J.W. Butler Paper Co. v. Goembel

• Decision Date: 17 October 1905
• Docket Number: 1,146.
• Citation: 143 F. 295
• Parties: J. W. BUTLER PAPER CO. et al. v. GOEMBEL.
• Court: U.S. Court of Appeals — Seventh Circuit

143 F. 295

J. W. BUTLER PAPER CO. et al. v. GOEMBEL.

No. 1,146.

United States Court of Appeals, Seventh Circuit.

October 17, 1905

This appeal is from an order of the District Court, which sets aside and declares void a chattel mortgage in favor of the appellants, upon certain property of H. F. Chandler bankrupt, involved in the bankruptcy proceedings. The appellants, J. W. Butler Paper Company and American Type Founders Company, as owners of a chattel mortgage executed by the bankrupt February 9, 1904, filed their petition in the District Court to have such mortgage adjudicated as a lien, with direction to the trustee to turn over the property to them, or satisfy their lien for $875 and interest upon sale thereof. The petition was referred to the referee in bankruptcy, who heard the testimony and reported in favor of the appellants-- substantially, that the mortgage was given to secure the bankrupt's pre-existing indebtedness to them, respectively, and when so given the appellants (mortgagees) had no reasonable cause to believe that it 'was intended thereby to give a preference,' and that the bankrupt was then solvent in fact. Upon the testimony and report so filed, exceptions on the part of the trustee were sustained and the report disapproved. While specific exception appears to the finding that the bankrupt was solvent when the mortgage was made, no such exception appears to the finding that the appellants were without reasonable cause to believe that a preference was thereby given, and no finding of such cause is stated in the order of the District Court or elsewhere in the record. The mortgage covered the main items of the mortgagor's printing office plant-- one press and sundry articles and office supplies not being included-- and the proceedings in bankruptcy were commenced May 28, 1904, so that the mortgage was executed within four months before the filing of the petition to be adjudicated a bankrupt. The material testimony relating to the transaction is referred to in the opinion.

Asa Q Reynolds, for appellants.

H. S Hicks, for appellee.

Before GROSSCUP, BAKER, and SEAMAN, Circuit Judges.

PER CURIAM.

The validity of the appellants' mortgage is challenged only as an unlawful preference within the terms of Section 60 of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3445)). Section 3a(2) prescribes one of the acts of bankruptcy to be, the transfer by a person while insolvent, of 'any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors. ' Section 60a defines such preference to consist of three elements, namely: (1) insolvency of the bankrupt when the transfer is made; (2) making within the four months period named; and (3) having the effect '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. ' Thereupon section 60b further provides:

'If a bankrupt shall have given a preference and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person.'

The issue for review arises under the last mentioned provision, but involves primarily the ascertainment of a preference in fact, as defined in section 60a, upon which liability under section 60b is predicated. Thus the only reviewable questions are: (1) Whether the fact of insolvency appears at the date of executing the mortgage; and, such fact appearing, (2) whether the appellants are chargeable with reasonable causes to believe that the preference so defined was intended thereby. Both are inquiries of fact, and the burden of proof rests on the trustee to establish both conditions.

1. The testimony as to the value of the aggregate of the bankrupt's property at the date of the...