Hooven, Owens & Rentschler Co. v. Burdette

Mr. Justice Phillips delivered the opinion of the court:

The first question which we are called upon to consider in this case is, as to whether appellants the Hooven, Owens & Rentschler Company and Van Allens & Boughten had a valid lien upon the machinery and presses sold by them to the insolvent debtor. This property had been sold by the two appellants above named for a part payment in cash, and also with contracts signed by the insolvent debtor, agreeing that the title to the property should remain in the vendors until balance of the purchase money should have been fully paid and the two notes to be afterwards given satisfied, either in cash or by the execution of chattel mortgages to secure the same. It is urged by the other creditors of the insolvent debtor that these contracts not being a matter of record, and no notices having been brought to them of the existence of such contracts until after the assignment, they were void as to creditors; that the indebtedness to other creditors was contracted upon the assumption by such creditors that, the insolvent debtor being in possession of the jxroperty and no Hens having been reserved of record, the insolvent debtor, at the time of the purchase of the goods from them, was financially responsible. It is urged, therefore, that the county court, and also the Appellate Court, erred in declaring that appellants Van-Aliens & Boughten and the Hooven, Owens & Rentschler Company had a lien upon the property sold by them for the unpaid purchase money, as against appellant the Sterns Paper Company, and other creditors, and that the order preferring the two appellants to other creditors should not have been made.

The rule is well settled that the assignee of a failing debtor takes the property assigned subject to all equities, liens or incumbrances which existed against the same in the hands of the insolvent. Willis v. Henderson, 4 Scam. 13 ; Hardin v. Osborne, 94 Ill. 571 ; Jenkins v. Pierce, 98 id. 646 ; Jack v. Weiennett, 115 id. 105; Union Trust Co. v. Trumbull, 137 id. 146.

As between appellants Van Allens & Boughten and the Hooven, Owens & Rentschler Company and the R. S. Dickie Manufacturing Company, the contract of purchase and the reservation of title in those appellants until the satisfaction of the notes for unpaid purchase money was valid, and it was not necessary, as between the parties, that such contract should be made a matter of record.

At the time of the assignment Van Allens & Boughten and the Hooven, Owens & Rentschler Company had the right, under their respective contracts, to take possession of their projoerty. The deed of assignment conveyed to the assignee no greater rights or title in this property than the insolvent debtor had. The same right still existed in the vendors to take possession of the property, from the assignee. A failure to do so was no waiver of their rights. Their lien, for unpaid purchase money existed, and was prior to the claims of appellant the Sterns Paper Company or any other general creditors. ' VanAllens & Boughten and the Hooven, Owens & Eentschler Company, by their petition in the county court, consented to the sale of the property by the assignee, conditioned, however, that their liens should be transferred to the proceeds arising from the sale of this specific property. The effect, therefore, was to leave in the hands of the assignee a specific fund of money on which these two appellants held a first lien, from which they were first entitled to be paid the amount of their respective balances.

Under an order of the county court the assignee continued the business of manufacturing formerly carried on by the insolvent debtor, purchasing new material, taking new orders, creating new indebtedness, and in the end the business was wound up with a large amount of claims against the assignee, incurred in this venture, which the court ordered paid prior to the claims of appellants Van-Aliens & Boughten and the Hooven, Owens & Eentschler. Company. The identical property on which these two appellants claim a lien or to which they assert.title in themselves actually sold at the assignee’s sale for more money than the amount of the indebtedness to them, and their lien was transferred to this-fund, so there was ample to have paid their claims. If the indebtedness created by the assignee under his unfortunate venture be first paid, however, there will only be about $13,000 or $14,000 to be distributed- pro rata between them to pay some $27,000 of their claims. The effect of this would be that the order of the county court would deprive these two appellants of their title or lien on the property, or on the fund arising therefrom for the benefit of creditors of the assignee.

We hold that the county court could make no valid order dispossessing these two appellants of their title to the property, or depriving them of their lien on the fund arising therefrom. This lien having once attached could not be released except by some act of the parties entitled to the same. The county court, proceeding under the Assignment act, derives its power solely from the statute, and no authority is there given to authorize or empower an assignee of an insolvent debtor to continue business at great expense, and to borrow money or create indebtedness for that purpose. Any order of the county court, therefore, authorizing this, or providing that the assignee might issue certificates for such indebtedness, and that the same should be a valid or first lien upon any property or effects belonging to said estate which might come to the hands of the assignee, would be an improper and invalid order, and would in nowise affect the rights of parties holding prior liens. The legitimate costs of administering the estate incurred by the assignee, not including the indebtedness created in continuing the business, were proper to be first paid, prior to the claims of Van Allens & Boughten and the Hooven, Owens & Rentschler Company. The property passed to the hands of the assignee, and these two appellants did not insist upon its being at once turned over to them, as they might have done, but consented to a sale thereof and that their lien might be transferred to the proceeds. They receive, thus far, the benefit of the assignee’s services, and must share in the costs necessarily incurred.

For the errors indicated above this cause is reversed and remanded, with directions to the county court to make such order as shall result in the distribution by the assignee of the proceeds in his hands as follows : First, the proper charges for the administration of the estate; second, the payment of the amounts due appellants VanAllens & Boughten and the Hooven, Owens & Rentschler Company, respectively, to the extent the proceeds of the property which thesé appellants sold the insolvent debtor, and to which they reserved title, will pay them, respectively.

Reversed and remanded.