English v. Ross

• Decision Date: 20 September 1905
• Docket Number: 1.
• Citation: 140 F. 630
• Parties: ENGLISH v. ROSS.
• Court: U.S. District Court — Middle District of Pennsylvania

140 F. 630

ENGLISH v. ROSS.

No. 1.

United States District Court, M.D. Pennsylvania.

September 20, 1905

C. A Van Wormer, for plaintiff.

John T Lenahan and M. J. Martin, for defendant.

ARCHBALD District Judge.

This is a bill brought to avoid as a preference certain transfers of property, and to have certain others decreed to stand as security only for the advances upon them. The material facts with respect to the former are not in controversy. On April 21, 1894, John J. Mangan, the present bankrupt, conveyed to the defendant, K. J. Ross, by deed in fee simple, two lots of land of which he was the owner, one in Pittston, Pa., and the other in Hughestown, of the combined value of about $4,000. Mangan was engaged at the time, and up to his bankruptcy, in the general retail grovery business, and the defendant, Ross was a jobber in feed and provisions; and this conveyance according to the undisputed evidence, was given to secure the latter for what Mangan then owed him for goods bought, amounting to $573.54, and for indorsements at bank, with which the defendant has accommodated him, the extent of which is not given. It was also to stand as security for any future indebtedness or obligations of like character. Six years later, on July 30, 1900, the indebtedness on book account having increased to $3,487.68, and the indorsed paper to some $3,500 more, Mangan, with his six brothers and sisters, as additional security, conveyed to the defendant two other pieces of real estate in Pittston, which they had together inherited from their mother, of the value of about $7,000. The deed in this case also was in fee simple, but, the same as the other, was admittedly intended as security only, and a writing expressive of that fact, and including the previous deed, agreeing to reconvey on payment of the indebtedness, was signed and acknowledged by the defendant, but for some reason was never delivered. Neither of these deeds was recorded at the time, nor was possession taken under them; Mangan and the others continuing to exercise unquestioned ownership over the property, collecting the rents, paying taxes, and seeing to the insurance. On June 2, 1903, however, Mangan being in manifest financial difficulty, the defendant put his deeds on record, and on June 6th, four days later, proceedings in bankruptcy were begun by creditors, under which Mangan in due course was adjudicated a bankrupt; the plaintiff, English, being subsequently elected and qualified as trustee. The present bill is based upon the contention that, as against subsequent bankruptcy, the defendant's deeds are to be judged as of the date of record only, and, being given for the purpose of securing the indebtedness of the bankrupt, who was hopelessly insolvent, and whose estate will pay but a few cents on the dollar, that they constitute a preference, which the defendant had reasonable cause to believe was intended, and which, being within the four-months period, is therefore voidable at the instance of the trustee.

There can be no question as to these conveyances working a preference, if they are sustained. It is true that the interest of the bankrupt disposed of by the second was only an undivided seventh, and therefore worth but about $1,000. But the property covered by the first deed was worth some $4,000, making $5,000 for the two together; and the defendant, in addition, held 10 shares of the Citizens' Electric Illuminating stock, which had been assigned to him as collateral, of the value of from $1,200 to $1,500 more, out of which even though the indebtedness of the bankrupt to the company should be taken by virtue of the lien which is claimed upon it-- some $300 or $400, according to the statement of counsel-- it still leaves $1,000 to go into the general account. The defendant, therefore, got $6,000 of security from the bankrupt, as against $7.000 of indebtedness and assumed obligations; whereas, to pat other creditors, by whom claims have been proved to the extent of over $42,000, there are perhaps $2,000 or $3,000 of available assets in sight. Neither can there be any serious controversy, treating the transaction as of the date when the defendant put his deeds on record, that he had reasonable cause to believe that a preference was intended. It was certainly manifest that Mangan had reached the end of his resources, which the defendant could but know, and evidently did. His account for goods purchased, which was but $573 in April, 1894, when the first deed was given, had grown to $3,487 in July, 1900, at the time of the second, and had been somewhat further increased in the three years following. For upwards of three months, although repeatedly dunned to do so, he had not been able to pay a dollar upon it, and kept putting the defendant off with promises. So far had things gone that the latter part of May, when he came and tried to get a small bill of goods, he was refused; and not until he had agreed to assign certain judgments which he held against Plains township to the amount of $567, was he accommodated, and then only to the extent of $275. At this very time, whether the defendant knew it or not, he was under execution, and was sold out at constable's sale the next day after the deeds in question were put on record. The defendant held his electric light stock, on which he was owing for the very light that had been furnished him, which the defendant, as the president of the company, must have known. The first deed covered all the real estate which he owned by himself, except a lot in Exeter township, which no one seems to consider of any account; and the second, that which he had inherited in common with his brothers and sisters. And the fact that they had joined with him in these conveyances was evidence that he had been compelled to call on his family for assistance, and that, three years before, in order to keep going. Monopolizing, as he thus did, all the available assets of the bankrupt, the defendant could not but know that he was getting more than his share if Mangan proved insolvent, to which everything pointed, and of which he was therefore affected with notice. In re Ridge Avenue Bank (D.C.) 138 F. 951. Of this the defendant took the risk, and, now that it has turned against him, he cannot be heard to say that he did not know that he was getting a preference, or that one was contemplated. Where that is the necessary result of a transaction, it is conclusively presumed to have been intended. Western Tie & Timber Co. v. Brown, 196 U.S. 502, 25 Sup.Ct. 339, 49 L.Ed. 571. And upon the most cursory consideration it was patent that that would be the outcome here.

