In re Sturtevant

• Decision Date: 11 April 1911
• Docket Number: 1,755.
• Citation: 188 F. 196
• Parties: In re STURTEVANT et al. v. SMITH. RYDBERG
• Court: U.S. Court of Appeals — Seventh Circuit

188 F. 196

In re STURTEVANT et al.

RYDBERG v. SMITH.

No. 1,755.

United States Court of Appeals, Seventh Circuit.

April 11, 1911

Appellant appeals from the order of the District Court disallowing all rights and benefits asserted under a certain chattel mortgage securing the claim of his testator against the bankrupts.

The facts are stipulated into the record as follows, viz.: That on April 30, 1907, the bankrupts duly executed and delivered to said testator, John Blomberg, in his lifetime, their promissory note for $2,000 due on or before three years after date, together with their chattel mortgage securing payment thereof, covering certain chattel property consisting of a building situate in the city of Rockford, Ill.; that said note and mortgage were given for a then present and valid consideration of $2,000, paid over to said bankrupts; that said mortgage was not recorded until October 5, 1909, 15 days prior to the filing of the petition in bankruptcy; that Blomberg had been pressing the bankrupts for the payment of overdue interest, but had been able to collect only a small portion thereof; that practically all the liabilities scheduled by the bankrupt had accrued since April 30, 1907, and prior to the filing of the mortgage; that the creditors had no knowledge of the existence of the mortgage until it was filed for record; that no fraud is claimed other than the withholding of said mortgage from record; and that said bankrupts were not insolvent at the time of the execution and delivery of said note and mortgage. It was further stipulated that the trustee should sell said building for $800, which sum should stand in lieu of the building and abide the court's adjudication of Blomberg's rights.

Subsequently to the entry of the order of the court disallowing the claim of said Blomberg to the security and benefit of said mortgage he, said Blomberg, departed this life testate, and his said executor was substituted herein. The referee held that the filing of the mortgage for record within the four months period created a preference, and disallowed the same, but allowed the note as a general claim against the bankrupts' estate. This order, on petition for review the District Court approved and confirmed.

The only question presented is whether the recording of the chattel mortgage within the four-month period, under the circumstances of this case, created a preference within the meaning of section 60a of the bankruptcy act. Section 60a reads as follows, viz.: 'A person shall be deemed to have given a preference, if, being insolvent, he has, within four months of the filing of the petition, or after the filing of the petition, and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debts, than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required. ' See, also, section 3b of the act.

The Illinois statute covering chattel mortgages (Hurd's Statutes 1908, c. 95, Sec. 1) provides: 'That no mortgage, trust deed or other conveyance of personal property, having the effect of a mortgage or lien upon such property, shall be valid as against the rights and interests of any third person, unless possession thereof shall be delivered to and remain with the grantee or the instrument shall provide for the possession of the property to remain with the grantor and the instrument is acknowledged and recorded as hereinafter directed. And every such instrument shall for the purpose of this act be deemed a chattel mortgage.'

G. E Johnson, for appellant.

Richard F. Locke, for appellees.

Before GROSSCUP, BAKER, and KOHLSAAT, Circuit Judges.

KOHLSAAT 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. Magerstadt, 124 Ill.App. 140. In re Antigo Screen Door Co., 123 F. 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 F. 33, 73 C.C.A. 219, 5 L.R.A. (N.S.) 148, and Loeser, Trustee, etc., v. Savings Deposit Bank & Trust Co., 148 F. 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...