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In re Crosstown Motors Inc.

October 15, 1959

IN THE MATTER OF CROSSTOWN MOTORS, INC., BANKRUPT. COMMERCIAL CREDIT CORPORATION, A CORPORATION, PETITIONER-APPELLANT,
v.
C. WYLIE ALLEN, TRUSTEE, RESPONDENT-APPELLEE.



Author: Parkinson

Before MAJOR, SCHNACKENBERG and PARKINSON, Circuit Judges.

PARKINSON, Circuit Judge.

Crosstown Motors, Inc. (Crosstown) was adjudicated a bankrupt in August, 1957 on an involuntary petition following an assignment for the benefit of its creditors made on July 22, 1957. Prior thereto it was a Ford dealer in Chicago.

In October, 1955 Crosstown entered into a "floor plan" financing agreement with petitioner-appellant, Commercial Credit Corporation (Commercial). Commercial complied with all the requirements of the Illinois Trust Receipts Act and Commercial and Crosstown continued to operate under their financing agreement until July 20, 1957 when Commercial repossessed the automobiles which Crosstown then held under individual trust receipts running to Commercial.

For the period from January 1, 1957 to its assignment for the benefit of creditors, Crosstown operated at a loss in excess of $32,000. On January 29, 1957 Commercial made a $25,000 unsecured capital loan to Crosstown to be repaid in twelve equal monthly payments of $2,083.34 each. Crosstown made the payments due in March, April, May and June, and on July 16, 1957 paid the sum of $2,166.67, being the $2,083.34 payment due in July plus interest.

On July 12, 1957 Commercial made a "car check" at Crosstown and discovered Crosstown had sold eighteen cars out of trust without remitting to Commercial. On July 15, 1957 Commercial made demand on Crosstown pursuant to the provisions of § 10 of the Illinois Trust Receipts Act.*fn1 Crosstown requested time to raise the money. On July 19, 1957 Commercial made another "car check" and learned that Crosstown had sold seven more cars out of trust without paying Commercial. Commercial made another demand. On that same day Crosstown executed a trust receipt to Commercial on ten unencumbered used trucks owned by Crosstown to cover a deficit incurred in the sale of 1956 Ford demonstrators in May, 1957, which trucks Commercial later sold for the sum of $5,250.

It is agreed by the parties to this appeal that all the proceeds from the out of trust sale of the twenty-five cars were used by Crosstown before July 19, 1957 to pay its payroll and other current obligations and none of such proceeds came into the bankrupt estate.

Commercial filed a petition for a prior lien on the general assets of the Bankrupt, claiming such a lien under § 10 of the Illinois Trust Receipts Act in the sum of $50,578.24 for the twenty-five automobiles sold by Crosstown out of trust. Issues were joined by an answer alleging, inter alia, that § 10, relied on by Commercial, does not create a lien on the general assets of the Bankrupt but is a state created priority invalid under § 64 of the Bankruptcy Act, 11 U.S.C.A. § 104, and that if said § 10 does create a lien it would be invalid under §§ 60, 67 and 70 of the Bankruptcy Act, 11 U.S.C.A. §§ 96, 107, 110; and by a counterclaim for the value of the ten used trucks trust receipted to Commercial by Crosstown on July 19, 1957 and for the payments made by Crosstown to Commercial on the $25,000 unsecured capital loan on March 19, April 16, Mary 17, June 18 and July 16, 1957 as voidable preferences and Commercial's reply thereto alleging, inter alia, that the transfer of the ten used trucks and the loan payments were not voidable preferences.

The cause was heard by the Referee in Bankruptcy. The Referee filed detailed findings of fact and conclusions of law and in conformance therewith entered an order denying Commercial's petition and ordering judgment on the counterclaim against Commercial in the sum of $7,416.67, representing the $5,250 for which Commercial sold the ten used trucks and the payment of July 16, 1957 of $2,166.67. On review the District Court affirmed the Referee, adopted the findings and conclusions of the Referee as its own and entered judgment conformably. This appeal followed.

To us the prime issue here is whether § 10 of the Illinois Trust Receipts Act gives the entruster a lien on the general assets of a bankrupt or a priority in payment for the value of the proceeds from out of trust sales which were expended for operating expenses prior to bankruptcy.

This section entitled Entruster's Rights To Proceeds reads, in applicable part, as follows:

"Where, under the terms of the trust receipt transaction, the trustee * * *, having liberty of sale or other disposition, is to account to the entruster for the proceeds of any disposition of the goods * * *, the entruster shall be entitled, to the extent to which and as against all classes of persons as to whom his security interest was valid at the time of disposition by the trustee, as follows:

"(b) To any proceeds or the value of any proceeds (whether such proceeds are identifiable or not) of the goods * * *, if said proceeds were received by the trustee within ten days prior to either application for appointment of a receiver of the trustee, or the filing of a petition in bankruptcy or judicial insolvency proceedings by or against the trustee, or demand made by the entruster for prompt accounting; and to a priority to the amount of such proceeds or value;".

Commercial cites and relies upon the case of Inter-State Water Co. v. City of Danville, 1942, 379 Ill. 41, 39 N.E.2d 356, 358, as providing the rule of statutory construction which "is pertinent to the issues in this case." We agree. Thus we consider the entire Illinois Trust Receipts Act as a whole, with each part or section "construed in connection with ...


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