Whitson v. Farber Bank

• Decision Date: 29 March 1904
• Citation: 105 Mo. App. 605,80 S.W. 327
• Court: Missouri Court of Appeals
• Parties: WHITSON v. FARBER BANK.<SMALL><SUP>*</SUP></SMALL>

80 S.W. 327

105 Mo. App. 605

WHITSON v. FARBER BANK.^*

St. Louis Court of Appeals. Missouri.

March 29, 1904.

BANKRUPTCY—JURISDICTION —PARTNERSHIPS—SERVICE— RESIDENCE OF PARTNER — MORTGAGES — FRAUDULENT PREFERENCE — BANKRUPT'S INTENT—KNOWLEDGE OF CREDITOR—AGENTS—NOTICE—LIABILITY—EXTENT — EVIDENCE —RECORDS—CERTIFIED COPIES—APPEAL—PREJUDICIAL ERROR.

1. Under Bankr. Act July 1, 1898, c. 541, § 5, 30 Stat. 547 [U. S. Comp. St. 1901, p. 3424], declaring that the court of bankruptcy which has jurisdiction of one member of a firm may have jurisdiction of all the partners and of the firm and individual property, where one of the members of a firm had been a resident of the district in which bankruptcy proceedings were instituted for more than six months prior to the filing of the petition, and was properly served, the court had jurisdiction of the firm, though one of the partners for a long period antedating the commencement of the proceedings had been a resident of another state, and was not served.

2. Under Rev. St. 1899, § 3135, declaring that the records and judicial proceedings of any court of the United States attested by the clerk thereof, with the seal of the court annexed, and certified by the judge, shall have such faith and credit given them in the state as they would have at the place whence such records came; and Bankr. Act July 1, 1898, c. 541, § 21, pars. "d," "e," 30 Stat. 552 [U. S. Comp. St. 1901, p. 3430], providing for the admission of copies of federal records in bankruptcy cases—properly certified copies of a bankruptcy adjudication against a firm, and the order of the referee in bankruptcy approving the bond of a trustee, were admissible in an action in the state court by such trustee to recover an alleged fraudulent preference, without affirmative proof that the partners of the firm had been served with subpœnas or had appeared before they were adjudged bankrupts.

3. In an action by a trustee in bankruptcy to recover an alleged fraudulent preference acquired by a chattel mortgage executed on the bankrupt's stock, instructions that if the creditor intended to obtain a preference by virtue of such mortgage, and if such intention was known to the bankrupts, the preference was void, and that, if the bankrupts intended to prefer such creditor, the trustee was entitled to recover, without requiring that the creditor must have had cause to believe that the bankrupt so intended, were erroneous, since Bankr. Act July 1, 1898, c. 541, § 60, par. "b," 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445], declares that the preference shall be void only in case the person receiving it or to be benefited thereby shall have reasonable cause to believe that the bankrupt thereby intended to give a preference.

4. Under Bankr. Act July 1, 1898, c. 541, § 60, par. "b," 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445], providing that if a bankrupt shall have given a preference, and the person receiving it, "or his agent acting therein," shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, the knowledge of a clerk of a bankrupt firm as to its insolvency prior to its execution of a mortgage was not binding on the mortgagee, by which the clerk was subsequently employed to take charge of the property under the mortgage after the mortgagee had taken possession, such clerk not having acted in any manner for the mortgagee in the taking of the mortgage.

5. Where issues of fact are raised by the pleadings, and the evidence offered by the plaintiff was oral, and required a submission of the issues to a jury, the erroneous admission of material evidence could not be declared harmless on appeal on the ground that there was other evidence sufficient to sustain the verdict.

6. Where a bankrupt executed several mortgages on its stock of goods, alleged to constitute fraudulent preferences, and the first mortgagee took possession, and, after selling sufficient goods to pay its claim, surrendered possession to the second mortgagee before a bankruptcy petition was filed, the mortgagee in the first mortgage, on the same being declared void as a fraudulent preference, was liable for the value of the entire stock, and not only for the value of the goods sold while the stock was in its possession.

