Sellers, Trustee In Bankruptcy v. Hayes

• Decision Date: 27 October 1904
• Docket Number: 20,285
• Citation: Sellers, Trustee In Bankruptcy v. Hayes, 72 N.E. 119, 163 Ind. 422 (Ind. 1904)
• Parties: Sellers, Trustee in Bankruptcy, v. Hayes et al
• Court: Indiana Supreme Court

72 N.E. 119

163 Ind. 422

Sellers, Trustee in Bankruptcy, v. Hayes et al

No. 20,285

Supreme Court of Indiana

October 27, 1904

From Tipton Circuit Court; W. W. Mount, Judge.

Action by Henry C. Sellers as trustee in bankruptcy of Rufus Laymon against the firm of Hayes & Hayes and the Farmers Bank of Frankfort.From a decree for defendants, the plaintiff appeals.

Affirmed.

J. C Blacklidge, C. C. Shirley and Conrad Wolf, for appellant.

H. C Sheridan, for appellees.

OPINION

Gillett, J.

Appellant as trustee in bankruptcy of Rufus Laymon, brought this action against the appellees, Hayes & Hayes and the Farmers Bank of Frankfort, Indiana, to recover the value of a stock of merchandise.The attempt was to charge appellees, as trustees, on the theory that Laymon had fraudulently conveyed the stock to them, and that they had converted it to their own use.Two of the paragraphs of complaint seek to avoid the conveyance on the ground that it was void under that subdivision of § 67 of the bankruptcy law (30 Stat. at Large, 544) relative to conveyances made by the bankrupt within four months prior to the filing of the petition in bankruptcy with intent to hinder, delay, or defraud creditors.There were two further paragraphs of complaint, under which it was sought to avoid the conveyance under that subdivision of the section above mentioned authorizing the setting aside of conveyances which are void under the laws of the State, if made within four months of the filing of the bankruptcy petition.There was a general denial filed by each of the appellees.Pursuant to request, the court found the facts specially, and stated its conclusion of law thereon.The conclusion was in favor of appellees.There was a judgment that appellant take nothing.It is assigned as error that the court erred in its conclusion of law.

The first question which is presented for our consideration is whether, in view of the issues tendered by the paragraphs of complaint first above mentioned and the facts found by the court, the conclusion should have been in appellant's favor.

Stated in their boldest outlines, the facts relative to the conveyance complained of are that within four months of the time that the petition in bankruptcy was filed, said Laymon sold a stock of groceries of the value of $ 3,500 to Hayes & Hayes, and that the consideration for said conveyance was the extinguishment of a debt of $ 200, due from Laymon to one of the purchasers, the assumption by Hayes & Hayes of a debt of $ 800, which Laymon was owing to a third person, and the payment to him of $ 2,500, which was advanced, as a part of the transaction, by the bank.The money so received by Laymon was afterwards used by him in the payment of certain of his creditors.Passing for the present the question whether the findings of the court show an intent and purpose on the part of the seller to hinder, delay, or defraud his creditors by said sale, the inquiry arises whether it appears from the findings that appellees were not in the position of purchasers in good faith and for a present fair consideration.

A number of facts are found as to the knowledge of appellees of the financial condition of Laymon at the time of the sale, and facts are found to have been within the knowledge of Hayes & Hayes which were sufficient to have put them on inquiry as to whether it was the purpose of Laymon to make preferences with the money received by him.Findings numbered forty-nine and fifty are as follows: "49.That at and prior to the time of said sale it was the purpose of said Laymon, and the defendants Hayes & Hayes knew that it was the purpose of said Laymon to pay some of his creditors in full, and that he was not able to pay others in full.50.That by the exercise of ordinary care it could have been discovered by defendants, at the time of said sale of the said Rufus Laymon, it would hinder and delay his creditors on behalf of whom this suit is brought by preferring certain other creditors and paying their claims in full."

