142 F. 33 (8th Cir. 1905), 2,153, First Nat. Bank v. Connett

Docket Nº:2,153, 51.
Citation:142 F. 33
Case Date:November 17, 1905
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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142 F. 33 (8th Cir. 1905)





Nos. 2,153, 51.

United States Court of Appeals, Eighth Circuit.

November 17, 1905

Culver, Philip & Spencer, for appellant and petitioner.

Julian B. Shackelford, for appellee and respondent.

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The First National Bank of Buchanan County, St. Joseph, Mo., presented four promissory notes for allowance against the estate of James B. Matney, bankrupt. Two of them were unsecured; the others were secured by chattel mortgages. One of the mortgages was given October 31, 1902, and the other June 26, 1903. When they were given the bankrupt was in fact insolvent, but at that time the bank did not know and had no reason to believe that such condition existed or that Matney intended to give it a preference over other creditors. The bank withheld the mortgages from record until August 21, 1903, at which time, however, it knew that Matney was insolvent and was about to execute a deed of trust upon all of his property to secure certain of his creditors. A few days after the mortgages were recorded the bank took possession of the mortgaged property and converted it into money. The transactions occurred in the state of Missouri. The petition in bankruptcy, upon which adjudication followed, was filed September 24, 1903. Certain debts of the bankrupt aggregating $1,424.80 were incurred by him between the time of the execution and the time of the recording of the first mortgage, and it is conceded by the bank that as to the creditors to whom such debts were owing the mortgage was invalid, and that it should be required to surrender the amount thereof as a condition to the allowance of its own claims. The referee mortgaged property, upon the ground that a voidable preference was created within the four months' period, and he was upheld in so doing by the District Court. The bank prosecuted an appeal from the order of disallowance and also, as the facts were not in dispute, a petition to revise in matter of law. The appeal will be considered, and the petition to revise will be dismissed as unnecessary, although we have heretofore held that it is a proper remedy when no disputed questions of fact are involved.

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Before SANBORN, HOOK, and ADAMS, Circuit Judges.

HOOK, Circuit Judge, after stating the case as above, .

When the mortgages were executed the mortgagor was insolvent, but the bank to whom they were given did not know it and had no reason to believe he intended to give it a preference. One of them was withheld from the record about ten months, and the other about two months. When they were recorded, which was a month before the petition in bankruptcy was filed, the bank knew the mortgagor was insolvent and contemplated a disposition of his property to secure certain of his creditors. It also knew that the inevitable effect of the enforcement of the mortgages would be to give it a greater percentage of its claims than other creditors.

The question for determination is whether under the foregoing facts there arose a voidable preference as defined by the national bankruptcy act of 1898, as amended in 1903. This involves also a consideration of the registry laws of the state of Missouri, where the transaction occurred.

Section 57g of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 560, 561 (U.S. Comp. St. 1901, p. 3443)) provides that the claims of creditors who have received preferences voidable under section 60b shall not be allowed unless such preferences are surrendered. For the definition of a preference we must look to subdivision 'a' of section 60, and to subdivision 'b' for the element which makes it voidable. Section 60a provides, among other things, that a person shall be deemed to have given a preference if, being insolvent, he has within four months before the filing of the petition made a transfer of any of his property, the effect of which will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Also:

'Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of recording or registering of the transfer, if by law such recording or registering is required.'

By the amendatory act of 1903 the first of the italicized provisions was transposed from section 60b of the original act, while the latter is an entirely new feature. Subdivision 'b' of this section, to which reference is made in 57g, provides that, if a bankrupt shall have given a preference and the person receiving it shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee. The bankrupt was insolvent when he executed the mortgages and when they were recorded. The mortgages constituted a transfer of his property, and their effect was to enable the bank to obtain a greater percentage of its claims than other creditors. They were recorded within four months of the filing of the petition in bankruptcy. Therefore, assuming that a recording is required by the law of Missouri, it follows that a preference arose under section 60a. And, in our opinion, it also follows that

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the preference...

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