Arkansas National Bank v. Sparks

• Decision Date: 24 June 1907
• Citation: 103 S.W. 626,83 Ark. 324
• Parties: ARKANSAS NATIONAL BANK v. SPARKS
• Court: Arkansas Supreme Court

103 S.W. 626

83 Ark. 324

ARKANSAS NATIONAL BANK v. SPARKS

Supreme Court of Arkansas

June 24, 1907

Appeal from Garland Chancery Court; Alphonso Curl, Chancellor reversed.

Decree reversed and cause remanded.

George G. Latta, for appellant.

The bank was an innocent holder of the paper for value, and the same came to it in the regular course of business. It had no knowledge of Varnadore's insolvency, or that the conveyance to Place was not in good faith, and hence no reasonable cause to believe that a preference was intended within the Bankrupt Act.

Murphy Coleman & Lewis and Pugh & Wiley, for appellee.

The evidence establishes that the bank was a beneficiary of the plan to protect the home creditors, with knowledge of its intent and purpose. It had knowledge or reasonable cause to believe that Varnadore was insolvent and intended to prefer it. Bankrupt Act, § 60.

MCCULLOCH J. HILL, C. J. differs as to force of the proof.

OPINION

MCCULLOCH, J.

This is a suit in equity instituted by C. C. Sparks, as trustee in bankruptcy of the estate of one I. C Varnadore, against the Arkansas National Bank to set aside the assignment of certain notes by the bankrupt to the defendant as a preference in alleged violation of the bankruptcy law. The chancery court rendered a decree in favor of the plaintiff for the cancellation of the assignment and for the recovery of the sum of $ 1,726.16, the amount collected by the defendant on the assigned notes. The defendant appealed.

The facts are that I. C. Varnadore was a merchant in the city of Hot Springs, and on July 28, 1898, disposed of his stock of goods to one Frank C. Place, and received in payment therefor notes of the latter, aggregating the sum of $ 7,500. On the following day, July 29, he assigned two of these notes, aggregating $ 1,850, to the defendant, the Arkansas National Bank, as additional security for his past due notes held by the bank, aggregating the sum of $ 1,796 with accrued interest. On November 26, 1898, involuntary bankruptcy proceedings were commenced against Varnadore in the Federal court, and on December 6, 1898, he was duly adjudged a bankrupt. Subsequently, Sparks was appointed as trustee of his estate, and then brought this suit.

Place insured the stock of merchandise in his own name, and after its destruction by fire the appellant sued him on the notes, and instituted garnishment proceedings against the insurance company, and collected on the policies the sum of $ 1,726.16, which was credited on the assigned notes and on the indebtedness of Varnadore to the bank.

There is a conflict in the evidence as to whether or not the conveyance and delivery of the stock of goods by Varnadore to Place was made in good faith or whether it was done merely for the purpose of accomplishing a pretended sale and obtaining notes instead of the stock of goods, which could be utilized by the vendor and placed beyond the reach of his creditors. It is unnecessary for us to determine that question, for the proof is wholly insufficient to show that appellant, or any of its officers or agents, had any knowledge that the conveyance to Place was not made in good faith; and, moreover, it is unnecessary, since we reach the conclusion that the notes executed by Place took the place of the stock of merchandise, and if Varnadore was insolvent and transferred some of them to the appellant as a means of preference, and appellant or its agents had reasonable cause to believe that the same was intended as a preference, the chancellor was right in holding that the appellant must refund the amount collected.

The question then for our determination is, whether or not there was a preference, and, if so, whether made under such circumstances as the appellant could, under the law, be required to surrender the notes and refund the money collected in consequence of the assignment thereof.

The bankruptcy act provides that "if a bankrupt shall have given a preference and the person receiving it, or to be benefited thereby, 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, and he may recover the property or its value from such person." Sec. 60, subdiv. b, Bankruptcy Act of Congress, 1898.

It will be observed that this statute differs slightly from the former bankrupt law (1867), in that the former made the right of the trustee to recover depend upon the fact whether or not the person receiving the preference had reasonable cause to believe that the debtor was insolvent, whereas the present statute makes it depend upon whether or not the creditor had reasonable cause to believe that preference was intended to be given. For the purposes of this case, however, this distinction is immaterial, and the same principles would control under both statutes.

In Grant v. Natl. Bank, 97 U.S. 80, 24 L.Ed 971, Mr. Justice Bradley, in delivering the opinion of the court construing the bankruptcy act of 1867, said: "Some confusion exists in the cases as to the meaning of the phrase 'having reasonable cause to believe such a person is insolvent.' Dicta are not wanting which assume that it has the same meaning as if it had read, 'having reasonable cause to suspect such a person is insolvent.' But the...