Peterson v. Mettler

• Decision Date: 26 August 1912
• Docket Number: 952.
• Citation: 198 F. 938
• Parties: PETERSON v. METTLER et ux.
• Court: U.S. Court of Appeals — Ninth Circuit

198 F. 938

PETERSON v. METTLER et ux.

No. 952.

United States District Court, W.D. Washington, Southern Division.

August 26, 1912

Bates Peer & Peterson, for complainant.

Burdick & McQuesten, for defendants.

CUSHMAN District Judge.

This suit was brought on the part of the trustee in bankruptcy of the estate of Simon Mettler and Anna Mettler, his wife, to have an alleged preference to Carl Mettler and Mary Mettler his wife, set aside and recovered to the trustee on the ground that the said conveyances were to defraud creditors.

After issue was joined upon the allegations in the complaint of illegal preference and fraud, and upon the defense of an innocent purchaser for value, the purchase alleged to have been made more than four months prior to the institution of bankruptcy proceedings, by consent of the parties, the cause was referred to a special master to take testimony, 'and ascertain and report the facts with his conclusions thereon.'

The referee, in part, finds and concludes as follows:

'The defendant Carl Mettler and the bankrupt, Simon Mettler, are brothers, who were engaged for a period of about 15 years in the dairy business. During this period considerable property was acquired by the two brothers and held by them as tenants in common. Some five or six years ago they sold out the business. Since that time they have not been engaged in business together, although they still continued to hold, as tenants in common, the property acquired by them while in the dairy business.'

That, in 1909, the bankrupt, Simon Mettler, became interested in a corporation engaged in construction contracts. To assist the said bankrupt in raising money to carry on the work of this corporation, in June and August, 1910, the defendants joined with the bankrupts in deeding certain of the property. These deeds were in effect mortgages-- the bankrupts, at the same time, deeding to the defendant, Carl Mettler, other of the lands of the two brothers. The latter deeds were not recorded until in the month of November, 1910. It is to set aside these that this suit is brought. That in August and October, 1910, by means of representations that he was the owner of several parcels of real property, including that already deeded to the defendant, the bankrupt, Simon Mettler, was enabled to borrow $55,000, which is still unpaid. That no property of the bankrupt came into the hands of the receiver. Simon Mettler was insolvent June 1, 1910. There was evidence of statements made by the bankrupt, in the presence of the defendant Carl Mettler, to the effect that, when he, Simon Mettler, gave these deeds to the defendant, he requested the latter to keep them off the records so his credit would not be ruined.

From the testimony, the master further finds and concludes:

'While the evidence is very long and complicated, and at times contradictory, it cannot be thoroughly gone over without coming to the conclusion that there was fraud, actual or constructive, on the part of Carl in accepting deeds to the property in litigation from his brother, Simon, and keeping the same off record, while the fact that they were not recorded was made use of by Simon to secure large loans with which to carry on the work of the Wells Construction Company.

' * * * The other evidence alone seems sufficient to support the contention of the trustee that Carl was aware of the financial difficulties of his brother and had reasonable grounds to believe that, if the deeds to Carl were withheld from record, others might be induced to advance money in ignorance of the transfer of Simon's property. * * *

'While the evidence tends to show that there was an actual agreement between Simon and Carl to withhold the deeds from record, cases even go so far as to hold that such an agreement is not necessarily present to empower the trustee to set aside the conveyance.

' * * * With the transfer of the property kept off the records for a most unreasonable time, whether willfully and according to agreement between the two brothers, as appears from the record, or negligently as Carl would have us believe, with no visible change in the possession of the property and with creditors advancing money on the faith of the record and representations of Simon, the way would be open to the deceitful and fraudulent, so that property rights would be insecure. * * *

'While not entirely applicable to this case, inasmuch as it appears Carl knew, or at least had reasonable grounds to believe, that his brother Simon would obtain credit on the faith of the property withheld from record, it may not be entirely inappropriate to recall the old, familiar rule that, where one of two innocent persons must suffer because of the wrongful acts of a third, he whose conduct put it within the power of the wrongdoer to commit the wrong, or occasion the loss, must bear the burden.'

After reviewing the evidence on the question of the relative value of the property deeded to Simon and that conveyed to the defendant in consideration therefor, the master finds and concludes:

'According to this, Carl paid for the property deeded to him less than half of the value. While these figures are largely speculative and the estimates of the various witnesses differ to a considerable extent, and are, perhaps, unreliable, yet the totals are so vastly different that it seems safe to at least conclude from these figures that the consideration passing to Simon for his conveyances to Carl was grossly inadequate. This inadequacy, standing alone, would be a matter of little or no importance, but, when

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