Babbitt v. Kelley

• Decision Date: 11 November 1902
• Citation: 70 S.W. 384,96 Mo.App. 529
• Parties: BYRON T. BABBITT, Trustee, Respondent, v. MARTIN KELLEY, Appellant
• Court: Missouri Court of Appeals

70 S.W. 384

96 Mo.App. 529

BYRON T. BABBITT, Trustee, Respondent, v. MARTIN KELLEY, Appellant

Court of Appeals of Missouri, St. Louis

November 11, 1902

Appeal from St. Louis City Circuit Court.--Hon. Franklin Ferris Judge.

AFFIRMED.

Judgment affirmed.

Jamison & Thomas for appellant.

(1) "If a bankrupt shall have given a preference within four months before the filing of a petition, or after the filing of the petition and before the adjudication, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have 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." Bankruptcy Act (1898), sec. 60. (2) "The exchange of securities within four months is not a fraudulent preference." . . . "The reason is that the exchange takes nothing away from the other creditors." Sawyer v. Turpin, 91 U.S. 114; Player v. Lippincott, 4 Dillon 125. (3) In order to constitute a preference under the Bankrupt Act, the debtor must have done some act to facilitate the proceedings. Wilson v. Bank, 17 Wallace 488; Bank v Warren, 96 U.S. 539; Sage v. Wyncoop, 104 U.S 319; Louicheim v. Henzey, 86 Pa. St. 353.

E. M. Grossman for respondent.

(1) Failure to record a chattel mortgage avoids it as to all persons, except parties thereto, unless possession of the mortgaged property be delivered. R. S., 1899, sec. 3404; Williams v. Kirk, 68 Mo.App. 457; Dry Goods Co. v. Brown, 73 Mo.App. 245; Lowrence v. Brown, 82 Mo.App. 125; Bank v. Buck, 123 Mo. 141; Bank v. Powers, 134 Mo. 432; Mayer v. O'Neill, 151 Mo. 67; Hillard v. Cagle, 46 Miss. 338. (2) The receipt by a creditor of any property, including cash, from an insolvent debtor directly or indirectly, out of the debtor's assets, or the filing or recording of a mortgage on the property of the debtor, within four months before a petition in bankruptcy has been filed by such insolvent debtor or against him, or after the filing of such petition and before the adjudication in bankruptcy, with the knowledge on the part of such creditor, or his agent, of the debtor's insolvent condition, or with such information in possession of such creditor or his agent as would put a prudent man on his inquiry, is a preference under the Bankruptcy Act, and can be avoided, and the money obtained thereby recovered, by the trustee in bankruptcy of such insolvent debtor. Bankruptcy Act, 1898, secs. 3, 60, 70; Brandenburg on Bankruptcy (2 Ed.), pp. 559, 563.

GOODE, J. Bland, P. J., and Barclay, J., concur.

OPINION

GOODE, J.

--Edward H. Weiler formerly conducted a saloon in the city of St. Louis, on the stock and fixtures of which he executed a mortgage May 16, 1900, to secure notes for five hundred dollars, to the defendant Kelly from whom he had borrowed that sum of money. Said mortgage was not filed for record until April 27, 1901, Weiler in the meantime remaining in possession of the saloon and property and continuing the business, but making payments from time to time on the notes, until by April 19, 1901, he had reduced the balance due to one hundred and seventy-five dollars. In the latter month his license was revoked and he sold the saloon stock and fixtures to one Marshall, making an agreement at the time with the latter that he (Marshall) should pay the balance on the mortgage notes.

The mortgage was kept from record at the request of Weiler for fear it would injure his credit, Kelly granting him that indulgence, as he swears, without any knowledge that Weiler was either insolvent or in debt. But when he learned his license had been revoked he put it to record and placed his notes in the hands of an attorney to be collected; but swears that even then he knew nothing about Weiler's insolvency or that he was threatened with bankruptcy proceedings.

On May 9, 1901, creditors of Weiler filed a petition in bankruptcy against him and on June 10 he was adjudged a bankrupt.

Marshall conducted the saloon until June 4 when he had the stock and fixtures auctioned off and the balance due Kelly on the notes was paid out of the proceeds.

Byron T. Babbitt, the plaintiff, was appointed trustee of the bankrupt estate, and as such brought this action to recover from Kelly the said balance of one hundred and seventy-five dollars, on the ground that Kelly had knowingly benefited by an act of preference on the part of Weiler the bankrupt, within four months of the initiation of proceedings against him.

In defense it is maintained:

First. That the four months' limit ran from the date of the mortgage in May, 1900, and not from the date of its filing or the payment of the balance of one hundred and seventy-five dollars due on it.

Second. That there was no proof of credit being extended to Weiler after the execution of the mortgage and while it was unrecorded.

Third. That Kelly had no knowledge of Weiler's insolvency, either at the date of the mortgage or of its filing, nor any reasonable cause to believe he intended to give a preference while insolvent.

Fourth. That Kelly was not paid out of the bankrupt estate, nor in fact by Weiler, but by Marshall.

At the conclusion of the testimony the court gave two declarations of law at the instance of the plaintiff which are said to be erroneous:

"1. The court declares the law to be that if the chattel mortgage given by Weiler to Kelly was withheld from record in order that it might not injure the credit of Weiler, then as to all creditors subsequent to the date of execution of the said mortgage, said mortgage is void, and the proceeds received by said Kelly under said mortgage can be recovered by the plaintiff herein.

"2. If the court, sitting as a jury, finds and believes from the evidence that Edward H. Weiler was, on the twenty-seventh day of April, 1901, insolvent within the meaning of the Bankruptcy Act; and if the court further finds that the defendant, Martin Kelly, or his agent Vette, at the time the chattel mortgage made to him by Weiler was recorded, i. e., April 27, 1901, had knowledge of said Weiler's insolvency or had such information concerning Weiler's financial condition as would have put a man of ordinary prudence on inquiry concerning said Weiler's solvency; and if the court further finds that thereafter and within four months from the date of the filing of the petition in bankruptcy, said Kelly received $ 175 in satisfaction of the said mortgage, then the verdict and judgment of the court must be for the plaintiff."

It should be stated that the loan...