It seems scarcely necessary to say that the fact that a seller is known by the buyer to be deeply indebted, or even insolvent, is not enough, per se, to charge the purchaser with a want of good faith.It will be observed that finding number forty-nine is not a finding that Hayes & Hayes knew that it was the purpose of Laymon to pay some of his creditors in full out of the money received by him from said sale.The statement in finding number fifty relative to the exercise of ordinary care is a mere conclusion, and it is further to be observed that that finding does not go to the question as to what appellees might have discovered as to the intent of Laymon, but only as to what would be the effect of preferences in his financial circumstances.Nothing can be added to a special finding by inference or intendment.Craig v. Bennett,146 Ind. 574, 45 N.E. 792.It is not within the functions of an appellate tribunal to supply any fact.Whether appellees did or did not inquire of Laymon as to what disposition he intended to make of the proceeds of the sale does not appear, and there is no finding as to their opportunity of ascertaining his purpose, or that an inquiry of him would have revealed a purpose on his part to pay certain creditors in full with said money.In fact, there is room for the inference, notwithstanding all of the facts found, that at the time the sale was made it was not the intent and purpose of Laymon thereby to hinder, delay, or defraud his creditors, nor any of them.

Appellant's counsel insist, however, that the appellees are not to be treated as purchasers in good faith and for a present valuable consideration, because, it is asserted, there were preferences provided for in the sale itself to the extent of $ 1,000.On the other hand, appellees' counsel contends that if an unlawful preference is given as a part of a contract for the conveyance of property, the transaction can not be reached on the ground that the conveyance is thereby rendered fraudulent, but that it is the business of the trustee, under § 60 of the bankruptcy act, to bring suit to avoid the preference and to recover the money or property constituting the preference.

There is no finding as to whether the two items of indebtedness of Laymon, which were elements in the transfer sought to be avoided, were secured or unsecured.To constitute a preference, the effect of the transaction must be to enable the creditor preferred to obtain a greater percentage of his debt than any other creditor of the same class. § 60a of the bankruptcy act;Peterson v. Nash Bros.(1901), 112 F. 311, 50 C.C.A. 260, 7 Am. B. R. 181;Matter of Read(1901), 7 Am. B. R. 111;5 Cyc.Law and Proc., 369, and cases cited; Loveland, Bankruptcy, 576.

The last point made by counsel for appellant with reference to the sufficiency of the findings to authorize a conclusion of law in his favor under the first-mentioned paragraphs of complaint is that the chattel mortgage given by Hayes & Hayes to the bank was fraudulent, because it authorized the mortgagors to make sales of the property.This is not a case where creditors of Hayes & Hayes are complaining.So far as Laymon was concerned, the $ 2,500 of the purchase price, which was raised by mortgage, was paid to him in cash, and it does not lie in the mouth of the trustee of his creditors to impeach the mortgage, unless he can otherwise impeach the sale.Laymon received all that he bargained for, and, unless the trustee can avoid the principal transaction, we fail to perceive what concern he has with the validity of a mortgage which was executed on the property sold.

We now come to the question as to whether the sale can be impeached on the ground that it was void under the laws of the State.It is provided in § 67 of the bankruptcy act that "all conveyances, transfers, or incumbrances of his property made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the state, territory, or district in which such property is situate, shall be deemed null and void under this act against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt."

It appears from the findings that in the making of the sale which is attacked in this action the parties thereto did not observe the various provisions of the act of March 11, 1901(Acts 1901, p. 505, § 6637a et seq.Burns 1901).The first section of that act--omitting the enacting clause--is as follows: "That a sale of any portion of a stock of merchandise otherwise than in the ordinary course of trade in the regular and usual prosecution of the seller's business, or a sale of an entire stock of merchandise in bulk, will be fraudulent and void as against the creditors of the seller, unless the seller and purchaser shall, at least five days before the sale, make a full detailed inventory showing the quantity and, so far as possible with the exercise of reasonable diligence, the cost price to the seller of each article to be included in the sale, and unless such purchaser shall at least five days before the sale, in good faith, make full, explicit inquiry of the seller as to the name and places of residence or places of business of each and all of the creditors of the seller and the amount owing each creditor; and unless the purchaser shall at least five days before the sale, in good faith notify or cause to be notified personally or by registered mail, each of the seller's creditors of whom the purchaser has knowledge, or can, with the exercise of...