Conners v. Bucksport Nat. Bank

Citation214 F. 847
Decision Date16 March 1914
Docket Number693.
PartiesCONNERS v. BUCKSPORT NAT. BANK.
CourtUnited States District Courts. 1st Circuit. United States District Court (Maine)

Bertram L. Fletcher, of New York City, Lauren M. Sanborn, of Portland, Me., and J. Richard Larkin, of Boston, Mass., for complainant.

Fellows & Fellows, of Bangor, Me., and Frank Fellows, of Portland Me., for defendant.

HALE District Judge.

This bill in equity seeks to set aside two chattel mortgages dated November 28, 1910, and lawfully recorded November 29, 1910 alleging them to be preferences under the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 544 (U.S. Comp. St. 1901, p 3418)). The bill also seeks to set aside as preferences the sale of the equity of one of the mortgages dated January 14 1911, and duly recorded January 19, 1911, and the sale of the equity in the other mortgage, together with other equities dated January 24, 1911, and duly recorded January 28, 1911; all these alleged preferences being given by the bankrupt, John I. Frederick, to the Bucksport National Bank; all these mortgages and sales being dated and recorded within four months prior to the date of the filing of the involuntary petition in bankruptcy against said Frederick, namely, February 6, 1911. The proofs show that on November 28, 1910, the bankrupt gave to the bank the two chattel mortgages in question; one of the mortgages was for the express consideration of $1,500, and purported to convey to the bank 'all my personal property situated in the said town of Winterport. ' It was made to secure 'the amounts due said Bucksport bank on notes now held by said bank and deposited to the account of said John I. Frederick, according to the tenor of said notes now deposited at said bank. ' The second chattel mortgage of the same date was for the express consideration of $4,850, and purported to convey to the bank 'ten thousand bushels of potatoes now contained in the potato house situated in said Winterport near the Bangor & Aroostook Railroad station, said potatoes being in bins numbered 1 to 12, inclusive. ' This mortgage was to secure the sum named 'according to the tenor of five certain promissory notes now held by said bank, a more particular description of which is hereby attached and made a part of this instrument. ' In both these mortgages the bankrupt warranted the property 'against the lawful claims and demands of all persons. ' The proofs show further that on January 14, 1911, the bankrupt made to the bank, for the express consideration of $1 and other valuable considerations, the sale of 'twenty-five thousand bushels of potatoes in potato storehouse at Bangor & Aroostook R.R. station in Winterport in bins 1 to 10, inclusive, hereby releasing all interest in mortgage to these grantees, recorded in town clerk records of Winterport, Maine, Book 6, pages 3, 4 & 5, and conveying all other potatoes in said bins whatsoever the source of title. ' The sale contained the following clause, namely, 'I hereby warrant the same to be free from incumbrance. ' On January 24, 1911 (as the proofs further show), the bankrupt made to the bank, for the express consideration of $1 and other valuable consideration, a sale of 'all the personal property described in mortgage given by me to said Bucksport National Bank, dated November 28, 1910, recorded in records of the town of Winterport, Book 6, pages 1 & 2; also all equity I have in and to other personal property mortgaged by me to these grantees, recorded in said records, Book 4, page 86; also all equity in and to the personal property mortgages to C. W. Conant & Co., which mortgage is recorded in the records of the town of Winterport, Book 5, pages 278, 279 & 280.'

The answer admits that on November 28, 1910, the bankrupt was indebted to the bank in the sum of $15,697.54, and on January 14, 1911, in the sum of $17,302.11. The answer denies the insolvency of Frederick at the time of the alleged conveyances; or, if he was insolvent, that the bank knew of his insolvency; or that it had notice sufficient to put an ordinarily prudent man on inquiry as to the bankrupt's solvency. It denies that any property was conveyed by the bankrupt to the bank by the two chattel mortgages, or by the two sales in question. It denies that the two mortgages and two sales were given to secure pre-existing debts; or that they were voidable preferences.

