Grimes v. Clark

• Decision Date: 05 July 1916
• Docket Number: 1452.
• Citation: 234 F. 604
• Parties: GRIMES v. CLARK. In re BAKER.
• Court: U.S. Court of Appeals — Fourth Circuit

234 F. 604

GRIMES v. CLARK.

In re BAKER.

No. 1452.

United States Court of Appeals, Fourth Circuit.

July 5, 1916

Richard S. Culbreth, of Baltimore, Md. (S. S. Field, of Baltimore Md., and Jos. L. Donovan, of Ellicott City, Md., on the brief), for plaintiff in error.

Edward M. Hammond and Charles C. Wallace, both of Baltimore, Md for defendant in error.

Before PRITCHARD and KNAPP, Circuit Judges, and JOHNSON, District judge.

KNAPP Circuit Judge.

Clark trustee in bankruptcy of Baker, sued Grimes, plaintiff in error, for the amount of a preference alleged to have been obtained by the transfer of property from Baker when he was insolvent. The transfer in question took place on the 11th of September, 1914, and Baker was adjudicated an involuntary bankrupt on the 17th of that month. Grimes set up in answer that in November, 1911, he loaned Baker $1,300 for one year at 6 per cent., to purchase the stock of goods, fixtures, etc., in a store at Marriottsville, Md.; that the money was used for that purpose; and that the loan was secured by a chattel mortgage, duly recorded, on all the property bought by Baker--

'and also the stock in trade, trade fixtures and personal effects which shall or may at any time or times hereafter, during the continuance of this security, be brought into the said store * * * either in addition to or substitution for the stock in trade, trade fixtures and personal effects now being therein or belonging thereto.'

The answer then recites provisions of the mortgage to the effect that the mortgagee, upon default of payment, could seize and sell the property pledged, including all property afterwards acquired, and that until default the mortgagor might remain in possession and sell at retail as agent of Grimes, rendering to him monthly accounts of sales made, and paying him whenever required all moneys received from such sales. After stating that he took possession on the 11th of September, 1914; that there was then overdue the principal sum of $1,300, with interest from the 17th of November, 1913; that he sold the property for $1,040.22, and applied the proceeds to the payment of the mortgage debt-- the answer alleges as follows:

'That some of the stock in said store at the date of said mortgage had been sold and replaced by other stock, and was so mixed and intermingled therewith as not to be identified or distinguished; that said Baker was solvent at the date of said mortgage; but the defendant had reason to believe that, at the date he took possession of said stock, the said Baker was insolvent; that the defendant took possession of said stock in good faith, and with no other intent than to assert the right which was fairly his under said mortgage, after the due recording of which the claims of all of the other creditors of the said Baker, the same being open accounts, originated.'

It is further alleged that defendant was a farmer, living some five or six miles from Marriottsville; that he visited the store once or twice a month; that Baker frequently told him he 'was getting on all right, not only holding his own, but increasing his stock'; that defendant so believed, and for that reason, and for the purpose of helping Baker in his business, no accounts were rendered to him and no money received by him for any sales made by Baker; that on or about the 11th of September, 1914, defendant learned for the first time that Baker was having difficulty in meeting his obligations; that thereupon he went to the store with one Donovan and took possession of the property, 'the said Baker neither assenting nor objecting'; that Baker had no authority to sell the property except as stated in the mortgage; and that defendant did not know or have reasonable cause to believe, when he took possession of the property, that Baker intended to create a preference. The District Court sustained plaintiff's demurrer to the pleas set up in the answer and, the defendant having elected to stand upon the pleadings, ordered judgment in favor of plaintiff for the $1,040.22 which defendant had received from the sale of the property.

The case then is this: Claiming a lien under the terms of his mortgage, Grimes took possession of property which Baker acquired after the mortgage was executed. He knew at the time that Baker was insolvent, though the latter was not adjudicated bankrupt until a few days afterwards. Knowing the insolvency of Baker, he seized the bulk of Baker's assets for the evident purpose of getting his own debt paid whatever might happen to other creditors. He must have been aware that the necessary effect of what he did was to gain a preference for himself, and he cannot be heard to say that a preference was not intended. Beyond doubt the transaction was a transfer of property within the meaning of the Bankruptcy Act, and the only question here is the right of Grimes under his mortgage as against subsequent creditors without security. The answer to that question depends wholly upon the law of Maryland, whatever may be held...