Johansen Bros. Shoe Co. v. Alles

• Decision Date: 29 May 1912
• Docket Number: 115 (Original).
• Parties: JOHANSEN BROS. SHOE CO. et al. v. ALLES et al.
• Court: U.S. Court of Appeals — Eighth Circuit

197 F. 274

JOHANSEN BROS. SHOE CO. et al. v. ALLES et al.

No. 115 (Original).

United States Court of Appeals, Eighth Circuit.

May 29, 1912

On October 29, 1910, Johnson was indebted to Alles in the sum of $1,400 balance due for a stock of boots and shoes before then purchased by him from Alles, and on that day he purchased another lot of boots and shoes for $1,100. As security for the payment of this indebtedness aggregating $2,500 which was evidenced by several promissory notes, payable, respectively on the 1st day of each month thereafter, beginning on November 1, 1910, Johnson executed to Alles a chattel mortgage conveying to him his entire stock in trade then on hand, including the new purchase of that day. The mortgage contained this provision: 'The said J. Brooks Johnson shall have the right to sell from the above stock in the regular course of a retail shoe business, and he agrees to replenish the same by new purchases and agrees to keep the said stock at all times up to a value of twenty per cent above the amount unpaid at such time under this mortgage, and all stock so bought and all personal property acquired by the said J. Brooks Johnson and used in said business hereafter shall be included in and subjected to this mortgage to the same extent and with like effect as if now owned and described in this mortgage.'

The mortgage contained a provision authorizing the mortgagee to take possession of the property thereby conveyed in case of failure of the mortgagor to pay any of the notes as therein provided and authorized the mortgagee to sell the property in case of default. Johnson having failed to pay the notes maturing January 1 and February 1, 1911, Alles demanded possession of the property mortgaged and upon Johnson's refusal to surrender possession, on February 20, 1911, sued out a writ of replevin in the circuit court in the city of St. Louis, obtained an order of delivery which was duly executed by the sheriff of the city taking the same into his possession and delivering it to Alles.

Up to about February 20, 1911, Johnson carried on business of a retail dealer, and sold boots and shoes from the stock mortgaged and also from time to time purchased shoes to keep the stock up. On February 28, 1911, certain creditors, the petitioners herein, filed a petition in the District Court to secure an adjudication of bankruptcy against Johnson, who then owed Alles $2,110 on his mortgage indebtedness, and owed other creditors, including the petitioning creditors, about $750.

Three acts of bankruptcy were alleged in the involuntary petition: (1) That on October 19, 1910, Johnson transferred all his property to Alles with intent to hinder, delay, and defraud his creditors; (2) that on the same day Johnson, being insolvent, transferred a portion of his property to his creditor Alles with intent to prefer him over his other creditors; and (3) that, being insolvent, he suffered and permitted Alles, one of his creditors, to obtain a preference through legal proceedings without having vacated or discharged such preference within five days before the sale of the property affected by such preference.

Johnson made no defense to this petition, but Alles filed an answer alleging, in substance, that Johnson was indebted to him in the sum of $2,091.75 represented by notes secured by the chattel mortgage already referred to; that he was a creditor of Johnson in the sum of about $400, being the amount of the indebtedness aforesaid, above the value of the security held by him. He denied that Johnson was insolvent, and denied that he had committed any of the acts of bankruptcy charged against him. The petition was then referred to a special master to hear the evidence and report for the information of the court. His report shows that he heard the evidence and certified a transcript of it to the District Court, and that on the evidence so taken no act of bankruptcy had been committed. The District Court approved this report, and declined to adjudicate Johnson a bankrupt. Thereupon this original petition to revise the action of the District Court was filed in this court.

Morris G. Levinson, for petitioners.

William Hilkerbaumer (McShane & Goodwin, on the brief), for respondents.

Before SANBORN, HOOK, and ADAMS, Circuit Judges.

ADAMS Circuit Judge (after stating the facts as above).

It is first contended that Alles was not a creditor of Johnson, and had no standing to defend against his adjudication.

This petition to revise presents only a question of law for our consideration. This must arise on the record brought before us.

Taking that record as a whole, we think Alles must be treated as a creditor. The petitioning creditors in their petition declared him to be a creditor. In his verified answer to the petition he alleged that he was a creditor in the sum of $400 over and above the value of the security held by him, and this is nowhere denied. The special master in his report, after reciting the evidence of the bankrupt to the effect that the fair value of the stock and fixtures taken from him in the replevin suit was from $1,500 to $1,800, treated Alles as a creditor. His status as a creditor therefore is fixed by the record.

Because a secured creditor may prove a debt in an amount in excess of the value of his securities (section 57c and 'h'), and because any one who has a demand or claim 'provable in bankruptcy' is a creditor within the meaning of the act, and because 'any creditor may appear and plead' to a petition in involuntary bankruptcy, Alles had a clear right to make a defense against Johnson's adjudication.

Insolvency of the debtor (a) at the time of the transfer with the intent to prefer one creditor over others, or (b) at the time he suffered or permitted a creditor to obtain a preference through legal proceedings, etc., is a necessary element or condition to either the second or third acts of bankruptcy alleged against Johnson. Without it no adjudication could have been had on them. Section 3, subds. 2 and 3 of the Bankruptcy Act. The petition to revise, failing to show that Johnson was insolvent, but, on the contrary, showing him to have been solvent on October 25, 1910, discloses no error on the part of the trial court in not adjudicating him a bankrupt on either of those grounds.

The only other act of bankruptcy charged is that on October 29, 1910, he conveyed and transferred his property to Herman Alles with intent to hinder, delay, and defraud his creditor; and the chattel mortgage of that date is the only conveyance or transfer relied upon to sustain this charge. A prior mortgage had been given to Alles by Johnson for the purchase price of the first stock of goods purchased by him. This was in March, 1910. But, as it was superseded by the mortgage of October 29th of that year, it ceases to be of interest in this case, except as it bears on the question of actual fraud hereinafter discussed, and no further reference will be made of it. The mortgage in question was duly acknowledged by Johnson on the day of its date, October 29, 1910, and was filed for record and duly recorded in the recorder's office of the city of St. Louis, where the parties resided and the property was situated, on November 1, 1910. The mortgagor was then solvent and apart from the legal effect of the peculiar provisions of the mortgage in question the transaction would not have been with intent to hinder, delay, or defraud creditors.

Because the mortgage authorized the mortgagor to remain in possession of the...