The proofs lead the court to the inquiry whether, under the provisions of section 60b, such proofs entitle the trustee to recover any or all the property alleged to be transferred by the bankrupt, as set forth in the bill in equity on the ground that such alleged transfers constituted voidable preferences. The act defines such preference, so far as is applicable to this case, as: (1) A transfer of property; (2) within four months of the filing of the petition in bankruptcy; (3) by a person who is insolvent; (4) the party to whom the transfer is made shall then have reasonable cause to believe that the enforcement of such transfer would effect a preference, or, in other words, 'will enable the creditor, to whom the transfer is made, to obtain a greater percentage of his debt than any other such creditors of the same class.'

When these essential elements are found in a transaction between a bankrupt and his creditors, such preference shall be 'voidable by the trustee; and he may recover the property, or its value.'

1. The proofs leave me in no doubt that, within the meaning of the Bankruptcy Act, the bankrupt was insolvent on November 28, 1910, on January 14, 1911, and on January 24, 1911, the dates of the alleged transfers. Without going into the details of the proofs it is enough to say that they lead me to the clear conclusion that on November 28, 1910, Frederick owed substantially $100,000, and that his assets were of value not exceeding $30,000.

2. Did the bank know, or by the exercise of reasonable diligence could it have known that the bankrupt was insolvent at the time the mortgages were given to the bank on November 28, 1910, and also at the time of the alleged sales on January 14, 1911, and January 24, 1911?

A sharp contention is made upon this point. It is urged with great earnestness and ability by learned counsel for the bank that complainant has not met the burden of showing that at the time of giving the mortgages, and of making the sales, the bank knew of the insolvency of the bankrupt, or had any reason to believe he was insolvent. It is urged that, although many of the bankrupt's checks had been protested in October and November, before the mortgages were made late in November, this fact should have very little probative value, inasmuch as, throughout the whole course of dealing with the bank, the bankrupt had been slow in payments and had been accustomed to have his checks protested before payment. The proofs show that many of Frederick's checks had been protested prior to March, 1910, and that this course of dealing was maintained up to the time the mortgages were given. Although the bank for a long time had been accustomed to protest the checks of the bankrupt, it cannot be held that the reasoning of ordinary business men was abandoned by the bank. The protest of checks, however long continued, must be held to put a bank upon inquiry. Pittsburgh Plate Glass Co. v. Edwards, 148 F. 377, 78 C.C.A. 191.

It appears also from the proofs that the bank officials knew that during the year 1910 the bankrupt often overdrew his bank account; that he owned no real estate; that he had 160 acres of potatoes planted; that he had mortgaged a large portion of his growing crops; that he owed large sums for fertilizer; that his horses were mortgaged; and that his potato house was mortgaged. The proofs convince me that the familiarity of the bank with the affairs of the bankrupt must be held to charge it with knowledge that, at the time the mortgages were given, the bankrupt owed nearly $100,000, and that his assets must be very much less than that sum. On November 25, 1910, a note for $1,500 held by the bank fell due, the note purporting to be signed by one Grant and his wife, of Winterport; the Grants received notice from the bank on the morning of November 26, 1910; Grant telephoned Gilmore, president of the bank, on Sunday, November 27th. Mr Gilmore testifies that Mr. Grant told him on that day that he and his wife had never signed the note; and on Monday, November...

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  • Brown Shoe Co. v. Carns
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    ...State Bank v. De Groot (C. C. A. 6) 39 F.(2d) 397, 398; R. H. Herron Co. v. Moore (C. C. A. 9) 208 F. 134, 136; Conners v. Bucksport Nat. Bank (D. C.) 214 F. 847, 850, affirmed (C. C. A. 1) 216 F. 990; Williams v. Plattner (D. C.) 46 F.(2d) 467, 468; 4 Remington on Bankruptcy (3d Ed., 1923)......
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    ...would apply to every case, but that each must be decided upon its own facts and the circumstances surrounding them. In Connors v. Bucksport National Bank, 214 F. 847, decided in the District Court of Maine, it was held knowledge on the part of the bank that forgery had been committed by the......
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    ...creditors. We disagree. 4 Protest or return of checks NSF is notice of insolvency and places one upon inquiry. Conners v. Bucksport Nat. Bank, D.C.Me.1914, 214 F. 847, 850; Robie v. Myers Equipment Co., D.C.Minn. 1953, 114 F.Supp. 177, 182; Eisnaugle v. Blank, D.C.E.D.Pa.1954, 125 F.Supp. 3......
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