In re Duggan

• Decision Date: 29 November 1910
• Docket Number: 2,122.
• Parties: In re DUGGAN. v. CHAMBERS. COHEN
• Court: U.S. Court of Appeals — Fifth Circuit

183 F. 405

In re DUGGAN.

COHEN v. CHAMBERS.

No. 2,122.

United States Court of Appeals, Fifth Circuit.

November 29, 1910

Thomas S. Felder, for appellant.

Jno. R L. Smith, for appellee.

Before PARDEE and SHELBY, Circuit Judges, and TOULMIN, District Judge.

SHELBY Circuit Judge.

Mrs. S L. Duggan having been adjudicated a bankrupt, Louis Cohen presented his petition to the referee, claiming that she was justly indebted to him in the sum of $494, with interest, and that the same was secured by a mortgage dated May 17, 1909. The bankrupt at the date of the mortgage was engaged in the mercantile business, and the mortgage was on her stock of goods and store fixtures. The trustee file objections to the claim, alleging that the mortgage was not a valid and subsisting lien upon the property described; that the same was in violation of the bankruptcy law, in that it was given by the bankrupt and accepted by the mortgagee in fraud of the other creditors; and that, while it purports to have been executed on May 17, 1909, it was given for a pastdue indebtedness and withheld from the records till July, 1910 and that the withholding of it from the records was for the purpose of giving the bankrupt credit and commercial standing, and was a fraud upon the other creditors of the bankrupt. The claimant, Louis Cohen, was examined as a witness in his own behalf, and J. W. Duggan, the husband of the bankrupt and her business manager, was also examined. The following excerpts show the substance of the material part of their testimony:

'Louis Cohen: The second time they (the bankrupt and her husband) came to me was for the borrow of $600 for the purpose of helping them in their store, and they voluntarily offered me a security on their stock of goods, and they also stated to me that they were perfectly solvent, and it was for the purpose of using it to pay off some indebtedness that was pressing them at the time. I gave them the $600. I sent the paper promptly to Eastman, to the clerk of the superior court there, for record. They lived at Eastman Dodge county, and I at Sandersville, Washington county, and I won't be positive how many days it was on record when I received a telephone message from them both, and it was so indistinct that I could just catch enough from the telephone to tell that they were very much agitated and worried over the mortgage having been recorded. So I told them that the best thing they had better do was to come to Sandersville and let me find out what they wanted. It was very indistinct, so they came. They told me that publicity of the mortgage when it was put on the record, that the wholesalers they had been buying of told them that they would not sell them any more as long as this mortgage was on record, and they begged me to take it off. In the meantime they brought me $150 cash to reduce that mortgage. I knowing the parties for a number of years, knowing them to be honest and straight, I took this mortgage then with the interest, and they asked me not to put this on record. I did not promise them anything, and they also promised to pay me in monthly payments until this paper was liquidated. Before maturity, I think it was when the first payment as per promise came due, I wrote them, and they answered me back that they would make a remittance soon. That passed on, and in the course of my being busy I overlooked this until one day Mr. Duggan came down to see me and asked me for advice, and in that conversation he then told me his condition. I says, ' Well, Mr. Duggan' I says, 'from your statement you are broke.' He says, 'Oh, no, sir; I have got plenty of assets.' I says, 'Yes, sir; you are broke, and I am going to put my mortgage on record right to-day.' I sent it that very same evening over to the record. That was the 4th day of January, 1910. He went into his condition with me at that time, and was advising with me as to what he should do. I told him he was then broke. He told me that I was mistaken; that he had plenty of assets and he was not; that he was perfectly solvent. He was honest in his statement. He showed feeling about it. When I told him and showed him he was broke, he cried. I took this mortgage which I am now setting up in bankruptcy, due October 15th, the 17th day of May, 1909. Mr. Duggan paid me that time $150, and then I extended-- I took a new mortgage for the balance. This is the balance, the amount of this note and mortgage here claimed. He stated to me he was then perfectly solvent. I asked him. I believed what he said. I had every reason to believe everything that both of them said. I made no definite promise as to keeping it off record. I made him no promise. I had loaned him $600 a short time previous to that, and he came in and paid part of it. And then I extended the indebtedness and took this new mortgage. And this new mortgage I did not put on record until I found out his condition. But I did not have any agreement with him not to put it on record.

'Q. Why was it you took this $600 mortgage off record, canceled the record of this mortgage? A. They told me that the mortgage I first put on was hurting their credit the minute it was put on-- that is the one they telephoned me about.

'Q. Why did you comply with their request about that? A. From their first statement, and then having confidence in their standing and in their solvency, knowing them, I kept it then off record. I thought they would comply with their promise to give me partial payments until when it was due, the second one I had written. It would be liquidated before it was due, while I made the second one the 15th of October, but before they executed it, before it was ever drawn up, they had made me a promise to pay me so much every month that before the 15th the balance of it would have been paid up.

'Q. Your object, then, in canceling the first mortgage and taking a new one, was to extend their credit, give them a better credit than they would have had if it had remained on record? A. From their statement I did, to accommodate them.

'Q. That was your object in doing that? A. Yes, sir.

'Q. You knew, if you didn't do it, their credit would be ruined? A. From their statement and to accommodate them and by their statement is the reason I accommodated them, took it off and took a new one.

'Q. They told you that putting that first mortgage on record was ruining their credit? A. Yes, sir.

'Q. And that no wholesaler would sell them as long as it was on record? A. Yes, sir.'

'J. W. Duggan: I managed the business of my wife. The occasion of that mortgage being canceled from the record, that was given first, the $600 mortgage was. We needed $600, and my wife wrote and asked him for $600. We told him that we would give a mortgage on the stock of goods if he wanted it. The money came right along. We gave him a mortgage on the stock of goods, and in a few days we saw where it was hurting us. I mean we could not buy goods with that mortgage on record; that is, people would know it was on there. We could not buy goods. Of course, pretty nearly everybody knew it. We phoned him, and he could not understand us, so he told us we had better come over there. We went over there and paid him $150. He took it off, canceled the mortgage. He did that because we asked him to. We asked him to for the simple fact it was hurting our business. I guess we told him that fact. I am not certain. I reckon we told him it was hurting our business. That is what we meant.

'Q. State whether or not there was any request made of Mr. Cohen to keep this second mortgage off the record? A. He didn't make any promise at all there, just to get that mortgage off. To tell you the truth, I don't know positively whether we asked him not to record it or not, but he didn't do it. I know one thing-- it didn't make any difference whether we asked him or not. It was not done. Possibly we did ask him not to do it. I think we asked Mr. Cohen not to put it on as long as he could help it; that is the best of my recollection. I think I did do that. I can't tell you what he said. He said he would take this one off. If we paid him $150, he would take this one off.'

The referee decided that the mortgage was valid and entitled to...