same given to appellant as agreed. The mortgage was acknowledged and recorded in Cass county, Ill. The notes not having been paid at maturity, new notes aggregating $12,215.30 were, on June 8, 1912, executed and delivered to appellant by the bankrupt for the balance due, and some additional indebtedness for repairs furnished, and a new chattel mortgage was also executed and delivered upon the dredge by the bankrupt to secure the new notes, which mortgage was acknowledged and recorded in Cass county aforesaid. On March 6, 1913, the bankrupt having defaulted in the payment of said notes, the appellant took possession of the said dredge, and advertised it for sale pursuant to the terms of the chattel mortgage and the statutes of Illinois; appellant not being at that time advised of the bankruptcy proceedings. The amount then due upon said notes was the sum of $11,215.30 and accrued interest.

On March 28, 1913, the bankrupt filed its petition in said District Court, setting up that appellant had taken possession of said dredge under and by virtue of said chattel mortgage, and had advertised the same for sale as in said chattel mortgage provided, and alleging, further, that said chattel mortgage was invalid as against the rights of the trustee to be thereafter appointed, that unless such sale were restrained, the dredge would be sold at a sacrifice, and that the said sale should be enjoined. Thereupon the court entered a temporary restraining order. Appellant, without questioning the jurisdiction of the court, appeared, and in its answer alleged that the chattel mortgage was valid, and admitted that it had taken and still had possession of the dredge under the chattel mortgage provisions. It further answered that it had thereby perfected its title thereto prior to the adjudication in bankruptcy, and asked that the injunction be dissolved. On April 18, 1913, no trustee having yet been appointed, it was ordered by the court, on the stipulation of the parties, that the sale might proceed, and that if appellant bought in the dredge, it should hold it subject to the right of the trustee to take possession thereof, should the cause be decided adversely to appellant. The trustee was appointed on April 22, 1913, and substituted for said bankrupt in said cause. Appellant purchased the dredge at the sale. Thereupon the cause was referred to the referee in bankruptcy as a special master to take proofs and report the same and his conclusions as to the law to the court. He thereafter made report, finding that the chattel mortgage was void as to the trustee for the reason that it was not acknowledged and recorded in Cook county Ill., the residence of the bankrupt, that the title of the trustee attached to the dredge as of the date of filing the petition in bankruptcy, and was not affected by appellant's taking possession after that date. The special master thereupon recommended that the motion to dissolve the injunction be denied, and that an order be entered directing the appellant to surrender the dredge to the trustee. Appellant thereupon filed its exceptions to the report, and prayed for a review and revision by the District Court. That court overruled the exceptions and approved the special master's report, from which order this appeal was taken.

The errors assigned are, (1) that the court found that the residence of the bankrupt was in Cook county, Ill.; (2) that the court found that the title of the trustee attached as of the date of filing the petition in bankruptcy, and was prior to that of appellant; (3) that the court refused to dissolve the injunction and made the same perpetual. Other facts appear in the opinion.

John A. Bellatti and Walter Bellatti, both of Jacksonville, Ill., for appellant.

Elbert C. Ferguson, of Chicago, Ill., William Mumford, of Pittsfield, Ill., and John C. Burchard, of Chicago, Ill., for appellee.

Before BAKER, SEAMAN, and KOHLSAAT, Circuit Judges.

KOHLSAAT Circuit Judge (after stating the facts as above).

On the hearing of the appeal herein, appellant orally urged upon the court the question of the right of the trustee to bring and maintain this cause in the District Court, for the reasons:

First. That the District Court had no jurisdiction over the subject-matter of this suit under the decision of the Supreme Court in Harris v. First National Bank, 216 U.S. 382, 30 Sup.Ct. 296, 54 L.Ed. 528. With regard to this objection, it suffices to say that appellant's answer to the merits, and its acts in contesting the merits during the pendency of the suit, amount, beyond question, to a consent to such jurisdiction. Whether under clauses 23a and 23b, construed together with clause 70e as amended in 1903, consent to jurisdiction of the District Court is required need not therefore be considered.

Second. That the District Court, by its finding in the present suit that the bankrupt's principal office and principal place of business under the Illinois corporation and recording statutes was in the Northern District of Illinois, in legal effect found that the District Court of the Southern District of Illinois, sitting in bankruptcy, had no jurisdiction under the national bankruptcy statute to make the adjudication and appoint the trustee. This present cause is an independent and plenary suit by the trustee (who adopted the bill of complaint filed by the bankrupt in anticipation of the appointment of the trustee), professing to act in the right of the bankrupt mortgagor and its general creditors against appellant as mortgagee to recover possession of property taken by appellant under an alleged invalid mortgage. This suit might therefore have been brought as well in a state court. But wherever brought, if appellant desired to challenge the right of the trustee to sue as representative of the bankrupt and its general creditors, appellant should have raised the issue in this suit by a proper plea. Appellant's answer to the merits of the question of title and right of possession of the property was an admission of the trustee's capacity to sue. 31 Cyc. 171, 172. If appellant had filed such a plea, it would then, and only then, have become necessary to consider (with the bankruptcy record introduced into this cause as evidence, and if the bankruptcy record showed the question in a way to be determined collaterally) whether principal office and principal place of business inevitably have identical meanings under the Illinois corporation and recording statutes, and under the National Bankruptcy Act. As the record stands, appellant will not be heard to question the right of the trustee to maintain the present suit.

While upon the merits, other points were made by the trustee, the special master properly held that the only one necessary to be considered was whether the chattel mortgage was acknowledged...