Norton v. J. T. Fargason Company
| Decision Date | 17 November 1924 |
| Docket Number | 11 |
| Citation | 266 S.W. 65,166 Ark. 455 |
| Parties | NORTON v. J. T. FARGASON COMPANY |
| Court | Arkansas Supreme Court |
Appeal from St. Francis Chancery Court; A. L. Hutchins, Chancellor affirmed.
Decree affirmed.
C W. Norton, for appellant.
The action was brought under § 60b of the bankruptcy act of 1910. The essentials of the cause of action are a transfer by the debtor, while insolvent, and within four months before the filing of the petition, and reasonable cause upon the part of the transferee to believe that the enforcement of the transfer will effect a preference to him. It is sufficient that the transfer will in fact amount to a preference, and that the creditor had reasonable cause to believe that such would be its effect, and had reasonable cause to believe that the debtor was then insolvent. Black on Bankruptcy §§ 596, 597, 599.
Wilson Gates & Armstrong, and Mann & Mann, for appellee.
The burden is upon the trustee to prove the elements of a voidable preference. 3 R. C. L. 285; 7 C. J. 150; 208 F. 97; 211 F. 638; 165 F. 166; 21 L. R. A. (N. S.) 960; 282 F. 476. Appellee received no more by the transfer of the rent note than he could have possessed himself of by the enforcement of his legal right to foreclose. He forbore to assert this right in consideration of the transfer to him of the rent note, and thereafter was simply in the position of a mortgagee in possession under his mortgage, who would be entitled to receive the rents whether bankruptcy did or did not ensue. To constitute a preference, it must be shown that the transfer resulted in a depletion of the estate that would have gone to creditors but for the transfer. 284 F. 936; 196 U.S. 502; 239 U.S. 269; 116 F. 276. A payment on a secured debt, where the property is more valuable than the debt, does not result in a voidable preference. 7 C. J. 163-166; 6 R. C. L. 659; 168 F. 998; 219 F. 397. A voluntary payment of a lien on property is not considered a preference. 288 F. 1004. A mortgagee, upon default in payment of his indebtedness, is entitled to both possession of the property and the rents, to be applied on his indebtedness. A suit for possession of the property may even be maintained. 30 Ark. 520; 157 Ark. 525. See also 49 Ark. 508; 53 Ark. 545; 97 Ark. 397; 119 Ark. 543. Bankruptcy courts have held that the possession of a mortgagee will not be disturbed if he had the right to possession under the State law. 185 F. 851; 198 U.S. 91; 49 L. ed. 596. The forbearance to sue and foreclose the first and second mortgages was ample consideration for the transfer of the rent note. 7 C. J. 166; 253 F. 718; 6 R. C. L. 659. The appellant failed to prove insolvency, and made no attempt to show the assets of Winter at the time the transfer of the note was made. 3 R. C. L. 273; 7 C. J. 150; 156 F. 168. Proof of a judgment obtained and that other suits might be filed is not proof of insolvency. 142 Cal. 529; 76 P. 243. Proof of inability to pay debts does not even tend to show insolvency, as that is not the character of proof contemplated by the bankruptcy act. 113 F. 545. The proof is insufficient to show that appellee had reasonable cause to believe that the enforcement of the transfer of the rent note would effect a preference and would give it a greater percentage of its debt than received by other creditors of the same class. 97 U.S. 80, 24 L. ed. 971; 83 Ark. 324; 225 F. 234; 285 F. 183; 272 F. 11.
OPINION
Appellant brought suit in the chancery court of St. Francis County against appellee to set aside the execution of a written note for rent for the year 1921, on lands owned by Dr. W. A. Winter, as a voidable preference under § 60b of the Bankruptcy Act, as amended in 1910. The note was signed by Davenport Brothers, who had leased lands from the owner, Dr. W. A. Winter, and made payable to J. T. Fargason Company, on a written request of Dr. Winter.
It was alleged in the bill that on March 7, 1921, the date the note was executed, Dr. W. A. Winter was insolvent; that it was executed within four months of the date of the filing of Dr. Winter's petition in bankruptcy; that the payee in the note was thereby enabled to obtain a greater per cent. of his debt than Dr. Winter's other creditors of the same class; and that said company had reasonable cause to believe the execution and acceptance of the rent note would result in a preference in its behalf.
Appellee filed an answer denying the allegations of the bill.
The cause was submitted upon the pleadings and testimony introduced by the respective parties responsive to the issues, which resulted in a dismissal of the bill for the want of equity, from which is this appeal.
After a careful reading of the testimony we have concluded that the preponderance thereof reflects that W. A Winter was insolvent at the time he directed his lessee, Davenport Brothers, to execute the note to J. T. Fargason Company, covering the rents on his lands for the year 1921, and that said company had knowledge of sufficient facts to put it upon notice as to the financial condition...
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