Jackman v. Eau Claire Nat. Bank

• Decision Date: 23 June 1905
• Citation: 125 Wis. 465,104 N.W. 98
• Parties: JACKMAN v. EAU CLAIRE NAT. BANK.
• Court: Wisconsin Supreme Court

125 Wis. 465

104 N.W. 98

JACKMAN

v.EAU CLAIRE NAT. BANK.

Supreme Court of Wisconsin.

June 23, 1905.

Appeal from Circuit Court, Eau Claire County; James O'Neill, Judge.

Action by Ralph W. Jackman, trustee of the estate of John H. Young, a bankrupt, against the Eau Claire National Bank. Judgment for plaintiff, and both sides appeal. Affirmed on both appeals.

Rehearing denied October 3, 1905.

This action was brought by Ralph W. Jackman, trustee of the estate of John H. Young, to recover the value of property transferred as a preference under section 60b, Bankr. Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445]. The complaint alleges, in effect, that on the 7th day of June, 1902, John H. Young, of Eau Claire, Wis., filed a petition in bankruptcy and was adjudged to be a bankrupt, and on the 23d day of June, 1902, the plaintiff was elected and appointed by the creditors of said Young as trustee, and such appointment was duly approved; that the plaintiff duly qualified and entered upon his duties as such trustee, and brings this action in such capacity; also alleges the corporate existence of defendant, the ownership by Young of logs, lumber, shingles, and lath worth the sum of $35,000, and other property not exceeding $500; that on February 10, 1902, Young was wholly insolvent; that the aggregate of his indebtedness was $40,000, and the value of his property $35,000; that on February 10, 1902, he was indebted to the defendant in the sum of $27,000 for money borrowed from time to time during a period of about two years prior to that date; that on February 10, 1902, he made two chattel mortgages to defendant, one for the sum of $15,000 and the other for the sum of $11,000, to secure the payment of said amounts then owing by him to defendant; that the property so transferred to defendant consisted of substantially all the property then owned by Young not by law exempt, which facts were well known to defendant, its officers and agents; that the effect of the enforcement and foreclosure of said mortgages would be to enable defendant to obtain a larger percentage of its debt than would other creditors of said Young, and that said mortgages were given for the purpose of hindering and delaying the other creditors of said Young; that defendant, at the time of the execution of said mortgages, February 10, 1902, had reason to believe that the same were given with the intention of giving defendant a preference. The complaint further alleges the corporate existence of the Waters-Clark Lumber Company, and that on the 10th day of March, 1902, at the special instance and request of defendant, Young transferred by bills of sale to said Waters-Clark Lumber Company, for the benefit of defendant, all the property covered by said chattel mortgages, together with other property, which property was of the value of $35,000; that said bills of sale were not executed as provided by chapter 80, Rev. St. 1898, and no bond was given as required by section 1694, Rev. St. 1898; that, except as to the agreement of said Waters-Clark Lumber Company to pay said indebtedness, no consideration was paid by it for said property, and nothing was paid to Young at the time of the transfer; that immediately upon the execution of said bills of sale said Waters-Clark Lumber Company, acting pursuant to direction of defendant, took possession of and sold said property, applying the proceeds to the payment of defendant's indebtedness secured by said mortgages, and that defendant and its officers knew that the property so transferred constituted all the available assets of said Young, and that such transfer and appropriation would result in the loss by other creditors of all their indebtedness; that said Waters-Clark Lumber Company was in reality acting as the trustee for defendant, and with the understanding that it would account to defendant for the proceeds of the property transferred to the amount of its indebtedness, and that the amount realized in excess of said indebtedness would be paid to said Young. The complaint further alleges, among other things, that by reason of the collusive arrangement and agreement aforesaid and the chattel mortgages and bills of sale the defendant appropriated to the payment of its indebtedness substantially all the property of said Young of the value of $35,000, and that there is no other property in the possession of said trustee or belonging to said Young out of which the creditors of said Young can be paid, and that it is necessary to enable plaintiff to pay anything to the other creditors to recover from said defendant the value of the property so by it appropriated by means of said transfer. Plaintiff prays judgment for $35,000 and costs.