The case turns, therefore, on whether the transfer of property effected by the deeds is to be judged, as of the dates when they were, respectively, executed, or as of June 2, 1903 when they were left for record; the latter only being within the four-months period prior to bankruptcy necessary to make out a preference. Under the bill as originally filed, the attempt was made to have these conveyances treated as mortgages, according to which it was assumed that they would take effect from the date of record only, and the way thus be made east to set them aside. This lost sight, however, of the real issue. For, except as affected by section 67a, Bankr. Act July 1, 1898, c. 541, 30 Stat. 564, U.S. Comp. St. 1901, p. 3449 (In re Lukens (D.C.) 138 F. 188; In re Pekin Plow Co., 7 Am.Bankr.Rep. 369, 112 F. 308, 50 C.C.A. 257; In re Thorp, 12 Am.Bankr.Rep. 195, 130 F. 371. Contra, in re New York Economical Printing Co., 6 Am.Bankr.Rep. 615, 110 F. 514, 49 C.C.A. 133), if the trustee has no right to call in question the conveyances, for want of recording, as deeds, neither has he as mortgages, and whether filed before or after bankruptcy. But, without stopping over that, the agreement by which the deeds here would be made out to be mortgages being in parol, the act of June 8, 1881 (P.L. (Pa.) 84), was seen to preclude it (Sankey v. Hawley, 118 Pa. 30, 13 A. 208; Molly v. Ulrich, 133 Pa. 41, 19 A. 305; Grove v. Kase, 195 Pa. 325, 45 A. 1054; Crotzer v. Bittenbender, 199 Pa. 504, 49 A. 266; Lohrer v. Russell, 207 Pa. 105, 56 A. 333), and the present position was then taken. The act of 1881 is still urged as standing in the way; but, notwithstanding the strictness with which it has been enforced in cases coming within its terms, it has never been carried beyond them. Brown v. Beecher, 120 Pa. 590, 15 A. 608; Huston v. Regn, 194 Pa. 419, 39 A. 208; Goodwin v. McMinn, 193 Pa. 646, 44 A. 1094, 74 Am.St.Rep. 703; Moran v. Munhall, 204 Pa. 242, 53 A. 1094; Burkhart v. Insurance Co., 11 Pa.Super.Ct. 280; Bank of Commerce b. Peace, 27 Pa.Super.Ct. 643. It simply prohibits a deed absolute on its face from being reduced to a mortgage, except by a defeasance in writing, simultaneously signed, sealed, acknowledged, and delivered by the grantee, and recorded within 60 days. This does not, however, change the inherent character of the transaction, nor prevent the courts from inquiring into it and treating it accordingly. In the present instance there is no dispute as to what it was. The deeds, though absolute, were admittedly intended as security only; and, whether the defendant is willing to recognize the confidence or not, it was for this purpose, and this alone, as he himself acknowledges, that the property was put in his hands. The indebtedness of the bankrupt, present and prospective, no doubt, was the consideration; but there was no sale. The defendant did not buy the property, in other words, agreeing to take it and cancel his debt. If it were to his advantage, and the transfer was decided not to be a preference, there would be nothing to prevent him, after realizing on his security, from coming in on the estate for...