The opinion of the court was delivered by: Platt, Chief Judge.
Martin Garbe, Trustee in Bankruptcy of the Mattoon City Drug,
Inc., brings this action under Section 60, sub. b, of the
Bankruptcy Act, 11 U.S.C.A. § 96, sub. b, to recover an
alleged preferential transfer of practically all of the assets of the
bankrupt to the defendant, Humiston-Keeling Company, Inc., a
The essential facts are undisputed. The bankrupt conducted a
drug store in the city of Mattoon, Coles County, Illinois. The
registered office of the corporation, as shown by its charter,
was in the city of Canton, Fulton County, Illinois. The office of
the corporation was maintained by the registered agent, Bernard
G. Maxwell, the president of the corporation. The books and
records of the bankrupt were kept under the supervision of
Bernard G. Maxwell, at the office in Canton, Illinois. The
defendant, a duly incorporated Illinois Corporation with its
office and warehouse in Chicago, Illinois, employed salesmen,
some of whom resided in the Eastern District of Illinois, who
called upon drug stores throughout the State of Illinois and
other states for the purpose of receiving orders for the sale of
its merchandise. The orders obtained were delivered personally,
by mail, or by telephone to the office of the defendant in
Chicago, Illinois, where they were approved and filled. Payment
for the merchandise was made to the Chicago office where the
books, records and accounts were kept. In November, 1955, when
this suit was filed, the total sales of defendant were
$1,200,000, of which $47,350, or 4%, were to drug stores in the
Eastern District of Illinois. On February 1, 1954, the bankrupt
was indebted to the defendant for merchandise on an open account
in the amount of $10,072.49 and balance due on a note in the
amount of $5,495.98. On March 1, 1954, Mr. Maxwell and his wife
were called to the Chicago office where they executed for the
corporation a note for $16,696.09 secured by chattel mortgage
covering all of the stock and fixtures in the drug store at
Mattoon, Illinois. The
note was also signed by the Maxwells individually. The defendant
paid $1,915.31 which was due on three fixtures sold to the
bankrupt on conditional sales contracts and this amount was
included in the mortgage note. After May 1, 1954, the defendant
sold merchandise to the bankrupt on a cash basis. The bankrupt
became delinquent on other accounts and did not pay promptly the
installments on the note secured by the chattel mortgage. The
June installment was not paid. May 27, 1954, the defendant
received the bankrupt's check for $1,731.06 which was returned by
the bank for insufficient funds. On July 6, 1954, the defendant
took possession of the bankrupt's drug store in Mattoon,
Illinois. July 9, 1954 the Mattoon City Drug Company filed a
voluntary petition in bankruptcy and was adjudged a bankrupt. The
schedules filed by the bankrupt disclosed assets in the amount of
$35,260.31 and liabilities in the amount of $39,060.15. The value
of the stock was scheduled at $19,850 and fixtures at $15,000.
The trustee in bankruptcy filed a petition in the bankruptcy
court requesting that an order be entered directing the defendant
to turn over to the trustee the personal property which it had in
its possession. The defendant objected to the summary
jurisdiction of the referee to allow the petition on its merits.
The petition was dismissed by the referee for want of
jurisdiction. However, the referee ordered the sale postponed to
permit a more complete advertisement of the sale. The sale was
widely advertised and the property was sold as a unit at public
sale, to the highest bidder for the amount of $14,000.
The defendant presents the following defenses to the claim of
the trustee in bankruptcy:
(1) That this court does not represent proper venue
for this action.
(2) That the mortgage was valid and properly
(3) That the consideration for the transfer was not
(4) There is no evidence that the Mattoon City
Drug, Inc. was insolvent at the time the defendant
took possession; and the defendant did not have
reasonable cause to believe debtor was insolvent.
(5) That the trustee is barred by the proceeding
before the referee in bankruptcy which is res
judicata of this action.
This court finds that it has proper venue under 28 U.S.C.A.
§ 1391(c), (1948 Revision), which provides:
"A corporation may be sued in any judicial district
in which it is incorporated or licensed to do
business or is doing business, and such judicial
district shall be regarded as the residence of such
corporation for venue purposes."
The defendant, being an Illinois Corporation, although its office
and warehouse are in Chicago, in the Northern District of
Illinois, is certainly licensed to do business in the Eastern
District of Illinois. Barron and Holtzoff, Federal Practice and
Procedure, Rules Ed., vol. 1, sec. 80, p. 154, express it:
"Congress took the next long step by enacting into
law the provision that `a corporation may be sued in
any judicial district in which it is incorporated or
licensed to do business * * *.' Presumably, if the
state of incorporation has more than one district a
corporation may be sued in any district thereof, on
the theory that it is `licensed to do business'
throughout the whole state. Previously the rule in
such cases was that the corporation would be deemed a
resident only of the district wherein it kept its
principal office and transacted its general corporate
If the defendant corporation was a nonresident, it could be sued
in the Eastern District of Illinois had it been licensed to do
business in Illinois. Ronson Art Metal Works v. Brown & Bigelow,
Inc., D.C., 104 F. Supp. 716, 724, affirmed 2 Cir., 199 F.2d 760;
Hadden v. Barrow,
Wade, Guthrie & Co., D.C., 105 F. Supp. 530; Wagner Mfg. v.
Cutler-Hammer, Inc., D.C., 84 F. Supp. 211. There is no reason why
a different rule on venue should apply to an Illinois Corporation
which is qualified to do business any place in Illinois than to
a foreign corporation which is licensed to do business in
Illinois. The defendant corporation solicited a substantial
amount of its business in the Eastern District of Illinois, and
again it would come within the venue section 1391(c). Riverbank
Laboratories v. Hardwood Products Corp., 350 U.S. 1003, 76 S.Ct.
648, reversing 7 Cir., 220 F.2d 465. The logical conclusion is
that this court has jurisdiction of the parties.
The defendant's chattel mortgage in the first place was
obviously invalid as to the stock in trade. The stock was left in
the possession of the bankrupt to be used in the usual course of
business, and the mortgage cannot be valid against the trustee in
bankruptcy, who represents the creditors. Deering & Co. v.
Washburn, 141 Ill. 153, 29 N.E. 558; Huschle v. Morris, 131 Ill. 587,
23 N.E. 643; Dunning v. Mead, 90 Ill. 376. ...