In re T. H. Bunch Commission Co.

• Decision Date: 03 August 1915
• Citation: 225 F. 243
• Parties: In re T. H. BUNCH COMMISSION CO.
• Court: U.S. District Court — Eastern District of Arkansas

225 F. 243

In re T. H. BUNCH COMMISSION CO.

United States District Court, E.D. Arkansas, Western Division.

August 3, 1915

This is an intervention by Mrs. Laura L. Bunch, for the possession of certain personalty in the possession of the trustee in bankruptcy in this cause. She claims title thereto by virtue of a chattel mortgage executed by the bankrupt to her for the purpose of securing an indebtedness due her from the bankrupt. To this petition of intervention the trustee filed an answer, admitting the possession of the property claimed by the intervener, and the execution of the mortgage as set forth in the petition, but denied that it was a valid mortgage as against the trustee, for the reason that the bankrupt corporation was created and existed under the laws of the state of Arkansas, and had its principal office in the county of Pulaski, and that the mortgage was not legally filed for record until October 7, 1914, within four months before the filing of the petition in bankruptcy herein; that at the time of such recording in Pulaski county the said Commission Company was insolvent, and the effect of the enforcement of said mortgage would and will be to enable the intervener to obtain a greater percentage of her debt than other creditors of the Commission Company, of the same class whose debts were in existence at the time said mortgage was given and accepted, and thereafter; that at the time of recording the said mortgage in Pulaski county, as aforesaid the intervener had reasonable cause to believe that the enforcement of said mortgage would prefer her to other creditors.

The intervention was referred to the referee in bankruptcy as special master, and was submitted to him upon an agreed statement of facts, the substance of which is: 'that the Commission Company, the bankrupt, is a corporation organized November 3, 1909, under the laws of the state of Arkansas. Its principal place of business and its office for the transaction of business is, and at all times was, in Pulaski county, state of Arkansas. That T. H. Bunch has been the president ever since its organization, and the intervener is his wife; that on December 18, 1913, the said T.H. Bunch acting for the Commission Company, borrowed from the intervener $20,000 in money, and for the purpose of securing the same executed in behalf of the Commission Company a note for $20,000 to Mrs. Bunch and a chattel mortgage on the property in controversy. After it had been delivered to her she requested her husband to take such steps as were necessary to validly file or record the mortgage. That the mortgage was filed on January 10, 1914, with the recorder of deeds of Lonoke county, Ark., but with no directions to record same, nor was there any indorsement made thereon, as provided by section 5407 of Kirby's Digest. The personalty covered by the mortgage was at that time in Lonoke county. On October 1, 1914, a suit was filed in the chancery court of Pulaski county, Ark., by creditors of the Commission Company, asking for the appointment of a receiver of the Commission Company to wind up its affairs, upon the ground that it was insolvent. That upon a hearing the court by consent of the parties appointed a receiver on October 3, 1914, upon the ground of said insolvency. On October 3, 1914, the attorney for Mrs. Bunch, who was also the attorney of the Commission Company, was advised that her mortgage was on file in the recorder's office in Lonoke county, but had not been recorded or indorsed, so that it could be legally filed without recording, whereupon the attorney withdrew the mortgage and immediately refiled it with the recorder of deeds of Lonoke county, with an indorsement as required by law for filing, but not recording, chattel mortgages. On October 7, 1914, the attorney for Mrs. Bunch directed the recorder of Lonoke county to record the mortgage in that county, and when recorded to return it, whereupon it was indorsed by the recorder of Lonoke county, 'Filed for record at 11:00 o'clock a.m. October 7, 1914.' He immediately recorded it, and then sent it to this attorney at Little Rock, in Pulaski county, who then filed it for record with the recorder of Pulaski county, at 3:20 p.m. October 7, 1914, and the same is now of record in said county. The attorney who attended to these matters was also the attorney of the Commission Company, and had, up to that time, also been the attorney for Mrs. Bunch, but another attorney was employed by Mr. Bunch to act for Mrs. Bunch thereafter. At that time Mrs. Bunch was away from home, and all this was done by direction of her husband, the president and manager of the Commission Company. She returned home on October 11, 1914, and after being advised of what had been done, ratified the employment of a new attorney and everything that had been done on her behalf during her absence by either of the attorneys. At the time she ratified these acts she knew that the receiver had been appointed by the chancery court and was in charge of the property of the Commission Company, including the mortgaged personalty, and she also knew that the Exchange National Bank, a creditor of the Commission Company, claimed that within the preceding two or three months approximately $35,000 or $40,000 had been obtained by the Commission Company from the bank in an unlawful way, and, as a result of the action of the bank on its claim, said receiver had been appointed and the Commission Company had ceased to transact business. At the time the application for a receiver was made to the chancery court the Commission Company was insolvent, having unsecured creditors whose claims exceeded in amount the fair valuation of its assets, and has been insolvent ever since.'

The agreed statement also contains this stipulation: 'it is stipulated and agreed that T. H. Bunch, if sworn as a witness in this cause, would testify that at the time of and after the appointment of the receiver for the Commission Company by the Pulaski chancery court, he did not personally think the said Commission Company was insolvent, but thought that the company could not pay some debts that were then due, but that its assets were sufficient to pay all its debts. Notwithstanding, for the purpose of the trial of this intervention, it is stipulated and agreed that at the time of and at all times after the appointment of said receiver by the Pulaski chancery court, the said T.H. Bunch had actual knowledge, acquired by him while acting not adversely to the interests of Mrs. Bunch, of such substantial facts and surrounding circumstances as would put a man of ordinary prudence or business experience on inquiry, which inquiry, if pursued with reasonable diligence, would have disclosed that the said T. H. Bunch Commission Company did not have sufficient assets at a fair valuation as a going concern to pay its debts, and, further, that if said mortgage in favor of Mrs. Bunch was enforced, she would get a greater percentage of her debt than general creditors. It is agreed that T. H. Bunch had access to the sources of information, which, if reasonably pursued, would have disclosed the above facts. At no time did the said T. H. Bunch, or any officer of the T. H. Bunch Commission Company, or Mrs. Laura L. Bunch, or her attorneys, attempt or intend to conceal the existence of the said debt or the said mortgage from any one. On October 19, 1914, a petition in bankruptcy herein was filed, and on November 9, 1914, adjudication in bankruptcy therein was had. The debt secured by the mortgage is still unpaid. For the purpose of this case it is stipulated that the said T. H. Bunch, as president of the said Commission Company, had authority to make the loan and execute the note and mortgage on behalf of the Commission Company.'

At the hearing before the master the parties agreed that the cause be submitted upon two issues only: (1) Whether the debt, in the securing whereof the chattel mortgage was made, is to be deemed a pre-existing debt as of the date of the transfer itself, or as of the date of the recording of said transfer itself, or as of the date of the recording of said transfer in Pulaski county, Ark.; (2) whether the recording of said transfer was by law required within the meaning of section 60 of the Bankruptcy Act. The special master found in favor of the trustee, and dismissed the intervention.

Rose, Hemingway, Cantrell, Loughborough & Miles, of Little Rock, Ark., for intervener.

H. M. Trieber, of Little Rock, Ark., for trustee.

TRIEBER District Judge (after stating the facts as above).

Section 60a of the Bankruptcy Act, as amended by the act of February 5, 1903, 32 Stat.p. 799, reads as follows:

'A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.'

Section 60b, as amended by the act of June 25, 1910, is as follows:

'If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and if, at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by law

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