Ohio Val. Bank Co. v. Mack

• Decision Date: 10 April 1906
• Docket Number: 1,467.
• Citation: 163 F. 155
• Parties: OHIO VALLEY BANK CO. v. MACK et al.
• Court: U.S. Court of Appeals — Sixth Circuit

163 F. 155

OHIO VALLEY BANK CO. v. MACK et al.

No. 1,467.

United States Court of Appeals, Sixth Circuit.

April 10, 1906

A. L Roadarmour and A. R. Johnson, for appellant.

E. D Davis, H. C. Johnston, R. A. Mack, and J. P. Bradbury, for appellees.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge.

This is an appeal from the allowance of a number of separate claims against the estate of C. C. Mack, an involuntary bankrupt.

These claims are as follows: (1) A claim in favor of Charles Stockhoff for $6,300, secured by mortgage upon real estate of the bankrupt. (2) A claim in favor of Charles Mack, Sr., for $14,877.72, subject to the surrender of $6,377.20, being a preference received by him. (3) A claim in favor of Rudolph A. Mack for $1,082, upon condition that he surrender a preference of $344.70 received by him. (4) A claim in favor of G. A. Mack for $2,539. (5) A claim in favor of Mrs Wilhelmina Mack for $2,968. (6) A claim in favor of Charles Mack, Jr., for $1,706.91. (7) A claim in favor of the Charles Mack Company, a corporation, for $652.90. These claims were each the subject of a bitter contest before the referee and were allowed by him. The order allowing each of them was duly reviewed by the district judge, who confirmed the orders of the referee after requiring Charles Mack, Sr., and R. A Mack, to surrender certain preferences indicated above. This appeal is by a creditor who was, upon application, allowed to appeal; the trustee refusing to appeal, though requested to do so.

This practice seems admissible in the sound discretion of the district judge when the trustee refuses to appeal, though the better practice would be to order the trustee to appeal or to allow the dissatisfied creditor to appeal in his name, being indemnified in either case against costs by such creditors. Loveland on Bankruptcy, Sec. 317; In re Joseph, 2 Woods, 390, 13 Fed.Cas. 1124; Chatfield v. O'Dwyer et al., 101 F. 797, 42 C.C.A. 30; In re Roche, 101 F. 956, 42 C.C.A. 115; Foreman v. Burleigh, 109 F. 313, 48 C.C.A. 376; McDaniel v. Stroud, 106 F. 486, 45 C.C.A. 446. The cases cited present somewhat divergent views as to whether a creditor may as of right appeal from the allowance of a debt which affects him, but a concurrence in the matter of allowing an appeal upon good cause shown by such creditors when the trustee refuses to appeal himself. The six contested claims last mentioned are presented by members of the bankrupt's family or by a corporation owned and controlled by his father, Charles Mack, Sr., and this circumstance has been much pushed as indicating their fraudulent character.

The fact that the bankrupt is closely related to a creditor is a circumstance which justifies a more rigid scrutiny than would be the case if no such relation existed.

Nevertheless the honest or dishonest character of a debt is not to be determined by any mere question of relationship. Davis v. Schwartz, 155 U.S. 631, 638, 15 Sup.Ct. 237, 39 L.Ed. 289; Estes v. Gunter, 122 U.S. 450, 456, 7 Sup.Ct. 1275, 30 L.Ed. 1228. Neither are the six claims in question to be treated en masse. Each claim must stand upon its own bottom, and is to be judged by the evidence which tends to prove or disprove it.

