Blyth & Fargo Company v. Kastor

• Decision Date: 09 November 1908
• Parties: BLYTH & FARGO COMPANY ET AL. v. KASTOR
• Court: Wyoming Supreme Court

97 P. 921

17 Wyo. 180

BLYTH & FARGO COMPANY ET AL. v. KASTOR

Supreme Court of Wyoming

November 9, 1908

ERROR to the District Court, Uinta County; HON. DAVID H. CRAIG Judge.

The material facts are stated in the opinion.

Judgment reversed and case remanded.

P. W Spaulding and Maginnis & Corn, for plaintiffs in error.

The court erred in not instructing a verdict for defendants, the evidence failing to show insolvency of the debtor when the mortgage was given. Exemptions are not to be considered in estimating the value of the debtor's property. (Collier on Bankruptcy, 6th Ed., 5; In re Hines, 144 F. 142.) The burden of proving insolvency was on the plaintiff. (Collier, 476; In re Chappell, 113 F. 545.)

It was also incumbent on the plaintiff, to show that the defendant "had reasonable cause to believe that it was intended thereby to give a preference." There was not, and could not be any evidence tending to prove this fact upon the close of the plaintiff's testimony, for the debtor, John Gourley, is the only witness who had testified upon that subject and he gives figures showing that while his indebtedness, or that of Gourley & Co. was about $ 2,200, the value of his property was more than $ 2,900. (Butler Paper Company v. Goembel, 143 F. 295.) It does not conflict with this view that the evidence of the trustee Kastor, shows that the estate realized nothing, or a very small amount, for the testimony of Gourley shows that he proceeded to pay other creditors out of the assets, the amounts being indefinite, and Kastor, by his own testimony made no effort to collect the estate, took no steps towards appraising the same and did nothing but receive the books and go over them. The fact that the estate was wasted subsequent to the alleged preference argues nothing as to the value of the estate or the means of knowledge of the defendants at that time.

In order to constitute a preference three things must concur: The debtor must have been insolvent at the time, he must have made transfer to a creditor, and the effect of such transfer must have been such as to enable the creditor to obtain a greater percentage of his claim than any other creditor of the same class, and such preference must have been made within four months of the bankruptcy. (Bankruptcy Act, Sec. 60 (a).) The intention of the debtor does not enter into the question whether there was in fact a preference, but there must in fact have been a preference before the intention of the bankrupt or the creditor's knowledge of it would become important or relevant.

The trial court erred in denying defendant's requests for instructions 1 and 2 because there was evidence to the effect that the taking back of the goods sold was contemplated and that the bankrupt was permitted to retain the goods on the giving of the chattel mortgage in question, a present consideration therefor being the retaining of the goods by debtor.

The court improperly admitted the testimony of Gourley as to his debts, without any date when they were owing being given, and also his testimony and that of his wife that they knew they were insolvent when the mortgage was made. The fact that the debtor did not have sufficient money to pay his bills was immaterial; that is not the test of insolvency under the Bankruptcy Act.

T. S. Taliaferro, Jr., W. B. Dunton, and Mathoniah Thomas, for defendant in error.

The deposition of J. R. Gourley shows him to have been insolvent at the time of the mortgage. His assets amounted to $ 2,200, and his debts were $ 3,046.37. The salient facts in this case are: That on June 17th, 1903, the plaintiffs in error took a mortgage upon the property of the bankrupts to secure a debt of $ 942.13. Subsequently they sold the property for about the amount of their debt under the terms of the mortgage. There are no other assets to be realized upon by creditors to whom the firm owes over $ 1,672.79. Did then the giving of the mortgage by the bankrupts and the acceptance of the same by the plaintiffs in error and the subsequent forcible taking over of the property create a preference?

The jury had the statement of the witness, Gourley, to the effect that he fully related his liabilities; they had the evidence of the witnesses for the defense. No evidence was submitted but what tended to prove the insolvency of this firm. The question was one solely for the jury; and in matters of this sort the jury are the judges of the fact, and if there be any evidence upon which the verdict can be sustained, this court will not interfere with nor reverse that verdict. The concluding words of Instruction 10 "fraudulent" and "void" might have been better expressed by the words "unlawful" and "voidable," but the words "fraudulent" and "void" as used in the instruction could not prejudice the plaintiffs in error in any manner.

