In re Walden Bros. Clothing Co.

• Decision Date: 29 August 1912
• Docket Number: 533.
• Parties: In re WALDEN BROS. CLOTHING CO.
• Court: U.S. District Court — Northern District of Georgia

199 F. 315

In re WALDEN BROS. CLOTHING CO.

No. 533.

United States District Court, N.D. Georgia, Western Division.

August 29, 1912

T Leslie Bowden and Henry R. Goetchius, both of Columbus, Ga for claimant.

Slade &amp Swift, Love & Fort, and Dismukes & Worsley, all of Columbus Ga., for trustee.

NEWMAN District Judge.

This is a petition to review the action of the referee in refusing to allow a mortgage held by Frank G. Lumpkin, in the above-stated case, to be proven as a preferred debt against the bankrupt's estate.

We must start into the consideration of the case with the rule in mind that the action of the referee and his findings on questions of fact will not be disturbed, unless clearly and manifestly erroneous. This has been held to be the rule in this court in many cases. Fouche v. Shearer, 172 F. 592; Re Landsberger, 177 F. 450; Re Taff & Conyers, 182 F. 904; Re Waxelbaum, 101 F. 228; Re West, 116 F. 767. But such is the rule recognized generally by the courts. Ohio Valley Trust Co. v. Mack (C.C.A.; Lurton, J.) 163 F. 155, 89 C.C.A. 605, 24 L.R.A. (N.S.) 184. The same effect is given to it as to a finding of a master in chancery.

The opportunity a referee has for seeing the witnesses and observing their manner and conduct on the stand makes his opinion particularly valuable; and this is especially true in cases like this, where the issue is knowledge, lack of knowledge, and opportunity for knowledge. The referee sees a witness, and, observing his examination and cross-examination, and his manner on the stand, gets a far better idea of the truth of a particular matter than a reviewing court from a written or printed record.

The referee has found that, at the time of the execution of the mortgage in question, Walden Bros. Clothing Company was insolvent. There is no doubt whatever, from the evidence, that he was fully justified in this finding. Any fair view of the evidence as to the value of the stock of merchandise on hand, and the accounts and notes due the company, contrasted with the admitted indebtedness, makes it clearly insolvent.

At the time the mortgage was executed, was it made on the part of the bankrupt company with intent to hinder, delay, or defraud creditors? It must be conceded that there was a clear intent to delay the creditors, to say no more of it. Mortgaging its entire stock of merchandise, and pledging its choses in action, and then using the money received from the mortgage to pay three creditors, leaving a considerable number of its creditors wholly unprotected, could only have been with the knowledge that the latter class of creditors would be hindered and delayed, at least, in the collection of their debts. It must have intended that which it knew would occur. This is sufficient to bring the case within the statute. Bankr. Act July 1, 1898, c. 541, Sec. 67c, 30 Stat. 565 (U.S. Comp. St. 1901, p. 3419).

Really the only question in the case is whether or not Mr. Lumpkin had reasonable grounds for suspicion that by the execution of this mortgage the bankrupt company intended to hinder, delay, or defraud its creditors. Were the facts and circumstances of the case, and surrounding the transaction, such as to put him on notice that such was the purpose of the Walden Bros. Clothing Company? Section 3224 of the Code of Georgia of 1910 provides as follows:

'The following acts by debtors shall be fraudulent in law, against creditors and others and as to them, null and void, viz.:

'1. Every assignment, or transfer by a debtor, insolvent at the time, of real or personal property, or choses in action of any description, to any person, either in trust or for the benefit of or in behalf of, creditors, where any trust or benefit is reserved to the assignor, or any person for him.

'2. Every conveyance of real or personal estate by writing or otherwise, and every bond, suit, judgment and execution or contract of any description had, or made with intention to delay or defraud creditors and such intention known to the party taking. A bona fide transaction on a valuable consideration, and without notice or ground for reasonable suspicion, shall be valid.

'3. Every voluntary deed or conveyance, not for a valuable consideration, made by a debtor insolvent at the time of such conveyance.'

It will be seen from this that a person taking a transfer in such a case must be without 'grounds for reasonable suspicion that the same was intended to delay or defraud creditors ' In Nicol v....