To this complaint defendant demurred for want of jurisdiction of the subject-matter, that plaintiff had no legal capacity to sue, defect of parties plaintiff and defendant, and want of facts sufficient to constitute a cause of action. The court overruled the demurrer, and defendant answered, admitting that on June 7, 1902, Young was adjudged a bankrupt, and on the 23d of June, 1902, plaintiff was appointed trustee, and qualified as such, and that defendant during the times mentioned in the complaint was a banking corporation duly organized; that Young executed the chattel mortgages referred to in the complaint; that in March, 1902, Young sold to the Waters-Clark Lumber Company logs covered by one mortgage, and certain other logs, and that a portion of the proceeds was paid to defendant to discharge existing liens held against said property, and denying other material allegations of the complaint, and alleging that the mortgages were given for a valuable consideration, and were not made, given, or received for the purpose of giving defendant a preference; and further alleging that prior to the commencement of the action plaintiff commenced an action against the Waters-Clark Lumber Company to recover the purchase price of the logs and other material sold by said Young to said company, and thereby elected to look to and hold said company, instead of defendant, as liable to said trustee.

The action was tried before the court and a jury, and the following verdict returned by the jury: “(1) Was the property of Young on February 20, 1902, when the chattel mortgages were executed, at a fair valuation, sufficient in amount to pay his debts? Answer. No. (2) Was the property of Young on March 3, 1902, when the lumber was transferred, at a fair valuation, sufficient in amount to pay his debts? Answer. No. (3) Was the property of Young on March 29, 1902, when the logs were transferred, at a fair valuation, sufficient in amount to pay his debts? Answer. No. (4) Did the Waters-Clark Lumber Company, acting for the bank, and pursuant to an arrangement between the said lumber company and the bank, take the legal title to the lumber in question for the benefit of the defendant under an agreement with Young and the defendant to account to it for a portion of the proceeds? Answer. Yes. (5) Did the Waters-Clark Lumber Company, acting for the bank, and pursuant to an arrangement between said lumber company and the bank, take the legal title to the logs in question for the benefit of the bank under an agreement with Young and the defendant to account to it for a portion of the proceeds? Answer. Yes. (6) Was it the intention of Young, by the execution of the chattel mortgages to the bank, to give the bank a preference; that is, to enable the defendant to obtain a greater percentage of its debt than any other creditors of Young, of the same class? Answer. Yes. (7) Was it the intention of Young, by the transfer of the lumber to the Waters-Clark Lumber Company, to give the bank a preference? Answer. Yes. (8) Was it the intention of Young, by the transfer of the logs to the Waters-Clark Lumber Company, to give the bank a preference? Answer. Yes. (9) Did the agents of the bank acting therein when the chattel mortgages were executed to it have reasonable cause to believe that Young intended thereby to give the bank a preference; that is, to enable the bank to obtain a greater percentage of its debt than any other of Young's creditors of the same class would be able to obtain? Answer. Yes. (10) Did the agents of the bank, acting therein when the lumber was transferred to the Waters-Clark Lumber Company, have reasonable cause to believe that Young intended thereby to give the bank a preference? Answer. Yes. (11) Did the agents of the bank, acting therein when the Cadott logs were transferred to the Waters-Clark Lumber Company, have reasonable cause to believe that Young intended thereby to give the bank a preference? Answer. Yes. (12) Did the officers or agents of the bank, acting therein when the upper logs were transferred to the Waters-Clark Lumber Company, have reasonable cause to believe that Young intended thereby to give the bank a preference? Answer. Yes.”

It was stipulated in open court that the following facts found by the court should be deemed and considered as part of the special verdict: “(1) I find that the value of the lumber, lath, and shingles embraced in the chattel mortgages given by John H. Young to the defendant, and dated February 10, 1902, was something in excess of the sum of $3,452.85. (2) I find that the value of the lumber alone embraced in said mortgage, and which was subsequently transferred to the Waters-Clark Lumber Company on or about March 3, 1902, was $3,452.85. (3) I find that the value of the note given by Waters-Clark Lumber Company to Young, and by him turned over to the defendant for said lumber, was $3,452.85. (4) I find that the value of the so-called Cadott logs which were embraced in the chattel mortgage given by John H. Young to the defendant, and dated February 10, 1902, was $10,077.84. (5) I find that the value of the note given by Waters-Clark Lumber Company to Young, and by him transferred to the defendant on or about March...