Andrews v. Kellogg

• Decision Date: 07 October 1907
• Citation: 41 Colo. 35,92 P. 222
• Parties: ANDREWS v. KELLOGG.
• Court: Colorado Supreme Court

92 P. 222

41 Colo. 35

ANDREWS v. KELLOGG.

Supreme Court of Colorado

October 7, 1907

Rehearing Denied Nov. 4, 1907.

Appeal from District Court, Fremont County; M. S. Bailey, Judge.

Action by A. L. Kellogg, as trustee of the estate of Daniel Knapp bankrupt, against H. S. Andrews. From a judgment for plaintiff, defendant appeals. Affirmed.

James T. Locke, for appellant.

Maupin McLain & Wilkes and Alfred W. Arrington, for appellee.

CAMPBELL J.

This is an action by a trustee in bankruptcy to recover of the bankrupt's mortgagee. The complaint contains two causes of action. The first is based upon subdivisions 'a' and 'b' of section 60 of the national bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St 1901, p. 3445]). Subdivision 'a' declares that a person shall be deemed to have given a preference if, being insolvent, he has made a transfer of any of his property, and the effect of the enforcement thereof 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. Subdivision 'b' is that if such preference has been given within four months before the filing of a petition, 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 second cause of action is grounded upon subdivision 'e' of section 67, which we shall not consider, since we think the trial court's finding in plaintiff's favor must be upheld under the first cause of action.

There is no substantial conflict as to the facts. Knapp, a debtor gave to Andrews, a creditor, a chattel mortgage on a stock of goods. Knapp was then insolvent and knew it, and intended thereby to give Andrews a preference. Its effect was necessarily to enable Andrews to obtain a greater percentage of his debt than other creditors of the same class, and the mortgage was made within four months before filing the petition in bankruptcy under which Knapp was adjudged a bankrupt. The only remaining inquiry, therefore, is whether Andrews at the time had reasonable cause to believe that thereby a preference was intended. This is a question of fact, to be determined by the jury, or the trial court sitting as a jury, and, if the evidence is legally sufficient to uphold the finding, it cannot be disturbed. Knapp was a retail merchant in Florence, and the evidence tends to show that all of his visible property consisted of this stock of goods. From time to time, he had borrowed sums of money from, and at the time this mortgage was given he was indebted to, Andrews, which debt was past due and evidenced by four promissory notes, amounting to about $600. He was unable to pay the same. Andrews was not pressing for payment, and did not ask to be secured. He knew, however, that Knapp was unable to pay the debt, and that his business was falling off. Upon a suggestion by Andrews to Knapp that the giving of a mortgage which permitted Knapp to remain in possession and required him to sell for cash and apply the proceeds to the payment of his debt might enable him to continue in business without extending credit, Knapp gave a new note, taking up the four earlier ones, for $600--this sum representing the amount of the four canceled notes and about $16 in money then advanced--and gave as security therefor a chattel mortgage upon his entire stock of goods which contained the terms mentioned. At the time Andrews says he did not know, and made no inquiry to ascertain, if Knapp was indebted to any other persons, and all that he says he did to ascertain his debtor's financial condition was to examine the records to see if there was any incumbrance upon the property and to record his mortgage. We are inclined to the view that Andrews did not actually know of Knapp's insolvency, and that he believed it was lawful, as under the laws of this state it would be, to take security for a past debt. The national bankruptcy law does not prohibit all transfers of property by an insolvent debtor. It is only those which are in fraud of that act that are prohibited. Before a trustee of a bankrupt can avoid a transfer such as we are...