The largest of these claims is that allowed in favor of Charles Mack, Sr., the father of the bankrupt. The bona fides of this large claim has been assailed mainly upon the ground of relationship, and because it does not appear from the books of either the creditor or the debtor. But its justice has been testified to by both the bankrupt and his creditor. The character of neither is assailed; upon the contrary, both seem to have stood well in the regard of the community. Charles Mack, Sr., was a merchant of long standing and prosperous. The bankrupt owned and operated a tannery, and this debt to his father consisted substantially of money advanced through a series of years by the father to support the son's business. The course of business, as they say, was for the son to give orders upon the father from time to time. These orders were taken up at the end of the month and a note given, and at the end of the year these small notes were run into a large note. Three of the earliest of these notes were taken up and paid off by the bankrupt with money borrowed from the appellee Charles Stockhoff, for which money he has been allowed a judgment. But, as this payment was made by the bankrupt when insolvent and within four months of bankruptcy, Charles Mack, Sr., has been compelled to surrender same as a preference. The notes thus paid off were destroyed by the bankrupt, and could not be produced. For substantially the remainder of his debt the promissory notes of the bankrupt were filed. Aside from these transactions, the bankrupt had an open store account with his father. This the mercantile books showed, but did not show the money paid on account of his son's tannery business, which, as stated, was kept by filed orders until run into promissory notes. The bankrupt, though having the character of a frugal, diligent business man, seems never to have kept anything like a regular or full set of books, and to have relied upon memorandums and memory. The moneys he obtained from his father aggregated a large sum. Yet it is no more remarkable that his father should credit him for so considerable a sum than that the Ohio Valley Banking Company, the appellant here, should extend him a credit of $16,000 without security, within less than one year prior to his bankruptcy. The undeniable fact is that the bankrupt bore a good character for integrity and frugality, and this gave him credit with all. That he should have used in his tannery business from $30,000 to $40,000 of borrowed money in the course of a few years and have so small a result to show for it is a proper subject of criticism, especially as he has kept no accounts. If we, for these reasons, ignore his admissions as to his debt to his father, and to his other relatives, there remains the uncontradicted evidence of his father as to the bona fides of his own claim. But both of these witnesses, the creditor and the bankrupt, were seen and heard by the referee, and he has credited their evidence and allowed this debt.

No arbitrary rule can be laid down for determining the weight which should be attached to a finding of fact by a bankrupt referee. His position and duties are analogous, however, to those of a special master directed to take evidence and report his conclusions, and the rule applicable to a review of a referee's finding of fact must be substantially that applicable to a master's report. Tilghman v. Proctor, 125 U.S. 137, 8 Sup.Ct. 894, 31 L.Ed. 664; Davis v. Schwartz, 155 U.S. 631, 15 Sup.Ct. 237, 39 L.Ed. 289; Emil Kiewert & Co. v. Juneau, 78 F. 708, 24 C.C.A. 294; Tug River Co. v. Brigel, 86 F. 818, 30 C.C.A. 415. Much in both cases must depend upon the character of the finding. If it be a deduction from established fact, the finding would not carry any great weight, for the judge, having the same facts, may as well draw inferences or deduce a conclusion as the referee. But, if the finding is based upon conflicting evidence involving questions of credibility and the referee has heard the witnesses, much greater weight naturally attaches to his conclusion, and the weight of authority is that the district judge, while scrutinizing with care his conclusions upon a review, should not disturb his finding unless there is most cogent evidence of a mistake and miscarriage of justice. Loveland on Bankruptcy, Sec. 32a; In re Swift (D.C.) 118 F. 348; In re Rider (D.C.) 96 F. 811; In re Waxelbaum (D.C.) 101 F. 228; In re Stout (D.C.) 109 F. 794; In re Miner (D.C.) 117 F. 953. In this case the conclusions of the referee necessarily involved the credibility of the witnesses who testified to the bona fides of the claim preferred by Charles Mack, Sr. The conclusion he reached in favor of the validity of his debt has also passed the scrutiny of the district judge. Under such circumstances this court is not warranted in overturning the conclusions of two courts upon anything less than a demonstration of plain mistake. The preference received by Charles Mack, Sr., was a merely voidable preference; and, upon the surrender by him of the preference received, he was properly allowed to prove his debt. Keppel v. Tiffin Savings Bank, 197 U.S. 356, 25 Sup.Ct. 443, 49 L.Ed. 750. The assignments of error against this claim must be overruled.

Mrs. Mack was the mother of C. C. Mack, the bankrupt. She filed the notes of the bankrupt evidencing her debt. She had some means of her own, managed for her by her husband, Charles Mack, Sr. The bona fides of her claim is testified to by her husband and by the bankrupt, and there is nothing to throw serious doubt upon the matter aside from the suspicion which arises out of relationship.

Substantially the same state of facts was shown in respect of the claims preferred by the three brothers of the bankrupt. It may, however, be said of each of them that their ability to make loans to their brother was much more doubtful. This fact, however, went at last to their credibility and that of the bankrupt. The referee heard them. He was in the atmosphere which surrounded the case and must have believed them.

No better case is made against the claim of the Charles Mack Company. No plain mistake of fact or law has been pointed out.

The error assigned against each of the debts mentioned must be overruled.

The claim of Charles Stockhoff remains to be considered. It stands upon a somewhat different and less suspicious footing than the claims we have already passed upon. He was not a member of the Mack family. That he actually let C. C. mack the bankrupt, have $6,300 a...