Doyle Dry Goods Co. v. Lewis

• Decision Date: 30 April 1925
• Docket Number: No. 6713.,6713.
• Citation: 5 F.2d 918
• Parties: DOYLE DRY GOODS CO. v. LEWIS. In re WELCH.
• Court: U.S. Court of Appeals — Eighth Circuit

5 F.2d 918 (1925)

DOYLE DRY GOODS CO. v. LEWIS.

In re WELCH.

No. 6713.

Circuit Court of Appeals, Eighth Circuit.

April 30, 1925.

E. F. McFaddin, of Hope, Ark., for appellant.

Harry P. Daily, of Ft. Smith, Ark. (John P. Woods, of Ft. Smith, Ark., on the brief), for appellee.

Before SANBORN and LEWIS, Circuit Judges, and POLLOCK, District Judge.

SANBORN, Circuit Judge.

The question in this case is whether or not a mortgage made by Mr. W. A. Welch for $6,764.25 on four pieces of his real estate, worth about $7,000, on May 9, 1921, and duly recorded on that day, to secure to Doyle Dry Goods Company, a corporation of Little Rock, Ark., payment for dry goods it had sold to him, constituted a voidable preference under sections 60a and 60b of the Bankruptcy Act of 1898 as amended. Section 9644 (a), (b), U. S. Comp. St. The answer to that question was conditioned by the answer to the questions: (1) Was Mr. Welch insolvent on May 9, 1921? and (2) did the dry goods company have reasonable cause to believe on that day, which was within four months prior to the filing of the petition in bankruptcy against Mr. Welch in August, 1921, that the enforcement of that mortgage would effect a preference of the claim of the dry goods company over the claims of other creditors of Mr. Welch of the same class? By proper pleadings and proceedings these questions were presented to, heard, and decided upon evidence and argument by the referee in bankruptcy, who answered them in the affirmative, and by the court below, which confirmed those answers and rendered a decree to the effect that the mortgage constituted a voidable preference, and that the claim of the dry goods company as a secured claim was disallowed, and its claim as the claim of a general creditor was allowed. From this decree the dry goods company has appealed.

The mortgage and its lien upon the property described in it were presumptively just, legal, and valid. They were voidable only in case Mr. Welch was insolvent when they were created and the dry goods company then had reasonable cause to believe that their enforcement would cause the alleged preference. The trustee in bankruptcy alleged, and the burden was on him to prove, the insolvency and the reasonable cause of the dry goods company to believe that the alleged preference would result, and, if the trustee failed to make this proof by a fair preponderance of the competent evidence, the mortgage was not voidable. Calhoun County Bank v. Cain, 152 F. 983, 82 C. C. A. 114; In re Gaylord (D. C.) 225 F. 234, 239.

The record discloses these facts: On May 9, 1921, Mr. Welch was an owner and dealer in real estate in a small town in Oklahoma. He owned about 800 acres of land and about 20 town lots, two store buildings, and two or three small houses. This real estate was the greater part of his property, and was worth from $35,000 to $50,000. He also owned and operated a stock of goods suitable for a village or country store. That stock of goods, his notes and accounts receivable, his implements, wagons, and fixtures, were worth from $8,000 to $12,000. He had been operating this store for more than six years; the dry goods company had been selling him goods during this time, and when he needed time to pay for them it had previously given him such time and taken a mortgage or mortgages on some of his real estate to secure his payment of his debt. His indebtedness on May 9, 1921, was about $40,000.

The question, whether or not he was insolvent, whether or not his property at its fair market value was of sufficient value to pay his debts, depended largely upon the fair value of his real estate. There were more than 20 separate pieces of this real estate. W have carefully read and compared the testimony of the witnesses as to the value of each of these pieces of property. These witnesses testified in August, 1923, more than two years subsequent to the date of the mortgage, to the value of this real estate on May 9, 1921, when the market value of real and personal property alike was much more than it was in August, 1923, and when it was obviously difficult for them to prevent the depleted values of 1923 from affecting their estimates of the values in 1921. It is evident, from an examination of the testimony of these witnesses, that Mr. Bird, the principal witness for the trustee, upon the question of the values of the real estate, estimated its value in some cases much too low. For example, he placed a value on a store building and two lots that were, and for many years had been, in May, 1921, renting for $30 a month, at $1,000. The rent from that property was 6 per cent. per annum on $6,000. He testified that the value of a lot and a two-story building, which on May 9, 1921, had been and were renting at $20 per month, at $1,750. This rental was 6 per cent. per annum on $4,000. He estimated the value of 280 acres of land at $40 an acre, $11,200. One of the witnesses for the dry goods company estimated this tract worth $50 an acre, or $14,000, and another estimated its value at $60 an acre. This witness testified that he was 50 years of age; that he had lived in the county where this land was located 33 years, had been in the grocery and mercantile business, and for the last 12 or 14 years had been on a farm; that during this time he had bought and sold farms in the neighborhood, and that he was familiar with the market value of this 280 acres in 1921; that his own land adjoined this 280 acres; that Mr. Welch's tract was better than his; that he paid $50 an acre for his tract, and that he offered to buy this 280 acres of Mr. Welch for $60 an acre and he refused it. The testimony of these two witnesses seems to us to be more reliable and persuasive than that of Mr. Bird and one other witness who testified for the trustee upon this subject.

...