Fallows v. Continental & Commercial Trust & Savings Bank/Opinion of the Court

Bonds amounting to $20,000 were issued to Fallows, trustee, by the Tengwall Company, October 7, 1905, payable fifteen years thereafter. To secure them a trust deed or mortgage covering all its personal property was executed and duly recorded in Cook county, Illinois, November 1, 1905; an affidavit for the extension of this was filed October 5, 1908; and a second one October 6, 1909. On June 3, 1910, it gave promissory notes to sundry creditors, aggregating more than $25,000; the same day the holders took judgments thereon by confession in the superior court of Cook county; executions were taken out at once and delivered to the sheriff for service, but no levy was ever made.

June 4, 1910, a petition in involuntary bankruptcy was filed against the company; a receiver, immediately appointed, took possession of its property; and an adjudication of bankruptcy followed, June 17th. The Continental & Commercial Trust & Savings Bank was duly selected as trustee August 9th, and shortly thereafter presented a petition asking that the lien created by the executions upon the judgments of June 3d be preserved, and that it be subrogated thereto for the benefit of the estate. (Bankruptcy act, § 67c.) The referee held appellant's answer resisting this petition insufficient, and allowed the subrogation as prayed.

The appellant sought to have all the bonds issued to him allowed as a preferred debt, claiming that they were secured by the above-mentioned trust deed, the lien of which was good as against all the world. The trustee in bankruptcy objected upon the ground that the deed could not prevail over the execution creditors because the Illinois statute limited its effect to three years, subject only to a single extension of twelve months, and even if another were possible, the second affidavit for extension filed October 6, 1909, was one day too late, and therefore unavailing. The referee sustained the objection and entered an order refusing to allow a preference in favor of the bonds. The district court approved this action, and its decree was affirmed by the circuit court of appeals (119 C. C. A. 420, 201 Fed. 82). Thereupon an appeal was taken to this court.

Three assignments of error are relied upon: (1) The order of the referee, undertaking to subrogate the trustee to the judgment creditors' liens, was erroneous and ought not to have been approved. (2) The trust deed of October 7, 1905, constituted a valid first lien upon all the property specified therein when the bankruptcy proceedings were begun. (3) The executions issued upon judgments of June 3, 1910, created no liens upon the bankrupt's property.

Section 67f of the bankruptcy act, approved July 1, 1898 (30 Stat. at L. 544, 565, chap. 541, U.S.C.omp. Stat. 1901, pp. 3418, 3450), is copied in the margin. Its purposes have been pointed out in First Nat. Bank v. Staake, 202 U.S. 141, 50 L. ed. 967, 26 Sup. Ct. Rep. 580, and Rock Island Plow Co. v. Reardon, 222 U.S. 354, 56 L. ed. 231, 32 Sup. Ct. Rep. 164.

The propriety of subrogating the trustee to whatever liens were acquired under the judgments has been sustained by the three tribunals below. There is no proof showing an abuse of the discretion necessarily vested in them, and we accept their action in that regard as correct.

The validity and priority of the liens in question depend on the laws of the state, and § 9, chapter 77, and §§ 1 and 4, chapter 95, of Hurd's Revised Statutes of Illinois, are pertinent. They are copied in the margin. The provisions relative to the continuation of a mortgage after three years have not been definitely and authoritatively construed by the courts of Illinois. The circuit court of appeals concluded that under them a mortgage lien expires as to judgment creditors three years after recordation, subject to one extension of twelve months from the filing of an affidavit in strict conformity with the prescribed requirements. This conclusion harmonizes with the purpose and history of the statute, and we think is correct. The lien claimed by appellant, as against judgment creditors, therefore, did not continue after the 5th day of October, 1909, and the attempt further to extend it was ineffective. Cook v. Thayer, 11 Ill. 617; Porter v. Dement, 35 Ill. 478, 480; Silvis v. Aultman, 141 Ill. 632, 31 N. E. 11; Re New York Economical Printing Co. 49 C. C. A. 133, 110 Fed. 514; Jones, Chat. Mortg. 5th ed. p. 287.

There is no adequate proof that the judgments against the bankrupt were fraudulently obtained. The referee found the executions were delivered to the sheriff for service; and appellant maintains this conclusively shows they were not 'delivered to the sheriff or other proper officer to be executed,' as required by statutute,-that 'service' does not include 'levy.' The record discloses no instruction to the officer to refrain from carrying out the mandate of the writs, nor are there facts which clearly indicate a conditional delivery.

The circuit court of appeals decided that, under the circumstances of the present case, the word 'service' must be taken to include levy, saying: 'In Peck v. City Nat. Bank, 51 Mich. 353, 47 Am. Rep. 577, 16 N. W. 681, it is said: 'Service of an execution includes every act and proceeding necessary to be taken by the sheriff to make the money, and includes the sale of the property when necessary.' The word has been defined to mean 'execution of process.' 35 Cyc. 1432. This construction seems to us reasonable in the case before us. It would be placing a strained meaning upon the transaction to hold that when a party places an execution in the hands of a process officer, the latter is not charged with the duty, without further instructions, to proceed to make the money called for by the writ, which itself commands him to do so. In the absence of directions not to levy, it is the duty of the officer to obey the directions and commands of the writ.'

We are of opinion that the courts below properly interpreted the finding of the referee, and that the execution creditors secured valid prior liens upon the bankrupt's property. The decree is affirmed.