Leaving out all other considerations the court did not err in its refusal to instruct the jury at the request of the plaintiffs in error as sought by Instructions Nos. 1 and 2, for the reason that upon the face of these instructions they do not meet the issues in this case which was not to set aside or cancel the mortgage.

The testimony of Mrs. Gourley as to her conclusion from conversations with her husband upon the question of their insolvency was competent, for a witness who states the facts upon which his opinion is based, and his means of knowledge, may state his opinion. The date of the indebtedness testified to by Gourley was well shown by the evidence.

POTTER, CHIEF JUSTICE. SCOTT, J., concurs. BEARD, J., did not participate in the decision.

OPINION

POTTER, CHIEF JUSTICE.

This is an action by Isador Kastor, as trustee in bankruptcy of the estate of J. R. Gourley & Co., bankrupts, to recover a preference alleged to have been received by a creditor, the Blyth and Fargo Company, a corporation, within four months before the filing of the petition in bankruptcy. The suit was brought against the Blyth and Fargo Company and Thomas Blyth. The averments of the petition are substantially as follows: That on the 17th day of June, 1903, J. R. Gourley & Co., a partnership composed of John R. Gourley and Eleanor Gourley, being then insolvent and indebted to the Blyth and Fargo Company in the sum of $ 942.13, and the owner and in possession of a stock of dry goods and groceries and store fixtures, transferred said property to the Blyth & Fargo Co., by a chattel mortgage to Thomas Blyth, the manager of said company, for no other consideration than said pre-existing indebtedness, which was otherwise unsecured, whereby said company was enabled to and did obtain a greater percentage of its debt due it from said J. R. Gourley & Co. than was or could have been received by any other creditor standing in the same class. That the transfer was made for the benefit of the said Blyth & Fargo Co., with the intent to give it a preference, and with the intent to hinder, delay and defraud the creditors of J. R. Gourley & Co. That at the time of receiving said chattel mortgage, and the transfer of said property by virtue thereof, each and both of the defendants had reasonable cause to believe that the debtors were insolvent and that a preference was intended, and that the transfer was received with the intent and purpose of carrying out said preference, and with the intent to hinder, delay and defraud the other creditors of said J. R. Gourley & Co. of the same class. That a petition in bankruptcy presented by certain creditors of J. R. Gourley & Co. was filed August 3, 1903, in the United States District Court for the District of Wyoming, upon which petition said J. R. Gourley & Co. was, by an order of said court entered August 18, 1903, adjudged bankrupt; and thereafter the plaintiff was duly appointed and became the duly qualified trustee. That after the adjudication of bankruptcy the defendants sold the said property for $ 1,600, whereby the same has passed beyond the control of the defendants, and they have converted the proceeds to their own use, "particularly to the use and benefit of the said Blyth & Fargo Company." It is then alleged "that plaintiff hereby adopts said sale and alleges that the said defendants received the said sum of $ 1,600 on or about the 10th day of August, 1903, for the use of the plaintiff."

Although the chattel mortgage referred to in the petition and charged to have constituted a preference was made to Thomas Blyth to secure, according to its terms, the payment of two promissory notes of even date with the mortgage for $ 500 and $ 442.13, due July 1, and October 1, 1903, respectively, payable to Thomas Blyth, the evidence shows, and the fact is conceded, that the notes represented the amount of the pre-existing debt due the Blyth & Fargo Company, and that the mortgage was executed and delivered as aforesaid for its benefit. It was, however, claimed on the trial and is here contended that the debt, which was for goods sold and delivered upon a stated time of credit, some of which at least was past due, had been fraudulently incurred through the representation of John R. Gourley, afterwards discovered to be false, that he was doing only a cash business, and that the mortgage was executed in consideration of an extension of time for the payment of the account, and permission to the debtor to retain the goods claimed to have been fraudulently obtained.

The subsequent sale of the mortgaged property by or for the benefit of the Blyth & Fargo Company is conceded, but upon the evidence it appears that the gross proceeds of the sale did not exceed the sum of $ 980, and the testimony on behalf of defendants tended to show that the net proceeds did not exceed $ 860. It further appears from the evidence that the sale was had and completed not only before the...