Appeal from Circuit Court, Audrain County; H. W. Johnson, Judge.

Action by A. C. Whitson against the Farber Bank. From a judgment in favor of plaintiff, defendant appeals, Reversed.

P. H. Cullen, for appellant. Geo. Robertson, for respondent.

GOODE, J.

The respondent is a trustee in bankruptcy in charge of the estate of Sisk Bros., and as such instituted this action against the appellant for the value of a stock of merchandise formerly owned by the firm, which was composed of Robert E. and Geo. W. Sisk, and engaged in the mercantile business at Farber, in Audrain county. The value of the stock was alleged to be $2,794.52. The answer was a general denial. On May 8, 1902, Sisk Bros. were indebted to the Farber Bank in the sum of $640, to secure which they gave a chattel mortgage on their stock of goods. The mortgage was not recorded until June 9, 1902, prior to which day, viz., June 7th, the bank took possession of the property pursuant to the terms of the instrument, put George A. Lee in charge as agent of the bank, and proceeded to sell goods, mostly at retail, until September 8th, at which date, as enough had been sold for the proceeds to pay the bank's debt, the stock was turned over to J. D. Pitts, who held a second chattel mortgage on it to secure a debt of $970. While the stock was in the bank's possession, it had realized from the goods sold $833.48. Pitts afterwards sold the remainder of the stock at auction to pay his debt. Sisk Bros. had been indebted to the Farber Bank since June 11, 1901, for about the amount of $640, and had given the bank a previous note and chattel mortgage to secure that debt, which were superseded by those executed May 7, 1902. On August 4, 1902, a petition in bankruptcy was filed against the partnership, and it was adjudged bankrupt September 26, 1902. At the first meeting of the firm's creditors on November 17, 1902, the respondent, Whitson, was elected trustee, and qualified November 21st. George W. Sisk was in California when the petition in bankruptcy was filed, and service was had on Robert E. Sisk, the other member of the firm. George A. Lee, who was put in charge of the stock by the bank when it took possession, had been previously employed by Sisk Bros. as a clerk. A point is made about this on the appeal in connection with certain testimony and instructions to be adverted to later. The basis of this action for the value of the goods is that the mortgage was executed by Sisk Bros. when they were insolvent for the purpose of giving a preference to the bank, was accepted by the bank with knowledge of that purpose and of the insolvency of the mortgagors, and possession of the mortgaged property delivered to the bank under the same circumstances. As the mortgage was executed and the goods taken by the bank less than four months prior to the petition in bankruptcy, the preference given by those acts would be contrary to the bankrupt act, and voidable by the trustee if the intention of the mortgagors to give a preference was known to the bank, or if it had good cause to believe that was their purpose. Complaints are preferred against instructions given by the court, which will be noticed below. The trustee had judgment, and the bank appealed.

The appellant complains of the admission in evidence of certified copies of the adjudication that Sisk Bros. were bankrupts, and of the order of the referee in bankruptcy approving the bond of Whitson as trustee. Those documents are said to have been erroneously admitted, for the reason that no service of process on either of the Sisk brothers was affirmatively shown, and one of them was proven to have been continuously in California for a long period antedating the inception of the bankruptcy proceeding, and therefore beyond the reach of the subpœna of the United States District Court for the Eastern District of Missouri, wherein the proceeding was instituted. The residence of Geo. W. Sisk was immaterial, as the other partner, R. E. Sisk, resided within the federal district. The bankruptcy act of July 1, 1898, declares in section 5 (30 Stat. 547 [U. S. Comp. St. 1901, p. 3424]) that the court of bankruptcy which has jurisdiction of one member of a partnership may have jurisdiction of all the partners and of the partnership and individual property. It has been decided that a proceeding to have a partnership adjudged a...